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What Investors Need to Know About Parkway Life REIT’s Latest Earnings

Parkway Life REIT (SGX:C2PU) released its third-quarter earnings report today. The reporting period was from 1 July 2014 to 30 September 2014. The REIT is one of the largest listed healthcare REITs in Asia by asset size, boasting three private hospitals in Singapore, 43 healthcare-related assets in Japan, and strata-titled unit/lots in Gleneagles Intan Medical Center located in Kuala Lumpur, Malaysia. At the local front, its properties include the Mount Elizabeth Hospital, the Gleneagles Hospital and the Parkway East Hospital.

Financial Highlights

Gross revenue rose to $25.3 million in the latest quarter, up 8.5% from the quarter a year ago. Net property income also went up by 8.6%. For the third quarter of 2014, Parkway Life REIT will distribute 2.90 cents per unit, up a healthy 8.9% from last year’s quarter. This amount will be distributed to unitholders on 28 November 2014.

It ended the quarter with a total portfolio value of $1.5 billion.

Foolish investors might want to keep up an eye with the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded, and its sensitivity to the interest rate environment. This is summarized below.

Gearing Ratio 34.6%
Interest Cover* 10
Weighted Average Debt Maturity 3.91 years
Fixed-rate debt (hedged) 79%
All-in Interest Rate 1.43%
Total Borrowings $541 million

Source: REIT earnings presentation

Parkway Life REIT made significant changes to its debt profile in this quarter. All debt which was previously due in 2015 had been successfully refinanced. This resulted in the weighted average term to maturity increasing from 2.88 years to 3.91 years. It’s also noteworthy that no more than 30% of its debt is due for refinancing in any single year. On top of that, Parkway Life REIT has been able to hedge 79% of its total borrowings. It’s all-in interest rate has been exceptionally low at 1.43%, and its interest coverage ratio is a healthy 10 times.

Operational Highlights

Parkway Life REIT’s revenue growth for the period was driven by rental income contributions from the Japanese properties that it acquired between the second half of 2013 and first quarter of 2014. It also benefited from higher rentals from existing properties.

The REIT was also able to mitigate any adverse effects from the depreciation of the Japanese Yen as it had hedged its net income from Japan for the next few years.

Chief Executive Officer of Parkway Life REIT management, Mr. Yong Yean Chau added the comments below for the quarter:

“Our strong foundation and defensive strategy with steady growth have allowed us to continue generating steady returns for our unitholders. As part of our prudent financial risk management strategy, we have completed refinancing all debts due in FY 2015. This puts us in a good position as we seek new opportunities moving forward.”

Foolish Summary

It worthy to note that at least 91% of Parkway Life REIT’s Singapore and Japan portfolio has downside revenue protection while 66% of the total portfolio is pegged to a consumer price index (CPI) linked formula that ensure steady rental growth.

Parkway Life REIT last traded at S$2.38 today. That translates to a distribution yield of around 4.8%, and a historical price-to-book ratio of 1.4.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Parkway Life REIT.