Parkway Life REIT’s Latest Earnings: Can A 15.6% Rise In Distributions Be Sustained?

Parkway Life REIT (SGX: C2PU) released its fiscal second-quarter earnings report this morning. The reporting period was from 1 April 2015 to 30 June 2015.

Parkway Life REIT is one of the largest listed healthcare real estate investment trusts (REIT) in Asia by asset size. At the local front, the REIT has ownership over three private hospital properties. Beyond the shores of Singapore, the REIT has stakes in 43 healthcare-related assets in Japan as well as strata-titled units in Gleneagles Intan Medical Centre in Malaysia.

You can read more about the REIT in here and here. You can also catch the previous quarter’s earnings here.

Financial Highlights

The following’s a quick take on Parkway Life REIT’s latest financial figures:

  1. Gross revenue was $25.6 million in the second quarter, up a modest 1.2% compared to the same quarter a year ago.
  2. Meanwhile, net property income (NPI) managed to inch up by 1.5% year over year from $23.6 million to $24.0 million.
  3. A stagnant top-line couldn’t ding Parkway Life REIT’s bottom-line however as its distribution per unit (DPU) for the reporting quarter registered a nice 15.6% year over year jump to 3.35 cents. As a reminder, I mentioned in a previous article that Parkway Life REIT’s DPU for the current fiscal year will benefit from an additional 0.37 cents per unit in each quarter as a result of a divestment gain. If we back out the additional one-time increase of 0.37 cents in DPU for the reporting quarter, the REIT’s recurring DPU comes in at only 2.98 cents, a way more modest 2.8% year over year gain.
  4. The REIT’s portfolio size was last appraised to be $1.6 billion. Parkway Life REIT ended the reporting quarter with an adjusted net asset value per unit of $1.68, up 5% from a year ago.

Foolish investors might also want to keep an eye on 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. These are summarised for Parkway Life REIT below:

2015-07 Parkway Life Debt Table

Source: Parkway Life’s earnings report

Parkway Life’s debt profile remains solid in the reporting quarter, with an effective all-in cost of just 1.5% and a high interest cover ratio of 9.9 times. For the quarter, the REIT refinanced almost all of its loans that are due in 2015 and 2016, bringing its weighted average debt maturity to four years.

The REIT also reported that 78% of its debt is hedged against interest rate changes. This can help partially insulate the REIT from adverse changes in the interest rate environment.

Operational highlights

While Parkway Life REIT’s overall gross revenue had grown slightly, it was a different picture for the underlying properties. The majority of the top-line growth came from a 2.8% year over year rise in rent from the REIT’s Singapore properties; this helped offset a fall in revenue from the Japan properties.

In terms of the NPI, the REIT’s Mount Elizabeth and Gleneagles properties lead the charge with 2% and 4% year over year growth, respectively. The NPI for the other properties were unchanged compared to a year ago.

Speaking on the reporting quarter and the future, Yong Yean Chau, the Chief Executive Officer of the REIT’s Manager, had this to add:

“We are pleased to report that the REIT has once again delivered another record high DPU for 2Q 2015. The completion of our maiden asset recycling has boosted our revenue, contributing to our healthy and steadfast DPU growth that has grown at a rate of 82.3% since our IPO in 2007.

As a first mover and entrenched player in the Japan market, we plan to consolidate our assets in Japan to generate operating synergies and achieve greater cost savings. Our enlarged portfolio of 47 high-quality healthcare and healthcare related assets also puts us in a favourable position as we continue to optimise our portfolio.

As one of the largest healthcare REITs in Asia, we are actively seeking new opportunities in other regional market to meet the growing demand. We aim to continue with our proactive asset management to improve performance, enhance competitiveness and deliver greater value for our unitholders”

Foolish summary

Parkway Life REIT had an opening price of $2.37 this morning. This translates to a historical price-to-book ratio of around 1.4 and a trailing yield of 5.2%. If we back out the divestment gain, the distribution yield for the REIT would be about 4.9%.

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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.