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Quarterly Financial Highlights

2017 SECOND QUARTER UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

Financials Archive

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Balance Sheet

  Notes Group
30/06/17
S$'000
Group
31/12/16
S$'000
Current assets      
Trade and other receivables   10,047 10,504
Financial derivatives   17 335
Cash and cash equivalents (a) 30,823 71,096
    40,887 81,935
Non-current assets      
Investment properties (b) 1,719,045 1,657,209
Interests in subsidiaries   - -
Financial derivatives   347 210
Total assets   1,760,279 1,739,354
Current liabilities    
Financial derivatives   411 336
Trade and other payables   17,253 23,482
Current portion of security deposits   2,625 2,676
Loans and borrowings (c) 14,000 16,246
    34,289 42,740
Non-current liabilities      
Financial derivatives   4,690 8,002
Non-current portion of security deposits   18,625 17,704
Loans and borrowings (d) 642,007 612,539
Deferred tax liabilities   22,283 20,733
Total liabilities   721,894 701,718
Net assets   1,038,385 1,037,636
Represented by:      
Unitholders' funds   1,038,385 1,037,636
Total equity   1,038,385 1,037,636

Note(s):

  1. The decrease in cash and cash equivalents was mainly due to the repatriation of divestment proceeds from Japan in March 2017. The divestment proceeds were subsequently redeployed to fund the acquisition of five Japan properties and to repay short term loans in the same month.
  2. The increase in investment properties was due to the acquisition of four nursing homes and a group home on 24 February 2017, capital expenditure on existing portfolio offset by the depreciation of the Japanese Yen.
  3. The decrease in current term borrowings was mainly due to the repayment of short term loan facility for working capital purposes.
  4. The increase in long term borrowings was mainly due to additional funding required for the property acquisition on 24 February 2017 offset by the depreciation of the Japanese Yen.

Review of Performance

 
2Q
2017
S$'000
2Q
2016
S$'000
Inc/ (Dec)
%
1H
2017
S$'000
1H
2016
S$'000
Inc/ (Dec)
%
Gross revenue 27,697 27,385 1.1 54,644 54,286 0.7
Property expenses (1,818) (1,855) (2.0) (3,624) (3,621) 0.1
Net property income
25,879 25,530 1.4 51,020 50,665 0.7
Management fees (2,817) (2,767) 1.8 (5,569) (5,464) 1.9
Trust expenses (709) (725) (2.2) (1,150) (1,474) (22.0)
Net foreign exchange gain/(loss) (6) 274 102.2 1,035 852 21.5
Interest income - - - - 2 (100.0)
Finance costs (1,923) (2,584) (25.6) (4,221) (5,079) (16.9)
Non-property expenses (5,455) (5,802) (6.0) (9,905) (11,163) (11.3)
Total return before changes in fair value of financial derivatives 20,424 19,728 3.5 41,115 39,502 4.1
Net change in fair value of financial derivatives 461 (3,421) 113.5 150 (4,255) 103.5
Total return for the period before tax and distribution 20,885 16,307 28.1 41,265 35,247 17.1
Income tax expense (1,796) (1,739) 3.3 (3,967) (3,448) 15.1
Total return for the period after tax before distribution 19,089 14,568 31.0 37,298 31,799 17.3
Net effect of non-tax deductible/(nontaxable) items 392 4,415 (91.1) 1,426 6,031 (76.4)
Rollover adjustment - (23) n.m. - (23) n.m.
Amount available for distribution to Unitholders 19,481 18,960 2.7 38,724 37,807 2.4
Distribution of divestment gains 1,347 - n.m. 2,694 - n.m.
Amount retained for capital expenditure (750) (750) - (1,500) (1,500) -
Distributable income to Unitholders 20,078 18,210 10.3 39,918 36,307 9.9
Distribution per Unit (cents) 3.32 3.01 10.3 6.60 6.00 9.9
Annualised Distribution per Unit (cents) 13.28 12.04 10.3 13.20 12.00 9.9

2Q 2017 Vs 2Q 2016

With the asset recycling initiative completed in February 2017, the five properties acquired on 24 February 2017 have contributed a full quarter rental income in 2Q 2017. Gross revenue for 2Q 2017 was higher than 2Q 2016 by S$0.3 million driven by higher rent from the Singapore properties and contributions from the asset recycling. The higher rental contributions offset the depreciation of the Japanese Yen as compared to the same period last year.

After deducting property expenses, we have achieved a net property income of S$25.9 million for 2Q 2017, which was S$0.3 million higher than 2Q 2016.

The increase in management fees were mainly due to higher deposited property value and higher net property income from the properties acquired in February 2017, as well as valuation gains on the existing property portfolio, which led to a corresponding increase in deposited property, offset by the depreciation of Japanese Yen as compared with the same period last year.

In 2Q 2017, the Group has recognised a lower realised foreign exchange gain of S$0.01 million from the delivery of quarterly Japanese Yen forward contracts due to progressive expiry of existing income hedges.

Despite the growth of portfolio, finance costs have decreased mainly due to the finance cost savings arising from the refinancing initiatives completed in 2016 and in 1Q 2017 and depreciation of the Japanese Yen. In addition, there was higher amortisation of transaction costs due to one-off expense of the remaining unamortised costs for the debt facility that was refinanced in 2Q 2016.

Overall, annualised distribution per unit (DPU) of 13.28 cents for 2Q 2017 has outperformed 2Q 2016 by 10.3% or 1.24 cents, mainly due to partial distribution of the gains arising from the divestment of four Japan properties in December 2016 of S$1.3 million. Excluding the one-off gain, DPU from recurring operations (net of amount retained for capital expenditure) for 2Q 2017 has grown by 2.9% year-on-year.

1H 2017 Vs 1H 2016

Gross revenue for 1H 2017 was S$54.6 million compared with S$54.3 million for 1H 2016, an increase of S$0.3 million or 0.7%. 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 February 2017, higher rent from the existing properties and appreciation of the Japanese Yen.

Correspondingly, property expenses for 1H 2017 were S$3.6 million, which was consistent with 1H 2016. The result was a net property income of S$51.0 million for 1H 2017, which was S$0.3 million higher than 1H 2016.

The Manager's management fees for 1H 2017 were S$5.6 million, an increase of S$0.1 million or 1.9% higher than 1H 2016. This was due to higher deposited property value and higher net property income as explained earlier, fuelled by the appreciation of the Japanese Yen.

Finance costs have decreased mainly due to finance cost savings arising from the refinancing initiatives took place in 2016 and 2017. The lower finance costs have offset the additional financing costs incurred to finance the properties acquired in 1Q 2016 and 1Q 2017 and appreciation of the Japanese Yen as compared to the same period last year. In addition, there was higher amortisation of transaction costs due to one-off expense of the remaining un-amortised costs for the debt facilities that were refinanced in 1H 2016. There were lesser Trust expenses incurred in 1H 2017.

During 1H 2017, the Group had registered a realised foreign exchange gain amounting to S$0.3 million from the delivery of Japan net income hedges. The Group has also 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, annualised DPU for 1H 2017 of 13.20 cents has outperformed by 9.9% or 1.20 cents as compared with 1H 2016's DPU of 12.00 cents, mainly due to partial distribution of the gains arising from the divestment of four Japan properties in December 2016 of S$2.7 million.

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 optimistic about its prospects.

Parkway Life REIT's enlarged portfolio of 49 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 95% of its Singapore and Japan portfolios have downside revenue protection and 61% of the total portfolio is pegged to CPI-linked revision formulae, ensuring steady future rental growth whilst protecting revenue stability amid uncertain market conditions.


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