VHP
22/08/2013 13:51
FLLYR
REL: 1351 HRS Vital Healthcare Property Trust
FLLYR: VHP: VHP 2013 Annual Result
22 August 2013
Vital's strategy delivers strong year end result
Vital Healthcare Property Trust ('Vital') (NZSX: VHP), Australasia's largest
listed investor in medical and healthcare real estate, today announced its
audited 2013 full-year result. Net profit after tax was $34.7 million (up
$25.7 million) for the year ended 30 June 2013. It also confirmed that it
will pay unitholders a full year cash distribution per unit of 7.9 cents for
the year ended 30 June 2013. This is at the top of the guidance range given
12 months earlier of 7.7 to 7.9 cents per unit ('cpu').
Financial highlights
- Final quarter cash distribution per unit ('DPU') of 2.125 cpu, taking full
year distribution to 7.9 cpu;
- Gross rental income of $59.9 million, up $9.1 million or 18 percent
(FY2012: $50.7 million);
- Operating profit before interest and tax of $46.7 million, up $5.8 million
or 14 percent (FY2012: $40.9 million);
- Net profit after tax of $34.7 million, up $25.7 million or 287 percent
(FY2012: $9.0 million);
- Net Distributable Income of $28.2 million, up $4.9 million or 21 percent
(FY2012: $23.3 million);
- Loan to value ratio ('LVR') of 42.4 percent (FY2012: 42.3 percent).
Operational and performance highlights
- Total return for the 12 months to 30 June 2013 of 20.1 percent;
- $41.7 million spent on earnings accretive quality hospital redevelopments;
- Strong revaluation increase of $10.3 million, up 1.7 percent;
- 107 rent reviews completed, with average increase on rents reviewed of
1.9%;
- Continued near full occupancy of 99.5 percent;
- Weighted average lease term to expiry ('WALT') of 11.8 years;
- Appointment of Australian Managing Director to leverage opportunities and
drive growth.
Chairman of the Manager, Graeme Horsley said "In what has been another busy
year we have maintained the Trust's position as the market leader in
healthcare real estate. The healthcare story continues to be one of rising
demand on one hand, and constrained capacity on the other. The defensive
characteristics of the healthcare industry remains a key factor in Vital's
strong operating and financial performance and our positive long term
outlook. We have the ability and capacity to continue delivering on our
strategy to provide secure, stable returns to investors over the long term".
"As a result of the management team delivering another solid operational
result, the Board has confirmed a final quarter cash distribution of 2.125
cpu. This increases the full year 2013 cash distribution per unit to 7.90
cents, which is at the top end of the forecast range previously guided by the
Board".
David Carr, the Chief Executive of the Manager echoed Mr Horsley's comments.
"The management team's execution of the Board's strategy has been key to our
success. Our core portfolio of stabilised assets has been complemented with
the combination of value enhancing developments and the strategic acquisition
of Sportsmed-SA Hospital and Clinics in Adelaide, South Australia. Looking
forward, the Trust has a strong platform to drive growth through added scale
and diversification".
Chairman's commentary
Mr Horsley said "Underpinning our diversification strategy, we remain focused
on continued growth through acquisition and development. We expended $41.7
million on value-add developments in the last twelve months, bringing the
total over the last two years to circa $80 million. These projects have
enhanced the Trust's portfolio of quality properties and importantly are
averaging yields of approximately 10 percent per annum. Allocation of
capital to yielding development projects will continue, driven by the
capacity constraints and patient demand being experienced by many of the
Trust's operators".
"I am particularly pleased with the strong year end revaluations, with each
development concluded to date experiencing positive revaluations. This,
coupled with the Trust's high premium to net tangible asset backing, is a
clear and positive endorsement of the execution of our strategy over recent
years".
"The Board retains its long term positive view on the healthcare sector.
Vital has positioned itself as a highly credible organisation, partnering
with market leading operators to provide healthcare real estate solutions.
Working closely with our operators to create healthcare service capacity will
further enhance and cement Vital's market position" said Mr Horsley.
Financial performance
The Trust had another solid year of financial performance. Rental growth of
18 percent over the 2013 financial period was driven largely by a combination
of completed developments over the prior period and the acquisition of
Sportsmed-SA in the first half of the financial year.
Administration expenses increased 14 percent over the year principally due to
higher management fees from a larger investment portfolio. No incentive fee
is payable to the Manager for the 2013 financial year. As a result, the
Trust's operating profit before interest and tax increased $5.8 million or 14
percent to $46.7 million.
Vital's finance expense increased $1.4 million or 8 percent to
$17.6 million for the year to 30 June 2013, primarily on higher debt levels
(up $20.9 million) than the prior year. The unrealised gain in the fair
value of interest rate derivatives at period end ($4.4 million) compares to
an unrealised $10.1 million loss incurred in 2012. Capitalised interest
expenses were $0.5 million, down 39 percent on the prior year as development
capital expenditure slowed over the second half of the financial year.
Vital's annual portfolio revaluation resulted in an increase of $10.3 million
for the year ended 30 June 2013. This audited revaluation gain was slightly
higher than the preliminary revaluation announced on 26 June of $9.9 million.
The overall gain was made up of $3.5 million for the New Zealand portfolio
and $6.8 million for the Australian segment. Of the Trust's 24 assets, 16
had gains, 6 declined and 2 were unchanged.
The primary drivers for the positive gains include the firming of the
weighted average market capitalisation rate by approximately 15 basis points
to 9.1 percent, structured rent review growth and continued high occupancy
levels. Concluding a number of value add development projects in Australia
also resulted in enhanced operational performance at those properties.
The revaluation gain is approximately 1.7 percent when measured against the
pre-revaluation book value as at 30 June 2013. The overall value of the
Trust's property portfolio following acquisition, disposal, development
additions and the revaluation is now $618.7 million, up 9.1 percent on 2012.
Vital's net tangible asset value (NTA) per unit at 30 June 2013 was $1.01, up
from $0.98 a year earlier. The increase was driven by a combination of
factors including portfolio revaluation gains and marked-to-market
adjustments on derivatives.
Vital's current tax expense increased to $5.4 million from $2.1 million in
2012 reflective of the higher income generated. Vital continues to maintain
the Managed Investment Trust (MIT) status for its Australian based Trust. As
a result Vital benefited from the favourable 15 percent MIT tax rate through
2013 and continues to have the ability to claim depreciation for tax purposes
on its Australian assets.
Net profit after tax was $34.7 million for the year, up from $9.0 million (up
287 percent) in the prior period.
Treasury and capital management
Vital's debt-to-total assets ratio at 30 June 2013 was 42.4 percent (FY2012:
42.3 percent). This is in line with last year and well below its bank and
Trust Deed covenants, which are both aligned at 50 percent. The weighted
average interest rate as at 30 June 2013 (including line and margin fees) was
6.52 percent (FY2012: 6.87 percent). The lower average rate reflects the fact
Vital has been positioning itself at the lower end of its hedging policy
range, reflecting the current lower interest rate environment.
The Trust's interest cover ratio as at 30 June 2013 was 2.8 times (FY2012:
2.3 times) and remains comfortably above the 2.0 times bank covenant
requirement. At 30 June 2013 Vital's bank facility had a weighted average
term to expiry of 2.9 years (FY2012: 3.8 years). Its two facility tranches
expire in March 2015 (A$100 million and NZ$20 million) and March 2017 (A$125
million) respectively.
Portfolio activities
According to Mr Carr the key driver of underlying performance is proactive
property management. "The continued delivery of asset management activities
and initiatives is evident in continued occupancy levels at close to 100
percent and remains consistently one of the highest in the listed property
sector".
The Trust's WALT is 11.8 years and remains over twice the New Zealand listed
property sector average of 5.3 years.
During the 2013 financial year Vital completed a total of 107 rent reviews,
equating to approximately 99 percent of income subject to review with an
average increase of 1.9 percent (FY2012: 3.3 percent). The lower rent review
percentage is primarily due to a lower inflationary environment across New
Zealand and Australia.
Only 1.6 percent of portfolio income is subject to lease expiry in 2014 and
over the next four years, the average expiry profile is less than 2.1
percent. Mr Carr said, "We continue to take a proactive approach to lease
expiry events, which is reflected in the continued high occupancy of the
Trust".
Vital's two largest medium term lease expiries are at Allamanda Private
Hospital (approximately 12.5 percent of total income) in Southport on the
Gold Coast and Mercy Ascot (approximately 10.9 percent of total income) at
Ascot Hospital in Auckland. These leases are not due to expire until 2018 and
2019 financial years respectively. Whilst the tenant at Allamanda has not
given notice to renew by the prescribed date, Vital remains in active
discussions with both tenants, in addition to considering alternative tenancy
and/or property strategies should all or part of one or both of these
properties become vacant.
The Trust's redevelopment and expansion programme continues to improve
hospital asset quality, expanding and diversifying the range of activities
undertaken by hospital operators, including medical, surgical,
rehabilitation, aged care and psychiatric services.
Strong health sector fundamentals
Mr Carr explained "One of the key drivers of the healthcare sector, and
therefore healthcare real estate performance is a direct result of the ageing
demographic profile of Australia and New Zealand, where the percentage of
population aged over 65 is forecast to almost double over the next 30 to 40
years. This is a fundamental structural change in the demographic profile at
a rate not seen before".
"In addition to the structural ageing profile, hospital admission rates and
the length of stay increases strongly with age. Technology advances in
patient treatment increases demand for specialist treatments like
orthopaedics, which also increases life expectancy. This demand is likely to
rise exponentially in decades to come".
As a result of the above, there is typically a low correlation between health
services and activities and general economic cycles. This translates into a
relatively higher level of stability for healthcare real estate, when
compared to its wider commercial property peers.
Supporting the above are the private health insurance statistics in Australia
where approximately 75 percent of the Trust's assets are located. The
Australian PHIAC data for the 12 months to 30 June 2013 shows private
hospital insurance membership increased by approximately 262,000 new members,
to 47 percent of the population, up 2.5 percent on the prior year.
Importantly the PHIAC data shows coverage for those aged over 65 years grew
5.6 percent (approximately 89,000 new members), which accounts for
approximately one third of all new members over the period. In New Zealand,
HFANZ reports that for the 12 months to 31 March 2013 the percentage of
population covered was at 30 percent.
IPD recently released its Healthcare Property Index ('Index') data for the 12
months ending 30 June 2013, with the Australian assets of Vital included in
the Index. The Index provides a robust analysis of the investment
performance of Australian healthcare real estate, which includes hospital,
aged care and specialist medical assets. The Index currently has six
participants with a pool of 80 assets valued at A$1.4 billion, a 47 percent
increase from when the Index was established, just 18 months ago.
Mr Carr said "The IPD Index is a credible independent measure of the
performance and characteristics of the healthcare real estate sector. The IPD
Index confirms that on an annualised basis for the five years to 30 June
2013, healthcare real estate has delivered a total return of 10.5 percent
compared to all property total return of 5.7 percent over the same period".
Distribution for the year ended 30 June 2013
For the fourth quarter of the 2013 financial year, the Board are pleased to
confirm that Vital unitholders will receive a distribution of 2.125 cents per
unit with no imputation credits attached. The record date for the
distribution is 11 September 2013 and payment will be made on 25 September
2013. The Distribution Reinvestment Plan (DRP) will remain available to
unitholders for this distribution with a 1 percent discount being applied
when determining the strike price. This will bring the full year cash
distribution per unit for 2013 to 7.9 cents.
As indicated in the Simplified Disclosure Prospectus dated 4 July 2013 for
the Trust's renounceable rights offer, those unitholders who acquired
additional units under that offer will also be entitled to the fourth quarter
distribution.
Outlook
Mr Carr said "Vital is on a sound footing. Our portfolio diversification and
capital and treasury management strategy continues to be successfully
implemented and now forms a platform to further enhance Vital's overall
market leading position".
"Reflecting this, post balance date we will continue with a number of key
initiatives. These include discussions around medium term lease expiry
events, the successful conclusion of the $39.2m Rights Issue, with units due
to be allotted on the evening of 23 August and the prudent assessment of
value-add development opportunities. We continue to assess potential asset
sales and recycling of capital into opportunities that align with the Trust's
strategy".
"Our focus is also on investigating and unlocking opportunities to
consolidate and further diversify Vital's healthcare real estate portfolio,
where a solid alignment of portfolio fundamentals applies, supported by
strong healthcare trends, including an ageing population base with increased
healthcare demands. The appointment of Richard Roos as Managing Director in
Australia further cements Vital's capability and credibility in a key
market".
Guidance for the 2014 financial year
In light of a prudent approach to managing the Trust's financial position and
pending resolution of medium term lease expiry events, the Board is guiding
to a distribution per unit for the year ending 30 June 2014 of 7.9 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]
End CA:00240051 For:VHP Type:FLLYR Time:2013-08-22 13:51:33
