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Parkway Life REIT’s Latest Earnings: Steady Growth on Healthy Financial Footing

Parkway Life REIT (SGX: C2PU) released its fiscal fourth quarter earnings report yesterday. The reporting period was from 1 October 2014 to 31 December 2014.

Parkway Life is one of the largest listed healthcare real estate investment trusts (REITs) in Asia by asset size. At the local front, the REIT has ownership over three private hospital properties. Overseas, Parkway Life has stakes in 37 healthcare-related assets in Japan, and strata-titled unit/lots in a Gleneagles medical centre in Malaysia.

You can catch the REIT’s previous earnings report here.

Financial highlights

Here’s a rundown on the financial figures for Parkway Life’s latest earnings release:

  1. Gross revenue rose to $25.1 million in the fourth quarter, up 1.5% from the same quarter a year ago. For the full financial year ended 31 December 2014 (FY2014), gross revenue was up by 7.1% to $100.4 million over 2013.
  2. Net property income (NPI) for the fourth quarter rose by 1.3% year on year to $23.5 million. For the entire FY2014, NPI was up 7.1% year on year to $93.8 million.
  3. Distribution per unit (DPU) for the quarter was 2.90 cents, a 2.9% increase from 2.82 cents in the fourth quarter last year. The REIT completed FY2014 by distributing a total of 11.52 cents per unit for the year.
  4. Parkway Life’s total property portfolio was valued at $1.5 billion based on the properties’ latest appraised value.
  5. Adjusted net asset value per unit came in at $1.68, up by 5% from $1.60 seen exactly a year ago.

Foolish investors might want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how a REIT is funded, and its sensitivity to the interest rate environment. These are summarized below for Parkway Life:

Gearing ratio 35.2%
Interest Cover Ratio 10.1 times
Weighted Average Term to Maturity 3.7 years
Effective All-In Cost of Debt 1.4%
Total debt $586.7 million

Source: Parkway Life REIT’s earnings presentation

Parkway Life probably has one of the best debt profile combinations I’ve seen among the REITs in Singapore. Its all-in cost of debt stands at a competitive 1.4% while the weighted average term of its borrowings is a healthy 3.7 years. Furthermore, the REIT boasts a conservative interest cover ratio of 10.1.

There is no further long term funding required until FY2016. But, the progress in refinancing of debt is still where Foolish investors should keep a watchful eye on.

Operational highlights

During the quarter, Parkway Life made its first divestment of seven nursing homes in Japan. The divestment gain of $13.7 million (before tax) will be distributed over FY2015. On the flipside, the REIT had acquired two yield-accretive Japan nursing homes for $58.2 million.

Much like the previous quarter, Parkway Life has also been able to mitigate any adverse effects from the depreciation of the Japanese Yen as it had hedged its net income from Japan.

Additionally, Parkway Life has favorable lease structures where 93% of its portfolios have downside revenue protection, while 69% of the total portfolio is pegged to a consumer price index (CPI) linked formula that could provide future rental growth and protection from the ravages of inflation.

Looking forward,  Mr Yong Yean Chau, Chief Executive Officer of the manager for Parkway Life, had this to add:

“Despite the macroeconomics headwinds the industry had to face, we are pleased to continue delivering strong results for unitholders. We have successfully executed our asset recycling strategy, which sees us unlocking value from less strategic assets and acquiring properties with higher yield. As we remain competitive in making our acquisitions, the divestment proceeds will enable us to acquire other attractive assets that will enhance the overall value and growth potential of PLife REIT.

Being well-protected against downside revenue movements, we believe 2015 will be a dynamic year. Governments in the region are expected to continue to foster partnership with private sectors to enhance service offerings to patients. We believe the regional healthcare industry will remain positive over the long term. In view of the market environment, we will remain focused on improving our operational efficiency while enhancing the effectiveness of our development strategy in line with the growth curve of the healthcare sector. We remain committed to and grounded in our defensive strategy, while building on it to explore and tap into growth opportunities.”

Foolish summary

Parkway Life last traded at $2.43 per unit on Tuesday. This translates to a historical price-to-book ratio of 1.45 and a trailing distribution yield of around 4.7%.

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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.