Parkway Life REIT’s Latest Earnings: What Investors Should Know

Parkway Life REIT (SGX: C2PU) released its second-quarter earnings report this morning. The reporting period was from 1 April 2016 to 30 June 2016.

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. Outside Singapore, the REIT has stakes in 44 healthcare-related assets in Japan as well as strata-titled units/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 in here.

Financial highlights

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

  1. Gross revenue rose to $27.4 million in the second-quarter, up 6.8% compared to the same quarter a year ago. Parkway Life benefited from a new acquisition made in March this year, higher rent from its Singapore properties, and an appreciation in the Japanese yen.
  2. For the reporting quarter, net property income (NPI) was also up 6.4% to $25.5 million.
  3. But, distribution per unit (DPU) fell 10% year-on-year to 3.01 cents per unit. To be sure, the previous year’s DPU for the same quarter included a divestment gain of 0.37 cents per share from the sale of seven properties in Japan. If we back out the divestment gain, Parkway Life REIT’s DPU from recurring operations would have increased by 1.2% year-on-year.
  4. As of 30 June 2016, the REIT’s portfolio size stood at $1.6 billion. Parkway Life REIT reported an adjusted net asset value per unit of $1.64, down slightly from the $1.68 seen a year ago.

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:

2016-07-26 Parkway Life REIT Debt Table
Source: Parkway Life REIT’s presentation

Parkway Life REIT’s debt rose to $663.5 million, causing the REIT’s gearing to inch closer toward the 45% regulatory limit. Moreover, the interest cover ratio also fell from 9.9 times to 8.8 times.

On positive notes, the effective all-in cost of debt had improved from 1.5% to 1.4% over the past 12 months. The REIT also said it had 98% of its debt hedged against interest rate fluctuations, a big step up from the 78% seen a year ago.

Operational highlights

The REIT’s Japan portfolio lead the way with a 15.1% rise in NPI over the previous year. The performance was boosted by rental contribution from properties acquired in the first quarter of 2015 and 2016.

Yong Yean Chau, the chief executive of the REIT manager, shared his thoughts on the reporting quarter:

“The global economy has recently experienced various shocks in the form of surprise easing from central banks and the Brexit. While the healthcare sector is not immune to industry cyclical ups-and-downs, it is one of the more defensive sectors. PLife REIT’s performance has persisted to show its resiliency as we close off the first half of the year.”

The road ahead

Yong also shared his outlook for the REIT:

“Amidst the challenging macroeconomic environment, S-REITs are viewed as safe haven instruments. Coupled with the fact that we are well-protected against downside revenue movements, we believe this would help bulwark the risks posed by the volatility in the financial markets. However, we remain keenly aware on the challenges and will continue to approach expansion opportunities in a disciplined manner.

We remain committed to staying on track with our proactive financial and capital management strategy in place, we will also sharpen our focus on expansion opportunities with the aim of growing greater value and delivering results to our Unitholders.”

Parkway Life REIT mentioned as well that it will continue to enjoy growth based on the minimum guaranteed rent for the lease term 23 August 2016 to 22 August 2017. Under the rental revision formula, the Singapore properties will register a 1% increase in minimum guaranteed rental compared to the previous year.

Units of Parkway Life REIT opened at $2.54 this morning. This translates to a historical price-to-book ratio of around 1.55 and a trailing yield of 5.0% per unit. Investors should note that the trailing DPU includes two quarter’s worth of divestment gains.

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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.