PLife – BT
Parkway Reit cautious despite good results
It has also secured a $50m Islamic revolving credit financing facility
PRUDENCE is the call at Parkway Life Reit, even as the healthcare trust reported an improved set of second-quarter results yesterday. The trust has secured a $50 million Islamic revolving credit financing facility by The Islamic Bank of Asia, even though it already has ample funding facilities to support potential acquisitions.
‘This $50 million is both a defensive and competitive strategy,’ said Yong Yean Chau, CEO of Parkway Trust Management, which manages the trust. ‘Defensive in a sense that the market has rallied, no doubt, but we’re not very sure whether the recovery is sustainable or it may break somewhere.
‘It could, well, pardon me, crash and go back down to the bottom. With this facility, because we’ve got a $34 million loan that is due next year July, if market crashes, the capital market can close easily and we don’t want to be stuck without financing.’
However, the maturity of its existing $34 million debt can be extended to 2012. In the event that the Islamic financing facility is not used, then it will serve to beef up its war chest for opportunistic acquisitions.
Parkway Life Reit has previously set up a $500 million multi-currency term note programme that has yet to be tapped. It also has access to credit facilities of $160 million, of which $34 million has been drawn. Other long-term borrowing include a term loan facility and several revolving credit facilities amounting to 13.66 billion yen (S$207.9 million), due in late 2011. This was used in 2008 to finance the acquisition of Japan properties.
The trust has a debt headroom of $308.3 million before reaching 40 per cent gearing ratio. Its gearing ratio stood at 22.7 per cent, but it does not intend to gear up above 35 per cent.
Parkway Life owns the Mount Elizabeth, Gleneagles, and East Shore hospitals in Singapore, and 10 assets located in Japan, including nursing homes and a pharmaceutical product distributing and manufacturing facility.
For the three months ended June, the Reit posted a 13.7 per cent increase in income available for distribution to $11.4 million. This brings distribution per unit (DPU) to 1.89 cents, higher than the 1.66 cents in Q2 last year.
Gross revenue for the quarter rose 28.9 per cent to $16.1 million, primarily due to higher revenue contribution from its Japan properties. This was further driven by the higher rent from the group’s Singapore hospital properties, which is pegged to a CPI + 1 per cent (ie 6.25 per cent) formula.
Property expenses went up 43.6 per cent to $1.1 million, resulting in net property income of $15 million, a jump of 27.9 per cent over last year.
For the half year, income available for distribution went up 15.1 per cent to $22.8 million. DPU rose to 3.78 cents, from 3.29 cents.
Despite the downturn, there has been little change in the valuations of healthcare and healthcare-related properties, according to Mr Yong. However, the lacklustre economic climate has presented more opportunities for investment as more healthcare players and owners explore an asset-light strategy. ‘And these are very good names, both in Singapore and overseas,’ he said.
Shares of Parkway Life Reit closed 3 cents higher at $1.08 yesterday, before its results were released.