Parkway Life REIT’s Latest Earnings: Distributions Up 14%, but Don’t Celebrate Just Yet

Parkway Life REIT (SGX: C2PU) released its first quarterly earnings report yesterday. The reporting period was from 1 Jan 2015 to 31 March 2014.

Parkway Life is one of the largest listed healthcare real estate investment trust (REIT) in Asia by asset size. At the local front, the REIT has ownership over three private hospital properties while overseas, Parkway Life has stakes in 43 healthcare-related assets in Japan, and strata-titled unit and lots in a Gleneagles medical centre in Malaysia.

You can read more about the REIT here and here. Also, catch the previous quarter earnings here.

Financial Highlights

Here’s a rundown on the financial figures:

  1. Gross revenue was mostly flat at $24.8 million in the first quarter, roughly up 0.7% compared to the first quarter a year ago.
  2. For the reporting quarter, net property income (NPI) was also roughly flat. NPI for the first quarter came in at $23.1 million, compared to $23 million a year ago.
  3. Distribution per unit (DPU) for the reporting quarter though, will be 3.21 cents — a nice 14% bump up from 2.82 cents in the same quarter last year. The 14% bump in DPU was boosted by an additional 0.37 cents per unit distribution from the divestment of seven Japan nursing homes in December 2014. The gain from this divestment will be distributed equally during the four quarters in 2015. On a recurring operations basis (without the divestment payout), the DPU for the reporting quarter was modest 2.84 cents, or a 0.7% gain year on year.
  4. The property value for the REIT stood at around $1.59 billion during reporting quarter. The trust had an adjusted net asset value per unit of $1.68.

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 34.40%
Interest Cover 10.4 times
Weighted Average Debt Maturity 3.6 years
Effective all-in cost of debt 1.50%
Total Borrowings $569.8 million

Source: Parkway Life’s earnings presentation

Parkway Life’s debt profile remains solid, with effective all-in cost of debt standing at 1.5% with a weighted average debt maturity of 3.6 years. The REIT also added that it has fully hedged its Japan net income till the first quarter of 2020. 

Operational Highlights

While the overall gross revenue remained relatively unchanged, it was a different picture for the underlying properties.

In terms of NPI, its Mount Elizabeth and Gleneagles property grew 2% and 4% year on year respectively. This was offset by a 2.5% fall year on year in NPI in its Japan properties portfolio.

Speaking on the reporting quarter, Chief Executive Officer of the REIT manager Yong Yean Chau said:

“We are very pleased with the results accomplished during the first quarter of 2015. The results show that we are on track with our proven strategies as we continue to see our work bearing fruit, with yet another quarter of steady DPU growth since IPO. Our rejuvenated portfolio of assets following the maiden asset recycling initiative has also placed us in a better position as we prepare the ground for our next phase of growth.

One of the highlights of the quarter was the maiden asset recycling that the REIT undertook. Parkway Life divested seven Japan properties at $88.3 million with an exit yield of 5.9% and in turn, acquired seven other Japan properties at $126.1 million with a yield 6.4%. Yong was pleased with the asset recycling initiative undertaken by the REIT, saying:

 “Our maiden asset recycling initiative was the highlight of our first quarter performance. Our strong position as a first mover in the growing Japan elderly healthcare market has allowed us to capitalise on the opportunity to monetise from our less strategic assets to acquire better value properties as we fortify our growth in Japan. This successful initiative is a testament of our exemplary track record in the market as we continue to establish long term partnerships with high quality healthcare operators and provide quality offerings in this sector.”

Foolish summary

Parkway Life last traded at $2.42 yesterday. This translates to a historical price-to-book ratio of 1.44.

With the projected DPU payout of 11.91 Singapore cents on a trailing twelve months basis, this would yield 4.9% on Wednesday’s share price. Without the one time divestment gain, the distribution yield for Parkway Life would be about 4.8%.

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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.