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2016 FULL YEAR UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

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Balance Sheet

  Notes Group
31/12/16
S$'000
Group
31/12/15
S$'000
Current assets      
Trade and other receivables   10,504 10,385
Financial derivatives   335 -
Cash and cash equivalents (a) 71,096 20,358
    81,935 30,743
Non-current assets      
Investment properties (b) 1,657,209 1,635,308
Interests in subsidiaries   - -
Security deposit receivable   - 706
Financial derivatives   210 2,647
Total assets   1,739,354 1,669,404
Current liabilities    
Financial derivatives   336 -
Trade and other payables   23,482 15,729
Current portion of security deposits   2,676 1,724
Loans and borrowings (c) 16,246 1,000
Provision for taxation   - 1
    42,740 18,454
Non-current liabilities      
Financial derivatives   8,002 3,457
Non-current portion of security deposits   17,704 18,368
Loans and borrowings (d) 612,539 586,188
Deferred tax liabilities   20,733 19,750
Total liabilities   701,718 646,217
Net assets   1,037,636 1,023,187
Represented by:      
Unitholders' funds   1,037,636 1,023,187
Total equity   1,037,636 1,023,187

Notes:

  1. Higher cash and cash equivalents as of 31 December 2016 comprised of the divestment proceeds from the disposal of four nursing homes on 22 December 2016.
  2. Investment properties are stated at valuation performed by independent valuers as at 31 December 2016. The increase in investment properties was mainly due to the gain on revaluation, acquisition of a nursing home on 31 March 2016 and appreciation of the Japanese Yen offset by the disposal of four nursing homes on 22 December 2016. A revaluation surplus of S$18.2 million was recognised in the Statement of Total Return.
  3. The increase in current term borrowings was mainly due to the drawndown of short term loan facility for working capital purposes.
  4. The increase in long term borrowings was mainly due to property acquisition on 31 March 2016 and appreciation of the Japanese Yen

Review of Performance

 
4Q
2016
S$'000
4Q
2015
S$'000
Inc/ (Dec)
%
Gross revenue 27,731 26,308 5.4
Property expenses (2,172) (1,725) 25.9
Net property income
25,559 24,583 4.0
Management fees (2,800) (2,658) 5.3
Trust expenses (697) (913) (23.7)
Net foreign exchange gain 240 597 (59.8)
Interest income 1 - (100.0)
Finance costs (2,416) (2,282) 5.9
Non-property expenses (5,672) (5,256) 7.9
Total return before changes in fair value of financial derivatives and investment porperties 19,887 19,327 2.9
Net change in fair value of financial derivatives 3,046 39 7,710.3
Net change in fair value of investment properties 18,159 5,734 216.7
Gain on disposal of investment properties 4,156 - 100.0
Total return for the period before tax and distribution 45,248 25,100 80.3
Income tax expense (3,036) (7,377) (58.8)
Total return for the period after tax before distribution 42,212 17,723 138.2
Net effect of non-tax deductible/(non - taxable) items (22,976) 1,066 2,255.3
Rollover Adjustment - 35 n.m
Amount available for distribution to Unitholders 19,236 18,824 2.2
Distribution of divestment gains - 2,277 n.m.
Amount retained for capital expenditure (750) (750) -
Distributable income to Unitholders 18,486 20,351 (9.2)
Distribution per Unit (cents) 3.06 3.37 (9.2)
Annualised Distribution per Unit (cents) 12.24 13.48 (9.2)

4Q 2016 Vs 4Q 2015

Gross revenue for 4Q 2016 was higher than 4Q 2015 by S$1.4 million driven primarily by contribution from one nursing home acquired on 31 March 2016, higher rent from the Singapore properties and appreciation of the Japanese Yen as compared to the same period last year. There was no significant income impact from the four Japan properties which were divested on 22 December 2016.

Higher property expenses mainly due to a one-off marketing commission paid to the Manager for the renewal of lease for the pharmaceutical product distributing and manufacturing facility whose lease had expired in December 2016. After deducting property expenses, we have achieved a net property income of S$25.6 million for 4Q 2016, which was S$1.0 million higher than 4Q 2015.

The increase in management fees were mainly due to higher deposited property value and higher net property income from the property acquired in March 2016, as well as valuation gains on the existing property portfolio, which led to a corresponding increase in deposited property.

The decrease in trust expense was due to lower professional fees incurred for 4Q 2016. In the same period, the Group has recognised a realised foreign exchange gain of S$0.2 million from the delivery of quarterly Japanese Yen forward contracts.

Finance costs have increased in tandem with the growth of the portfolio. The increase is mainly due to additional financing costs incurred to finance the property acquisition in 1Q 2016, higher hedged costs for the existing SGD loan facilities, as well as appreciation of the Japanese Yen offset by the financing cost savings arising from the refinancing initiatives completed during the year.

Overall, annualised distribution per unit (DPU) of 3.06 cents for 4Q 2016 has declined by 9.2% or 0.31 cents, mainly due to the absence of one-off distribution of divestment gains, arising from the divestment of seven Japan properties in December 2014, which have been fully distributed to Unitholders over four quarters in FY2015. Excluding the one-off gain, DPU from recurring operations (net of amount retained for capital expenditure) for 4Q 2016 has grown by 2.3% year-on-year.

2016 Vs 2015

Gross revenue for 2016 was S$110.1 million compared with S$102.7 million for 2015, an increase of S$7.4 million or 7.2%. This was mainly due to revenue contribution from the Japan property acquisition in March 2016, higher yielding properties acquired from the asset recycling initiative completed in March 2015, higher rent from the existing properties and appreciation of the Japanese Yen. In addition, Parkway East Hospital's adjusted hospital revenue for the 9th year lease (23 August 2015 – 22 August 2016) has outperformed its minimum guarantee rent, contributing to the increase in revenue from Singapore. As explained earlier, the divestment of four Japan properties in December 2016 did not have significant income impact to the Group.

Correspondingly, property expenses for 2016 were S$7.7 million, an increase of $1.0 million or 14.9% as compared to 2015. Property expenses were higher in 2016 due to a one-off marketing commission paid to the Manager for the renewal of lease as explained earlier, lapse in property tax incentive on two nursing home buildings during the year and absence of related property expenses in Q1 2015 pertaining to the properties divested in 2014. The result was a net property income of S$102.4 million for 2016, which was S$6.4 million higher than 2015.

The Manager's management fees for 2016 were S$11.1 million, an increase of S$0.7 million or 6.7% higher than 2015. This was due to higher deposited property value and higher net property income as explained earlier, fuelled by the appreciation of the Japanese Yen.

Higher professional fees and absence of one-off reversal in 2016 led to the increase in trust expenses.

Finance costs have increased mainly due to the additional financing costs incurred to finance the properties acquired in 1Q 2015 and 1Q 2016, higher amortisation of transaction costs relating to debt facilities that were refinanced, higher hedged costs for the existing SGD loan facilities and appreciation of the Japanese Yen as compared to last year offset by the financing cost savings arising from the refinancing initiatives completed during the year.

During 2016, the Group had registered a realised foreign exchange gain amounting to S$1.0 million from the delivery of Japanese Yen forward contracts. In March 2015, the Group has also recognised a realised foreign exchange gain arising from the capital repatriation for the cash trap in Japan, which unlocked the foreign exchange gains in the foreign currency translation reserve for its earlier Japan acquisitions.

Overall, annualised DPU for 2016 of 12.12 cents has declined by 8.8% or 1.17 cents as compared with 2015's DPU of 13.29 cents, mainly due to the absence of the one-off capital distribution of S$9.1 million being distribution of the gains arising from the divestment of seven Japan properties in December 2014 which have been fully distributed to Unitholders over four quarters in FY2015.

Commentary

The long-term prospects of the regional healthcare industry continue to be driven by rising demand for better quality private healthcare services given the fast-ageing populations. However, in the short to medium term, while Parkway Life REIT expects challenges in acquisition opportunities given the market volatility, we remain cautiously optimistic about its prospects.

Parkway Life REIT's enlarged portfolio of 44 high-quality healthcare and healthcare-related assets places it in a good position to benefit from the resilient growth of the healthcare industry in the Asia Pacific region.

In addition, Parkway Life REIT is supported by favourable rental lease structures, where at least 94% of its Singapore and Japan portfolios have downside revenue protection and 64% of the total portfolio is pegged to CPI-linked revision formulae, ensuring steady future rental growth whilst protecting revenue stability amid uncertain market conditions.