3 Things Investors Should Know From Parkway Life REIT’s Latest Earnings

Parkway Life REIT (SGX: C2PU) is one of the largest listed healthcare real estate investment trusts in Asia by asset size.

As of 30 June 2017, the REIT has ownership over three private hospitals in Singapore, 45 healthcare-related assets in Japan, and strata-titled units/lots in Gleneagles Intan Medical Centre in Malaysia.

On Tuesday, Parkway Life REIT reported its 2017 second quarter results. Let’s look at three useful pieces of information investors may want to know from the announcement:

1. The overall result

The table below shows some important items from Parkway Life REIT’s income statements for the second quarters of 2017 and 2016, and the first half of each year:

Source: Parkway Life REIT 2017 second quarter results announcement

In all, the REIT delivered a positive performance in both the first half of 2017 and the second quarter of the year; gross revenue, net property income, and the distribution per unit (DPU) all grew compared to the same periods a year ago.

But, the 10.3% year-on-year increase in the DPU for the second quarter of 2017 was mainly driven by the distribution of divestment gains of S$5.39 million that’s divided into four equal portions for each quarter. Excluding the divestment gain, Parkway Life REIT’s distributable income from operations grew by 2.9% in the reporting quarter.

2. Attractive lease structure

Here’s a slide showing the increase in rent that Parkway Life REIT will soon enjoy from its hospitals in Singapore:

Source: Parkway Life REIT 2017 second quarter earnings presentation

From the slide above, we can see that the annual rent increase that Parkway Life REIT can enjoy from its Singapore hospitals depends on a formula.

For the year ending 22 August 2018, the rental growth for the REIT’s Singapore hospital properties would be 1.27%.

3. Low gearing ratio

A REIT’s gearing ratio is a proxy for the amount of financial risk that it is taking on. The higher the ratio, the more risk it could be taking on. For REITs in Singapore, there’s also a regulatory limit for the gearing ratio – it can go no higher than 45%.

Here’s a chart showing the situation with Parkway Life REIT’s gearing ratio right now:

Source: Parkway Life REIT 2017 second quarter earnings presentation

We can see that Parkway Life REIT’s gearing ratio is relatively low at 37.4%, giving it room to further increase its debt by $243.9 million before it reaches the regulatory ceiling.

In other words, the REIT has the financial firepower to make accretive acquisitions without the need to raise too much equity.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.