- Release Date: 14/08/14 09:43
- Summary: FLLYR: VHP: Vital has solid 2014 result, increases 2015 DPU guidance
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VHP 14/08/2014 09:43 FLLYR REL: 0943 HRS Vital Healthcare Property Trust FLLYR: VHP: Vital has solid 2014 result, increases 2015 DPU guidance Vital Healthcare Property Trust (Vital), Australasia's largest listed investor in medical and healthcare real estate, today announced its audited 2014 full year result. Net profit after tax was $37.4m up $2.7m or 7.8% for the year ended 30 June 2014. Vital also confirmed it will pay investors a full year cash distribution per unit of 7.9 cents for the year ended 30 June 2014 and increased its 2015 cash distribution guidance to 8.0 cents per unit. Financial summary - Gross rental income of $59.4m; - Operating profit before interest and tax of $50.0m; - Net profit after tax of $37.4m, up $2.7m or 7.8%; - Net distributable income (NDI) of $34.7m, up $6.5m or 23.1%; - Loan to value ratio (LVR) of 31.4%, down from 42.4% in 2013. Operational and performance highlights - Successful 1-for-10 pro rata renounceable rights issue; - New 30 year lease with MercyAscot(1) at Ascot Hospital & Clinics in Auckland; - Secured 10 year lease extensions (to an average of 28 year terms) at four Australian hospitals; - Completion of four development projects totalling A$20.0m and yielding circa 10% per annum; - Renewal of bank facility on favourable terms and introduction of BNZ as new long term partner; - Proactive management driving strong revaluation increase of $15.2m, WACR(2) firmed 31 bps to 8.95%; - WALT(3) of 15.1 years, a substantial increase from 11.8 years 12 months prior; ? Occupancy remains strong at 99.3% with 94 rent reviews completed, with an average increase of 2.6%. Graeme Horsley, Chairman of the Manager said "It is a pleasure to once again deliver investors solid year on year operational and portfolio results. The healthcare real estate sector continues to experience rising investor demand with firming market capitalisation rates indicating greater interest and activity levels. This escalating investor interest, both domestically and internationally is being driven by its defensive qualities and positive underlying fundamentals, including a growing population base, ageing demographic and strong levels of private health insurance in Australia. These elements support our positive long term view on the sector as we continue to build on Vital's market leading position. From an outlook perspective the Vital management team's execution capability and credibility continues to generate opportunities and underpin our long term strategy to deliver secure, stable and sustainable returns to investors. In closing out the 2014 financial year, the Board has confirmed a final quarter cash distribution of 1.975 cents per unit which delivers on the previously guided full year 2014 cash distribution per unit of 7.90 cents. Having now resolved the MercyAscot lease renewal, along with the successful completion of a number of our brownfield development projects the Board is pleased to confirm an increase in cash distribution guidance for the 2015 financial year to 8.0 cents per unit." David Carr, the Chief Executive of the Manager said "Vital's core portfolio is in great shape with a continued pipeline of potential brownfield developments and acquisition opportunities likely to crystallise over the coming year. Also, albeit after balance date, the recent announcement of Vital's first acquisition in Western Australia is an exciting new opportunity. Vital's stable financial and portfolio position, supported by a robust healthcare sector ensures we remain well placed to take advantage of this momentum heading into 2015." Financial performance Underlying gross rental income pre currency was up 9%. Core elements of this comprised the full year benefit of the Sportsmed SA acquisition (up ~$1.5m), structured rent review growth (up ~$1.1m) and part year contributions from four completed development projects (up ~$3.1m). Post currency impact on rental income produced a stable result at $59.4m In line with Vital's established foreign exchange policy the net impact on rental income was mitigated as $1.8m was received from foreign exchange contracts (FECs) put in place to provide a degree of certainty in the repatriation of profits from the Australian operations. Vital's annual portfolio revaluation resulted in an increase of $15.2m for the year ended 30 June 2014 (2013: $10.3m). The New Zealand portfolio contributed $6.3m (4.1% gain) of the overall gain whilst the Australian portfolio delivered $8.9m (2.0% gain). Across Vital's 24 assets, 20 had gains while only 4 declined in value. The WACR firmed by 31 bps to 8.95% with the portfolio now valued at $613.1m. The key drivers for the current year's revaluation gains include structured annual rent growth, close to full occupancy, sustained strong investor demand for assets of this nature and notably all post development assets crystallising positive valuation margins. As a result of the revaluation gain for the period an incentive fee of $0.5m is payable in Vital units to the Manager for the first time in 3 years. Vital's finance expense was stable compared to the prior year with a lowering of interest rates offset by $2.1m of costs incurred in the closing out of interest rate swaps. The unrealised gain in the fair value of interest rate derivatives at period end of $0.8m was lower than the $4.4m gain recorded in 2013. Vital's current tax expense was lower by $5.2m, reflective of the Inland Revenue binding ruling received which enabled a $2.7m write-back of current tax previously provided and tax deductions on unrealised foreign exchange losses. Net profit after tax was $37.4m for the year up 7.8% from the prior year. Treasury and capital management Vital's LVR at 30 June 2014 was 31.4% compared to 42.4% last year, and remains well below bank and Trust Deed covenants of 50%. The lower LVR is due to a combination of factors over the course of the year including a $39.2m rights issue at a 26% premium to NTA, payments received under the Translation FECs during the year and revaluation gains. Vital renewed and extended its bank funding terms and welcomed the introduction of Bank of New Zealand (BNZ) as a new funding partner in addition to ANZ, Vital's historic long term funding partner. As a result, at financial year end Vital's bank facilities had a weighted average term to expiry of 4.1 years (2013: 2.9 years). Vital's weighted average interest rate at year end including line and margin fees was 5.7% (2013: 6.5%). The reduction reflects the competitive rates achieved under the new bank facility agreement, the termination of historic interest rate swaps (both by close out and expiry) and lower Australian interest rates. A natural currency hedge exists between Vital's Australian held assets and its AUD denominated borrowings. Vital's established foreign exchange policy framework involves entering into FECs to improve this effective hedging position. During the year to 30 June 2014 $18.2m was received as a result of the FECs entered into. Vital's NTA was $1.04 up 3.5% on the prior year. The increase in NTA was due to a combination of factors including portfolio revaluation gains, equity raisings and marked-to-market adjustments and receipts on derivatives. Portfolio activities "The continued focus on proactive portfolio management has again supported the strong results with occupancy at levels close to 100% and a WALT of 15.1 years almost three times the listed property sector average of 5.3(4) years" said Mr Carr. A core driver of the improved WALT was the resolution of one of Vital's two medium term lease expiry events, with a new 30 year lease with MercyAscot at Ascot Hospital & Clinics in Greenlane, Auckland. David Carr said "The early resolution of this lease expiry and the retention of New Zealand's leading private hospital operator is testament to the long term partnership between Vital and MercyAscot. To have extended the lease until 2043 is an outstanding result, which includes annual CPI reviews and periodic reviews to market." Management now remain focused on resolving the remaining medium term lease expiry event at Allamanda Private Hospital in Southport on the Gold Coast, which expires in November 2017. "We have good preliminary interest in the facility from a range of potential healthcare partners including traditional private hospital operators and aged care providers. We remain in active discussions with all parties to determine the ultimate highest and best use for the asset" said Mr Carr. During the financial year Vital completed a total of 94 rent reviews, equating to approximately 88% of total rental income, with an average increase of 2.6%. The year end saw the conclusion of four development projects at Lingard (A$7.5m), Maitland (A$9.9m), Toronto (A$1.9m) and Mayo (A$0.7m) private hospitals. "Vital's successful execution of its brownfield redevelopment programme provides a platform to deliver sustainable earnings over the long term. We see brownfield development continuing as a core activity that fits directly into one of our key strategic themes of 'creating capacity to meet demand'" said Mr Carr. Looking ahead, Vital's redevelopment and expansion programme continues with the A$28m redevelopment at Hurstville Private Hospital in Hurstville, Sydney. The project will provide increased operating theatre capacity, increasing from three to seven and with three new in-patient wards taking the total number of beds from 73 to 114. Subsequent to the year end Vital announced the acquisition of the property occupied by The Marian Centre, a 31-bed stand-alone private psychiatric hospital in the established medical precinct of Subiaco, Perth, Western Australia. Vital acquired the property for A$13.5m on an initial yield of approximately 8.5% and will undertake a A$10.8m redevelopment and expansion project to be completed over the next 12 months to meet growing demand for services in the area. The operator will be Healthe Care, Australia's third largest for-profit private hospital operator and will enter into a new 20 year lease for the property, with annual CPI reviews and market reviews every ten years. Mr Carr said "This acquisition also aligns perfectly with our strategy to acquire healthcare assets in established medical precincts and add further value by creating capacity to meet patient and operator demand, with Western Australia having the highest levels of private health insurance at 54%(5) of the population, well above the national average of 47%. With Vital now having a diversified presence in all six Australian states, this transaction provides a catalyst for further opportunities in the Western Australian market." Over the next 12 months 3.8% of total portfolio income is subject to lease expiry, with the average over the next three years less than 2.0%. Of the expiries in 2015, the majority are smaller consultants, specialists or surgeons, with a historically high renewal rate. The single largest expiry in 2015 represents approximately 0.6% of Vital's total annual income and the tenant is expected to confirm its intention to renew for a further term of 10 years. In 2015 approximately 90% of total income is subject to review with approximately 86% of that income subject to structured rent review mechanisms. Distribution for the year ended 30 June 2014 For the fourth quarter of the 2014 financial year, the Board are pleased to confirm that investors will receive a distribution of 1.975 cents per unit made up of a fully imputed distribution of 2.7431 cents per unit with imputation credits of 0.7681 attached. The record date for the distribution is 11 September 2014 and payment will be made on 25 September 2014. Vital's Distribution Reinvestment Plan (DRP) will remain available to investors for this distribution with a 1.0% discount being applied when determining the strike price. This will bring the full year cash distribution per unit for 2014 to 7.9 cents. Outlook Mr Carr said "the diversified composition of Vital's portfolio, structured rent growth, market leading WALT and well-executed brownfield development strategy places us in a strong position. Supported by a robust financial and treasury position Management will continue to investigate growth and diversification prospects in the near term. Specifically we are in advanced negotiations on a number of additional capital expansion projects and reasonably expect opportunities in the order of A$50m to materialise over the course of 2015. We continue to see a trend of active consolidation and corporatisation opportunities across the broader healthcare real estate market, including aged care providers that have expressed an interest in Allamanda. The Manager's decision to strengthen the team in Australia has already crystallised a number of value add opportunities that will continue to further enhance Vital's overall position as a market leading healthcare landlord. The sector remains founded on strong underlying healthcare trends. These trends are being driven by a growing and ageing population that is living longer as a result of technological and other advances in healthcare. Ultimately, this places considerably greater pressure on capacity constrained public systems, which is why we continue to see stable private health insurance levels in New Zealand and growing trends in Australia." 2015 cash distribution guidance increased to 8.0 cents per unit Having successfully resolved one of the Trust's two medium term lease expiries, along with a generally positive outlook, the Board is comfortable guiding to a 2015 cash distribution of 8.0 cents per unit. - ENDS - ENQUIRIES David Carr, Chief Executive Officer Vital Healthcare Management Ltd, Telephone 09 973 7301, Email [email protected] Stuart Harrison, Chief Financial Officer Vital Healthcare Management Ltd, Telephone 09 973 7302, Email [email protected] (1) Ascot Hospital & Clinics Limited (2) Weighted Average Market Capitalisation Rate (WACR) (3) Weighted Average Lease Term to Expiry (WALT) (4) Forsyth Barr, Real Estate Reflections report, August 2014 (5) PHIAC March 2014 quarterly data www.vitalhealthcareproperty.co.nz End CA:00253863 For:VHP Type:FLLYR Time:2014-08-14 09:43:07
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- Ann: FLLYR: VHP: Vital has solid 2014 result, increases 2015 DPU guidance
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