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Quarterly Financial Highlights

2018 SECOND QUARTER UNAUDITED FINANCIAL STATEMENT & DISTRIBUTION ANNOUNCEMENT

Financials Archive

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Statement of financial position

  Notes Group
30/06/18
S$'000
Group
31/12/17
S$'000
Current assets      
Trade and other receivables   10,477 10,894
Financial derivatives   - 13
Cash and cash equivalents   31,651 25,720
    42,128 36,627
Non-current assets      
Investment properties (a) 1,776,454 1,731,063
Interests in subsidiaries   - -
Financial derivatives   202 3,531
Total assets   1,818,784 1,771,221
Current liabilities    
Financial derivatives   - 163
Trade and other payables   17,827 19,451
Current portion of security deposits   1,011 940
Loans and borrowings (b) 81,220 15,900
Provision for taxation   - 1
    100,058 36,455
Non-current liabilities      
Financial derivatives   4,444 1,224
Non-current portion of security deposits   19,322 18,076
Loans and borrowings (c) 609,319 626,382
Deferred tax liabilities   25,901 23,744
Total liabilities   759,044 705,881
Net assets   1,059,740 1,065,340
Represented by:      
Unitholders' funds   1,059,740 1,065,340
Total equity   1,059,740 1,065,340

Note(s):

  1. The increase in investment properties was mainly due to the 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.
  2. The increase in current term borrowings was mainly due to reclassification of S$50 million term loan, maturing in June 2019, from long term borrowings and drawdown of short term loan facility for working capital purposes. Notwithstanding the net current liabilities position, based on the Group's existing financial resources, the Group believes that it will be able to refinance its borrowings and meet its current obligations as and when they fall due.
  3. The decrease in long term borrowings of S$17 million was mainly due to reclassification of S$50 million term loan to current term borrowings offset by additional funding of S$15 million for the property acquisition on 14 February 2018 and appreciation of the Japanese Yen amounted to S$18 million.

Review of Performance

 
2Q
2018
S$'000
2Q
2017
S$'000
Inc/ (Dec)
%
1H
2018
S$'000
1H
2018
S$'000
Inc/ (Dec)
%
Gross revenue 28,059 27,697 1.3 55,874 54,644 2.3
Property expenses (1,858) (1,818) 2.2 (3,712) (3,624) 2.4
Net property income
26,201 25,879 1.2 52,162 51,020 2.2
Management fees (2,837) (2,817) 0.7 (5,635) (5,569) 1.2
Trust expenses (682) (709) (3.8) (1,424) (1,150) 23.8
Net foreign exchange gain/(loss) 119 (6) 2,083.3 622 1,035 (39.9)
Finance costs (1,651) (1,923) (14.1) (3,384) (4,221) (19.8)
Non-property expenses (5,051) (5,455) (7.4) (9,821) (9,905) (0.8)
Total return before changes in fair value of financial derivatives 21,150 20,424 3.6 42,341 41,115 3.0
Net change in fair value of financial derivatives (34) 461 (107.4) (2,573) 150 (1,815.3)
Total return for the period before tax and distribution 21,116 20,885 1.1 39,768 41,265 (3.6)
Income tax expense (1,841) (1,796) 2.5 (3,583) (3,967) (9.7)
Total return for the period after tax before distribution 19,275 19,089 1.0 36,185 37,298 (3.0)
Net effect of non-tax deductible/(non - taxable) items 810 392 106.6 3,817 1,426 167.7
Rollover adjustment (5) - n.m. (5) - n.m.
Amount available for distribution to Unitholders 20,080 19,481 3.1 39,997 38,724 3.3
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 19,330 20,078 (3.7) 38,497 39,918 (3.6)
Distribution per Unit (cents) 3.19 3.32 (3.7) 6.36 6.60 (3.6)
Annualised Distribution per Unit (cents) 12.76 13.28 (3.7) 12.72 13.20 (3.6)

2Q 2018 Vs 2Q 2017

Gross revenue for 2Q 2018 was higher than 2Q 2017 by S$0.4 million mainly due to contribution from one nursing rehabilitation facility acquired on 14 February 2018 and higher rent from the Singapore properties offset by 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$26.2 million for 2Q 2018, which was S$0.3 million higher than 2Q 2017.

The increase in management fees were mainly due to higher deposited property value and higher net property income from the properties acquired in February 2018, as well as valuation gains on the existing property portfolio, which led to a corresponding increase in deposited property, partially offset by the depreciation of Japanese Yen as compared to the same period last year.

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

Overall, annualised distribution per unit (DPU) of 12.76 cents for 2Q 2018 has declined by 3.7% or 0.52 cents as compared to 2Q 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 has been 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 2Q 2018 has grown by 3.2% year-on-year.

1H 2018 Vs 1H 2017

Gross revenue for 1H 2018 has increased by 2.3% year-on-year to S$55.9 million. 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 1H 2018 were S$0.1 million or 2.4% higher than 1H 2017. The result was a net property income of S$52.2 million for 1H 2018, which was S$1.2 million higher than 1H 2017.

The Manager's management fees for 1H 2018 of S$5.6 million was consistent with 1H 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 took place in 2017 and 1Q 2018. 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 2017. Higher trust expenses for 1H 2018 due to higher professional fees incurred during the period.

Of the net foreign exchange movement, the Group had registered a realised foreign exchange gain amounting to S$0.1 million and S$0.3 million from the delivery of Japan net income hedges in 1H 2018 and 1H 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, annualised DPU for 1H 2018 of 12.72 cents has declined by 3.6% or 0.48 cents as compared with 1H 2017's DPU of 13.20 cents, mainly due to one-off distribution of divestment gains arising from the property divestment in December 2016 which has been 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 1H 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.

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 formulae, 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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