Published January 30, 2009

P-Reit expects prices of commercial property to fall

It will hold off making acquisitions until valuations are more 'objective'

By CHEN HUIFEN

	Email this article
	Print article
	Feedback

DESPITE having the capacity to do so, the manager of Parkway Life Reit said it will not be aggressive in acquisitions this year as it believes that commercial property prices will come down further.

'With limited gunpowder right now, we want to be more focused and more targeted rather than hitting everywhere.' - Yong Yean Chau, CEO of Parkway Trust Management, the Reit's manager, on acquisition targets

'If we wait out a bit longer, we will potentially be able to have a more opportunistic buy at a more objective valuation, as well as more objective yield,' said Yong Yean Chau, the newly appointed chief executive of Parkway Trust Management, the Reit's manager.

Revealing the strategy at its fourth-quarter results briefing yesterday, Mr Yong also said that acquisition targets are likely to be narrowed down to those in politically safer countries such as Singapore, Malaysia and Australia.

While China remains a core market, the Reit is likely to take a more cautious approach because of legal issues related with property ownership.

'With limited gunpowder right now, we want to be more focused and more targeted rather than hitting everywhere,' Mr Yong added.

As of Dec 31, Parkway Life Reit has a net gearing of 23.3 per cent, with a debt headroom of $300 million before reaching its optimal gearing of 40 per cent.

It also has $210 million worth of unutilised revolving credit facilities, and a $500 million multi-currency medium-term note programme which may be used to fund future acquisitions.

The Reit has secured credit facilities with an average tenure of 2.8 years. It has also hedged against fluctuating interest rates and foreign currency.

For Q4 ended December, Parkway Life Reit posted a 15.9 per cent rise in distributable income to $11.1 million, boosted by contribution from its Japanese acquisitions.

Revenue jumped 36.4 per cent to $16.2 million, of which $3.6 million came from its properties in Japan.

This brings distribution per unit (DPU) to 1.84 cents, from 1.59 cents in the year-ago period.

Property expenses went up to $1.1 million, from $762,000. Management fees rose 35.4 per cent to $1.5 million.

The Reit suffered a foreign exchange loss of $7.93 million, as a result of a loss on a foreign currency forward contract that was entered into to lock in the exchange rate for the Japanese yen.

'However, as the foreign currency forward was locked in at the initial exchange rate at acquisition, from a net asset perspective, the loss is offset by an increase in the value of the Japan properties, as seen by a corresponding gain amounting to $8.7 million in the foreign currency translation reserve,' it said.

Total distributable income for the full year came to $41.2 million, bringing annual DPU to 6.83 cents. There was no comparison with FY2007 as the Reit was only listed in August 2007.

For the whole year, gross revenue came to $53.9 million, the bulk contributed by the Singapore hospitals in its portfolio.

With annual rental review pegged at one per cent above the consumer price index, the rental income from the Singapore hospitals grew at 6.25 per cent.