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Quarterly Financial Highlights

2018 FULL YEAR UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

Financials Archive

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Balance Sheet

  Notes Group
31/12/18
S$'000
Group
31/12/17
S$'000
Current assets      
Trade and other receivables   11,211 10,894
Financial derivatives   44 13
Cash and cash equivalents   22,102 25,720
    33,357 36,627
Non-current assets      
Investment properties (a) 1,860,534 1,731,063
Interests in subsidiaries   - -
Financial derivatives   237 3,531
Total assets   1,894,128 1,771,221
Current liabilities    
Financial derivatives   352 163
Trade and other payables   20,799 19,451
Current portion of security deposits   1,000 940
Loans and borrowings (b) - 15,900
Provision for taxation   2 1
    22,153 36,455
Non-current liabilities      
Financial derivatives   4,002 1,224
Non-current portion of security deposits   19,442 18,076
Loans and borrowings (c) 683,183 626,382
Deferred tax liabilities   28,955 23,744
Total liabilities   757,735 705,881
Net assets   1,136,393 1,065,340
Represented by:      
Unitholders' funds   1,136,393 1,065,340
Total equity   1,136,393 1,065,340

Note(s):

  1. Investment properties were stated at valuation performed by independent valuers as at 31 December 2018. The increase in investment properties were due to the gain on revaluation, acquisition of an elderly nursing rehabilitation facility in Japan on 14 February 2018, capital expenditure of existing assets and appreciation of the Japanese Yen as compared to 31 December 2017. A revaluation surplus of S$77.9 million was recognised in the Statement of Total Return.
  2. In August 2018, the Group has refinanced a significant portion of its current term borrowings, comprising the S$50 million term loan and short term facility, by a 3-year unsecured revolving credit facility. In December 2018, the Group has repaid its Japanese Yen short term loans drawn down during the year.
  3. The increase in long term borrowings was mainly due to the loans refinancing mentioned in point (b) above, additional funding required for the property acquisition in February 2018 and the appreciation of Japanese Yen.

Review of Performance

 
4Q
2018
S$'000
4Q
2017
S$'000
Inc/ (Dec)
%
2018
S$'000
2017
S$'000
Inc/ (Dec)
%
Gross revenue 28,569 27,537 3.7 112,838 109,881 2.7
Property expenses (1,848) (1,791) 3.2 (7,434) (7,232) 2.8
Net property income
26,721 25,746 3.8 105,404 102,649 2.7
Management fees (2,898) (2,781) 4.2 (11,402) (11,151) 2.3
Trust expenses (745) (1,040) (28.4) (3,184) (3,086) 3.2
Net foreign exchange gain 274 406 (32.5) 991 1,583 (37.4)
Interest income 2 - 100.0 6 - 100.0
Finance costs (1,651) (1,892) (12.7) (6,734) (7,952) (15.3)
Non-property expenses (5,018) (5,307) (5.4) (20,323) (20,606) (1.4)
Total return before changes in fair value of financial derivatives 21,703 20,439 6.2 85,081 82,043 3.7
Net change in fair value of financial derivatives (1,251) 1,261 n.m. (2,256) 1,954 n.m.
Net change in fair value of investment properties 77,888 25,970 199.9 77,888 25,970 199.9
Total return for the period before tax and distribution 98,340 47,670 106.3 160,713 109,967 46.1
Income tax expense (3,422) (2,726) 25.5 (8,781) (8,503) 3.3
Total return for the period after tax before distribution 94,918 44,944 111.2 151,932 101,464 49.7
Net effect of non-tax deductible/(non-taxable) items (74,319) (25,090) 196.2 (71,030) (23,099) 207.5
Rollover adjustment - - - (5) (2) 150.0
Amount available for distribution to Unitholders 20,599 19,854 3.8 80,897 78,363 3.2
Distribution of divestment gains - 1,348 n.m. - 5,390 n.m.
Amount retained for capital expenditure (750) (750) - (3,000) (3,000) -
Distributable income to Unitholders 19,849 20,452 (2.9) 77,897 80,753 (3.5)
Distribution per Unit (cents) 3.28 3.38 (2.9) 12.87 13.35 (3.5)
Annualised Distribution per Unit (cents) 13.12 13.52 (2.9) 12.87 13.35 (3.5)

4Q 2018 Vs 4Q 2017

Gross revenue for 4Q 2018 was higher than 4Q 2017 by S$1.0 million mainly due to contribution from one nursing rehabilitation facility acquired on 14 February 2018, higher rent from the Singapore properties and appreciation of Japanese Yen as compared to the same period last year.

After deducting property expenses, we have achieved a net property income of S$26.7 million for 4Q 2018, which was S$1.0 million higher than 4Q 2017.

The increase in management fees was mainly due to higher deposited property value and higher net property income from the property acquired in February 2018, as well as valuation gains on the existing property portfolio and appreciation of Japanese Yen, which led to a corresponding increase in deposited property.

Despite the growth of portfolio, finance costs have decreased due to the finance cost savings arising from the refinancing initiatives completed in 4Q 2017, 1Q 2018 and 3Q 2018, offset by the appreciation of Japanese Yen.

Overall, distribution per unit (DPU) of 3.28 cents for 4Q 2018 has declined by 2.9% or 0.10 cents as compared to 4Q 2017, mainly due to the absence of one-off distribution of divestment gain, arising from the divestment of four Japan properties in December 2016, which was fully distributed to Unitholders over four quarters in FY2017. Excluding the one-off gain, DPU from recurring operations (net of amount retained for capital expenditure) for 4Q 2018 has grown by 3.9% year-on-year.

2018 Vs 2017

Gross revenue for 2018 was S$112.8 million compared with S$109.9 million for 2017, an increase of $2.9 million or 2.7%. The growth was largely attributed to revenue contribution from the Japan property acquisition in February 2018, higher yielding properties acquired from the asset recycling initiative completed in February 2017 and higher rent from the existing properties offset by the depreciation of the Japanese Yen.

Property expenses for 2018 were S$0.2 million or 2.8% higher than 2017. The result was a net property income of S$105.4 million for 2018, which was S$2.8 million higher than 2017.

The Manager's management fees for 2018 of S$11.4 million was 2.3% higher than 2017. This was due to higher deposited property value and higher net property income as explained earlier, offset by the depreciation of the Japanese Yen.

Finance costs have decreased mainly due to finance cost savings arising from the refinancing initiatives which took place in 2017 and 2018, as well as the depreciation of the Japanese Yen. In addition, there was higher amortisation of transaction costs due to larger one-off expense of the remaining un-amortised costs for the debt facilities that were refinanced in 2017. The increase in trust expenses for 2018 was due to higher professional fees incurred during the year.

Of the net foreign exchange movement, the Group had registered a realised foreign exchange gain amounting to S$0.7 million and S$0.6 million from the delivery of Japan net income hedges in 2018 and 2017 respectively. In 2017, the Group has further recognised a realised foreign exchange gain of S$0.9 million arising from the capital repatriation for the cash trap in Japan, which unlocked the foreign exchange gain in the foreign currency translation reserve for its earlier Japan acquisitions.

Overall, DPU for 2018 of 12.87 cents has declined by 3.5% or 0.48 cents as compared with 2017's DPU of 13.35 cents, mainly due to one-off distribution of divestment gains arising from the property divestment in December 2016 which was fully distributed to Unitholders over four quarters in FY2017. Excluding the one-off gain, DPU from recurring operations (net of amount retained for capital expenditure) for 2018 has grown by 3.4% year-on-year.

Commentary

The long-term outlook of the industry continues to be driven by aging population and demand for better quality healthcare and aged care services. Notwithstanding that, Parkway Life REIT remains cautious and vigilant given the current uncertainties in the macro economy and volatility in the financial market.

Parkway Life REIT's enlarged portfolio of 50 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. Also, the portfolio is largely supported by favourable rental lease structures, where at least 95% of its Singapore and Japan portfolios have downside revenue protection and 61% of the total portfolio is pegged to CPI-linked revision formula, ensuring steady rental growth whilst protecting revenue stability amid uncertain market conditions.

In addition, Parkway Life REIT adopts prudent financial risk management to manage the exposure to interest rate risk and foreign currency risk. Interest rate risk is managed on an ongoing basis by largely hedging long-term committed borrowings using interest rate hedging financial instruments or issuance of fixed rate notes. This strengthens Parkway Life REIT's resilience against potential interest rate hikes. Foreign currency risk is managed by adopting a natural hedge strategy for the Japanese investments to maintain a stable net asset value and putting in place Japanese Yen forward contracts to shield against Japanese Yen currency volatility.


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