Stable PrudentStable. Well positioned. Prudent. Well positioned
Annual Report 2008 About Parkway Life REIT
Parkway Life REIT is Asia’s largest listed healthcare REIT. It invests in income-producing real estate and real estate-related assets used primarily for healthcare and healthcare-related purposes.
As at 31 December 2008, Parkway Life REIT’s total portfolio size stands at 13 properties totaling approximately S$1.05 billion.
Our Mission We aim to deliver regular and stable distributions and achieve long term growth for our Unitholders.
Contents Our Reach 01 Financial Highlights 02 Significant Events 04 Message to Unitholders 08 Board of Directors 10 Management Team 12 Our Portfolio in Focus 16 Our Growth Strategy 36 Market Review and Outlook 40 Financial Review 43 Corporate Governance 45 Our Reach
A More Diversified Portfolio
In line with our aim of geographical and asset diversification, Parkway Life REIT (“PLife REIT”) significantly boosted its portfolio in 2008 with the completion of the acquisition of 10 healthcare properties in Japan. This brings our asset size to 13 properties from the initial portfolio of three hospital properties in Singapore, representing a 26% expansion in total portfolio size, from S$831.6 million in December 2007 to S$1.05 billion in December 2008.
Leveraging on the strong growth of the Asia-Pacific healthcare industry, we will continue to source for opportunities to acquire high quality healthcare assets in the region to enhance our portfolio mix and yield-generating capability.
Portfolio Key Statistics
Number of Asset Type Properties 3 • Hospitals and Medical Centres • Nursing Homes 13 1 • Pharmaceutical 3 • Hospitals Product Distributing and Medical and Manufacturing Centres Facility
As at 31 Dec 2007 As at 31 Dec 2008 As at 31 Dec 2007 As at 31 Dec 2008
Location of Number of Properties Lessees 2 • Singapore 8 • Japan 1 1 • Singapore
As at 31 Dec 2007 As at 31 Dec 2008 As at 31 Dec 2007 As at 31 Dec 2008
1 Financial Highlights
Strong Revenue and DistriBUTION PER UNIT Growth
PLife REIT delivered sterling financials in FY2008, consistently outperforming forecast figures. This is the result of a solid year of organic growth and yield-accretive acquisitions, backed by prudent capital and financial management. On the back of rising gross rental revenue and distributable income, distribution per unit (“DPU”) increased correspondingly.
FY2007 1 (actual), FY2008 (forecast 2), FY2008 (actual)
Gross rental revenue ($’000)
FY2008 actual beats FY2008 forecast by FY2008 actual 53,887 + % FY2008 forecast 45,900 17.4 FY2007 actual 47,269
Distributable income ($’000)
FY2008 actual beats FY2008 forecast by FY2008 actual 41,186 + % FY2008 forecast 37,644 9.4 FY2007 actual 38,137
DPU (cents)
FY2008 actual beats FY2008 forecast by FY2008 actual 3 6.83 + % FY2008 forecast 6.25 9.4 FY2007 actual 4 6.32
Notes:
1 FY2007 figures are derived by annualising the actual figures for FY2007 contributed by the SIngapore Hospital Properties (from 23 August 2007 to 31 December 2007).
2 The forecast figures are extracted from the Prospectus dated 7 August 2007.
3 The number of units used to calculate the DPU comprise 602,347,258 units issued as at 31 December 2008, and units to be issued as partial satisfaction of PLife REIT Manager’s management fees.
4 The number of units used to calculate the DPU comprise 601,418,000 units issued at the Initial Public Offering, and units to be issued as partial satisfaction of PLife REIT Manager’s management fees.
Annual Report 2008 Strong Balance Sheet
Growth in FY2008 was propelled by a series of yield-accretive acquisitions made during the year. We are free of all refinancing risks for the near term, having secured credit facilities for all borrowings with a weighted average tenor of 2.8 years. Complemented by a strong balance sheet and robust capital management structure, with relatively low gearing of 23.3% and a good BBB+ Investment Grade Credit Rating, PLife REIT is in good stead to ensure sustainability of returns and support our future acquisitive goals.
Portfolio Size Gearing Ratio 1 S$1.05 23.3% billion S$831.6 4.0% million
As at 31 Dec 2007 As at 31 Dec 2008 As at 31 Dec 2007 As at 31 Dec 2008
Loan Maturity Profile/ Weighted Average Loan Term 2.8 Years 1.1 Years
As at 31 Dec 2007 As at 31 Dec 2008
Additional S$300 million debt headroom to gearing of % 40
Note:
1 Total borrowings before unamortised transaction costs divided by total assets.
2 3 Significant Events 2008: A Fulfilling Year for Parkway Life REIT
• Released Maiden full year FY2007 results which exceeded forecast: distributable income S$13.6 million, DPU 2.27 cents • Announced 1Q FY2008 results which exceeded forecast: • Obtained BBB+ Investment distributable income S$9.8 Grade Ratings by Fitch Ratings million, DPU 1.62 cents 19 February 6 MAy
16 April 27 May
• Announced its acquisition of 1st • Announced its acquisition of Japan investment P-Life Matsudo 2 Japan nursing homes: Bon Sejour Shin-Yamashita, Bon Sejour Ibaraki
Annual Report 2008 • Announced its acquisition of 7 Japan nursing homes: Palmary Inn Akashi, Palmary Inn Suma, Senior Chonaikai Makuhari Kan, Himawari Home Kamakura, Smiling Home Medis Musashi Urawa, Fureai no sono Nerima Takanodai, Smiling Home Medis Koshigaya Gamo
29 September
• Announced 2Q FY2008 results • Announced 3Q FY2008 results which exceeded forecast: which exceeded forecast: distributable income S$10.0 distributable income S$10.3 million, DPU 1.66 cents million, DPU 1.71 cents 25 July 4 November
18 August 9 OCTOber
• Established S$500 million • Announced the increase of Multi-currency Medium Term minimum guaranteed rent for Note Programme. This Singapore Hospital Properties programme is rated BBB+ by by 12.22% for 2nd year of lease Fitch Ratings term which commenced on 23 August 2008
• Won SIAS Investors’ Choice “Most Transparent Company Award 2008 (New Issues)”
4 5 Stable Security underpinned by STRENGTH and ACUMEN.
By implementing our solid business model and deploying the talents of a formidable management team who understands the nuances of the demand for healthcare-related properties, we continue to exceed expectations in FY2008.
Message to Unitholders
Dear Unitholders Performance Continues 2008 marks a good year for PLife to Exceed Forecasts REIT. Over the last year and a half PLife REIT has consistently outperformed since our listing on the Singapore forecasts, presenting strong and stable Stock Exchange, we have seen a returns to our Unitholders. In FY2008, number of achievements such as an gross revenue was 17.4% above enlarged and diversified portfolio of forecast at S$53.9 million, while total net quality properties across Asia, and an property income exceeded forecast by all-round solid financial performance. 16.3% to reach S$50.4 million. Income distributable to Unitholders grew 9.4% In these early days since our listing, above forecast at S$41.2 million, PLife REIT has already received leading to a corresponding increase accolades from the industry. In October in distribution per unit (“DPU”) to 2008, PLife REIT received the “Most 6.83 cents for FY2008. Transparent Company Award 2008” from SIAS Investors’ Choice Awards Defensive REIT Model, 2008 in the New Issues Category, in Providing Stable and recognition of our high standards of Sustainable Returns corporate governance and transparent Despite the current challenging global communication. We are also the proud market conditions, the highly defensive winner of the 2008 “Best Managed nature of PLife REIT has allowed us to Small-Cap Corporate” in Singapore, weather the crisis, ensuring that our awarded by Asiamoney in February Unitholders continue to enjoy stable and 2009. This award bears testament to sustainable returns. One key feature is our effective management vision and strategy, business achievements, and our locked-in long term master leases, commitment to growing Unitholders’ which signifies 100.0% committed value. Within the financial community, occupancy for our portfolio with a PLife REIT is frequently favoured by guaranteed constant revenue stream. various brokerages, securities and As at 31 December 2008, our portfolio research houses for our resilient has a weighted average lease term to business model, sound financials and expiry (by gross revenue) of 13.9 years, strong sponsor. with 97.9% of the leases having rent review provisions. In terms of acquisitions, we successfully expanded our footprint Our Singapore Hospital Properties in Asia through our foray into the have a unique lease structure that Japan market. In addition to our three factors an annual rental review existing Singapore Hospital Properties, pegged to CPI + 1%, and where we acquired 10 high quality healthcare CPI is negative, it shall be deemed properties in Japan during the year. This as zero. This offers us simultaneous brings our total portfolio to 13 properties safeguarding against deflationary worth approximately S$1.05 billion, pressures and flexibility to capture further reinforcing PLife REIT’s position future revenue growths. Since 23 as the largest listed healthcare REIT August 2008, we have also increased in the region. We are pleased to note the annual minimum guaranteed rent that valuations of our Singapore and for our Singapore Hospital Properties Japan Properties have maintained at a by 12.22% for the 2nd year of the steady level according to independent lease term. As a result of this favorable valuations by DTZ Debenham Tie Leung rental structure, we experienced and Colliers Halifax, despite difficult strong organic growth from our market conditions in 2008. Singapore Hospital Properties.
Lim Kok Hoong Chairman With the operating expenses for acquisition opportunities, with an eye our properties largely borne by the on broadening geographical and asset lessees, we are cushioned against diversity. By establishing a pipeline escalating operating costs, thereby of opportunities, PLife REIT will be further ensuring stability of returns to well-positioned to tap on growth in a our Unitholders. market upswing.
Robust Capital Management: Appreciation No Re-financing Risks, We wish to express our sincere Low Gearing, Positive appreciation to our Board Members Credit Rating for their dedicated contribution and PLife REIT executed robust capital efforts in propelling the growth of management strategies in FY2008 PLife REIT. To our fellow colleagues, to ensure smooth sailing amidst the thank you for your hard work and global credit crunch. We have secured commitment to the company. committed longer term credit facilities with a weighted average tenor of On behalf of the Board, we would 2.8 years, eliminating all near term also like to extend our heartfelt re-financing risks. As at 31 December thanks to our Unitholders, Lessees 2008, the gearing ratio of PLife REIT and Business Partners. With your stands at 23.3%, amongst one of the confidence and loyal support, we will lowest in the Singapore REIT sector. work together to reach greater heights in the year ahead. In August 2008, we launched a S$500 million Multi-currency Medium Term Note Programme which received a strong BBB+ Investment Grade Lim Kok Hoong Credit Rating from Fitch Ratings. This Chairman is a testament to our strong financial position. With debt headroom of S$300 million before reaching our gearing ratio of 40%, PLife REIT has Yong Yean Chau ample acquisitive power to support Chief Executive Officer and our future expansion. Executive Director
Healthy Outlook, Well-positioned to Capitalise on Market Upside As part of ongoing efforts, PLife REIT will continue to pro-actively manage our portfolio to optimise operating performance, and implement new initiatives to enhance asset value. Maintaining an optimal capital structure and securing ample funding sources will enable us to better manage risk and ensure sustainability. As we take stock of 2008 and consolidate our position, we will continue to explore yield-accretive
Yong Yean Chau Chief Executive Officer and Executive Director
8 9 Board of Directors
Mr. Lim Kok Hoong in health services, from 1997 to 1998. he held various positions in Drexel Independent Director and Chairman From 1995 to 1997, Mr. Puah was the Burnham Lambert (S) Pte Ltd, including Mr. Lim is an Independent Director Director and Chief Executive of Sentosa as a Dealer, an Operations Manager on the Board of several public listed Development Corporation (SDC), a and an Assistant General Manager, from companies in Singapore. He also government statutory board responsible 1980 to 1990. Mr Tan was a member serves as a board member of the for the development, management and of the Finance Committee at Singapore Singapore Tourism Board. promotion of Sentosa, Sentosa Cove Broadcasting Authority from 1997 and 11 off-shore islands. From 1982 to 2002. Mr. Lim has over 32 years experience to 1994, Mr. Puah worked in various in public accountancy. He was a Senior senior positions in hotels managed Mr. Tan graduated from the University Partner with Ernst & Young Singapore by global hotel operators including of Singapore in 1980 with a Bachelor from 2002 to 2003 and prior to that Mandarin Oriental Hotel Group in Hong of Accountancy. was the Managing Partner of Arthur Kong and Singapore. Shangri-la’s Rasa Andersen Singapore from 1990 to 2002. Sentosa Resort in Singapore, Shangri-la Dr. Lim Cheok Peng He also previously held the position of Hotel Surabaya in Indonesia, Hilton Non-Executive Director Regional Managing Partner, Asean, for International in Singapore amongst Dr. Lim has over 25 years international Arthur Andersen during the period 2000 others. experience in the healthcare sector. He to 2002. is the Managing Director of Parkway Mr. Puah graduated from the University of Holdings Limited (the Sponsor), an Mr. Lim graduated from the University Surrey, Guildford in the United Kingdom appointment which he has held since of Western Australia in 1971 with a with a Bachelor of Science in Hotel, 2000. He is also a Consultant Physician & Bachelor of Commerce. He is a member Catering & Tourism Administration. Cardiologist in private practice in Singapore. of the Institute of Chartered Accountants in Australia and the Institute of Certified Mr. Tan Bong Lin Dr. Lim is the Co-Chairman of Health Public Accountants of Singapore. Independent Director and Chairman of & Life Science of the Singapore British the Audit Committee Business Council and is a member of Mr. Puah Tuan Soon Benson Mr. Tan has over 28 years experience the Council for the Third Age of Ministry Independent Director working in financial institutions. Between of Community Development, Youth & Mr. Puah has been the Chief Executive 1990 and 2007, he was with Citigroup Sports. He is a member of Singapore Officer of The Esplanade Co Ltd since Global Markets Singapore Pte Ltd and Medical Council since 2005 and was a 1998. Prior to this appointment, he was was its Managing Director from 1991 board member of Republic Polytechnic the Chief Executive Officer of Temasia to 2007. from 2005 to 2008. Health Pte Ltd, the international business and management arm of Health His responsibility included overseeing the Dr. Lim graduated from the University Corporation of Singapore (HCS), an entity Smith Barney brokerage and advisory of Singapore in 1972 with a MBBS. In linked to the Government of Singapore business. Prior to his appointment in 1976, he obtained a Master in Medicine that invests and develops businesses Citigroup Global Markets Singapore Pte Ltd, (Internal Medicine) from the University of
From left to right: Mr. Tan Bong Lin, Mr. Lim Kok Hoong, Mr. Puah Tuan Soon Benson
Annual Report 2008 Singapore. In 1991, Dr. Lim obtained the Mr. Tan See Haw Mr. Tan graduated with a Bachelor Diploma of Fellowship from the Royal Non-Executive Director Degree in Accountancy from the former College of Physicians and Surgeons Mr. Tan joined Parkway Holdings Limited Singapore University in 1980. He is also of Glasgow and Royal College of (the Sponsor) as the Group Chief a Fellow of Institute of Certified Public Physicians and Surgeons of Edinburgh. Financial Officer on 5 January 2009. Accountants of Singapore. Dr. Lim was elected to the membership As Group Chief Financial Officer, Mr. Tan from the Royal College of Physicians of heads the Parkway Holdings Group’s Mr. Yong Yean Chau the United Kingdom in 1977 and was Finance Division, including Corporate Chief Executive Officer and admitted as a Fellow of the Academy Tax, Materials Management and the Executive Director of Medicine, Singapore (Cardiology) at Business Offices. Mr. Yong brings with him more than the Academy of Medicine, Singapore 16 years of experience in the areas in 2003. Prior to his appointment with the of financial management, taxation, Sponsor, Mr. Tan was the Vice corporate finance and treasury. He Mr. Ashish Jaiprakash President of IT and Supply Chain was previously the Chief Financial Shastry of Unisem (M) Bhd, overseeing the Officer of the Singapore Tourism Board, Non-Executive Director IT and supply chain functions for all overseeing the Finance and Corporate Mr. Shastry is a Managing Director and the the Unisem’s worldwide operations. Services functions. Before joining Head of Southeast Asia at TPG Capital. Concurrently, he was also the the Singapore Tourism Board, he Chief Financial Officer of Advanced was the Chief Financial Officer of Since joining TPG Capital in 1998, Interconnect Technologies (AIT), a Ascendas Private Limited, instrumental he has been based in Singapore and position which he held since 1999. in the launching of Ascendas Real Estate Hong Kong, focusing on TPG Capital’s As the CFO of AIT, Mr. Tan was head Investment Trust. He has also worked investment activities in India, Australia of the Group Finance and Purchasing as the Chief Financial Officer for the and Southeast Asia. Prior to joining globally, and after the acquisition of AIT China-Singapore Suzhou Development TPG Capital, he was an Investment by Unisem in 2007, his responsibilities Private Limited and Singapore-Suzhou Banker at Lehman Brothers in New included the integration of the Township Development Private Limited. York, specialising in power and telecom procurement function and IT between He has extensive experience in property mergers & acquisitions. He serves as a the AIT Group of companies and development and property investment, Non-Executive Director on the boards of Unisem. Before joining AIT, Mr. Tan as well as its related financial structuring Parkway Holdings Limited (the Sponsor), held key financial positions for major and financing. PT Bank Tabungan Pensiunan Nasional corporations such as Asia-Pacific Tbk, United Test and Assembly Center Breweries Ltd (Director of Group Mr. Yong is a Certified Public Accountant Limited and Fairmont Raffles Holdings Finance) and Pepsi-Cola International with the Institute of Certified Public International (alternate). (Asia Division Financial Controller). He Accountants of Singapore and has also held finance and audit positions completed the Advance Management Mr. Shastry received an A.B. in Economics at NL Petroleum (Far East) Pte Ltd and Programme in the Harvard Business with Honors from Princeton University. Price Waterhouse & Co. School.
From left to right: Mr. Yong Yean Chau, Mr. Tan See Haw, Dr. Lim Cheok Peng, Mr. Ashish Jaiprakash Shastry
10 11 Management Team
Mr. Yong Yean Chau Mr. Loo Hock Leong with PricewaterhouseCoopers (“PwC”). Chief Executive Officer and Chief Financial Officer While at PwC, Ms. Ang had worked Executive Director Mr. Loo brings with him 13 years on the audit of several Singapore (Please see biography under Board of of banking experience. He was listed corporations and multinational Directors) previously the Senior Vice President, companies, mainly in the real Corporate Advisory of Global estate sector. Prior to that, she was Mr. Tan Tee Meng Financial Markets with DBS Bank Ltd. with KPMG and had worked on the Vice-President, He had provided advisory services on audits of manufacturing and trading Investment & Asset Management corporate treasury management to companies, restructured hospitals in Singapore and financial institutions. Her Mr. Tan brings with him more than 17 large corporations in area of corporate experience includes financial reporting, years of experience in the Singapore and finance and merger & acquisition. He consolidation, compliance with statutory Asia-Pacific real estate industry spanning has extensive experience in financial requirements and financial reporting property development, cost control, structuring of interest rate and foreign standards, appraising effectiveness of investment and asset management. exchange risk management solutions internal controls, and risk management. Prior to his appointment in the Manager, for these clients. Mr. Tan was the Vice-President, Asset Management of Capital Services Group Mr. Loo graduated from the National Ms. Ang graduated from Nanyang which provides asset management, University of Singapore with a Technological University in 2000 with acquisition and divestment advice to Bachelor of Electrical Engineering a Bachelor of Accountancy, minor in Lehman Brothers Real Estate Fund (Hons) degree in 1995. In 2000, Banking and Finance. She is also a throughout Asia. Prior to joining Capital he obtained a Masters of Applied Chartered Financial Analyst. Services Group, Mr. Tan was the Finance from the Macquarie Regional Category Manager, Real Estate University with three distinguished Mr. Wong Hoong wai of DHL International Pte Ltd where he awards: Best Overall Performance, Assistant Vice President, was responsible for the company’s Best in Derivatives Valuation and Investment real estate matters in the Asia-Pacific Best in Legal & Tax Risk in Finance. Prior to his appointment in the region ranging from investment, leasing, Manager, Mr. Wong has worked development, renovation, portfolio Ms. Ang Lay Kheng as an Investment Manager for the management to divestment. Financial Controller past 8 years. As a Manager for Ms. Ang brings with her 9 years private healthcare investment with Mr. Tan graduated from the National of experience in financial and SingHealth (Singapore largest public University of Singapore with a Degree of management reporting, taxation and healthcare group), his role includes Bachelor of Science (Hons) in Building in compliance. conducting investment evaluation, 1991. In 1996, he obtained a Masters due diligence and execution on the Degree in Business Administration from Prior to her appointment in the following classes of healthcare asset: Nanyang Technological University. Manager, she was an Audit Manager private medical centres and hospitals,
From left to right: Mr. Loo Hock Leong, Mr. Yong Yean Chau, Mr. Tan Tee Meng.
Annual Report 2008 wholistic/specialist treatment centres, with Thomson International Health Ms. Liu Chen Yin and contract research organisations. Services Pte Ltd (TIHS). While Assistant Vice President, He had also restructured and turned at TIHS, Ms. Teo worked on the Asset Management around non-performing healthcare International Women and Children Ms. Liu brings with her 9 years of businesses. As the Director for market Hospital and a Fertility Centre experience in the areas of valuation, and business development in the proposal in Vietnam. She also marketing and leasing of commercial technology arm of Greendot Capital, worked with Singapore General properties, investment and asset he was dealing with private ventures Hospital on an addition and management. that target the technology sector. He alteration project for the Department was also a Manager in the Strategic of Emergency Medicine, as well as Prior to her appointment in the Manager, Planning and Business Development design and renovation for various she was a Manager (asset management team of VISA International, dealing departments within the hospital. & investment) with CapitaCommercial with commercial services investment Trust Management Limited, the and partnership with financial Ms. Teo was stationed in Kunming, Manager of CapitaCommercial Trust institutions. China, briefly while working on a (“CCT”). She was involved in the hospital project there; she also has sourcing and evaluating of potential His experience also includes business experience with school and residential investment opportunities, as well as development in North Asia as a vice projects in Singapore for PMLink Pte the development and implementation president for business development Ltd. She was with ACP Construction of asset management strategies and with Finesse Alliance, based in Taiwan. Pte Ltd, prior to her role with PMLink plans for CCT’s asset portfolio. Ltd, where she worked on Biopolis Mr. Wong graduated from the National II. Ms. Teo joined ST Architects & From 2002 to 2006, she was with University of Singapore in 1995 with a Engineers Pte Ltd after graduation, City Developments Limited where she Bachelor of Science. where she worked on master planning was responsible for the marketing and in Jordan, an international airport leasing of its office portfolio. From 1999 Ms. Teo Chin Ping proposal in Myanmar, factories in to 2002, she was a Senior Valuer with Assistant Vice President, China, office towers, conventional CKS Property Consultants Pte Ltd. Development and automated warehouses as Ms. Teo brings with her 13 years of well as the Changi Naval Base Ms. Liu graduated from the National experience in the field of architecture in Singapore. University of Singapore in 1999 with a design, master planning, management Bachelor of Science (Honours) degree and administration of projects in Ms. Teo graduated from the University in Real Estate. She is also a registered Singapore and overseas. of Tasmania, Australia in 1995 with a licensed appraiser. Bachelor of Architecture. She is also Prior to her current appointment, a Qualified Architect with the Board Ms. Teo was a Project Manager of Architects, Singapore.
From left to right: Ms. Ang Lay Kheng, Ms. Teo Chin Ping, Mr. Wong Hoong Wai, Ms. Liu Chen Yin.
12 13 Well positioned A firm grasp of a highly specialised NICHE.
A pre-eminent destination for healthcare in the Asian region – especially Singapore and Japan – continues to welcome a healthy stream of patients from different parts of the world, providing a sustained demand for healthcare-related facilities and properties.
As the largest listed healthcare REIT in Asia, we are in a good position to tap into this rapidly developing and increasingly relevant sector through a top-rate asset portfolio.
Our Portfolio in Focus
PLife REIT enjoyed significant growth across its portfolio during the year, supported by well-planned acquisitions and favourable lease structures. We own a high quality, diversified and strategically located portfolio of three hospitals in Singapore and 10 healthcare assets in Japan, worth a total of S$1.05 billion.
Portfolio Key Statistics (as at 31 December 2008)
Properties Mount Elizabeth Hospital, Net Gleneagles Hospital, 1 East Shore Hospital, Bon Sejour Lettable Area Shin-Yamashita, Bon Sejour Ibaraki, Palmary Inn Akashi, Palmary Inn Suma, Senior Chonaikai Makuhari Kan, Himawari Home Kamakura, Smiling Home Medis Musashi Urawa, 153,403 Fureai no sono Nerima Takanodai, sq m Smiling Home Medis Koshigaya Gamo, P-Life Matsudo Weighted Committed Appraised Average Lease 2 Term to Expiry Occupancy Value (by Gross Revenue) 100.0% S$1.05 billion 13.9 Years Major Lessees % of Leases (by NLA) with Rent Parkway Hospitals Singapore Pte Ltd; Review Provision Nippon Express Co., Ltd; ZECS Community Corporation; Asset Co., Ltd., Riei Co., Ltd., % Himawari Corporation, 97.9 Medis Corporation, Shonan Fureai no Sono.
Notes:
1 Based on aggregate strata areas for Mount Elizabeth Hospital and Gleneagles Hospital, gross floor areas for East Shore Hospital and net lettable areas for 10 Japan properties.
2 According to independent valuations by DTZ Debenham Tie Leung and Colliers Halifax as at 31 December 2008 and based on an exchange rate of S$1.00 to 62.62 units of JPY.
Annual Report 2008 We are the largest listed healthcare REIT in Asia with a high quality portfolio of 13 properties worth approximately S$1.05 billion.
S$175.5 m
S$40.9 m Singapore Hospital Properties Pharmaceutical Product Distributing and Manufacturing Facility S$831.6 m Nursing Homes
Valuations of our Singapore and Japan properties have maintained at steady levels with a combined value of S$1.05 billion (as at 31 December 2008) despite difficult market conditions in 2008, demonstrating the intrinsic quality and resilience of our portfolio.
Building A Diversified Portfolio
Our enlarged portfolio of 13 properties signifies greater geographical diversification, with Singapore and Japan accounting for 80% and 20% of our gross revenue respectively.
Asset diversification has strengthened, with our portfolio weighting now comprising 80% hospitals and medical centres, 17% nursing homes, and 3% pharmaceutical product distributing and manufacturing facility.
Key Contributors of Gross Revenue (For the month of December 2008)
Location Asset Class
17% 80% 3% 20% 80% Singapore Hospitals and Japan Medical Centres Pharmaceutical Product Distributing and Manufacturing Facility Nursing Homes
16 17 Our Portfolio in Focus
Strategically Located High Quality Portfolio
Singapore Portfolio Overview
In Singapore, we manage the largest portfolio of world-class local private hospitals, comprising the Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital. Offering a comprehensive array of healthcare and healthcare-related services, our award-winning Singapore Hospital Properties have gained wide recognition as premium healthcare centres in the region.
1. Gleneagles Hospital 2. Mount Elizabeth Hospital 3 3. East Shore Hospital 2 1
Japan Portfolio Overview
In Japan, we own 10 high quality healthcare assets, including a pharmaceutical product distributing and manufacturing facility and nine private nursing homes. Our nursing homes are strategically located and managed by established operators, with seven of them having back-up operator agreements. For the seven nursing homes which we acquired in September 2008, we successfully negotiated a rental guarantee from the vendor, Kenedix Inc. for a period of over seven years, capped at 5% of the purchase price.
The rental guarantee and back-up operators are examples of the innovative measures we seek to heighten our portfolio’s credit quality and provide certainty of future distribution to Unitholders.
1. Tokyo Fureai no sono Nerima Takanodai 2. Osaka Bon Sejour Ibaraki 3. Saitama Smiling Home Medis Musashi Urawa Smiling Home Medis Koshigaya Gamo 4. Hyogo 4 Palmary Inn Akashi 3 Palmary Inn Suma 2 1 5. Chiba 6 5 P-Life Matsudo Senior Chonaikai Makuhari Kan 6. Kanagawa Bon Sejour Shin-Yamashita Himawari Home Kamakura
Annual Report 2008 FAVOURABLE LEASE STRUCTURE ENSURES GOOD ORGANIC GROWTH
Our leases are uniquely structured to protect against downside risks while providing for good future rental growth. The defensive nature of PLife REIT ensures that our Unitholders continue to enjoy stable and sustainable returns even in challenging market conditions.
Competitive strengths of the Properties
Long Term Master Leases Enhance Portfolio Resilience Growing • Weighted average Demand for lease term to expiry Private of 13.9 years 1 Healthcare • 100.0% committed Favourable Lease occupancy Structure Ensures Good Organic Growth • Rent review provision for 97.9% of the leases (by NLA) Stability and • Unique rent review formula Minimal Exposure Sustainability pegged to CPI + 1% for the to Escalating of Returns To Singapore Hospital Properties Operating Unitholders – Minimum guaranteed rent Expenses increased by 12.22% for • Largely borne 2nd year of the lease term by Lessees commencing 23 August 2008
Operational Diversified Synergies with and quality Sponsor, Parkway portfolio Holdings Limited (“PHL”)
Note:
1 Based on Gross Revenue (as at 31 December 2008)
18 19 Portfolio Contents Hospitals & Medical Centres: Mount Elizabeth Hospital 21 Gleneagles Hospital 22 East Shore Hospital 23
Nursing Homes: Bon Sejour Shin-Yamashita 24 Bon Sejour Ibaraki 25 Palmary Inn Akashi 26 Palmary Inn Suma 27 Senior Chonaikai Makuhari Kan 28 Himawari Home Kamakura 29 Smiling Home Medis Musashi Urawa 30 Fureai no sono Nerima Takanodai 31 Smiling Home Medis Koshigaya Gamo 32
Pharmaceutical Product Distributing and Manufacturing Facility: P-Life Matsudo 33 Mount Elizabeth Hospital 3 Mount Elizabeth, Singapore 228510
The Mount Elizabeth Hospital Development comprises Mount Elizabeth Hospital, a medical centre and car parks. Mount Elizabeth Hospital is made up of a 10-storey block and a 5-storey block as well as car park lots. The medical centre comprises a 17-storey medical and retail block with a total of 232 Medical Centre units and a car park on the 4th to 8th storey. All the blocks are linked by a common podium with basement car park.
PLife REIT owns 56.71% of the total share value of the strata lots in Mount Elizabeth Hospital Development, representing the Mount Elizabeth Hospital which has 505 licensed beds, 30 Medical Centre units and 363 car park lots.
Key statistics
Tenure Leasehold of 67 years from 23 August 2007 Strata Area of Property 58,139 sq m Number of Licensed beds 505 Number of Medical Centre units 232, of which 30 are owned by PLife REIT Number of Car Park lots 363 Year of Completion Hospital building - 1979 Medical Centre - 1979 and 1992 Committed Occupancy 100.0% Name of Lessee (s) Parkway Hospitals Singapore Pte. Ltd. Appraised Value (as at 31 December 2008) S$528.7 million 1
1 The property was valued by DTZ Debenham Tie Leung (SEA) Pte Ltd using the Direct Capitalisation Approach, Discounted Cash Flow Analysis and Direct Comparison Method.
20 21 Gleneagles Hospital 6 Napier Road, Singapore 258499 and 6A Napier Road, Singapore 258500
The Gleneagles Hospital Development comprises Gleneagles Hospital, a medical centre and car parks. Gleneagles Hospital is made up of a 10-storey block with 2 basements and a 5-storey annexe block. The medical centre is a 10-storey block with 3 basements and comprises 164 Medical Centre units from the 2nd to 10th storey. The car parks with an aggregate of 402 car park lots are located at basement 2 to 1st storey of the hospital building and basement 3 to 1st storey of the medical centre within the compound of the development.
PLife REIT owns 69.05% of the total share value of the strata lots in Gleneagles Hospital Development, representing the Gleneagles Hospital which has 380 licensed beds, 10 Medical Centre units and 121 carpark lots.
Key statistics
Tenure Leasehold of 75 years from 23 August 2007 Strata Area of Property 49,003 sq m Number of Licensed beds 380 Number of Medical Centre units 164, of which 10 are owned by PLife REIT Number of Car Park lots 402, of which 121 are owned by PLife REIT Year of Completion Hospital Building - 1991 and 1993 Annexe Block - 1979 Medical Centre - 1991 and 1993 Committed Occupancy 100.0% Name of Lessee (s) Parkway Hospitals Singapore Pte. Ltd. Appraised Value (as at 31 December 2008) S$262.7 million 1
1 The property was valued by DTZ Debenham Tie Leung (SEA) Pte Ltd using the Direct Capitalisation Approach, Discounted Cash Flow Analysis and Direct Comparison Method.
Annual Report 2008 East Shore Hospital 319 Joo Chiat Place, Singapore 427989 and 321 Joo Chiat Place, Singapore 427990
The East Shore Hospital Property comprises East Shore Hospital, a medical centre and car parks. East Shore Hospital is a 4-storey block with 154 licensed hospital beds and the medical centre is a 5-storey block comprising 28 Medical Centre units. The 1st and 5th storey of the medical centre are linked to the 1st and 4th storey of the hospital block. The car park lots are located on the 1st storey deck and within the compound of the development.
Key statistics
Tenure Leasehold of 75 years from 23 August 2007 Strata Area of Property 10,993 sq m Number of Licensed beds 154 Number of Medical Centre units 28 Number of Car Park lots 75 Year of Completion Hospital Building - 1982 Medical Centre - 1987 Committed Occupancy 100.0% Name of Lessee (s) Parkway Hospitals Singapore Pte. Ltd. Appraised Value (as at 31 December 2008) S$40.2 million 1
1 The property was valued by DTZ Debenham Tie Leung (SEA) Pte Ltd using the Direct Capitalisation Approach, Discounted Cash Flow Analysis and Direct Comparison Method.
22 23 Bon Sejour Shin-Yamashita 2-12-55 Shin Yamashita, Naka-Ku Yokohama City, Kanagawa Prefecture, Japan
Bon Sejour Shin-Yamashita is a freehold 5-storey paid nursing home with care service consisting of 74 units.
Located in an attractive setting, next to a scenic canal, Bon Sejour Shin-Yamashita is about 1.2 kilometres to the southeast of Minatomirai Line Motomachi-Chukagai Station.
Key statistics
Land Tenure Freehold Land Area 1,653 sq m Net Lettable Area 3,273 sq m Number of Units (Rooms) 74 Year of Completion 2006 Committed Occupancy 100.0% Name of Lessee (s) ZECS Community Corporation Appraised Value (as at 31 December 2008) ¥1,410 million (S$22.5 million) 1
1 The property was valued by DTZ Debenham Tie Leung K.K. using the Cost and Income Capitalisation Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
Annual Report 2008 Bon Sejour Ibaraki 25-2, Nishi-Toyokawacho, Ibaraki City, Osaka Prefecture, Japan
Bon Sejour Ibaraki is a 4-storey paid nursing home with care service consisting of 94 units.
It sits within a serene residential district in northern part of Osaka prefecture and is located adjacent to the picturesque Exposition Memorial Park, University of Osaka campus and the Ibaraki Country Club.
Easily accessible by Osaka Monorail Saito Line, Bon Sejour Ibaraki is located within a short walk to Toyokawa Station and Handai Byoinmae Station. The Osaka Monorail runs to Osaka Itami Airport which is approximately half an hour away.
Key statistics
Land Tenure Leasehold of 50 years from 30 May 2008 Land Area 3,051 sq m Net Lettable Area 3,651 sq m Number of Units (Rooms) 94 Year of Completion 2008 Committed Occupancy 100.0% Name of Lessee (s) ZECS Community Corporation Appraised Value (as at 31 December 2008) ¥1,150 million (S$18.4 million) 1
1 The property was valued by DTZ Debenham Tie Leung K.K. using the Cost and Income Capitalisation Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
24 25 Palmary Inn Akashi 486 Yagi, Okubo-cho, Akashi-city, Hyogo Prefecture, Japan
Palmary Inn Akashi is a freehold 6-storey paid nursing home with care service consisting of 96 units.
Located in the waterfront area of Harima Sea, Palmary Inn Akashi enjoys a fine seaview. It is easily accessible by Sanyo Dentetsu line and within a short walk to Nakayagi station.
Key statistics
Land Tenure Freehold Land Area 5,891 sq m Net Lettable Area 6,562 sq m Number of Units (Rooms) 96 Year of Completion 1987; Conversion works were completed in 2003 Committed Occupancy 100.0% Name of Lessee (s) Asset Co., Ltd Appraised Value (as at 31 December 2008) ¥1,560 million (S$24.9 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
Annual Report 2008 Palmary Inn Suma 1-5-23, Chimori-cho, Suma-ku, Kobe-city, Hyogo Prefecture, Japan
Palmary Inn Suma is a freehold 6-storey paid nursing home with care service consisting of 59 units.
Located in the coastal district in the south of Suma-ku, Palmary Inn Suma is easy accessible by Sanyo Dentetsu line and within a short walk from Sumadera station.
Key statistics
Land Tenure Freehold Land Area 2,676 sq m Net Lettable Area 4,539 sq m Number of Units (Rooms) 59 Year of Completion 1989 Committed Occupancy 100.0% Name of Lessee (s) Asset Co., Ltd Appraised Value (as at 31 December 2008) ¥898 million (S$14.3 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
26 27 Senior Chonaikai Makuhari Kan 5-370-4 Makuhari-cho, Hanamigawa-ku, Chiba-city, Chiba Prefecture, Japan
Senior Chonaikai Makuhari Kan is a freehold 5-storey paid nursing home with care service consisting of 107 units.
Located along the JR Sobu line in Hanamigawa-ku, Senior Chonaikai Makuhari Kan is within a short walk from Makuhari station and is near to Chiba Kensei Hospital and Makuhari Clinic.
Key statistics
Land Tenure Freehold Land Area 2,853 sq m Net Lettable Area 4,361 sq m Number of Units (Rooms) 107 Year of Completion 1992; Conversion works were completed in 2004 Committed Occupancy 100.0% Name of Lessee (s) Riei Co., Ltd Appraised Value (as at 31 December 2008) ¥1,499 million (S$23.9 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
Annual Report 2008 Himawari Home Kamakura 1-13-1 Iwase, Kamakura-city, Kanagawa Prefecture, Japan
Himawari Home Kamakura is a freehold 3-storey paid nursing home with care service consisting of 53 units.
Located along the JR Tokaido Line and JR Yokosuka Line in Kamukura-City, Himawari Home Kamakura is within a short drive from Ofuna station and is near to Kamakura Hospital and Ofuna Hospital.
Key statistics
Land Tenure Freehold Land Area 1,307 sq m Net Lettable Area 1,689 sq m Number of Units (Rooms) 53 Year of Completion 1992; Conversion works were completed in 2003 Committed Occupancy 100.0% Name of Lessee (s) Himawari Corporation Appraised Value (as at 31 December 2008) ¥1,011 million (S$16.1 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
28 29 Smiling Home Medis Musashi Urawa 5-5-6 Shikatebukuro, Minami-ku, Saitama-city, Saitama Prefecture, Japan
Smiling Home Medis Musashi Urawa is a freehold 3-storey paid nursing home with care service consisting of 44 units.
Located along the JR Saikyo Line, Smiling Home Medis Musashi Urawa is within a short walk from Musashi Urawa station and is near Akiba Hospital.
Key statistics
Land Tenure Freehold Land Area 802 sq m Net Lettable Area 1,603 sq m Number of Units (Rooms) 44 Year of Completion 1991; Conversion works were completed in 2004 Committed Occupancy 100.0% Name of Lessee (s) Medis Corporation Appraised Value (as at 31 December 2008) ¥657 million (S$10.5 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
Annual Report 2008 Fureai no sono Nerima Takanodai 3-15-37 Takanodai, Nerima-ku, Tokyo Prefecture, Japan
Fureai no sono Nerima Takanodai is a freehold 3-storey paid nursing home with care service consisting of 64 units.
Located along Seibu Ikebukuro line, Fureai no sono Nerima Takanodai is within a short walk from Nerima Takanodai station and is near Juntendo Hospital.
Key statistics
Land Tenure Freehold Land Area 2,282 sq m Net Lettable Area 2,526 sq m Number of Units (Rooms) 64 Year of Completion 1988; Conversion works were completed in 2005 Committed Occupancy 100.0% Name of Lessee (s) Shonan Fureai no Sono Appraised Value (as at 31 December 2008) ¥1,423 million (S$22.7 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
30 31 Smiling Home Medis Koshigaya Gamo 2-2-5 Gamonishimachi, Kosigaya-ku, Saitama Prefecture, Japan
Smiling Home Medis Koshigaya Gamo is a freehold 6-storey paid nursing home with care service consisting of 100 units.
Located along the Tobu Isesaki Line, Smiling Home Medis Koshigaya Gamo is within a short walk from Gamo station and is near Dokkyo Medical University Koshigaya Hospital and Minami Koshigaya Kenshinkai Clinic.
Key statistics
Land Tenure Freehold Land Area 1,993 sq m Net Lettable Area 3,824 sq m Number of Units (Rooms) 100 Year of Completion 1989; Conversion works were completed in 2005 Committed Occupancy 100.0% Name of Lessee (s) Medis Corporation Appraised Value (as at 31 December 2008) ¥1,380 million (S$22.0 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
Annual Report 2008 P-Life Matsudo 357 Matsuhidai, Matsudo City, Chiba Prefecture, Japan
The P-Life Matsudo property is a freehold 2-storey pharmaceutical product distributing and manufacturing facility.
Conveniently located approximately 700 metres north of Matsuhidai Station on the Hokuso-Kaihatsu Railway Line and within the vicinity of Exclusive Industrial District in Matsuhidai Industrial Park.
The P-Life Matsudo property is a specially designed built-to-suit property.
Key statistics
Land Tenure Freehold Land Area 8,449 sq m Net Lettable Area 3,240 sq m Year of Completion 2005; Additional works were completed in 2007 Committed Occupancy 100.0% Name of Lessee (s) Nippon Express Co., Ltd (Master Lessee) Inverness Medical Japan Co., Ltd (Sub-Lessee) Appraised Value (as at 31 December 2008) ¥2,562 million (S$40.9 million) 1
1 The property was valued by Colliers Halifax using the Direct Income, Cost and Discounted Cash Flow Approaches. Based on an exchange rate of S$1.00 to 62.62 units JPY.
32 33 Prudent Sustainability supported by FORETHOUGHT.
Focused on further fortifying our Trust, we will continue to ensure that our capital structure is optimised while strategically maximising our financial flexibility to fund future acquisitions.
Our Growth Strategy Prudent, Focused, Targeted
Strong and experienced management team Acquisition growth through Pro-active partnerships with Asset QUALITY Asia-Pacific Management healthcare players Long term and our strategic relationship stable with PHL growth and distributions
Targeted Investment Strategy Prudent Focusing On capital and Core Markets financial Management
Leveraging on the expertise of a strategy is to remain Prudent in our capital total portfolio to 13 properties, valued strong and experienced management and financial management, Focused at approximately S$1.05 billion. team and benefiting from the growth on pro-active asset management and in demand for healthcare services Targeted in opportunistic acquisition Given the current pricing expectation across Asia-Pacific, PLife REIT has of yield-accretive assets. gaps in the property market coupled grown substantially since its listing with the uncertain and volatile capital on the Singapore Stock Exchange on TARGETED INVESTMENT markets, our acquisition strategy will therefore be opportunistic and highly 23 August 2007. STRATEGY FOCUSING ON KEY CORE MARKETS selective. FY2008 had been a solid year of PLife REIT’s investment mandate Apart from Singapore and Japan, our organic growth and yield-accretive covers all healthcare and healthcare core markets will be streamlined to acquisitions, backed by prudent capital related real estate investments across countries which are matured, developed and financial management. Asia-Pacific. and experiencing strong demand for healthcare services such as Australia Steadfast in our commitment to deliver In FY2008, PLife REIT acquired and Malaysia. These countries share regular and stable distributions for 10 high quality, yield-accretive similar legal frameworks and minimise Unitholders, PLife REIT’s principle growth healthcare assets in Japan, bringing its country risks for our investments.
Annual Report 2008 PARTNERING QUALITY THIRD Key strategies include partnering Asia-Pacific. A leading healthcare PARTY HEALTHCARE OPERATORS quality healthcare operators requiring operator based in Singapore, PHL has Despite the market downturn, long capital or embarking on an asset light one of the largest number of hospitals term demand for healthcare in the strategy, as well as collaborating with in Asia and an extensive healthcare Asia-Pacific region remains positive funds and operators who acquired network across Europe, North America given the continual demand for quality healthcare businesses and seek to and the Middle East, ranking it on private healthcare on the back of rising securitise the real estate. par with other global healthcare affluence and ageing populations. operators. This strategic relationship STRATEGIC RELATIONSHIP WITH with PHL forms the key competitive PLife REIT is well positioned to ride on STRONG SPONSOR, PARKWAY advantage for our future growth. this growing healthcare trend. Due to the HOLDINGS LIMITED highly specialised nature of healthcare We share a strategic relationship with assets, it is of paramount importance for our Sponsor, PHL, which includes a PLife REIT to establish mutual beneficial 5-year right of first refusal granted strategic alliances with quality third party over future sales of its healthcare healthcare operators. and healthcare related assets across
SOUTH JAPAN ChINA KOREA
INDIA HONG KONG
THAILAND PHILIPPINES VIETNAM
MALAYSIA
SINGAPORE
INDONESIA
AUSTRALIA
Core Markets
NEW ZEALAND
36 37 Our Growth Strategy
Rehabilitation Centre, MEH Maternity Ward, GEH Parkway Cancer Centre, MEH
Delifrance, ESH
Lobby, ESH Imaging Centre, GEH
PRO-ACTIVE ASSET MANAGEMENT Centre in October 2008. The first At East Shore Hospital, upgrading As part of PLife REIT’s pro-active asset Rehabilitation Centre was accordingly works to revamp the main lobby and management strategy, we constantly relocated with revamped facilities. entrance are in progress and are due st explore opportunities to create value to complete by 1 Quarter 2009. In and improve the performance of our As part of ongoing value creation efforts accordance with the master lease assets to enhance the organic returns and to increase retail offerings at East structure of the Singapore Hospital Shore Hospital (“ESH”), the Dietician from our property portfolio. Properties, all capital expenditure office was converted to an F&B outlet, from commencement of lease till Delifrance, in November 2008. In FY2008, we embarked on a series of end 2009 shall be fully borne by revenue intensifying asset enhancement PHL. PLife REIT enjoys the benefit of In addition, we progressively embarked initiatives for our Singapore Hospital these revenue enhancement measures on plans to upgrade our hospital without additional capital outlay. Properties to convert lower revenue facilities to improve service quality to yielding space into higher revenue boost future revenues. yielding space. At Mount Elizabeth Looking ahead, we will continue to pro-actively manage our portfolio as Hospital (“MEH”), an administrative At Gleneagles Hospital (“GEH”), well as explore opportunities to enhance space was converted to a second the Maternity ward and Parkway the competitiveness and value of our Rehabilitation Centre in June 2008. Cancer Centre 2 were renovated and completed in the 2nd and 3rd Quarter properties to fuel organic growth and The space originally occupied by of 2008 respectively. stay ahead of the market. the first Rehabilitation Centre was recovered and reconfigured together A hospital ward (3B) at MEH and the with an area used for administrative Imaging Centre at GEH were also purposes to the new Parkway Cancer recently refurbished.
Annual Report 2008 Prudent Capital and returns. During the year, we secured Our S$500 million Medium Term Financial Management longer term credit facilities with a Note Programme established during PLife REIT practises a prudent capital weighted average tenor of 2.8 years the year and S$210 million unutilised and financial management approach for all our borrowings in replacement revolving credit facilities puts us in to maintain an optimal capital structure of short term credit facilities, fully good stead to support our future and ensure stable and sustainable eliminating refinancing risks. acquisitive goals.
PLife REIT’s Refinancing Initiatives Secured and drawn down S$218 million committed • No refinancing risk – all short term facilities 3-year term loan & revolving credit facilities are replaced by longer term facilites Extended S$100 million of existing committed revolving credit facility from 1-year to 2-year • Adequate and diversified financing sources from both banks and capital markets Funding Initiatives for Future Acquisitions funding provide flexibility and acquisition Un-utilised credit facilities as at 31 December 2008 “firepower” to support PLife REIT’s future comprise of S$210 million revolving credit facilities growth Established S$500 million Medium Term Note (“MTN”) Programme in August 2008 • Maintain strong balance sheet, augmenting Continuous engagement with banks to secure long stability of distributions term financing for future acquisitions
As a result, PLife REIT enjoys one of the lowest gearings amongst Singapore REITs at 23.3% as at 31 December 2008, with further debt headroom of S$300 million and S$990 million before reaching gearing of 40% and maximum allowable gearing of 60% respectively.
Following our foray into Japan, we 1,600 70% 60% have entered into various interest 1,400 rate swaps to fix the interest rates for 60% 1,200 690.0 100% of total debts for three years, and 50% foreign currency forward contracts to Gearing (%) 1,000 40% hedge the net income from our Japan 40% properties. This is part of our continual 800 30% efforts to hedge where appropriate, as otal Debt (S$m) T 600 23% well as actively monitor and mitigate 300.0 300.0 20% risks arising from interest rates and 400 foreign exchange movements. 200 252.2 252.2 252.2 10%
Moving forward, we will continue to 0 0% seek diversified credit sources and December 40% 60% maximum practise a proactive risk management 2008 gearing gearing stance. With a strong balance sheet, ample financing resources and good BBB+ Investment Grade Credit Rating, 60% gearing headroom (maximum gearing allowed under Property Funds Guidelines) our financial flexibility and strength will 40% gearing headroom (based on gearing of 40%) enable us to better withstand market 31 December 2008 debt balance challenges and propel our future growth. Gearing
38 39 Market Review and Outlook PLife REIT recently expanded its Asian footprint through its venture into the Japan market to capitalise on the greying trend. Demand for good quality healthcare in Japan is set to grow as one in three Japanese is expected to be over 65 years of age by 2050.
Singapore ago, due to higher hospitalisation 2008 has been a challenging year for fees, charges for medical consultation the world at large. Impacted by the and specialist services. The global unprecedented market turbulence economic crisis has worsened affecting economies globally, the since November 2008, with sharp Singapore economy is estimated declines in global demand, trade and to have grown by 1.2% in 2008, investments. This weaker prognosis for compared to 7.7% in 2007. As a result the Singapore economy is also based of the market slowdown and difficult on the sharp contraction seen in the operating environment, the Ministry fourth quarter of 2008, which reflected of Trade and Industry (“MTI”) expects a 2.6% quarter-on-quarter contraction Singapore’s economy to contract in Gross Domestic Product (“GDP”). between 2.0% and 5.0% in 2009. Despite current market sentiments, For the first 10 months of 2008, long-term demand for healthcare healthcare costs under the Singapore remains positive. Singapore, a provider consumer price index (“CPI”) climbed of world-class medical services and 5.9% over the same period a year global centre for medical research
Annual Report 2008 and education, continues to be a This places PLife REIT in an advantageous popular medical tourism destination. position to benefit from the growing According to industry research firm healthcare sector. With a portfolio of RNCOS, medical tourism industry award-winning Singapore hospitals,we in Singapore is expected to grow are able to benefit from increasing at a compound annual growth rate healthcare spending to generate higher (“CAGR”) of 9.1% to generate revenue revenue and rental income, as well of nearly US$1,700 million through as tap on the rising demand for quality 2012. healthcare services and facilities to enjoy organic growth. Private healthcare expenditure in Singapore has been increasing at a Asia-Pacific CAGR of 4.76% over 2000 to 2007. According to estimates by Frost & Sullivan Despite lower recent tourist arrivals Asia-Pacific, the Asian Healthcare market due to the global economic slowdown, in 2008 is valued at approximately Singapore continues to see healthy US$240 billion. In 2009, it is expected demand from both domestic and to grow by 5% to 10%. Moving forward, international medical travelers. With healthcare expenditure is expected to its offering of high standard healthcare continue on the uptrend on the back services and infrastructure, Singapore’s of rising affluence, ageing populations aim to become a regional medical and increasing healthcare demand for centre remains intact in the long term. chronic diseases.
Healthcare Market Revenue Asia Healthcare Expenditure (Asia-Pacific), 2008
Total: US$ 239.9 billion Monitor 100 10 12 16 66.2% Treat 90 85 2.1% 77 Diagnose 65 6.7% 80 Predict
2.1% 70 1.5% 60 21.2% 50
40
30
20 14 8 Pharmaceuticals Healthcare IT 10 5 3 5 Medical Devices Clinical Diagnostics 0 Biotechnology Medical Imaging 2009 2015 2020
Source: Frost & Sullivan, 2008
40 41 Market Review and Outlook
With ageing populations continuing to Regionally, potential for growth of In addition, better access to healthcare be one of the key growth drivers, PLife the healthcare sector is optimistic, information, healthcare standards REIT recently expanded its footprint in driven by improving affluence levels in convergence and increased cost Asia through its venture into the Japan developing countries and increasing efficiency are some of the other factors market to capitalise on the greying trend. cases of chronic and lifestyle contributing to the booming Asian Demand for good quality healthcare in illnesses propelling demand for high healthcare industry. As such, we see Japan is expected to grow, as one in quality healthcare. With a broadening potential opportunities for PLife REIT three Japanese is expected to be over regional patient base, and as patients as more companies seek to make 65 years of age by the year 2050. This demand more complex, sophisticated inroad into the growing healthcare and trend is observed not only in Japan and treatments, better coverage and wellness markets in Asia-Pacific. Singapore, but also in PLife REIT’s other higher standards of follow-up care, core markets including Malaysia and there remains enormous potential for Australia. medical tourism in Asia.
Aging of the Population in APAC Growth of Chronic Disease in Asia
Philippines 2010 Philippines 2010 Malaysia 2003 Malaysia 2003 India India Indonesia Indonesia Thailand Thailand Singapore Singapore China China South Kirea South Kirea Taiwan Taiwan Hong Kong Hong Kong Australia Australia Japan Japan
0 10 20 30 40 50 0 10 20 30 40 50
% of population over 60 % of population with 1 or more chronic diseases
Source: Frost & Sullivan, 2008
WELL-POSITIONED TO CAPTURE and facilities, auguring well for the and intrinsic demand for healthcare, REGIONAL OPPORTUNITIES growth of PLife REIT by strategic sound fundamentals of our defensive The diverse opportunities in healthcare acquisitions, with a bigger pool REIT model, and strong support from continue to create positive prospects of higher quality potential targets sponsor PHL, we are well positioned to for healthcare service providers, available in the market. capture upcoming market opportunities. underpinning the demand for good quality healthcare real estate assets Currently Asia’s largest listed such as hospitals and nursing homes. healthcare REIT, PLife REIT is looking at strategies to reinforce our position This in turn generates investment and enlarge our Pan-Asia footprint. opportunities in healthcare properties With the relative defensiveness
Annual Report 2008 Financial Review Total net property income for the year exceeded forecast by 16.3% to reach S$50.4 million. Income distributable to Unitholders grew 9.4% above forecast at S$41.2 million, leading to a corresponding increase in DPU to 6.83 cents for FY2008.
Net Property Income Continued DPU Growth Since IPO 2 FY2008 vs FY2007 1 CAGR: 15.7% 60 2.00 FY2007 1.84 FY2008 50.4 1.71 1.75 1.62 1.66 50 1.59 44.2 1.50
40 1.25
30 27.328.0 1.00
DP U (S$ cents) 0.75 20 14.6 15.3 0.50
10 4.7 0.25 2.3 2.4
0 0.00 Mount Gleneagles East Japan Total PLife 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 Elizabeth Shore portfolio portfolio
Notes: 1 FY2007 figures are derived by annualising the actual figures for FY2007 contributed by the Singapore Hospital Properties (from 23 August 2007 to 31 December 2007). 2 PLife REIT was listed on 23 August 2007.
FINANCIAL PERFORMANCE year of the lease term in August 2008, 13 properties totaling approximately For the year ended 31 December compared to S$45 million in FY2007. S$1.05 billion. This represents a 26% 2008, PLife REIT registered gross Contributions from the Japan Properties year-on-year increase from our initial revenue of S$53.9 million, an increase acquired in May and September 2008 portfolio of three hospital properties worth S$831.6 million. of 17.4% from forecast of S$45.9 amounting to S$5.2 million also added million. This was primarily attributable to full year revenue growth. We are pleased to note that the to increased gross revenue contribution S$1.05 billion valuation of our from the Singapore Hospital Total net property income for the year Singapore and Japan Properties have Properties, driven by a higher variable exceeded forecast by 16.3% to reach maintained at a steady level from the S$50.4 million. Income distributable rent component and our unique CPI + previous year despite difficult market to Unitholders grew 9.4% above 1% minimum guaranteed rent formula. conditions during 2008, according forecast at S$41.2 million, leading to Our Singapore Hospital Properties to independent valuations by DTZ registered a strong 6.25% growth over a corresponding increase in DPU to Debenham Tie Leung and Colliers total actual rent payable in the first year 6.83 cents for FY2008. Halifax. of lease term, following a CPI growth of 5.25% in the first year of lease. ASSETS AND ASSET VALUATION The Group’s net asset value PLife REIT completed the acquisition attributable to Unitholders (“NAV”) as at Annual minimum guaranteed rent was of 10 high quality healthcare assets in 31 December 2008 was $1.34 per unit. revised 12.22% upwards for the 2nd Japan, bringing our total portfolio to
42 43 Financial Review
Unit Performance
125
115
105
95
85
75
65
55
45 S-REIT Index STI PLife REIT
35 Year 2008 25 02 17 01 16 02 17 01 16 01 16 31 15 30 15 30 14 29 13 28 13 28 12 27 12 27 Jan Jan Feb F eb Mar Mar Apr Apr May May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec
LEVERAGE AND BORROWINGS In order to mitigate risks in interest rates outperformed both the general and As at 31 December 2008, PLife and foreign currency, we also entered S-REIT market. REIT’s total borrowings stood at into various interest rate swaps to fix the S$252.2 million, mainly attributable interest rates for 100% of total debts for Against the backdrop of a global to 100% debt funding of the Japan three years, as well as foreign currency economic slowdown, the STI and Properties. During the year, we forward contracts to hedge the net foreign S-REIT market have fallen 49.11% secured various 3-year credit facilities, income from our Japan Properties. and 46.35% respectively, compared comprising a term loan facility and to PLife REIT’s lower decrease of several revolving credit facilities CASHFLOW 31.53%. This is a testament to the amounting to S$218.2 million, fully As at 31 December 2008, PLife REIT strength and performance of PLife drawn down to finance the acquisition had cash and cash equivalents of REIT, underpinned by the intrinsic of the Japan Properties. We further S$25.1 million, and cashflow generated quality of our portfolio, the resilience secured a two-year S$100 million from operations of S$42.5 million. of the healthcare sector and the result revolving credit facility to refinance of a solid year of organic growth and yield accretive acquisitions, backed a S$34 million term loan maturing Unit Performance by prudent capital and financial in 2009 which fully eliminates our The above chart plots the relative management. refinancing risks. performance of PLife REIT against the average price performance of With S$210 million of unutilised Singapore REITs (“S-REIT”) and the revolving credit facilities, and the Straits Times Index (“STI”), based on S$500 million Medium Term Note closing unit prices from 2 January Programme established in August 2008 to 31 December 2008. Over 2008, we are well-equipped to this period, S-REITs traded in line with support our future acquisitive goals. the STI, while PLife REIT generally
Annual Report 2008 Corporate Governance
Parkway Trust Management Limited, in its capacity as the Manager of Parkway Life REIT, recognises that an effective corporate governance culture is critical to the performance of the Manager and consequently, the success of Parkway Life REIT. The Manager is firmly committed to good corporate governance and has adopted a comprehensive corporate governance framework that meets best practice principles. In particular, the Manager has an obligation to act honestly, with due care and diligence, and in the best interests of Unitholders.
The following sections describe the Manager’s main corporate governance policies and practices. They encompass proactive measures for avoiding situations of conflict and potential conflicts of interest, including prioritising the interests of Unitholders over the Manager’s. They also ensure that applicable laws and regulations within the listing rules of the Singapore Exchange Securities Trading Limited (“SGX-ST”), the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (“MAS”) (the “CIS Code”) including the Property Funds Guidelines in Appendix 2 of the CIS Code (the “Property Funds Guidelines”) and the Securities and Futures Act, Chapter 289 of Singapore (“SFA”), are complied with, and that the Manager’s obligations under Parkway Life REIT’s Trust Deed are properly and efficiently carried out.
THE MANAGER OF PARKWAY LIFE REIT
The Manager has general powers of management over the assets of Parkway Life REIT. The Manager’s main responsibility is to manage Parkway Life REIT’s assets and liabilities for the benefit of Unitholders.
The Manager will set the strategic direction of Parkway Life REIT and make recommendations to the Trustee on the acquisition, divestment and enhancement of assets of Parkway Life REIT in accordance with its stated investment strategy.
Other main functions and responsibilities of the Manager are as follows:
1. Using its best endeavours to carry on and conduct its business in a proper and efficient manner, to ensure that Parkway Life REIT is carried on and conducted in a proper and efficient manner and to conduct all transactions with or on behalf of Parkway Life REIT at arm’s length and on normal commercial terms;
2. Preparing property plans on an annual basis for review by the Directors of the Manager, which may contain proposals and forecasts on net income, capital expenditure, sales and valuations, explanations of major variances to previous forecasts, written commentary on key issues and underlying assumptions on inflation, annual turnover, rental rates, occupancy costs and any other relevant assumptions. The purpose of these plans is to explain the performance of Parkway Life REIT’s assets;
3. Ensuring compliance with the applicable provisions of the SFA and all other relevant laws and regulation, the listing rules of the SGX-ST, the CIS Code (including the Property Funds Guidelines), the Trust Deed, the tax ruling issued by the Inland Revenue Authority of Singapore on the taxation of Parkway Life REIT and its Unitholders and all relevant contracts;
4. Attending to all regular communications with Unitholders; and
5. Supervising the Property Manager, which provides project management services including co-ordination of pre-qualification and tender exercises as well as project meetings, recommendation of project budget and appointment of project consultants as well as monitoring and supervising projects under the property management agreement entered into with Parkway Life REIT.
Parkway Life REIT, constituted as a trust, is externally managed by the Manager and accordingly, it has no personnel of its own. The Manager appoints experienced and well-qualified management to handle its day-to-day operations. All directors and employees of the Manager are remunerated by the Manager, and not Parkway Life REIT.
44 45 Corporate Governance (cont’d)
Parkway Trust Management Limited is appointed as manager of Parkway Life REIT in accordance with the terms of the Trust Deed dated 12 July 2007 (the “Trust Deed”). The Trust Deed outlines certain circumstances under which the Manager can be retired in favour of a corporation approved by the Trustee or be removed by notice given in writing from the Trustee upon the occurrence of certain events.
BOARD OF DIRECTORS
The Board of Directors of the Manager (the “Board’’) is responsible for the overall management and corporate governance of the Manager including establishing goals for management and monitoring the achievement of these goals. All Board members participate in matters relating to corporate governance, business operations and risks, financial performance and the nomination and review of directors. The Board has established a framework for the management of the Manager including a system of internal controls and a business risk management process.
The Board meets regularly, at least once every quarter, to deliberate the strategic policies of Parkway Life REIT, including acquisitions and disposals, approval of the annual budget and review of the financial performance of Parkway Life REIT against a previously approved budget, and to approve the release of the quarterly and full year results. The Board also reviews the risks to the assets of Parkway Life REIT, examines liability management, and acts upon any comments from the auditors of Parkway Life REIT. Where necessary, additional Board meetings are held to address significant transactions or issues.
The Board has adopted a set of internal controls which it believes is adequate and appropriate delegations of authority have been provided to management to facilitate operational efficiency.
Changes to regulations and accounting standards are monitored closely. To keep pace with regulatory changes where these changes have an important bearing on the Manager’s or directors’ disclosure obligations, the directors will be briefed either during Board meetings or at specially-convened sessions involving the relevant professionals. The management also provides the Board with complete and adequate information in a timely manner through regular updates on financial results, market trends and business developments.
The Board has separate and independent access to senior management and the company secretary at all times. The company secretary attends to corporate secretarial administration and attends all Board meetings. The Board also has access to independent professional advice where appropriate.
Board Composition
The Board presently consists of seven members, six of whom are non-executive directors (including three independent directors) and one of whom is an executive director. The Chairman of the Board is Mr. Lim Kok Hoong. None of the directors has entered into any service contract directly with Parkway Life REIT.
The composition of the Board is determined using the following principles:
1. the Chairman of the Board should be a non-executive director of the Manager;
2. the Board should comprise directors with a broad range of commercial experience, including expertise in funds management and the property industry; and
3. at least one-third of the Board should comprise of independent directors.
The composition will be reviewed regularly to ensure that the Board has the appropriate mix of expertise and experience.
Annual Report 2008 Corporate Governance (cont’d)
The majority of the directors are non-executive and/or independent of the management. This enables the management to benefit from their external, diverse and objective perspective on issues that are brought before the Board. It would also enable the Board to interact and work with the management through a robust exchange of ideas and views to help shape the strategic process. This, together with a clear separation of roles of the Chairman and Chief Executive Officer described below, provides a healthy professional relationship between the Board and the management, with clarity of roles and robust oversight as they deliberate the business activities of the Manager.
The profiles of the Directors are set out on pages 10 to 11 of this Annual Report and additional information on the Directors is as follows:
Name of director Date of first Function(s) Academic and Directorships or appointment professional chairmanships both as a Director qualifications present and those held over the preceding three years in other listed companies and other major appointments. Lim Kok Hoong 5/7/2007 Non-executive/ Bachelor of Singapore Tourism Board Age: 61 Independent Commerce, Hoe Leong Corporation Ltd Director, Chartered Genting International PLC Chairman of Board Accountant, and Member of Australia, CPA Audit Committee Singapore Dr. Lim Cheok Peng 23/4/2007 Non-executive MBBS, M. Med. Int. Parkway Holdings Limited Age: 62 Director Med., MRCP, FRCP (Edin), FRCP (Glasg), FAMS (Cardiology) Ashish Jaiprakash 23/4/2007 Non-executive A.B. in Econs (Hons) Parkway Holdings Limited Shastry Director PT Bank Tabungan Age: 33 Pensiunan Nasional Tbk United Test and Assembly Center Ltd Puah Tuan Soon 5/7/2007 Non-executive/ B. Sc (Hons) – Hotel, The Esplanade Co Ltd Benson Independent Catering & Tourism SISTIC.com Pte Ltd Age: 51 Director and Administration Singapore Tourism Board Member of Audit Committee Tan Bong Lin 5/7/2007 Non-executive/ Bachelor of – Age: 52 Independent Accountancy Director and Chairman of Audit Committee Tan See Haw 9/1/2009 Non-executive Bachelor of – Age: 52 Director Accountancy, Fellow Certified Public Accountant Yong Yean Chau 29/1/2009 Executive Director/ Bachelor of – Age: 42 Chief Executive Accountancy, Officer Certified Public Accountant, Non- Practising Member
46 47 Corporate Governance (cont’d)
Meeting Attendance
The Manager held 4 board meetings during the financial year. The attendance at the Board meetings is set out below.
Name of director Board meetings attended Lim Kok Hoong (Chairman) 4 Choo Oi Yee # 4 Dr. Lim Cheok Peng 4 Benson Puah Tuan Soon 4 Ashish Jaiprakash Shastry 4 Tan Bong Lin 4 Justine Victoria Wingrove * 4
* Resigned on 23 December 2008 # Resigned on 9 January 2009 and Mr. Tan See Haw was appointed as a non-executive director on the same date.
Chairman and Chief Executive Officer
The positions of Chairman and Chief Executive Officer are separately held by two persons in order to maintain an effective check and balance. The Chairman of the Board, Mr. Lim Kok Hoong is an independent director. The Chief Executive Officer until 23 December 2008 was Ms. Justine Victoria Wingrove who was an executive director and Mr. Yong Yean Chau was appointed as Chief Executive Officer and executive director on 29 January 2009.
The Chairman is responsible for the overall management of the Board as well as ensuring that the directors and the management work together with integrity and competency and that the Board engages the management in constructive debate on strategy, business operations, enterprise risk and other plans.
The Chief Executive Officer has full executive responsibilities over the business directions and operational decisions in the day to day management of Parkway Life REIT.
Board Remuneration
Directors fee are paid by the Manager in its own capacity using its own funds, and not from the funds of Parkway Life REIT.
Audit Committee
The Audit Committee is appointed by the Board from among the directors of the Manager and is composed of three members, a majority of whom (including the Chairman of the Audit Committee) are required to be independent non-executive directors. The members of the Audit Committee are Messrs Lim Kok Hoong, Puah Tuan Soon Benson and Tan Bong Lin. Mr. Tan Bong Lin has been appointed as the Chairman of the Audit Committee.
The role of the Audit Committee is to monitor and evaluate the effectiveness of the Manager’s internal controls. The Audit Committee also reviews the quality and reliability of information prepared for inclusion in financial reports, and is responsible for the nomination of external auditors and reviewing the adequacy of external audits in respect of cost, scope and performance.
Annual Report 2008 Corporate Governance (cont’d)
The Audit Committee’s responsibilities also include:
(a) monitoring the procedures established to regulate Related Party Transactions (as defined herein), including ensuring compliance with the provisions of the Listing Manual relating to “interested person transactions” and the provisions of the Property Funds Guidelines relating to “interested party transactions”;
(b) reviewing arrangements by which employees of the Manager may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters and ensuring that arrangements are in place for the independent investigation of such matters and for appropriate follow-up action;
(c) reviewing external and internal audit reports to ensure that where deficiencies in internal controls have been identified, appropriate and prompt remedial action is taken by the management;
(d) reviewing internal audit reports at least twice a year to ascertain that the guidelines and procedures established to monitor related party transactions have been complied with;
(e) ensuring that the internal audit function is adequately resourced and has appropriate standing within the Manager;
(f) monitoring the procedures in place to ensure compliance with applicable legislation, the Listing Manual and the CIS Code including the Property Funds Guidelines;
(g) examining the effectiveness of financial, operating and compliance controls at least annually;
(h) reviewing the financial statements and the internal audit report;
(i) reviewing the significant financial reporting issues and judgments so as to ensure the integrity of the financial statements of Parkway Life REIT and any formal announcements relating to Parkway Life REIT’s financial performance;
(j) investigating any matters within the Audit Committee’s term of reference, whenever it deems necessary; and
(k) reporting to the Board on material matters, findings and recommendations.
The Audit Committee has also conducted a review of all non-audit services provided by the external auditors and is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors.
Audit Committee meetings are generally held after the end of every quarter of every financial year. The attendance at the Audit Committee meetings is set out below.
Name of director Audit Committee meetings attended Tan Bong Lin (Chairman) 4 Lim Kok Hoong 4 Benson Puah Tuan Soon 4
The Audit Committee meets with the external auditors, without the presence of management, at least once a year.
48 49 Corporate Governance (cont’d)
Internal Audit
The Manager has put in place a system of internal controls of procedures, including financial, operational and compliance controls, and risk management systems to safeguard Parkway Life REIT’s assets, Unitholders’ interests as well as to manage risk.
The internal audit function of the Manager is out-sourced to a professional accounting firm. The Audit Committee is satisfied that the internal auditor has met the standards established by internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors. The internal auditor reports directly to the Audit Committee on audit matters. The Audit Committee also reviews and approves the annual internal audit plan and reviews the internal audit reports and activities. The Audit Committee is of the view that the internal auditor has adequate resources to perform its functions and has to the best of its ability, maintained its independence from the activities that it audits.
Internal Controls
The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. Nonetheless, the Audit Committee will:
(a) satisfy itself, by such means as it shall consider appropriate, that adequate counter measures (i.e. mechanisms and processes, such as sound internal control systems) are in place to identify and mitigate any material business risks associated with the Manager and Parkway Life REIT;
(b) ensure that a review of the effectiveness and adequacy of the Manager’s internal controls, including financial, operational and compliance controls, and risk management policies and systems, is conducted at least annually. Such review can be carried out by internal and/or external auditors.
(c) ensure that the internal control recommendations made by internal and external auditors have been implemented by the Manager; and
(d) ensure that the Board is in a position to comment on the adequacy of the internal controls of the Manager.
Based on the Audit Committee’s review, the Board is satisfied that there are adequate internal controls including financial, operational, compliance controls and risk management systems in the Manager.
DEALINGS IN PARKWAY LIFE REIT’S UNITS
The Trust Deed requires each director to give notice to the Manager of his acquisition of units or of changes in the number of units which he holds or in which he has an interest, within two business days after such acquisition or the occurrence of the event giving rise to changes in the number of units which he holds or in which he has an interest.
All dealings in units by the Board will be announced via SGXNET, with the announcement to be posted on the internet at the SGX-ST website http://www.sgx.com.
Annual Report 2008 Corporate Governance (cont’d)
The Directors and employees of the Manager are encouraged, as a matter of internal policy, to hold units but are prohibited from dealing in the units:
(a) in the period commencing one month before the public announcement of Parkway Life REIT’s annual results and (where applicable) property valuations and two weeks before the public announcement of Parkway Life REIT’s quarterly results, and ending on the date of announcement of the relevant results, or as the case may be, property valuations; and
(b) at any time while in possession of price sensitive information.
The Directors and employees of the Manager have been directed to refrain from dealing in units on a short term basis.
In addition, the Manager has given an undertaking to the MAS that it will announce via SGXNET the particulars of its holdings in the units and any changes thereto within two business days after the date on which it acquires or disposes of any units, as the case may be. The Manager has also undertaken that it will not deal in the units in the period commencing one month before the public announcement of Parkway Life REIT’s annual results and (where applicable) property valuations and two weeks before the public announcement of Parkway Life REIT’s quarterly results, and ending on the date of announcement of the relevant results or, as the case may be, property valuations.
RISK ASSESMENT AND MANAGEMENT OF BUSINESS RISK
Effective risk management is a fundamental part of Parkway Life REIT’s business operations. Recognising and managing risk is central to the business and to protecting Unitholders’ interests and value. Parkway Life REIT operates within overall guidelines and specific parameters set by the Board. Each transaction is comprehensively analysed to understand the risk involved. Responsibility for managing risk lies initially with the business unit concerned, working within the overall strategy outlined by the Board.
The Board meets quarterly (or more often, if necessary) and will review the financial performance of the Manager and Parkway Life REIT against a previously approved budget. The Board will also review the business risks of Parkway Life REIT, examine liability management and will act upon any comments from the auditors of Parkway Life REIT.
The Manager has appointed experienced and well-qualified management personnel to handle the day-to-day operations of the Manager and Parkway Life REIT. In assessing business risks, the Board will consider the economic environment and risks relevant to the property and healthcare industry. It reviews management reports and feasibility studies on individual development projects prior to approving major transactions. The management meets regularly to review the operations of the Manager and discuss any disclosure issues.
WHISTLE-BLOWER PROTECTION POLICY
The Manager has established a whistle-blower policy which reflects the Manager's commitment to conduct its business within a framework that fosters the highest ethical and legal standards. In line with this commitment and Parkway Life REIT’s commitment to open communications, the whistle-blower policy aims to provide an avenue for employees to raise concerns and reassurance that they will be protected from reprisals or victimisation for whistle-blowing in good faith. The Audit Committee reviewed the whistle-blower policy which provides for mechanisms by which employees may, in confidence, raise their concerns about possible improprieties in financial reporting or other matters and was satisfied that arrangements are in place for the independent investigation of such matters and for appropriate follow-up action. The Chairman of the Audit Committee is the first contact for issues raised under this policy.
50 51 Corporate Governance (cont’d)
DEALINGS WITH CONFLICTS OF INTEREST
The Manager has instituted the following procedures to deal with potential conflicts of interest issues:
(a) The Manager will be a dedicated manager to Parkway Life REIT and will not manage any other real estate investment trust which invests in the same type of properties as Parkway Life REIT.
(b) All resolutions in writing of the Board in relation to matters concerning Parkway Life REIT must be approved by a majority of the directors, including at least one independent director.
(c) At least one-third of the Board shall comprise independent directors.
(d) All related party transactions must be reviewed by the Audit Committee and approved by a majority of the Audit Committee. If a member of the Audit Committee has an interest in a transaction, he or she will abstain from voting.
(e) In respect of matters in which Parkway Holdings Limited, the Sponsor of Parkway Life REIT (the “Sponsor”) and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by the Sponsor and/or subsidiaries to the Board to represent its/their interest will abstain from voting. In such matters, the quorum must comprise a majority of the independent directors and must exclude the nominee directors of the Sponsor and/or its subsidiaries.
(f) In respect of matters in which a director or his associates have an interest, direct or indirect, such interested director will abstain from voting. In such matters, the quorum must comprise a majority of the Board and must exclude such interested directors.
(g) Under the Trust Deed, the Manager and its associates are prohibited from being counted in a quorum for or voting at any meeting of Unitholders convened to approve any matter in which the Manager or any of its associates has a material interest. For so long as Parkway Trust Management Limited is the manager of Parkway Life REIT, the controlling shareholders (as defined in the Listing Manual) of the Manager and their respective associates are prohibited from being counted in the quorum for or voting at any meeting of Unitholders convened to consider a matter in respect of which the relevant controlling shareholders of Parkway Trust Management Limited and/or their associates have a material interest.
(h) It is also provided in the Trust Deed that if the Manager is required to decide whether or not to take any action against any person in relation to any breach of any agreement entered into by the Trustee for and on behalf of Parkway Life REIT with a related party of the Manager, the Manager shall be obliged to consult with a reputable law firm (acceptable to the Trustee) which shall provide legal advice on the matter. If the said law firm is of the opinion that the Trustee, on behalf of Parkway Life REIT, has a prima facie case against the party allegedly in breach under such agreement, the Manager shall be obliged to take appropriate action in relation to such agreement. The Board (including its independent directors) will have a duty to ensure that the Manager so complies. Notwithstanding the foregoing, the Manager shall inform the Trustee as soon as it becomes aware of any breach of any agreement entered into by the Trustee for and on behalf of Parkway Life REIT with a related party of the Manager and the Trustee may take such action as it deems necessary to protect the rights of Unitholders and/or which is in the interests of Unitholders. Any decision by the Manager not to take action against a related party of the Manager shall not constitute a waiver of the Trustee’s right to take such action as it deems fit against such related party.
Annual Report 2008 Corporate Governance (cont’d)
Parkway Life REIT’s properties are located in Singapore and Japan and its strategy is to invest primarily in income-producing real estate and/or real estate-related assets in the Asia-Pacific region (including Singapore) that are used primarily for healthcare and/or healthcare-related purposes (including, but not limited to, hospitals, healthcare facilities and real estate and/or real estate assets used in connection with healthcare research, education, and the manufacture or storage of drugs, medicine and other healthcare goods and devices), whether wholly or partially owned, and whether directly or indirectly held through the ownership of special purpose vehicles whose primary purpose is to own such real estate. The Sponsor has interests in several healthcare and/or healthcare-related properties in the Asia-Pacific such as those located in Malaysia. Potential conflicts of interest between the Sponsor and Parkway Life REIT may arise in respect of acquisition and ownership of healthcare and/or healthcare-related assets in the Asia-Pacific region, including Singapore where Parkway Life REIT’s initial properties are located, and where Parkway Life REIT’s investment strategy is to invest in healthcare and/or healthcare-related properties located therein.
In order to mitigate any conflict of interest between the Sponsor and Parkway Life REIT in the Asia-Pacific region, Parkway Life REIT has been granted by the Sponsor a right of first refusal, subject to certain conditions, over sales of healthcare or healthcare-related assets in the Asia-Pacific region (including Singapore) and if applicable, the interests in special purpose vehicles which hold such assets directly or indirectly (together, the “Relevant Assets”). Where the Sponsor or any of its subsidiaries (a “Parkway Entity”) proposes to sell or transfer a Relevant Asset to an unrelated third party; or a proposed offer for sale or transfer of a Relevant Asset is made to a Parkway Entity, the Sponsor shall, grant to the Trustee the first right to purchase the Relevant Asset for the benefit of Parkway Life REIT.
RELATED PARTY TRANSACTIONS
The Manager’s Internal Control System
The Manager has established an internal control system to ensure that all future related party transactions will be undertaken on normal commercial terms and will not be prejudicial to the interests of Parkway Life REIT or the Unitholders. As a general rule, the Manager must demonstrate to the Audit Committee that such transactions satisfy the foregoing criteria, which may entail obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining one or more valuations from independent professionals valuers (in accordance with the Property Funds Guidelines).
The Manager maintains a register to record all related party transactions which are entered into by Parkway Life REIT and the bases, including any quotations from unrelated parties and independent valuations obtained to support such bases, on which they are entered. The Manager also incorporates into its internal audit plan a review of all related party transactions entered into by Parkway Life REIT. The Audit Committee reviews the internal audit reports at least twice a year to ascertain that the guidelines and procedures established to monitor related party transactions have been complied with. In addition, the Trustee will also have the right to review such audit report to ascertain that the Property Funds Guidelines have been complied with.
Further, the following procedures will be undertaken:
– transactions (either individually or as part of a series or if aggregated with other transactions involving the same related party during the same financial year) equal to or exceeding S$100,000 in value but below 3.0% of the value of Parkway Life REIT’s net tangible assets will be subject to review by the Audit Committee at regular intervals;
– transactions (either individually or as part of a series or if aggregated with other transactions involving the same related party during the same financial year) equal to or exceeding 3.0% but below 5.0% of the value of Parkway Life REIT’s net tangible assets will be subject to the review and prior approval of the Audit Committee. Such approval shall only be given if the transactions are on normal commercial terms and are consistent with similar types of transactions made by the Trustee with third parties which are unrelated to the Manager; and
52 53 Corporate Governance (cont’d)
– transactions (either individually or as part of a series or if aggregated with other transactions involving the same related party during the same financial year) equal to or exceeding 5.0% of the value of Parkway Life REIT’s net tangible assets will be reviewed and approved prior to such transactions being entered into, on the basis described in the preceding paragraph, by the Audit Committee which may, as it deems fit, request advice on the transaction from independent sources or advisers, including the obtaining of valuations from independent professional valuers. Further, under the Listing Manual and the Property Funds Guidelines, such transactions would have to be approved by the Unitholders at a meeting of Unitholders.
Where matters concerning Parkway Life REIT relate to transactions entered into or to be entered into by the Trustee for and on behalf of Parkway Life REIT with a related party of the Manager or Parkway Life REIT, the Trustee is required to consider the terms of such transactions to satisfy itself that such transactions are conducted on an arm’s length basis and on normal commercial terms, are not prejudicial to the interests of Parkway Life REIT or the Unitholders, and in accordance with all applicable requirements under the Property Funds Guidelines and/or the Listing Manual relating to the transaction in question. Further, the Trustee has the ultimate discretion under the Trust Deed to decide whether or not to enter into a transaction involving a related party of the Manager or Parkway Life REIT. If the Trustee is to sign any contract with a related party of the Manager or Parkway Life REIT, the Trustee will review the contract to ensure that it complies with the requirements relating to interested party transactions in the Property Funds Guidelines (as may be amended from time to time) and the provisions of the Listing Manual relating to interested person transactions (as may be amended from time to time) as well as such other guidelines as may from time to time be prescribed by the MAS and the SGX-ST to apply to real estate investment trusts.
Parkway Life REIT will, in compliance with Rule 905 of the Listing Manual, announce any interested person transaction if such transaction, by itself or when aggregated with other interested person transactions entered into the same interested person during the same financial year, is 3.0% or more of Parkway Life REIT’s latest audited net tangible assets.
Role of the Audit Committee for Related Party Transactions
All related party transactions must be reviewed by the Audit Committee and approved by a majority of the Audit Committee to ensure compliance with the Manager’s internal control system and with the relevant provisions of the Listing Manual as well as the Property Funds Guidelines. The review will include the examination of the nature of the transactions and its supporting documents or such other data deemed necessary to the Audit Committee.
If a member of the Audit Committee has an interest in a transaction, he or she is to abstain from participating in the review and approval process in relation to that transaction.
COMMUNICATION WITH UNITHOLDERS
The Listing Manual of the SGX-ST requires that a listed entity discloses to the market matters that would be likely to have a material effect on the price of the entity’s securities. The Manager upholds a strong culture of continuous disclosure and transparent communication with Unitholders and the investing community. The Manager’s disclosure policy requires timely and full disclosure of all material information relating to Parkway Life REIT by way of public releases or announcements through the SGX-ST via SGXNET at first instance and then including the release on Parkway Life REIT’s website at www.plifereit.com.
The Manager also conducts regular briefings for analysts and media representatives, which will generally coincide with the release of Parkway Life REIT’s results. During these briefings, the Manager will review Parkway Life REIT’s most recent performance as well as discuss the business outlook for Parkway Life REIT. In line with the Manager’s objective of transparent communication, briefing materials are released to the SGX-ST and also made available on Parkway Life REIT’s website.
Annual Report 2008 Financial Contents
Report of the Trustee 56 Statement by the Manager 57 Auditors’ Report to the Unitholders of Parkway Life Real Estate Investment Trust 58 Balance Sheet s 59 Statements of Total Return 60 Distribution Statements 61 Statements of Changes in Net Assets Attributable to Unitholders 63 Portfolio Statements 64 Consolidated Cash Flow Statement 68 Notes to the Financial Statements 70 Statistics of Unitholdings 102 Additional Information 104
55 Report of the Trustee
HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”) is under a duty to take into custody and hold the assets of Parkway Life Real Estate Investment Trust (the “Trust”) and its subsidiaries (the “Group”) in trust for the holders (“Unitholders”) of units in the Trust (the “Units”). In accordance with, inter alia, the Securities and Futures Act (Cap. 289), its subsidiary legislation and the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (“MAS”) and the Listing Manual (collectively referred to as the “laws and regulations”), the Trustee shall monitor the activities of Parkway Trust Management Limited (the “Manager”) for compliance with the limitations imposed on the investment and borrowing powers as set out in the trust deed dated 12 July 2007 between the Trustee and the Manager (the “Trust Deed”) in each annual accounting period and report thereon to Unitholders in an annual report which shall contain the matters prescribed by the laws and regulations as well as the recommendations of the Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore and the provisions of the Trust Deed.
To the best knowledge of the Trustee, the Manager has, in all material respects, managed the Trust during the year covered by these financial statements, set out on pages 59 to 101, comprising the balance sheets, statements of total return, distribution statements, statements of changes in net assets attributable to Unitholders and portfolio statements of the Group and of the Trust, cash flow statement of the Group and a summary of significant accounting policies and other explanatory notes, in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed, laws and regulations and otherwise in accordance with the provisions of the Trust Deed.
For and on behalf of the Trustee, HSBC Institutional Trust Services (Singapore) Limited
John van Verre Director
29 January 2009
Annual Report 2008 Statement by the Manager
In the opinion of the directors of Parkway Trust Management Limited, the accompanying financial statements set out on pages 59 to 101 comprising the balance sheets, statements of total return, distribution statements, statements of changes in net assets attributable to Unitholders and portfolio statements of the Group and of the Trust, cash flow statement of the Group and a summary of significant accounting policies and other explanatory notes, are drawn up so as to present fairly, in all material respects, the financial position and the portfolio of Parkway Life Real Estate Investment Trust (the “Trust”) and its subsidiaries (the “Group”) and of the Trust as at 31 December 2008, the total returns, distributable income, changes in net assets attributable to Unitholders of the Group and the Trust and cash flows of the Group for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore and the provisions of the Trust Deed. At the date of this statement, there are reasonable grounds to believe that the Group and the Trust will be able to meet its financial obligations as and when they materialise.
For and on behalf of the Manager, Parkway Trust Management Limited
Yong Yean Chau Director
29 January 2009
56 57 Auditors’ Report to the Unitholders of Parkway Life Real Estate Investment Trust (Constituted in the Republic of Singapore pursuant to a trust deed dated 12 July 2007)
We have audited the financial statements of Parkway Life Real Estate Investment Trust (the “Trust”) and its subsidiaries (the “Group”), which comprise the balance sheets and portfolio statements of the Group and the Trust as at 31 December 2008, the statements of total return, distribution statements, statements of changes in net assets attributable to Unitholders of the Group and the Trust, cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 59 to 101.
Manager’s responsibility for the financial statements
The Manager of the Trust is responsible for the preparation and fair presentation of these financial statements in accordance with the Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements of the Group and the financial statements of the Trust present fairly, in all material respects, the financial position of the Group and the Trust as at 31 December 2008 and the total returns, distributable income, changes in net assets attributable to Unitholders of the Group and the Trust and cash flows of the Group for the year ended on that date, in accordance with Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore.
KPMG LLP Public Accountants and Certified Public Accountants
Singapore 29 January 2009
Annual Report 2008 Balance Sheets As at 31 December 2008
Group Trust Note 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Current assets Trade and other receivables 3 7,505 5,512 5,554 5,512 Cash and cash equivalents 4 25,078 21,142 15,013 21,142 32,583 26,654 20,567 26,654 Non-current assets Investment properties 5 1,047,983 831,570 831,590 831,570 Subsidiaries 6 – – 184,100 – 1,047,983 831,570 1,015,690 831,570
Total assets 1,080,566 858,224 1,036,257 858,224
Current liabilities Trade and other payables 7 16,444 4,569 7,137 4,569 Financial liabilities 8 33,940 351 33,940 351 50,384 4,920 41,077 4,920
Non-current liability Financial liabilities 8 221,051 33,276 221,051 33,276 271,435 38,196 262,128 38,196
Net assets attributable to Unitholders 9 809,131 820,028 774,129 820,028
Total liabilities 1,080,566 858,224 1,036,257 858,224
Net assets attributable to Unitholders 809,131 820,028 774,129 820,028
Units in issue (’000) 10 602,347 601,418 602,347 601,418
Net asset value per unit attributable to Unitholders ($) 1.34 1.36 1.29 1.36
The accompanying notes form an integral part of these financial statements.
58 59 Statements of Total Return Year ended 31 December 2008
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to Note 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Gross revenue 11 53,887 16,900 49,907 16,900 Property expenses 12 (3,530) (1,088) (3,002) (1,088)
Net property income 50,357 15,812 46,905 15,812 Manager’s management fees 13 (5,133) (1,584) (5,133) (1,584) Trust expenses 14 (2,251) (622) (2,056) (622) Interest income 177 94 177 94 Finance costs 15 (3,992) (1,002) (3,992) (1,002) Foreign exchange loss, net (8,222) – (35,305) – (19,421) (3,114) (46,309) (3,114) Total return before changes in fair value of financial derivatives and investment properties 30,936 12,698 596 12,698 Net change in fair value of financial derivatives (2,227) (351) (2,227) (351) Net change in fair value of investment properties (3,294) 56,291 20 56,291
Total return/(loss) before income tax 25,415 68,638 (1,611) 68,638 Income tax expense 16 (719) – – –
Total return/(loss) for the year/period 24,696 68,638 (1,611) 68,638
Earnings per unit (cents) 18
Basic 4.10 15.07 (0.27) 15.07
Diluted 4.10 15.07 (0.27) 15.07
The accompanying notes form an integral part of these financial statements.
Annual Report 2008 Distribution Statements Year ended 31 December 2008
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to Note 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Total return/(loss) for the year/period attributable to Unitholders before distribution 24,696 68,638 (1,611) 68,638 Less: Distribution adjustments A 16,490 (55,003) 42,797 (55,003) Total Unitholders’ distribution B 41,186 13,635 41,186 13,635
Unitholders’ distributions: – from operations 38,648 13,635 38,648 13,635 – from Unitholders’ contributions 2,538 – 2,538 – Total Unitholders’ distribution B 41,186 13,635 41,186 13,635
Note A – Distribution adjustments comprise: Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Non-tax deductible/(non-taxable) items: Manager’s management fees (payable in units) 1,027 317 1,027 317 Trustee’s fees 193 62 193 62 Transaction cost relating to financial derivative – 460 – 460 Amortisation of transaction costs relating to debt facilities 808 98 808 98 Net overseas income not distributed to the Trust – – 2,538 – Foreign exchange loss, net 8,222 – 35,305 – Others 719 – 719 – Net change in fair value of financial derivatives 2,227 351 2,227 351 Net change in fair value of investment properties 3,294 (56,291) (20) (56,291) Net effect of distribution adjustments 16,490 (55,003) 42,797 (55,003)
The accompanying notes form an integral part of these financial statements.
60 61 Distribution Statements (cont’d) Year ended 31 December 2008
Note B – Total Unitholders’ distributions Group and Trust Period from Year ended 12/07/2007 to Note 31/12/2008 31/12/2007 $’000 $’000
Distributions for the year/period: – from 23 August 2007 to 31 December 2007 (1) 17 – 13,658 – from 1 January 2008 to 31 March 2008 17 9,751 – – from 1 April 2008 to 30 June 2008 17 9,995 – – from 1 July 2008 to 30 September 2008 17 10,300 – – from 1 October 2008 to 31 December 2008 (2) 11,140 – 41,186 13,658
(1) On 20 February 2008, the actual distribution to Unitholders in respect of the financial period from 23 August 2007 to 31 December 2007 was $13,658,000 as compared to the total Unitholders’ distribution of $13,635,000 as disclosed in the Distribution Statements. The difference of $23,000 was due to the effect of rounding to the nearest cent in arriving at the amount of distribution.
(2) On 29 January 2009, the Manager declared a distribution of 1.84 cents per unit in respect of the period from 1 October 2008 to 31 December 2008. This distribution has not been recognised in the balance sheet as at 31 December 2008.
The accompanying notes form an integral part of these financial statements.
Annual Report 2008 Statements of Changes in Net Assets Attributable to Unitholders Year ended 31 December 2008
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to Note 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Net assets attributable to Unitholders at beginning of year/period 820,028 – 820,028 –
Operations Net increase/(decrease) in net assets resulting from operations 24,696 68,638 (1,611) 68,638
Unitholders’ transactions Issue of new units: – Units issued as partial settlement for the acquisition of investment properties – 287,173 – 287,173 – Initial public offering – 369,747 – 369,747 – Private placement and accredited investor units – 112,895 – 112,895 – Manager’s fees paid and payable in Units 1,027 317 1,027 317 Distribution to Unitholders 17 (43,704) – (43,704) – Issue expenses 19 – (18,742) – (18,742) Net (decrease)/increase in net assets resulting from Unitholders’ transactions (42,677) 751,390 (42,677) 751,390
Total increase in net assets before movement in other reserves 802,047 820,028 775,740 820,028
Other reserves Net movement in hedging reserve (1,611) – (1,611) – Net movement in foreign currency translation reserve 8,695 – – – Net increase/(decrease) in other reserves 7,084 – (1,611) –
Net assets attributable to Unitholders at end of year/period 809,131 820,028 774,129 820,028
The accompanying notes form an integral part of these financial statements.
62 63 Portfolio Statements As at 31 December 2008
Percentage of Percentage of Net Assets Net Assets Remaining Occupancy Occupancy Attributable Attributable Tenure Term term Existing rate at rate at At Valuation At Valuation to Unitholders to Unitholders Description of property of land of lease of lease Location use 31/12/2008 31/12/2007 at 31/12/2008 at 31/12/2007 at 31/12/2008 at 31/12/2007 (years) (years) % % $’000 $’000 % %
Group
Healthcare Properties (1)
Singapore
The Mount Elizabeth Leasehold 67 66 3 Mount Elizabeth, Medical Hospital (2) (2) 528,670 571,730 65.3 69.7 Hospital Property Singapore 228510
The Gleneagles Leasehold 75 74 6 Napier Road, Singapore 258499; and Medical Hospital (2) (2) 262,740 225,340 32.5 27.5 Hospital Property 6A Napier Road, Singapore 258500
The East Shore Leasehold 75 74 319 Joo Chiat Place, Singapore 427989; and Medical Hospital (2) (2) 40,180 34,500 5.0 4.2 Hospital Property 321 Joo Chiat Place, Singapore 427990 831,590 831,570
Japan
P-Life Matsudo (3) Freehold N.A. N.A. 357 Matsuhidai, Matsudo City, Pharmaceutical product (3) – 40,915 – 5.1 – Chiba Prefecture, Japan distributing and manufacturing facility
Bon Sejour Shin-Yamashita (4) Freehold N.A. N.A. 2-12-55 Shin Yamashita, Naka-Ku, Nursing home (4) – 22,518 – 2.8 – Yokohama City, Kanagawa Prefecture, with care service Japan
Bon Sejour Ibaraki (4) Leasehold 50 49 25-2, Nishi-Toyokawacho, Ibaraki City, Nursing home (4) – 18,365 – 2.3 – Osaka Prefecture, Japan with care service
Palmary Inn Akashi (5) Freehold N.A. N.A. 486, Yagi, Okubo-cho, Akashi City, Nursing home (5) – 24,913 – 3.1 – Hyogo Prefecture, Japan with care service
Palmary Inn Suma (5) Freehold N.A. N.A. 1-5-23, Chimoricho, Suma-ku, Kobe City, Nursing home (5) – 14,341 – 1.8 – Hyogo Prefecture, Japan with care service
Senior Chonaikai Freehold N.A. N.A. 5-370-4, Makuhari-cho, Hanamigawa-ku, Nursing home (5) – 23,939 – 3.0 – Makuhari Kan (5) Chiba City, Chiba Prefecture, Japan with care service
Himawari Home Kamakura (5) Freehold N.A. N.A. 1-13-1, Iwase, Kamakura City, Nursing home (5) – 16,146 – 2.0 – Kanagawa Prefecture, Japan with care service
Smiling Home Medis Freehold N.A. N.A. 5-5-6, Shikatebukuro, Minami-ku, Nursing home (5) – 10,492 – 1.3 – Musashi Urawa (5) Saitama City, Saitama Prefecture, Japan with care service
Balance carried forward 171,629 – 21.4 –
The accompanying notes form an integral part of these financial statements.
Annual Report 2008 Percentage of Percentage of Net Assets Net Assets Remaining Occupancy Occupancy Attributable Attributable Tenure Term term Existing rate at rate at At Valuation At Valuation to Unitholders to Unitholders Description of property of land of lease of lease Location use 31/12/2008 31/12/2007 at 31/12/2008 at 31/12/2007 at 31/12/2008 at 31/12/2007 (years) (years) % % $’000 $’000 % %
Group
Healthcare Properties (1)
Singapore
The Mount Elizabeth Leasehold 67 66 3 Mount Elizabeth, Medical Hospital (2) (2) 528,670 571,730 65.3 69.7 Hospital Property Singapore 228510
The Gleneagles Leasehold 75 74 6 Napier Road, Singapore 258499; and Medical Hospital (2) (2) 262,740 225,340 32.5 27.5 Hospital Property 6A Napier Road, Singapore 258500
The East Shore Leasehold 75 74 319 Joo Chiat Place, Singapore 427989; and Medical Hospital (2) (2) 40,180 34,500 5.0 4.2 Hospital Property 321 Joo Chiat Place, Singapore 427990 831,590 831,570
Japan
P-Life Matsudo (3) Freehold N.A. N.A. 357 Matsuhidai, Matsudo City, Pharmaceutical product (3) – 40,915 – 5.1 – Chiba Prefecture, Japan distributing and manufacturing facility
Bon Sejour Shin-Yamashita (4) Freehold N.A. N.A. 2-12-55 Shin Yamashita, Naka-Ku, Nursing home (4) – 22,518 – 2.8 – Yokohama City, Kanagawa Prefecture, with care service Japan
Bon Sejour Ibaraki (4) Leasehold 50 49 25-2, Nishi-Toyokawacho, Ibaraki City, Nursing home (4) – 18,365 – 2.3 – Osaka Prefecture, Japan with care service
Palmary Inn Akashi (5) Freehold N.A. N.A. 486, Yagi, Okubo-cho, Akashi City, Nursing home (5) – 24,913 – 3.1 – Hyogo Prefecture, Japan with care service
Palmary Inn Suma (5) Freehold N.A. N.A. 1-5-23, Chimoricho, Suma-ku, Kobe City, Nursing home (5) – 14,341 – 1.8 – Hyogo Prefecture, Japan with care service
Senior Chonaikai Freehold N.A. N.A. 5-370-4, Makuhari-cho, Hanamigawa-ku, Nursing home (5) – 23,939 – 3.0 – Makuhari Kan (5) Chiba City, Chiba Prefecture, Japan with care service
Himawari Home Kamakura (5) Freehold N.A. N.A. 1-13-1, Iwase, Kamakura City, Nursing home (5) – 16,146 – 2.0 – Kanagawa Prefecture, Japan with care service
Smiling Home Medis Freehold N.A. N.A. 5-5-6, Shikatebukuro, Minami-ku, Nursing home (5) – 10,492 – 1.3 – Musashi Urawa (5) Saitama City, Saitama Prefecture, Japan with care service
Balance carried forward 171,629 – 21.4 –
The accompanying notes form an integral part of these financial statements.
64 65 Portfolio Statements (cont’d) As at 31 December 2008
Percentage of Percentage of Net Assets Net Assets Remaining Occupancy Occupancy Attributable Attributable Tenure Term term Existing rate at rate at At Valuation At Valuation to Unitholders to Unitholders Description of property of land of lease of lease Location use 31/12/2008 31/12/2007 at 31/12/2008 at 31/12/2007 at 31/12/2008 at 31/12/2007 (years) (years) % % $’000 $’000 % %
Group
Healthcare Properties (1) (cont’d)
Japan (cont’d)
Balance brought forward 171,629 – 21.4 –
Fureai no sono Freehold N.A. N.A. 3-15-37, Takanodai, Nerima-ku, Nursing home (5) – 22,725 – 2.8 – Nerima Takanodai (5) Tokyo Prefecture, Japan with care service
Smiling Home Medis Freehold N.A. N.A. 2-2-5, Gamo-nishimachi, Koshigaya City, Nursing home (5) – 22,039 – 2.7 – Koshigaya Gamo (5) Saitama Prefecture, Japan with care service 216,393 – 26.9 –
Investment properties, at valuation 1,047,983 831,570 130 101 Net liabilities (excluding net assets attributable to Unitholders) (238,852) (11,542) (30) (1) Net assets attributable to Unitholders 809,131 820,028 100 100
Trust
Healthcare Properties (1)
Singapore
The Mount Elizabeth Leasehold 67 66 3 Mount Elizabeth, Medical Hospital (2) (2) 528,670 571,730 68.3 69.7 Hospital Property Singapore 228510
The Gleneagles Leasehold 75 74 6 Napier Road, Singapore 258499; and Medical Hospital (2) (2) 262,740 225,340 33.9 27.5 Hospital Property 6A Napier Road, Singapore 258500
The East Shore Leasehold 75 74 319 Joo Chiat Place, Singapore 427989; and Medical Hospital (2) (2) 40,180 34,500 5.2 4.2 Hospital Property 321 Joo Chiat Place, Singapore 427990 831,590 831,570
(1) Healthcare Properties are used by tenants for healthcare and/or healthcare-related purposes.
(2) These properties are leased to Parkway Hospitals Singapore Pte. Ltd., a related corporation of the Manager of the Trust under separate master lease agreements, which contain an initial term of 15 years from 23 August 2007 with an option to extend the lease of each of these properties for a further term of 15 years. The appraised value of these properties as determined by DTZ Debenham Tie Leung (SEA) Pte Ltd as at 31 December 2008, using direct capitalisation, direct comparison and discounted cash flow approaches, was $831.6 million (2007: $831.6 million).
(3) On 16 May 2008, the Group executed an agreement to participate as an investor in relation to the acquisition of the pharmaceutical product distributing and manufacturing facility from a third party for a total consideration of JPY2.590 billion (approximately $34.2 million) which is leased to a master lessee under a master lease agreement. The appraised value of the property as determined by Colliers Halifax as at 31 December 2008, using direct income, cost and discounted cash flow approaches, was JPY2.562 billion (approximately $40.9 million).
The accompanying notes form an integral part of these financial statements.
Annual Report 2008 Percentage of Percentage of Net Assets Net Assets Remaining Occupancy Occupancy Attributable Attributable Tenure Term term Existing rate at rate at At Valuation At Valuation to Unitholders to Unitholders Description of property of land of lease of lease Location use 31/12/2008 31/12/2007 at 31/12/2008 at 31/12/2007 at 31/12/2008 at 31/12/2007 (years) (years) % % $’000 $’000 % %
Group
Healthcare Properties (1) (cont’d)
Japan (cont’d)
Balance brought forward 171,629 – 21.4 –
Fureai no sono Freehold N.A. N.A. 3-15-37, Takanodai, Nerima-ku, Nursing home (5) – 22,725 – 2.8 – Nerima Takanodai (5) Tokyo Prefecture, Japan with care service
Smiling Home Medis Freehold N.A. N.A. 2-2-5, Gamo-nishimachi, Koshigaya City, Nursing home (5) – 22,039 – 2.7 – Koshigaya Gamo (5) Saitama Prefecture, Japan with care service 216,393 – 26.9 –
Investment properties, at valuation 1,047,983 831,570 130 101 Net liabilities (excluding net assets attributable to Unitholders) (238,852) (11,542) (30) (1) Net assets attributable to Unitholders 809,131 820,028 100 100
Trust
Healthcare Properties (1)
Singapore
The Mount Elizabeth Leasehold 67 66 3 Mount Elizabeth, Medical Hospital (2) (2) 528,670 571,730 68.3 69.7 Hospital Property Singapore 228510
The Gleneagles Leasehold 75 74 6 Napier Road, Singapore 258499; and Medical Hospital (2) (2) 262,740 225,340 33.9 27.5 Hospital Property 6A Napier Road, Singapore 258500
The East Shore Leasehold 75 74 319 Joo Chiat Place, Singapore 427989; and Medical Hospital (2) (2) 40,180 34,500 5.2 4.2 Hospital Property 321 Joo Chiat Place, Singapore 427990 831,590 831,570
(4) On 30 May 2008, the Group executed an agreement to participate as an investor in relation to the acquisition of two nursing homes, Bon Sejour Shin-Yamashita and Bon Sejour Ibaraki from a third party for a total consideration of JPY2.617 billion (approximately $34.5 million) which are leased to a nursing home operator for an initial term of 15 years with an option to extend the leases for a further term of 5 years. As at 31 December 2008, the combined appraised value of these properties as determined by DTZ Debenham Tie Leung K.K., using cost and income capitalisation approaches, was JPY2.560 billion (approximately $40.9 million).
(5) On 29 September 2008, the Group executed an agreement to participate as an investor in relation to the acquisition of seven nursing homes from a third party for a total consideration of JPY8.032 billion (approximately $108.2 million) which are leased to several nursing home operators. As at 31 December 2008, the combined appraised value of these properties as determined by Colliers Halifax, using direct income, cost and discounted cash flow approaches, was JPY8.428 billion (approximately $134.6 million).
The Manager of the Trust believes that the independent valuers have appropriate professional qualifications and recent experience in the location and category of the properties being evaluated.
The accompanying notes form an integral part of these financial statements.
66 67 Consolidated Cash Flow Statement Year ended 31 December 2008
Group Period from Note Year ended 12/07/2007 to 31/12/2008 31/12/2007 $’000 $’000
Operating activities Total return for the year/period before income tax 25,415 68,638
Adjustments for: Interest income (177) (94) Finance costs 3,992 1,002 Manager’s management fees paid and payable in units 1,027 317 Net change in fair value of financial derivatives 2,227 351 Net change in fair value of investment properties 3,294 (56,291)
Operating income before working capital changes 35,778 13,923 Changes in working capital: Trade and other receivables (1,695) (5,512) Trade and other payables 9,149 3,804 Cash generated from operations 43,232 12,215 Income tax paid (719) – Cash flows from operating activities 42,513 12,215
Investing activities Interest received 177 94 Net cash outflow on purchase of investment properties (including acquisition related costs) (Note A) (184,226) (487,476) Cash flows from investing activities (184,049) (487,382)
Financing activities Proceeds from issue of new units – 482,642 Issue expenses paid – (18,742) Borrowing costs paid (1,432) (822) Interest paid (2,107) (769) Distributions to Unitholders 17 (43,704) – Proceeds from borrowings 191,090 34,000 Cash flows from financing activities 143,847 496,309
Net increase in cash and cash equivalents 2,311 21,142 Effects of exchange differences on cash balances 1,625 – Cash and cash equivalents at beginning of year/period 21,142 – Cash and cash equivalents at end of year/period 25,078 21,142
The accompanying notes form an integral part of these financial statements.
Annual Report 2008 Consolidated Cash Flow Statement (cont’d) Year ended 31 December 2008
Notes:
(A) Net Cash Outflow on Purchase of Investment Properties (including acquisition related costs)
Net cash outflow on purchase of investment properties (including acquisition related costs) is set out below:
Group Period from Year ended 12/07/2007 to 31/12/2008 31/12/2007 $’000 $’000
Investment properties 176,892 774,620 Acquisition related costs 7,334 659 Investment properties acquired (including acquisition related costs) 184,226 775,279 Purchase consideration paid in units – (287,173) Retention sums – (630) Net cash outflow/Cash consideration paid 184,226 487,476
(B) Significant Non-Cash Transactions
During the financial year, there were the following significant non-cash transactions:
(i) On 20 February 2008, 6 May 2008, 25 July 2008 and 4 November 2008, the Trust issued 272,558, 195,060, 200,656 and 260,984 new Units at an issue price of $1.16 per unit, $1.17 per unit, $1.20 per unit and $0.98 per unit, respectively, as settlement for 20% of the base and performance fee for the periods from 23 August 2007 to 31 December 2007, 1 January 2008 to 31 March 2008, 1 April 2008 to 30 June 2008 and 1 July 2008 to 30 September 2008.
(ii) As at 31 December 2008, 403,096 Units at an average price of $0.75 per unit are issuable as settlement for 20% of the base and performance fees of the Manager’s management fee for the period from 1 October 2008 to 31 December 2008.
During the financial period ended 31 December 2007, there were the following significant non-cash transactions:
(i) On 23 August 2007 (date of listing), the Trust issued 224,354,000 Units at an issue price of $1.28 per unit as partial settlement for the acquisition of the Hospital Properties.
(ii) As at 31 December 2007, 272,558 Units at an average price of $1.16 per unit are issuable as settlement for 20% of the base and performance fees of the Manager’s management fee for the period from 23 August 2007 to 31 December 2007.
The accompanying notes form an integral part of these financial statements.
68 69 Notes to the Financial Statements
These notes form an integral part of the financial statements.
The financial statements were authorised for issue by the Manager and the Trustee on 29 January 2009.
1 General
Parkway Life Real Estate Investment Trust (the “Trust”) is a Singapore-domiciled unit trust constituted pursuant to the trust deed dated 12 July 2007 entered into between Parkway Trust Management Limited (the “Manager”) and HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”), governed by the laws of the Republic of Singapore (“Trust Deed”). On 12 July 2007, the Trust was declared as an authorised unit trust scheme under the Trustees Act, Chapter 337. The Trustee is under a duty to take into custody and hold the assets of the Trust and its subsidiaries (the “Group”) in trust for the holders (“Unitholders”) of units in the Trust (the “Units”).
On 23 August 2007 (“Listing Date”), the Trust was admitted to the Official List of the Singapore Exchange Securities Trading Limited (“SGX-ST”) and was included under the Central Provident Fund (“CPF”) Investment Scheme on the same date.
At Listing Date, the Trust had invested in and owned an initial portfolio of three private hospitals in Singapore comprising The Mount Elizabeth Hospital Property, The Gleneagles Hospital Property, and The East Shore Hospital Property (collectively, the “Hospital Properties”). The Hospital Properties are leased to a related corporation of the Manager of the Trust, Parkway Hospitals Singapore Pte. Ltd., pursuant to three separate master lease agreements.
The principal activity of the Trust is to invest primarily in income-producing real estate and/or real estate- related assets in the Asia-Pacific region (including Singapore) that are used primarily for healthcare and/or healthcare-related purposes (including but not limited to, hospitals, healthcare facilities and real estate and/ or real estate assets used in connection with healthcare research, education, and the manufacture or storage of drugs, medicine and other healthcare goods and devices), whether wholly or partially owned, and whether directly or indirectly held through the ownership of special purpose vehicles whose primary purpose is to own such real estate.
The principal activities of the subsidiaries are those of investment holding of healthcare related properties.
On 16 May 2008, the Group, through its wholly-owned subsidiary, Matsudo Investment Pte Ltd, executed an agreement to participate as an investor in relation to the acquisition of P-Life Matsudo, a pharmaceutical product manufacturing and distributing facility in Matsudo City, Chiba Prefecture, Japan for a total cash consideration of JPY2.590 billion (approximately $34.2 million). The acquisition of P-Life Matsudo was made through a special purpose entity of Matsudo Investment Pte Ltd, Godo Kaisha Phoebe in which it made a Tokumei Kumiai investment.
On 30 May 2008, the Group, through its wholly-owned subsidiary, Parkway Life Japan2 Pte Ltd, executed an agreement to participate as an investor in relation to the acquisition of two nursing homes, Bon Sejour Shin-Yamashita located in Yokohama City, Kanagawa Prefecture and Bon Sejour Ibaraki located in Ibaraki City, Osaka Prefecture, Japan, for a total cash consideration of JPY2.617 billion (approximately $34.5 million). The acquisitions of these two nursing homes were made through special purpose vehicles, Godo Kaisha Del Monte and Godo Kaisha Urbino, respectively, in which Parkway Life Japan2 Pte Ltd has made a Tokumei Kumiai investment.
Annual Report 2008 Notes to the Financial Statements (cont’d)
1 General (cont’d)
On 29 September 2008, the Group, through its wholly-owned subsidiary, Parkway Life Japan3 Pte Ltd, executed an agreement to participate as an investor in relation to the acquisition of seven nursing homes, Palmary Inn Akashi, Palmary Inn Suma, Senior Chonaikai Makuhari Kan, Himawari Home Kamakura, Smiling Home Medis Musashi Urawa, Fureai no sono Nerima Takanodai and Smiling Home Medis Koshigaya Gamo, all of which are located in various part of Japan for a total cash consideration of JPY8.032 billion (approximately $108.2 million). The acquisition of these nursing homes is made through a special purpose vehicle Godo Kaisha Healthcare 1, in which Parkway Life Japan3 Pte Ltd has made a Tokumei Kumiai investment.
The consolidated financial statements relate to the Trust and its subsidiaries (the “Group”).
The Group has entered into several service agreements in relation to the management of the Trust and its property operations. The fee structures of these services are as follows:
(A) Trustee’s fee
Pursuant to the Trust Deed, the Trustee’s fee shall not exceed 0.03% per annum of the value of the gross assets of the Group (“Deposited Property”), subject to a minimum of $10,000 per month or such higher percentage as may be fixed by an Extraordinary Resolution at a meeting of Unitholders of the Trust. In addition, the Trust will pay the Trustee a one-time inception fee of $25,000. The Trustee’s fee is payable out of the Deposited Property on a monthly basis, in arrears. The Trustee is also entitled to reimbursement of expenses incurred in the performance of its duties under the Trust Deed.
Based on the current agreement between the Manager and the Trustee, the Trustee’s fee is charged on a scaled basis of up to 0.03% per annum of the value of the Group’s Deposited Property.
(B) Manager’s management fees
Pursuant to the Trust Deed, the Manager is entitled to receive management fees comprising the base fee and performance fee as follows:
(i) A base fee of 0.3% per annum of the value of the Deposited Property.
(ii) A performance fee of 4.5% per annum of the net property income of the Group.
The base fee and performance fee is payable to the Manager in the form of cash and/or Units (as the Manager may elect prior to each payment) and in such proportion as may be determined by the Manager.
Where the management fees are payable in the form of Units, such payment shall be made out quarterly in arrears and the Manager shall be entitled to receive such number of Units as may be purchased with the relevant amount of the management fee attributable to the relevant period at an issue price equal to the Market Price.
Where the management fees are payable in the form of cash, the portion of the base fee and performance fee payable in cash shall be payable monthly and quarterly in arrears, respectively.
70 71 Notes to the Financial Statements (cont’d)
1 General (cont’d)
(B) Manager’s management fees (cont’d)
Any increase in the maximum permitted amount or any change in the structure of the Manager’s management fees must be approved by an Extraordinary Resolution at a meeting of Unitholders of the Trust duly convened and held in accordance with the provisions of the Trust Deed. In addition to the management fees, the Manager is entitled to the following fees (excluding the Hospital Properties for the duration of the master lease agreements):
(i) A fee of 2.0% per annum of the revenue of the real estate held directly or indirectly by the Trust and managed by the Manager, for property management services provided by the Manager;
(ii) A fee of 1.0% per annum of the revenue of the real estate held directly or indirectly by the Trust and managed by the Manager, for lease management services provided by the Manager;
(iii) Commissions as set out below for securing new leases or renewal of leases for those real estate which are not leased to a master lessee under a master lease agreement, pursuant to marketing services provided by the Manager:
(a) One month’s gross rent inclusive of service charge, for securing a lease of three years or less;
(b) Two months’ gross rent inclusive of service charge, for securing a lease of more than three years;
(c) Half month’s gross rent inclusive of service charge, for securing a renewal of lease of three years or less; and
(d) One month’s gross rent inclusive of service charge, for securing a renewal of lease of more than three years.
If a third party agent secures a tenancy, the Manager will be responsible for all marketing services commissions payable to such third party agent, and the Manager will be entitled to a marketing service commission of:
(a) 1.2 months’ gross rent inclusive of service charge for securing or renewal of a lease of three years or less; and
(b) 2.4 months’ gross rent inclusive of service charge for securing or renewal of a lease of more than three years.
The marketing services commission may be adjusted accordingly at the time of securing or renewal of a lease by the Manager or a third party agent, to be consistent with and no higher than the prevailing market rates of such marketing service commission in the country where the real estate is located.
Annual Report 2008 Notes to the Financial Statements (cont’d)
1 General (cont’d)
(C) Manager’s acquisition and divestment fees
The Manager is entitled to receive the following acquisition fees and divestment fees:
(i) An acquisition fee of 1.0% of the Enterprise Value of any real estate or real estate related asset acquired directly or indirectly by the Trust, prorated, if applicable, to the proportion of the Trust’s interest.
Where the assets acquired by the Trust are shares in a special purpose vehicle whose primary purpose is to hold/own real estate (directly or indirectly), “Enterprise Value” shall mean the sum of the equity value and the total net debt attributable to the shares being acquired by the Trust. Where the asset acquired by the Trust is a real estate, “Enterprise Value” shall mean the value of the real estate.
In the event that there is a payment to be made to third party agents or brokers in connection with the acquisition, such payment shall be paid out of the Deposited Property. Unless required under the Property Funds Guidelines to be paid in the form of Units only, the Manager may opt to receive such acquisition fee in the form of cash or Units or a combination of cash and Units as it may determine. Units representing the acquisition fee or any part thereof will be issued at an Issue Price on a similar basis as management fees.
In relation to the Hospital Properties acquired on 23 August 2007, no acquisition fee was payable. In the event that the Manager receives an acquisition fee in connection with a transaction with a related party, any such acquisition fee shall be paid in the form of Units to be issued by the Trust at the market price.
(ii) A divestment fee of 0.5% of the Enterprise Value of any real estate or real estate related asset sold or divested directly or indirectly by the Trust, pro-rated, if applicable, to the proportion of the Trust’s interest.
Unless required under the Property Funds Guidelines to be paid in the form of Units only, the Manager may opt to receive such divestment fee in the form of cash or Units or a combination of cash and Units as it may determine. The divestment fee is payable as soon as practicable after completion of the relevant divestment. Any payment to third party agents or brokers in connection with the divestment of any real estate or real estate related assets of the Trust shall be paid by the Trust. In the event the Manager receives divestment fee in connection with a transaction with a Related Party, any such divestment fee shall be paid in the form of Units to be issued by the Trust at the market price.
(D) Project management fees
The Property Manager is entitled to receive a project management fee for each project undertaken, for the development or redevelopment (if not prohibited by the Property Funds Guidelines or if otherwise permitted by the MAS), the refurbishment, retrofitting and renovation of a property, based on the capital expenditure of the project, amounting to:
(i) 5.0% of the capital expenditure of the project where the capital expenditure of the project is less than $1.0 million; or
(ii) 3.0% of the capital expenditure of the project where the capital expenditure of the project is more than or equal to $1.0 million.
For the purpose of calculating the fees payable to the Property Manager, “capital expenditure” means all construction costs and expenditure valued by the quantity surveyor engaged by the Trustee for the project, excluding development charges, differential premiums, statutory payments, consultants’ professional fees and goods and services tax.
72 73 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies
2.1 Basis of preparation
The financial statements are prepared in accordance with the recommendations of Statement of Recommended Accounting Practice (“RAP”) 7 “Reporting Framework for Unit Trusts” issued by the Institute of Certified Public Accountants of Singapore and the applicable requirements of the Code on Collective Investment Schemes (“CIS Code”) issued by the Monetary Authority of Singapore (“MAS”) and the provisions of the Trust Deed.
The financial statements of the Group and the Trust are presented in Singapore dollars, which is the Trust’s functional currency. All financial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated.
The financial statements have been prepared on the historical cost basis, except for investment properties and certain financial instruments, which are stated at fair value.
The preparation of financial statements in conformity with RAP 7 requires the Manager to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes:
– Note 5 – valuation of investment properties
– Note 22 – valuation of financial instruments
The accounting policies set out below have been applied consistently by the Group and to all periods presented in these financial statements.
2.2 Consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
Accounting for subsidiaries by the Trust
Investments in subsidiaries are stated in the Trust’s balance sheet at cost less accumulated impairment losses.
Annual Report 2008 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.3 Foreign currencies
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on which the fair value was determined.
Foreign currency differences arising on retranslation are recognised in the Statement of Total Return, except for differences arising on the retranslation of monetary items that in substance form part of the Group’s net investment in a foreign operation and financial liabilities designated as hedges of the net investment in a foreign operation.
Foreign operations
The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchange rates prevailing at the dates of the transactions. Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Foreign currency differences are recognised in the foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to the Statement of Total Return.
Net investment in a foreign operation
Exchange differences arising from monetary items that in substance form part of the Trust’s net investment in a foreign operation are recognised in the Trust’s Statement of Total Return. Such exchange differences are reclassified to net assets attributable to Unitholders in the consolidated financial statements. When the foreign operation is disposed of, the cumulative amount in net assets attributable to Unitholders is transferred to Statement of Total Return as an adjustment to total return arising on disposal.
2.4 Investment properties
Investment properties are accounted for as non-current assets and are stated at initial cost on acquisition, and at valuation thereafter. The cost of a purchased property comprises its purchase price and any directly attributable expenditure. Valuations are determined in accordance with the Trust Deed, which requires the investment properties to be valued by independent registered valuers in the following manner:
(i) in such manner and frequency required under the CIS code issued by MAS; and
(ii) at least once a year, on the 31st December of each year.
Any increase or decrease on revaluation is credited or charged directly to the Statement of Total Return as a net change in fair value of investment properties.
74 75 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.4 Investment properties (cont’d)
Subsequent expenditure relating to investment properties that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.
When an investment property is disposed of, the resulting gain or loss recognised in the Statement of Total Return is the difference between net disposal proceeds and the carrying amount of the property.
Investment properties are not depreciated. The properties are subject to continued maintenance and regularly revalued on the basis set out above.
2.5 Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, financial liabilities and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through Statement of Total Return, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at settlement date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and bank deposits.
Derivative financial instruments and hedging activities
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through Statement of Total Return.
Derivatives are recognised initially at fair value and attributable transaction costs are recognised in the Statement of Total Return when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
Annual Report 2008 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.5 Financial instruments (cont’d)
Derivative financial instruments and hedging activities (cont’d)
Cash flow hedge
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in the net assets attributable to Unitholders to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the Statement of Total Return.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in net assets attributable to Unitholders remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in net assets attributable to Unitholders is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in net assets attributable to Unitholders is transferred to the Statement of Total Return in the same period that the hedged item affects total return.
Hedge of net investment in a foreign operation
Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in the Trust’s Statement of Total Return. On consolidation, such differences are recognised directly in net assets attributable to Unitholders, in the foreign currency translation reserve to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in the Statement of Total Return. When the hedged net investment is disposed of, the cumulative amount in net assets attributable to Unitholders arising from foreign currency translation attributable to that investment is transferred to the Statement of Total Return as an adjustment to the total return on disposal.
Derivatives that do not qualify for hedge accounting
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised immediately in the Statement of Total Return.
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in the Statement of Total Return.
Impairment losses in respect of financial assets measured at amortised cost are reversed to the Statement of Total Return, if the subsequent increase in fair value can be related objectively to an event occurring after the impairment losses was recognised.
76 77 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.6 Impairment – non-financial assets
The carrying amounts of the Group’s non-current assets, other than investment properties, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in the Statement of Total Return unless it reverses a previous revaluation, credited to net assets attributable to Unitholders, in which case it is charged to net assets attributable to Unitholders.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
2.7 Net assets attributable to Unitholders
Net assets attributable to Unitholders represents the Unitholders’ residual interest in the Group’s net assets upon termination.
Expenses incurred in connection with the initial public offering of the Trust and listing on the SGX-ST are deducted directly against net assets attributable to Unitholders.
2.8 Revenue recognition
(i) Rental income from operating leases
Rental income receivable under operating leases is recognised in the Statement of Total Return on a straight-line basis over the term of the lease, except when an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives granted are recognised as an integral part of the total rental to be received. Contingent rentals, which include gross turnover rental, are recognised as income in the accounting period on a receipt basis.
(ii) Interest income
Interest income is recognised on an accrual basis, using the effective interest method.
(iii) Dividend income
Dividend income is recognised in the Statement of Total Return on the date the Trust’s right to receive payment is established.
Annual Report 2008 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.9 Expenses
(i) Property expenses
Property expenses are recognised on an accrual basis.
(ii) Manager’s management fees
Manager’s management fees are recognised on an accrual basis based on the applicable formula stipulated in Note 1(B). Manager’s management fee paid and payable in Units is recognised as an expense in the Statement of Total Return and a corresponding increase in net assets attributable to Unitholders.
(iii) Trust expenses
Trust expenses are recognised on an accrual basis. Included in trust expenses is the trustee’s fees which are based on the applicable formula stipulated in Note 1(A).
(iv) Borrowing costs
Interest expense and similar charges are recognised in the Statement of Total Return, using the effective interest rate method over the period of borrowings. Expenses incurred in connection with the arrangement of borrowings are recognised in the Statement of Total Return using the effective interest method over the period for which the borrowings are granted.
2.10 Taxation
Taxation on the return for the year comprises current and deferred tax. Income tax is recognised in the Statement of Total Return except to the extent that it relates to items directly related to net assets attributable to Unitholders, in which case it is recognised in net assets attributable to Unitholders.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted by the balance sheet date.
Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The temporary differences on initial recognition of assets or liabilities that is not a business combination and that affect neither accounting nor taxable profit are not provided for. The amount of deferred tax provided is based on the expected manner of which the assets and liabilities are expected to be realised or settled, using tax rates enacted or substantively enacted by the balance sheet date. Deferred tax assets and liabilities are offset if there is a legally enforceable rights to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same entity.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
78 79 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.10 Taxation (cont’d)
The Inland Revenue Authority of Singapore (“IRAS”) has issued a tax ruling on the taxation of the Trust and its Unitholders. Subject to meeting the terms and conditions of the tax ruling issued by IRAS, the Trustee is not subject to tax on the taxable income of the Trust. Instead, the Trustee and the Manager will deduct income tax at the prevailing corporate tax rate (currently 18%) from the distributions made to Unitholders that are made out of the taxable income of the Trust (the “tax transparency treatment”), except:
(i) where the beneficial owners are individuals (whether resident or non-resident) who receive such distribution as investment income (excluding income received through a partnership) or Qualifying Unitholders, the Trustee and the Manager will make the distributions to such Unitholders without deducting any income tax; or
(ii) where the beneficial owners are foreign non-individual Unitholders, the Trustee and the Manager will deduct Singapore income tax at the reduced tax of 10% for distributions made during the period from 18 February 2005 to 17 February 2010.
A “Qualifying Unitholder” is a Unitholder who is:
• A Singapore-incorporated company which is a tax resident in Singapore;
• A body of persons other than a company or a partnership, registered or constituted in Singapore (e.g. a town council, a statutory board, a registered charity, a registered cooperative society, a registered trade union, a management corporation, a club and a trade industry association); or
• A Singapore branch of a foreign company which has been presented a letter of approval from IRAS granting waiver from tax deducted at source in respect of distributions from the Trust.
A “foreign non-individual Unitholder” is one which is not a resident of Singapore for income tax purposes and;
• who does not have a permanent establishment in Singapore; or
• who carries on any operation in Singapore through a permanent establishment in Singapore, where the funds used to acquire the Units are not obtained from that operation in Singapore.
The above tax transparency ruling does not apply to gains from sale of real estate properties, if considered to be trading gains derived from a trade or business carried on by the Trust. Tax on such gains or profits will be subject to tax, in accordance to section 10(1)(a) of the Income Tax Act, Chapter 134 and collected from the Trustee. Where the gains are capital gains, it will not be subject to tax and the Trustee and the Manager may distribute the capital gains without tax being deducted at source.
2.11 Distribution policy
The Trust has a distribution policy where it is required to distribute at least 90% of its taxable income, other than gains from the sale of real estate properties that are determined by the IRAS to be trading gains, and net overseas income. However, the Trust had committed to distribute 100% of its taxable income and net overseas income for the period from 23 August 2007 to 31 December 2007 and for the financial year ended 31 December 2008. For the financial year ending 31 December 2009, the Trust will continue to distribute 100% of its taxable income and net overseas income. Thereafter, the Trust will distribute at least 90% of its taxable income and net overseas income, with the actual level of distribution to be determined at the Manager’s discretion.
Annual Report 2008 Notes to the Financial Statements (cont’d)
2 Significant Accounting Policies (cont’d)
2.11 Distribution policy (cont’d)
Net overseas income refers to the net profits (excluding any gains from the sale of property or shares, as the case may be) after applicable taxes and adjustment for non-cash items such as depreciation derived by the Trust from its properties located outside Singapore.
Distributions to Unitholders are made on a quarterly basis, with the amount calculated as at 31 March, 30 June, 30 September and 31 December each year for the three-month period ending on each of the said dates. In accordance with the provisions of the Trust Deed, the Manager is required to pay distributions within 75 days after the end of the first three distribution periods of a financial year and within 90 days from the end of a financial year. Distributions, when paid, will be in Singapore dollars.
2.12 Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
Segment information is presented in respect of the Group’s business and geographical segments. The primary format, geographical segments, is based on the Group’s management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest-bearing liabilities and expenses, and related assets and expenses.
3 Trade and Other Receivables
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Trade receivables 409 – – – Amounts due from: – related party (trade) 5,480 4,669 5,480 4,669 – subsidiary (non-trade) – – 49 – GST receivable – 811 – 811 Deposits 958 – – – Prepayments 369 32 25 32 Other receivables 289 – – – 7,505 5,512 5,554 5,512
At the balance sheet date, the investment properties located in Singapore are leased to one master lessee, Parkway Hospitals Singapore Pte. Ltd. a related corporation of the Manager of the Trust.
The Manager is of the opinion that there are no conditions that cast doubt over the collectibility of the Group’s trade receivables. The maximum exposure to credit risk for trade receivables at the reporting date is $5,889,000 (2007: $4,669,000).
Non-trade amounts due from a subsidiary is unsecured and interest-free, and is repayable on demand. There is no allowance for doubtful debt arising from the outstanding balance.
80 81 Notes to the Financial Statements (cont’d)
3 Trade and Other Receivables (cont’d)
Impairment losses
The ageing of trade receivables at the reporting date is as follows:
Impairment Impairment Gross losses Gross losses 2008 2008 2007 2007 $’000 $’000 $’000 $’000
Group Not past due 5,889 – 4,669 –
Trust Not past due 5,480 – 4,669 –
4 Cash and Cash Equivalents
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Cash at bank and in hand 11,609 17,545 1,544 17,545 Fixed deposits with financial institutions 13,469 3,597 13,469 3,597 25,078 21,142 15,013 21,142
The weighted average effective interest rate per annum relating to cash and cash equivalents, at the balance sheet date for the Group and the Trust is 0.64% and 1.04% (2007: 1.50% and 1.50%) respectively. Interest rates reprice at intervals between 1 to 3 months.
5 Investment Properties
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
At 1 January/12 July (date of constitution) 831,570 – 831,570 – Acquisition of investment properties 176,892 774,620 – 774,620 Acquisition related costs 7,334 659 – 659 Translation difference 35,481 – – – 1,051,277 775,279 831,570 775,279 Change in fair value during the year/period (3,294) 56,291 20 56,291 At 31 December 1,047,983 831,570 831,590 831,570
Investment properties are stated at fair value based on valuations performed by independent professional valuers. In determining the fair value, the valuers have used valuation methods which involved certain estimates. In relying on the valuation reports, the Manager has exercised its judgement and is satisfied that the valuation methods and estimates are reflective of the current market conditions.
Annual Report 2008 Notes to the Financial Statements (cont’d)
6 Subsidiaries
Trust 2008 2007 $’000 $’000
Unquoted equity shares, at cost 184,100 –
Details of the subsidiaries are as follows:
Effective equity Place of interest held by incorporation the Group Name of subsidiary Principal activities and business 2008 2007 % %
* Matsudo Investment Pte Ltd Investment holding Singapore 100 –
** Godo Kaisha Phoebe Special purpose entity Japan 100 – – Investment in real estate
* Parkway Life Japan2 Pte Ltd Investment holding Singapore 100 –
** Godo Kaisha Urbino Special purpose entity Japan 100 – – Investment in real estate
** Godo Kaisha Del Monte Special purpose entity Japan 100 – – Investment in real estate
* Parkway Life Japan3 Pte Ltd Investment holding Singapore 100 –
** Godo Kaisha Healthcare 1 (1) Special purpose entity Japan 100 – – Investment in real estate
* Parkway Life MTN Pte Ltd Provision of financial Singapore 100 – and treasury services
* Audited by KPMG Singapore.
** Not required to be audited under the laws of country of incorporation. These special purpose entities have been consolidated in the financial statements in accordance with Interpretations of Financial Reporting Standards 12: Consolidation – Special Purpose Entities, as the Group primarily bears the risks and enjoys the benefits of the investments held by these special purpose entities.
(1) For consolidation purposes, this entity has been audited by a member firm of KPMG International.
82 83 Notes to the Financial Statements (cont’d)
7 Trade and Other Payables
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Trade payables and accrued operating expenses 3,835 621 1,696 621 Amounts due to related parties: – the Manager (trade) 1,062 625 1,062 625 – the Manager (non-trade) 144 – – – – the Trustee (trade) 37 58 37 58 Interest payable 1,212 135 1,212 135 Retention sums payable to related corporations of the Manager 630 630 630 630 Rent deposits and advance rent received 9,524 2,500 2,500 2,500 16,444 4,569 7,137 4,569
The non-trade amount due to the Manager is unsecured and interest-free, and is repayable on demand. Transactions with related parties are priced on terms agreed between the parties.
8 Financial Liabilities
Group and Trust 2008 2007 $’000 $’000
Current liabilities Financial derivative – 351 Unsecured bank loan 34,000 – Unamortised loan transaction costs (60) – 33,940 351 Non-current liabilities Financial derivatives 4,189 – Unsecured bank loans 218,150 34,000 Unamortised loan transaction costs (1,288) (724) 221,051 33,276
254,991 33,627
Annual Report 2008 Notes to the Financial Statements (cont’d)
8 Financial Liabilities (cont’d)
Terms and debt repayment schedule
Terms and conditions of outstanding loans and borrowings are as follows:
2008 2007 Nominal Year of Face Carrying Face Carrying Group and Trust interest rate maturity value amount value amount % $’000 $’000 $’000 $’000
S$ floating rate loan SOR 2009 34,000 34,000 34,000 34,000 JPY floating rate loans TIBOR /LIBOR 2011 218,150 218,150 – – 252,150 252,150 34,000 34,000
The following are the expected contractual undiscounted cash inflows/(outflows) of financial liabilities including interest payments and excluding impact of netting agreements:
<------Cash flow ------> Carrying Contractual Within Within More than Group amount cash flows 1 year 1 to 5 years 5 years $’000 $’000 $’000 $’000 $’000
2008
Non-derivative financial liabilities S$ floating rate loan 34,000 (34,048) (34,048) – – JPY floating rate loans 218,150 (232,392) (5,420) (226,972) – Trade and other payables 16,444 (16,444) (16,444) – – 268,594 (282,884) (55,912) (226,972) –
Derivative financial liabilities Foreign exchange contracts used for hedging – outflow 1,729 (1,833) (393) (1,440) – Interest rate swaps used for hedging – inflow (4,444) 4,710 2,052 2,658 – – outflow 6,904 (7,318) (3,188) (4,130) – 2,460 (2,608) (1,136) (1,472) –
272,783 (287,325) (57,441) (229,884) –
2007
Non-derivative financial liabilities S$ floating rate loan 34,000 (35,056) (959) (34,097) – Trade and other payables 4,569 (4,569) (4,569) – – 38,569 (39,625) (5,528) (34,097) –
Derivative financial liability Interest rate swap used for hedging – inflow (812) 861 750 111 – – outflow 1,163 (1,233) (1,074) (159) – 351 (372) (324) (48) –
38,920 (39,997) (5,852) (34,145) –
84 85 Notes to the Financial Statements (cont’d)
8 Financial Liabilities (cont’d)
Terms and debt repayment schedule (cont’d)
<------Cash flow ------> Carrying Contractual Within Within More than Trust amount cash flows 1 year 1 to 5 years 5 years $’000 $’000 $’000 $’000 $’000
2008
Non-derivative financial liabilities S$ floating rate loan 34,000 (34,048) (34,048) – – JPY floating rate loans 218,150 (232,392) (5,420) (226,972) – Trade and other payables 7,137 (7,137) (7,137) – – 259,287 (273,577) (46,605) (226,972) –
Derivative financial liabilities Foreign exchange contracts used for hedging – outflow 1,729 (1,833) (393) (1,440) – Interest rate swaps used for hedging – inflow (4,444) 4,710 2,052 2,658 – – outflow 6,904 (7,318) (3,188) (4,130) – 2,460 (2,608) (1,136) (1,472) –
263,476 (278,018) (48,134) (229,884) –
2007
Non-derivative financial liabilities S$ floating rate loan 34,000 (35,056) (959) (34,097) – Trade and other payables 4,569 (4,569) (4,569) – – 38,569 (39,625) (5,528) (34,097) –
Derivative financial liability Interest rate swap used for hedging – inflow (812) 861 750 111 – – outflow 1,163 (1,233) (1,074) (159) – 351 (372) (324) (48) –
38,920 (39,997) (5,852) (34,145) –
(i) During the financial year, the Group entered into a three years JPY2.76 billion term loan facility and several three years multicurrency revolving credit facilities amounting to $165 million with various financial institutions (the “Facilities”). The Facilities were drawn down by JPY13.7 billion (equivalent to $191.1 million) to finance the acquisition of the investment properties in Japan. The Facilities are unsecured, and bears interest at a range of 1.4% to 1.5% over TIBOR/LIBOR. The first interest re-prices on 15 February 2009 and every quarter thereafter.
Interest rate swaps were entered into during the financial year to provide fixed rate funding for the Facilities at a range of 2.36% to 2.53% per annum. The swaps have the same terms and maturity as the Facilities. The Group designates these interest rate swaps as cash flow hedges.
As at 31 December 2008, the fair value of these rate swaps was $1.6 million. The effective portion of the change in their fair value was recognised in the hedging reserve.
Annual Report 2008 Notes to the Financial Statements (cont’d)
8 Financial Liabilities (cont’d)
Terms and debt repayment schedule (cont’d)
(ii) In 2007, the Trust entered into a term loan and revolving credit facilities with a financial institution. This facility comprises a term loan facility of up to $200 million and a revolving credit facility of up to $50 million. The term loan facility has been drawn down on the Listing Date in an amount of $34 million as part payment for the acquisition of the Hospital Properties. On 10 August 2007, the Trust cancelled the remaining amount of the term loan facility from $200 million to $34 million.
These credit facilities will be unsecured for an initial term of 18 months. The Group has an option to extend these facilities for an additional period of 18 months, which will be secured on the assets of the Trust including the Hospital Properties, and the rights, titles and interests in leases, insurances and rental proceeds relating to the Hospital Properties, and the rights and interest under the Property Management Agreement, as the case may be.
An interest rate swap with maturity on 22 August 2010 was entered into on 23 August 2007 to provide fixed rate funding for this loan at an interest rate of 3.56% per annum. As at 31 December 2008, the fair value of this swap amounted to $849,000 (2007: $351,000).
In accordance with Financial Reporting Standards 39, the change in fair value of the interest rate swap of $498,000 (2007: $351,000) was recognised in the Statement of Total Return. In determining the distribution to Unitholders, this is added back as a non-tax deductible expense.
9 Net Assets Attributable to Unitholders
Group Trust 2008 2007 2008 2007 $’000 $’000 $’000 $’000
Unitholders’ contribution 751,995 751,390 751,995 751,390 Revenue reserve 50,052 68,638 23,745 68,638 Hedging reserve (1,611) – (1,611) – Foreign currency translation reserve 8,695 – – – 809,131 820,028 774,129 820,028
Foreign currency translation reserve
The foreign currency translation reserve comprises:
(a) foreign exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from the functional currency of the Trust;
(b) the gains or losses on instruments used to hedge the Trust’s net investment in foreign operations that are determined to be effective hedges; and
(c) the exchange differences on monetary items which form part of the Group’s net investment in foreign operations, provided certain conditions are met.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments relating to forecast hedged transactions.
86 87 Notes to the Financial Statements (cont’d)
9 Net Assets Attributable to Unitholders (cont’d)
Capital management
The Manager reviews the Group’s and the Trust’s capital structure regularly and uses a combination of debt and equity to fund acquisition and asset enhancement projects.
The objectives of the Manager are to:
(a) maintain a strong balance sheet by adopting and maintaining a target gearing ratio;
(b) secure diversified funding sources from financial institutions and/or capital markets;
(c) adopt a proactive interest rate management strategy to manage risks related to interest rate fluctuations; and
(d) manage the foreign currency exposure through hedging, where appropriate.
The Manager seeks to maintain an optimal combination of debt and equity in order to minimise the cost of capital and maximise returns to Unitholders. The Manager also monitors the externally imposed capital requirements closely and ensures the capital structure adopted comply with the requirements.
The Group is subject to the Aggregate Leverage limit as defined in the Property Funds Guidelines of the CIS Code. The CIS Code stipulates that the total borrowings (the “Aggregate Leverage”) of a property fund should not exceed 35.0% of the fund’s Deposited Property. The Aggregate Leverage of a property fund may exceed 35.0% of the fund’s Deposited Property (up to a maximum of 60.0%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its Aggregate Leverage exceeds 35.0% of the fund’s Deposited Property.
During the financial year, the Group obtained a credit rating of BBB+ from Fitch Inc.. The Aggregate Leverage of the Group as at 31 December 2008 was 23.3% (2007: 4.0%) of the Group’s Deposited Property. This complied with the Aggregate Leverage limit above.
During the year, the Group has complied with all externally imposed capital requirements.
There were no changes in the Group’s approach to capital management during the year.
10 Units in Issue
Group and Trust 2008 2007 (’000) (’000)
Units in issue: At 1 January/12 July (date of constitution) 601,418 – Units issued: – Manager’s management fees paid in Units 929 – – Units issued as partial settlement for the acquisition of investment properties – 224,354 – Initial public offering, private placement and accredited investor units – 377,064 At 31 December 602,347 601,418
Units to be issued: – Manager’s management fees payable in Units 403 273 Total issued and issuable units at 31 December 602,750 601,691
Annual Report 2008 Notes to the Financial Statements (cont’d)
10 Units in Issue (cont’d)
On 20 February 2008, 6 May 2008, 25 July 2008 and 4 November 2008, the Trust issued 272,558, 195,060, 200,656 and 260,984 new Units at an issue price of $1.16 per unit, $1.17 per unit, $1.20 per unit and $0.98 per unit, respectively, as settlement for 20% of the base and performance fees for the periods from 23 August 2007 to 31 December 2007, 1 January 2008 to 31 March 2008, 1 April 2008 to 30 June 2008 and 1 July 2008 to 30 September 2008.
As at 31 December 2008, 403,096 (2007: 272,558) Units at an average price of $0.75 (2007: $1.16 per unit) are issuable as settlement for 20% of the base and performance fees of the Manager’s management fees for the period from 1 October 2008 to 31 December 2008.
On 23 August 2007, the Listing date, the Trust issued 377,064,000 Units at an issue price of $1.28 per unit. On the same date, the Trust issued 224,354,000 Units at an issue price of $1.28 per unit as partial settlement for the acquisition of the Hospital Properties.
The issue prices for determining the number of Units issuable as Manager’s management base and performance fees are calculated based on the volume weighted average traded price for all trades done on SGX-ST in the ordinary course of trading for 10 business days immediately preceding the last business day of the respective month-end and quarter-end.
Each unit in the Trust represents an undivided interest in the Trust and carries the same voting rights. The rights and interests of Unitholders are contained in the Trust Deed and include the right to:
• receive income and other distributions attributable to the Units held;
• receive audited financial statements and annual reports of the Trust;
• participate in the termination of the Trust by receiving a share of all net cash proceeds derived from the realisation of the assets of the Trust available for purposes of such distribution less any liabilities, in accordance with their proportionate interests in the Trust. However, a Unitholder has no equitable or proprietary interest in the underlying assets of the Trust and is not entitled to the transfer to it of any assets (or part thereof) or of any estate or interest in any asset (or part thereof) of the Trust;
• attend all Unitholders’ meetings. The Trustee or the Manager may (and the Manager shall at the request in writing of not less than 50 Unitholders or 10% of the total Units issued, whichever is the lesser) at any time convene a meeting of Unitholders in accordance with the provisions of the Trust Deed; and
• one vote per unit.
The restrictions of a Unitholder include the following:
• a Unitholder’s right is limited to the right to require due administration of the Trust in accordance with the provisions of the Trust Deed; and
• a Unitholder has no right to request the Manager to repurchase or redeem his units while the units are listed on the SGX-ST and/or any other recognised stock exchange.
A Unitholder’s liability is limited to the amount paid or payable for any unit in the Trust. The provisions of the Trust Deed provide that if the issue price of the Units held by a Unitholder has been fully paid, no such Unitholder will be personally liable to indemnify the Trustee or any creditor of the Trustee in the event that the liabilities of the Trust exceed its assets.
88 89 Notes to the Financial Statements (cont’d)
11 Gross Revenue
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Property rental income 53,831 16,900 48,667 16,900 Dividend income – – 1,240 – Other income 56 – – – 53,887 16,900 49,907 16,900
12 Property Expenses
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Operations and maintenance expenditure 3,024 1,088 3,002 1,088 Property tax 236 – – – Property and lease management fees 161 – – – Land rental 99 – – – Others 10 – – – 3,530 1,088 3,002 1,088
The Trust does not have any employees.
13 Manager’s Management Fees
Group and Trust Period from Year ended 12/07/2007 to 31/12/2008 31/12/2007 $’000 $’000
Base fees: – Paid and payable in cash 2,294 698 – Paid and payable in units 574 175 2,868 873
Performance fees: – Paid and payable in cash 1,812 569 – Paid and payable in units 453 142 2,265 711
5,133 1,584
Annual Report 2008 Notes to the Financial Statements (cont’d)
14 Trust Expenses
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Non-audit fees paid to auditors of the Trust 151 76 111 76 Trustee’s fees 193 62 193 62 Professional fees 1,827 467 1,706 467 Other expenses 80 17 46 17 2,251 622 2,056 622
15 Finance Costs
Group and Trust Period from Year ended 12/07/2007 to 31/12/2008 31/12/2007 $’000 $’000
Interest paid and payable – bank loans 2,635 397 – financial derivatives 549 47 3,184 444 Amortisation of transaction costs relating to debt facilities 808 98 Transaction cost relating to financial derivative – 460 3,992 1,002
90 91 Notes to the Financial Statements (cont’d)
16 Income Tax Expense Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Current tax expense Withholding tax 719 – – – Income tax expense – – – – 719 – – –
Reconciliation of effective tax rate
Total return/(loss) for the year/period before income tax 25,415 68,638 (1,611) 68,638
Income tax using Singapore tax rate of 18% (2007: 18%) 4,575 12,355 (290) 12,355 Effect of different tax rate in other country 68 – – – Income not subject to tax (4) (10,132) (4) (10,132) Non-tax deductible items 2,979 231 7,250 231 Tax transparency (6,956) (2,454) (6,956) (2,454) Others 57 – – – 719 – – –
17 Distributions to Unitholders Group and Trust Unitholders’ Operations contributions Total $’000 $’000 $’000
2008
Distributions to Unitholders: Distributions for the period from 23 August 2007 to 31 December 2007: – from operations of 2.27 cents per unit 13,658 – 13,658 Distributions for the period from 1 January 2008 to 31 March 2008: – from operations of 1.62 cents per unit 9,751 – 9,751 Distributions for the period from 1 April 2008 to 30 June 2008: – from operations of 1.66 cents per unit 9,995 – 9,995 Distributions for the period from 1 July 2008 to 30 September 2008: – from operations of 1.64 cents per unit 9,878 – 9,878 – from Unitholders’ contributions of 0.07 cents per unit – 422 422 9,878 422 10,300
43,282 422 43,704
Annual Report 2008 Notes to the Financial Statements (cont’d)
18 Earnings Per Unit
The calculation of basic earnings per unit is based on weighted average number of Units in issue during the year/period and total return after income tax. Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Total return/(loss) before income tax and distribution 25,415 68,638 (1,611) 68,638 Less: Income tax expense (719) – – – Total return after income tax, before distribution 24,696 68,638 (1,611) 68,638
Group and Trust Period from Year ended 12/07/2007 to 31/12/2008 31/12/2007 Number of Number of Units Units (’000) (’000)
Units issued at beginning of year/period 601,418 – Creation of new Units: – Initial public offering, private placement and accredited investor units – 285,522 – Units issued as partial settlement for the acquisition of investment properties – 169,887 – Manager’s management fees paid and payable in units 588 2 Weighted average number of Units during the year/period 602,006 455,411
Diluted earnings per unit is the same as the basic earnings per unit as there are no dilutive instruments in issue during the financial year/period.
19 Issue Expenses
Issue expenses comprise professional, advisory, underwriting, selling and management commissions, printing and other costs related to the initial public offering and issuance of units.
These expenses are deducted directly against net assets attributable to Unitholders. Included in issue expenses incurred in the previous financial period are non-audit fees paid to the auditors and tax advisors of the Trust amounting to an aggregate of $280,000 for acting as independent reporting accountants and tax advisors for the listing of the Trust, and the performance of certain agreed upon procedures carried out on the financial information included in the prospectus of the Trust.
92 93 Notes to the Financial Statements (cont’d)
20 Commitments
The Group leases out its investment properties. Non-cancellable operating lease rentals are receivable as follows:
Group Trust Period from Period from Year ended 12/07/2007 to Year ended 12/07/2007 to 31/12/2008 31/12/2007 31/12/2008 31/12/2007 $’000 $’000 $’000 $’000
Receivable: – Within 1 year 65,149 45,000 50,486 45,000 – After 1 year but within 5 years 260,603 180,000 201,945 180,000 – After 5 years 579,744 434,000 436,326 434,000 905,496 659,000 688,757 659,000
During the financial year, the Group participated as an investor in relation to the acquisition of a pharmaceutical product distributing and manufacturing facility and nine nursing homes, which are leased to a master lessee under a master lease agreement, and several nursing home operators respectively.
The Group leases out its investment properties in Singapore to Parkway Hospitals Singapore Pte. Ltd. (“PHS”), a related corporation of the Manager of the Trust, under separate master lease agreements for a period of fifteen years. PHS has the option to extend the leases for another fifteen years on terms to be mutually agreed between the Trust and PHS provided that the revised rent for the first year of the extended term shall not exceed the amount equivalent to 15% of the Adjusted Hospital Revenue for Financial Year 2021.
As at the date of listing, the Trust has obtained bankers’ guarantee in its favour amounting to $7.5 million. These are provided to the Trust by PHS, in lieu of security deposits.
21 Significant Related Party Transactions
For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common significant influence. Related parties may be individuals or other entities.
During the financial year, other than those as disclosed elsewhere in the financial statements, significant transactions with related parties carried out in the normal course of business on terms agreed between the parties are as follows: Group and Trust Period from Year ended 12/07/2007 to 31/12/2008 31/12/2007 $’000 $’000
Related corporations of the Manager Purchase of investment properties – 774,620 Rental income received/receivable 48,667 16,900 The Manager Manager’s management fees paid and payable 5,133 1,584 Acquisition fees paid to the Manager 1,738 – The Trustee Trustee fees paid and payable 193 62
Annual Report 2008 Notes to the Financial Statements (cont’d)
22 Financial Risk Management
Overview of risk management
The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. Management continually monitors the Group’s risk management process to ensure an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.
Exposure to credit, currency, interest rate and liquidity risks arise in the normal course of the Group’s business. The Group has implemented policies and guidelines, which govern its overall business strategies and its general risk management philosophy.
Credit risk
Credit risk is the potential financial loss resulting from the failure of a tenant or a counterparty to settle its financial and contractual obligations to the Group, as and when they fall due.
At the balance sheet date, the Group does not have significant exposure to credit risk.
The investment properties in Singapore of the Group are leased to one master lessee, PHS, a related corporation of the Manager of the Trust. The Manager is of the opinion that there were no conditions that cast doubt over the collectibility of the Group’s trade receivables.
Cash and fixed deposits are placed with financial institutions which are regulated. Transactions involving derivative financial instruments are allowed only with reputable counterparties that are of high quality.The maximum exposure to credit risk is represented by the carrying value of each financial asset on the balance sheet.
Interest rate risk
The Group’s exposure to changes in interest rates relate primarily to the interest-bearing financial liabilities. Interest rate risk is managed by the Manager on an ongoing basis with the primary objective of limiting the extent to which net interest expenses could be affected by adverse movements in interest rates. The Manager adopts a policy of fixing the interest rates for at least 50% (and up to 100%) of its borrowings through the use of interest rate swaps. As at 31 December 2008, the Group has hedged 100% of its floating rate borrowings.
During the financial year, the Group entered into interest rate swaps to limit its exposure to changes in interest rates on its bank loans denominated in Japanese Yen. These loans bear interest at LIBOR/TIBOR plus a margin. The terms and maturity of these interest rate swaps match with the bank loans.
In 2007, the Group has entered into an interest rate swap with a notional amount of $34 million which is used to hedge against the Group’s exposure to interest rate risk arising from floating interest rates payable on its Singapore dollar denominated term loan. The swap matures on 22 August 2010.
94 95 Notes to the Financial Statements (cont’d)
22 Financial Risk Management (cont’d)
Sensitivity analysis
In managing the interest rate risk, the Group aims to reduce the impact of short term fluctuations on its cash flows.
As at 31 December 2008, a change of 100 basis point in interest rate in respect to the loans and the corresponding interest rate swaps would increase/(decrease) net assets attributable to Unitholders and total return by the amounts shown below:
Statement of Net assets attributable Total Return to Unitholders 100 bp 100 bp 100 bp 100 bp The Group and the Trust increase decrease increase decrease $’000 $’000 $’000 $’000
2008 Term loan (776) 776 – – Interest rate swap 1,278 (1,278) 5,321 (5,459) 502 (502) 5,321 (5,459)
2007 Term loan (122) 122 – – Interest rate swap 992 (992) – – 870 (870) – –
Foreign currency risk
The Manager’s investment strategy includes investing in the Asia-Pacific region. In order to manage the currency risk involved in investing in assets outside of Singapore, the Manager may, as appropriate, adopt currency risk management strategies including:
• the use of foreign currency denominated borrowings to match the currency of the asset investment as a natural currency hedge;
• the use of derivative or other hedging instruments to hedge against fluctuations in the exchange rates of foreign currency income received from offshore assets against Singapore dollars; and
• the use of cross currency swaps to hedge against the fluctuations in the exchange rates of any foreign currency denominated net assets of the Trust against Singapore dollars.
The Group’s exposure to foreign currency risk mainly arises from the distribution of income denominated in Japanese Yen from its investment properties located in Japan and its net investment in foreign operations denominated in Japanese Yen. The Manager limits the Group’s exposure to adverse movements in foreign currency exchange rates by using forward foreign exchange contracts to economically hedge the distribution of income from its investment in Japan. In addition, the Group borrows loans denominated in Japanese Yen to create a natural hedge for its Japanese Yen denominated investments and accounts this as a net investment hedge.
As at 31 December 2008, the Group has outstanding forward foreign exchange contracts with aggregate notional amounts of approximately $14.3 million (2007: $nil) of which their fair value was a liability of $1.7 million (2007: $nil) recognised in the Statement of Total Return.
Annual Report 2008 Notes to the Financial Statements (cont’d)
22 Financial Risk Management (cont’d)
Foreign currency risk (cont’d)
The Group’s and Trust’s exposures to major foreign currencies in Singapore dollar equivalent amounts are as follows:
2008 2007 Japanese Yen Japanese Yen (in thousand) (in thousand)
Group Trade and other receivables 1,709 – Cash and cash equivalents 10,830 – Financial liabilities (218,150) – Trade and other payables (8,230) – (213,841) – Trust Cash and cash equivalents 967 – Financial liabilities (218,150) – (217,183) –
Sensitivity analysis
A 10% strengthening or weakening of Singapore dollar against Japanese Yen would have no significant impact to the Group as the Group borrows loans denominated in Japanese Yen and designated this as a net investment hedge. The effective portion of the net investment hedge charged to the net assets attributable to Unitholders amounted to $27 million (2007: $nil).
A 10% strengthening of Singapore dollar against the following currencies at the reporting date would increase/ (decrease) total return by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
Group Trust Net assets Net assets attributable to Statement of attributable to Statement of Unitholders Total Return Unitholders Total Return $’000 $’000 $’000 $’000
31 December 2008 Japanese Yen – – – (21,718)
31 December 2007 Japanese Yen – – – –
A 10% weakening of Singapore dollar against the Japanese Yen would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
96 97 Notes to the Financial Statements (cont’d)
22 Financial Risk Management (cont’d)
Liquidity risk
The Manager monitors the liquidity risk of the Group and maintains a level of cash and cash equivalents deemed adequate to finance the Group’s operations. Typically, the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a reasonable period, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted, such as natural disasters.
As at 31 December 2008, the Group has unutilised credit facilities of approximately $210 million (2007: $50 million) that can be drawn down to meet short-term financing needs.
The Manager monitors and observes the Code on Collective Investment Schemes issued by the MAS concerning limits on total borrowings.
Fair values
(a) Derivative financial instruments
The fair values of derivative financial instruments such as interest rate swaps and forward foreign currency contracts are based on valuation reports from financial institutions.
(b) Floating interest-bearing borrowings
The carrying amounts of interest-bearing borrowings which are repriced within 3 months from the balance sheet date approximate the corresponding fair values (refer to note 8).
(c) Other financial assets and liabilities
The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, financial liabilities and trade and other payables) approximate their fair values because of the short period to maturity.
Annual Report 2008 Notes to the Financial Statements (cont’d)
23 Financial Ratios
2008 2007 % %
Ratio of expenses to weighted average net assets (1) – excluding performance component of Manager’s fees 0.63 0.51 – including performance component of Manager’s fees 0.91 0.75 Portfolio turnover rate (2) 22.62 101.00
(1) The annualised ratios are computed in accordance with the guidelines of Investment Management Association of Singapore. The expenses used in the computation relate to expenses at the Group level, excluding property related expenses, borrowing costs, income tax expense and foreign exchange gains/(losses).
(2) The annualised ratio is computed based on the lesser of purchases or sales of underlying investment properties of the Group expressed as a percentage of daily average net asset value.
24 Segment Reporting
Segment information is presented in respect of the Group’s business segments and geographical segments. This primary format, business segments, is based on the Group’s management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing liabilities and expenses, and related assets and expenses.
Segment capital expenditure is the total cost incurred during the year/period to acquire investment properties.
No geographical or business segment is presented for the Trust as the Manager is of the view that all properties are used mainly for healthcare purposes and these properties are located in Singapore.
Business segments
As at 31 December 2008, the business segments of the Group comprises the following segments – Hospital Properties, Nursing Homes, and Pharmaceutical Manufacturing and Distribution Facility.
Geographical segments
As at 31 December 2008, the Group’s operations and its identifiable assets are located in Singapore (consisting of Hospital Properties) and Japan (consisting of nine Nursing Homes and one Pharmaceutical Manufacturing and Distribution Facility). Accordingly, no geographical segmental analysis is separately presented.
98 99 Notes to the Financial Statements (cont’d)
24 Segment Reporting (cont’d)
Business segments
Pharmaceutical Manufacturing and Hospital Properties Nursing Homes Distribution Facility (Singapore) (Japan) (Japan) Total Group 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Revenue and expenses Property rental income 48,667 16,900 3,877 – 1,287 – 53,831 16,900 Others – – – – 56 – 56 – Total revenue 48,667 16,900 3,877 – 1,343 – 53,887 16,900 Property expenses (3,002) (1,088) (422) – (106) – (3,530) (1,088) Net property income 45,665 15,812 3,455 – 1,237 – 50,357 15,812
Interest income 177 94 Foreign exchange loss, net (8,222) – Non-property expenses (7,384) (2,206) Finance costs (3,992) (1,002)
Total return before changes in fair value of financial derivatives and investment properties 30,936 12,698 Net change in fair value of financial derivatives (2,227) (351) Net change in fair value of investment properties 20 56,291 (1,666) – (1,648) – (3,294) 56,291
Total return before income tax 25,415 68,638 Income tax expense (719) – Total return for the year/period 24,696 68,638
Assets and liabilities Segment assets 852,108 858,224 183,755 – 44,412 – 1,080,275 858,224 Unallocated assets 291 – Total consolidated assets 1,080,566 858,224
Segment liabilities 41,082 38,196 184,902 – 45,400 – 271,384 38,196 Unallocated liabilities 51 – Total consolidated liabilities 271,435 38,196
Other segment information Capital expenditure – 659 6,244 – 1,090 – 7,334 659 Net change in fair value of investment properties 20 56,291 (1,666) – (1,648) – (3,294) 56,291
Annual Report 2008 24 Segment Reporting (cont’d)
Business segments
Pharmaceutical Manufacturing and Hospital Properties Nursing Homes Distribution Facility (Singapore) (Japan) (Japan) Total Group 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Revenue and expenses Property rental income 48,667 16,900 3,877 – 1,287 – 53,831 16,900 Others – – – – 56 – 56 – Total revenue 48,667 16,900 3,877 – 1,343 – 53,887 16,900 Property expenses (3,002) (1,088) (422) – (106) – (3,530) (1,088) Net property income 45,665 15,812 3,455 – 1,237 – 50,357 15,812
Interest income 177 94 Foreign exchange loss, net (8,222) – Non-property expenses (7,384) (2,206) Finance costs (3,992) (1,002)
Total return before changes in fair value of financial derivatives and investment properties 30,936 12,698 Net change in fair value of financial derivatives (2,227) (351) Net change in fair value of investment properties 20 56,291 (1,666) – (1,648) – (3,294) 56,291
Total return before income tax 25,415 68,638 Income tax expense (719) – Total return for the year/period 24,696 68,638
Assets and liabilities Segment assets 852,108 858,224 183,755 – 44,412 – 1,080,275 858,224 Unallocated assets 291 – Total consolidated assets 1,080,566 858,224
Segment liabilities 41,082 38,196 184,902 – 45,400 – 271,384 38,196 Unallocated liabilities 51 – Total consolidated liabilities 271,435 38,196
Other segment information Capital expenditure – 659 6,244 – 1,090 – 7,334 659 Net change in fair value of investment properties 20 56,291 (1,666) – (1,648) – (3,294) 56,291
100 101 Statistics of Unitholdings
Distribution of Unitholdings As At 2 March 2009
No. of Size of Unitholdings Unitholders % No. of Units %
1 - 999 1,507 21.29 387,388 0.06 1,000 - 10,000 4,514 63.78 15,712,441 2.61 10,001 - 1,000,000 1,040 14.69 47,840,796 7.94 1,000,001 and above 17 0.24 538,809,729 89.39 Total: 7,078 100.00 602,750,354 100.00
Location of Unitholders As At 2 March 2009
No. of Country Unitholders % No. of Units %
Singapore 6,962 98.36 593,910,315 98.53 Malaysia 71 1.00 8,132,821 1.35 Others 45 0.64 707,218 0.12 Total: 7,078 100.00 602,750,354 100.00
Twenty Largest Unitholders As At 2 March 2009 As listed in the Register of Unitholders
No. Name No. of Units %
1. Parkway Investments Pte Ltd 213,257,000 35.38 2. Citibank Nominees Singapore Pte Ltd 155,010,609 25.72 3. HSBC (Singapore) Nominees Pte Ltd 49,663,612 8.24 4. DBS Nominees Pte Ltd 41,463,075 6.88 5. Raffles Nominees Pte Ltd 28,418,895 4.71 6. United Overseas Bank Nominees Pte Ltd 13,746,974 2.28 7. DBSN Services Pte Ltd 11,343,400 1.88 8. Keck Seng (M) Berhad 6,210,118 1.03 9. Kim Eng Securities Pte. Ltd. 4,543,560 0.75 10. Merrill Lynch (Singapore) Pte Ltd 4,040,449 0.67 11. DBS Vickers Securities (S) Pte Ltd 2,549,581 0.42 12. UOB Kay Hian Pte Ltd 1,939,302 0.32 13. Lim Cheok Peng 1,559,000 0.26 14. Parkway Trust Management Limited 1,332,354 0.22 15. Liew Chee Kong 1,289,000 0.21 16. ING Nominees (Singapore) Pte Ltd 1,237,725 0.21 17. Ong Choo Eng 1,205,075 0.20 18. Teo Joo Kim 871,000 0.14 19. OCBC Nominees Singapore Pte Ltd 767,715 0.13 20. Wong Peng Onn 668,000 0.11 Total: 541,116,444 89.76
Directors’ Unitholdings as at 2 MARCH 2009
Units in which the Directors are No. Name of Directors Units Held deemed to have an interest
1. Lim Kok Hoong 500,000 – 2. Dr. Lim Cheok Peng 1,559,000 – 3. Benson Puah Tuan Soon 250,000 – 4. Ashish Jaiprakash Shastry 250,000 – 5. Tan Bong Lin 180,000 – 6. Tan See Haw – – 7. Yong Yean Chau – –
Annual Report 2008 Statistics of Unitholdings (cont’d)
Substantial Unitholders as at 2 MARCH 2009
No. Name of Substantial Unitholders Direct Interest Deemed Interest
1. Anil Thadani Note 1 59,725 35,800,000 2. Britten Holdings Pte. Ltd. – 35,800,000 – 3. Lennon Holdings Limited Note 2 – 35,800,000 4. Khazanah Nasional Berhad Note 9 – 213,943,833 5. Mount Kinabalu Investments Ltd Note 10 219,215 213,724,618 6. Parkway Holdings Limited Note 3 – 214,589,354 7. Parkway Investments Pte Ltd – 213,257,000 – 8. Sunil Chandiramani Note 8 473,125 35,800,000 9. Symphony International Holdings Limited Note 4 – 35,800,000 10. Symphony Investment Managers Limited Note 5 – 35,800,000 11. Tarrant Advisors, Inc. Note 6 – 56,250,148 12. Tarrant Capital Advisors, Inc. Note 7 – 56,250,148
Note 1 Anil Thadani is a substantial shareholder of Symphony Investment Managers Limited, the investment manager to Symphony International Holdings Limited (“SIHL”). Britten Holdings Pte. Ltd. (“Britten”) is a wholly-owned subsidiary of Lennon Holdings Limited (“Lennon”), and Lennon is a wholly-owned subsidiary of SIHL. Accordingly, Anil Thadani may have a deemed interest in the units held by Britten. Note 2 Britten Holdings Pte. Ltd. (“Britten”) is a wholly-owned subsidiary of Lennon Holdings Limited (“Lennon”). Accordingly, Lennon has a deemed interest in the units held by Britten. Note 3 (1) Deemed interest in Parkway Investments Pte Ltd and Parkway Trust Management Limited, both wholly-owned subsidiaries of Parkway Holdings Limited. (2) Parkway Investments Pte Ltd and Parkway Trust Management Limited are registered holders of 213,257,000 units and 1,332,354 units respectively. Note 4 Britten Holdings Pte. Ltd. (“Britten”) is a wholly-owned subsidiary of Lennon Holdings Limited (“Lennon”), and Lennon is a wholly-owned subsidiary of Symphony International Holdings Limited (“SIHL”). Accordingly, SIHL has a deemed interest in the units held by Britten. Note 5 Symphony Investment Managers Limited (“SIML”) is the investment manager to Symphony International Holdings Limited (“SIHL”). Britten Holdings Pte. Ltd. is a wholly-owned subsidiary of Lennon Holdings Limited (“Lennon”), and Lennon is a wholly-owned subsidiary of SIHL. Accordingly, SIML may have a deemed interest in the units held by Britten. Note 6 (1) Deemed interest by virtue of being associated with Newbridge Asia Advisors III, Inc. and Newbridge Asia Advisors IV. Inc.. (2) Newbridge Asia Advisors III, Inc. is deemed interested in the units held by TPG Parkway, LP and TPG Parkway III, LP and Newbridge Asia Advisors IV, Inc. is deemed interested in the units held by TPG Parkway, IV LP. (3) Under Section 4 of the Securities and Futures Act Chapter 289 of Singapore, Tarrant Advisors, Inc. is deemed to be interested in units in which Newbridge Asia Advisors III, Inc. and Newbridge Asia Advisors IV, Inc. have an interest. Note 7 (1) Deemed interest by virtue of being associated with Tarrant Advisors, Inc.. (2) TPG Parkway, LP, TPG Parkway III, LP and TPG Parkway IV, LP are the registered holders of 1,638,676, 27,305,736 and 27,305,736 units in Parkway Life REIT respectively. Tarrant Advisors, Inc. is deemed interested in the units held by TPG Parkway, LP, TPG Parkway III, LP and TPG Parkway IV, LP. (3) Under Section 4 of the Securities and Futures Act Chapter 289 of Singapore, Tarrant Capital Advisors, Inc. is deemed to be interested in units in which Tarrant Advisors, Inc. has an interest. Note 8 Sunil Chandiramani is a substantial shareholder of Symphony Investment Managers Limited, the investment manager to Symphony International Holdings Limited (“SIHL”). Britten Holdings Pte. Ltd. (“Britten”) is a wholly-owned subsidiary of Lennon Holdings Limited (“Lennon”), and Lennon is a wholly-owned subsidiary of SIHL. Accordingly, Sunil Chandiramani may have a deemed interest in the units held by Britten. Note 9 Khazanah’s wholly-owned subsidiary, Mount Kinabalu Investments Ltd, has a deemed interest in the units of Parkway Life REIT, by virtue of it holding more than 20 per cent of the total issued share capital of Parkway Holdings Limited. Note 10 Mount Kinabalu Investments Limited’s deemed interest in the units of Parkway Life REIT is by virtue of it holding more than 20 per cent of the total issued share capital of Parkway Holdings Limited.
Public Float
Under Rule 723 of the Listing Manual of the SGX-ST, a listed issuer must ensure that at least 10% of its listed securities are at all times held by the public. Based on the information made to the Manager as at 2 March 2009, approximately 48.55% of Parkway Life REIT’s Units were held in the hands of the public. Accordingly, Rule 723 of the Listing Manual of the SGX-ST has been complied with.
102 103 Additional Information
RELATED PARTY TRANSACTIONS
The transactions entered into with related parties during the financial year and which fall within the Listing Manual of the SGX-ST and the Property Funds Guidelines are:
Aggregate value of all related party transactions during the financial period under review Name of related party (excluding transactions less than $100,000) $’000
Parkway Hospitals Singapore Pte Ltd – Property rental income 48,667
Parkway Trust Management Limited – Manager’s management fees 5,133 – Manager’s acquisition fees 1,738
HSBC Institutional Trust Services (Singapore) Limited – Trustee’s fees 193
Except as disclosed above, there were no additional related party transactions (excluding transactions of less than $100,000 each) entered into up to and including 31 December 2008.
Please also see Significant Related Party Transactions in Note 21 to the financial statements.
Rules 905 and 906 of the Listing Manual are not applicable if such related party transactions are made on the basis of, and in accordance with, the terms and conditions set out in the Parkway Life REIT prospectus dated 7 August 2007, and therefore would not be subjected to Audit Committee review/approval.
Annual Report 2008 Corporate Information
The Manager Audit Committee Unit Registrar Parkway Trust Management Limited Mr. Tan Bong Lin Boardroom Corporate & Advisory Company registration number: Chairman Services Pte. Ltd. 200706697Z 3 Church Street Mr. Lim Kok Hoong #08-01 Samsung Hub Registered Office Member Singapore 049483 8 Cross Street Phone : (65) 6536 5355 #11-00 PWC Building Mr. Puah Tuan Soon Benson Fax : (65) 6536 1360 Singapore 048424 Member Phone : (65) 6236 3333 SGX Code Fax : (65) 6236 4399 Company Secretaries PLife REIT Website : www.plifereit.com Ms. Tan Ping Ping (Appointed on 10 March 2009) Board of Directors Mr. Lim Kok Hoong Ms. Shee Shin Yee Independent Director and (Appointed on 10 March 2009) Chairman Trustee Mr. Puah Tuan Soon Benson HSBC Institutional Trust Services Independent Director (Singapore) Limited 21 Collyer Quay Mr. Tan Bong Lin #10-01 HSBC Building Independent Director Singapore 049320 Phone : (65) 6534 1900 Dr. Lim Cheok Peng Fax : (65) 6533 1077 Non-Executive Director Auditors Mr. Ashish Jaiprakash Shastry KPMG LLP Non-Executive Director Public Accountants and Certified Public Accountants Mr. Tan See Haw 16 Raffles Quay Non-Executive Director #22-00 Hong Leong Building (Appointed on 9 January 2009) Singapore 048581 Phone : (65) 6213 3388 Mr. Yong Yean Chau Fax : (65) 6225 6157 Chief Executive Officer and Executive Director Partner-in-charge: Koh Wei Peng (Appointed on 29 January 2009) Appointed since financial year ended 31 December 2008
47 Parkway Trust Management Limited 390 Orchard Road #16-01 to 04 Palais Renaissance Singapore 238871 Tel: 65 6507 0650 Fax: 65 6507 0651 www.plifereit.com