Parkway Life REIT’s Latest Earnings: Distribution Increases By 16.1% But….

Parkway Life REIT (SGX: C2PU) released its fiscal fourth-quarter earnings report yesterday evening. The reporting period was from 1 October 2015 to 31 December 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 Singapore’s shores, Parkway Life REIT has stakes in 43 healthcare-related assets in Japan and strata-titled unit or lots in Gleneagles Intan Medical Centre in Malaysia.

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

Financial highlights

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

  1. Gross revenue rose to $26.3 million in the fourth-quarter, up a healthy 4.8% compared to the same quarter a year ago. For 2015, revenue had inched up by 2.3% to $102.7 million.
  2. For the reporting quarter, net property income (NPI) was also up 4.8% to $24.6 million. For the full year, NPI had grown by 2.4% to $96.0 million.
  3. Distribution per unit (DPU) for the reporting quarter registered a 16.1% year-on-year increase to 3.37 Singapore cents. The spike in DPU was due to an additional 0.38 cents per unit in divestment gains. If we back out the divestment gain, the REIT’s recurring DPU was 2.99 cents per unit, or a more modest 3.1% year-on-year gain. For the whole of 2015, DPU had jumped by 15.3% (including the divestment gain) to 13.29 cents. Excluding the divestment gain, it would be a 2.2% increase for 2015 instead.
  4. As of 31 December 2015, the REIT’s portfolio size was appraised at $1.6 billion. The trust had an adjusted net asset value per unit of $1.66 at the end of 2015, a slight decline from the $1.68 seen at end-2014.

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:

2016-01-26 Parkway Debt Table
Source: Parkway Life REIT’s presentation

Parkway Life REIT’s debt profile remains solid, with an effective all-in cost of debt of just 1.6% and a sturdy interest cover ratio of 9.8 times. Furthermore, there is no outstanding debt in 2016.

The REIT also had 95% of its debt hedged against interest rate fluctuations. This compares favourably with the 78% recorded in the previous quarter (third-quarter of 2015).

Operational highlights

For the reporting quarter, the REIT’s Japan portfolio lead the way for NPI with an 11.1% rise over the previous year. The performance was boosted in part by higher yielding properties acquired as part of the asset recycling exercise undertaken in March 2015.

Investors should note that this marks the final quarter where there is a divestment gain of 0.38 cents per unit each quarter.

Yong Yean Chau, Chief Executive Officer of the REIT’s manager, had shared the following thoughts in the earnings release on the reporting quarter and the future outlook:

“We have delivered yet another year of steady DPU growth, despite the volatility in the global financial market. Since IPO, our DPU has grown at a rate of 86.6%. This marks the ninth consecutive year of growth since 2007, and once again demonstrates the success of the REIT’s resilient model. This has also resulted in an accumulated DPU payout since IPO, including 4Q 2015 of 81.1 cents.

Admittedly investors are becoming more conservative about the global economic environment particularly after the financial mayhem in China that sent panic across much of the world in the start of the year. However, the healthcare sector will remain resilient due to the strong demand for high quality healthcare driven by growing affluence and ageing population in the region.

We are also confident that our robust fundamentals, favourable rental lease structures and deep market expertise in the market would ensure steady future rental growth and sustainable returns amid uncertain market conditions.”

Foolish summary

Parkway Life REIT closed at $2.17 per unit yesterday. This translates to a historical price-to-book ratio of around 1.3 and a trailing yield of 6.1%. If we back out the divestment gain, the distribution yield for Parkway Life REIT would be about 5.4% per unit.

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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 units in Parkway Life REIT.