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.