VHP
25/02/2016 09:44
HALFYR
PRICE SENSITIVE
REL: 0944 HRS Vital Healthcare Property Trust
HALFYR: VHP: Vital announces strong interim result, DPU lifted to 8.5cpu
Vital announces strong interim result, increases cash distribution to 8.5 cpu
and executes on aged care strategy
Vital Healthcare Property Trust ('Vital') today released its interim results
for the six months ended 31 December 2015 and will raise its cash
distribution to 8.5 cents per unit per annum from the third quarter of the
2016 financial year. Vital has acquired or committed to new growth and
expansion initiatives of over A$100m, including its initial investment in
four Australian residential aged care assets for A$41m on an initial yield of
8%. A second quarter cash distribution of 2.025 cents per unit will be paid
to unitholders on 24 March 2016.
Highlights for the first six months to 31 December 2015 include:
- Total return of 16.5% outperforming the S&P/NZX All Real Estate Gross
Index by 8.1%
- Increased cash distribution per unit to 8.5 cents per annum effective from
Q3 2016
- Gross rental income of $33.5m, up 8.9%
- Net distributable income of $19.0m, up 16.3%
- Bank facilities renewed on more competitive pricing and terms
- Interim revaluation gain of $45.2m or 5.9%, weighted average cap rate
firming 35 basis points to 7.64%
- NTA uplift of 11.0 cents up 8.7% to $1.38
- Sites acquired adjacent to Sportsmed in Adelaide, with commitment to
further A$9.5m development in 2016
- Conditional acquisition of Boulcott Hospital for $30.7m and adjacent
development land
- Spent $31.1m on value-add brownfield projects, minimum A$50m of additional
brownfield development forecast to commence over next 12 months
- Strong WALT of 17.0 years, continued high occupancy at 99.5%, average
increase in rents reviewed of 3.3%
David Carr, Chief Executive Officer of the Manager said "We executed on a
suite of value-add investment, asset and capital management initiatives in
the period, which aligns with our stated scale and diversification strategy
and continues to drive performance. The acquisition of our first portfolio
of Australian residential aged care assets also delivers on this strategy and
we are excited about the opportunities aged care real estate brings to Vital.
The lift in our annualised cash distribution to 8.5 cents per unit effective
from quarter three of the 2016 financial year reflects the successful
execution of our strategy in recent years. The Board is of the view that our
strategy will continue delivering attractive returns to investors and is
confident the new distribution is sustainable over the long term."
Financial Performance
Gross rental income growth pre-currency movement was up 8.8%. Rental growth
was driven principally by the strong contribution of development income over
the period. The post-currency impact resulted in gross rental income growth
of $2.8m or 8.9%.
The finance expense of $7.2m (+$1.2m, 19.3%) reflects slightly higher overall
debt levels, with funding primarily applied to the value-add development
programme. The benefit of the renewed banking facility terms announced in
December 2015 will crystallise in the second half of the financial year.
Vital assessed the fair value of its portfolio for its interim financial
reporting purposes as at 31 December 2015. For the period from 1 July 2015
to 31 December 2015 (supported by external independent desktop review advice
from six valuers in New Zealand and Australia), Vital recorded an increase in
the fair value of its portfolio of $45.2m (up 5.9%) to $834.8m. This
increase is over and above the acquisitions and development expenditure
incurred in that period.
Other expenses increased to $6.2m (+83.4%) principally as a result of
provision made for a Manager incentive fee of $2.3m for the period. The fee
is calculated in accordance with the Trust Deed and won't crystallise until
the end of the financial year. Base management fees increased to $2.9m
(+$0.5m) due to the higher asset base compared to the prior year.
Gross distributable income for the period was higher at $21.8m (+$0.8m, or
+3.7%) whilst net distributable income for the same period grew to $19.0m
(+16.3%) on lower comparable current tax.
Distributions
The Board has confirmed that investors will receive a distribution of 2.025
cents per unit with no imputation credits attached for the second quarter
distribution. The record date for the second quarter distribution is 10
March 2016 and payment will be made on 24 March 2016. 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.
Effective from the third quarter distribution in the 2016 financial year the
Board has increased the annualised cash distribution to 8.5 cents per unit.
Treasury and capital management
Vital's loan-to-value ratio (LVR) as at 31 December was 34.1% and remains
well below the Trust Deed covenant of 50%. The weighted average interest rate
at period end was 5.16% and includes bank line and margin fees. During the
period Vital re-priced and extended its banking facilities on more
competitive terms and added an additional A$100m tranche expiring October
2020. Vital's weighted average bank facility term to expiry has been
increased to 4.1 years from 2.6 years, providing added certainty and duration
of funding.
NTA increased to $1.38, up 11 cents per unit
Vital's NTA per unit is $1.38 or 8.7% higher compared to the 30 June 2015
year end NTA of $1.27. The material driver of the net NTA change was the
increase in the fair value of the portfolio in the period.
Strong interim valuations
The strong interim revaluation reflects the quality of the portfolio and
strengthening investment themes for healthcare real estate. In the last six
months there has been sustained transactional evidence to support a continued
directional firming in market capitalisation rates for healthcare real
estate. The desktop review advice received from independent valuers pointed
to a number of drivers, including:
- Firming cap rates across broader market
- Continued strong performance from redeveloped assets due to the unique and
attractive lease terms
- Rising interest in healthcare real estate, strong competition for assets
- Increasing transactional evidence in the sub 7% cap rate range
- Low interest rate environment
The Australian portfolio was again a strong driver of the overall result,
contributing approximately 90% of the $45.2m total fair value gain. The
portfolio weighted average market capitalisation rate firmed by 35 basis
points to 7.64%, with the Australian weighted average capitalisation rate
firming approximately 40 basis points and 10 basis points in New Zealand.
Vital will undertake full independent valuations for all properties as at 30
June 2016.
Portfolio activity
Proactive asset management continued to see Vital's metrics remain some of
the strongest in the sector. Occupancy remains high at 99.5% and Vital's WALT
of 17.0 years is approximately three times the New Zealand listed property
sector average. Vital achieved rent growth of 3.3% on rents subject to review
over the period and concluded a number of lease renewals. Less than 1% of
total annual income is due to expire prior to 30 June 2016.
Acquisition and development activity
During the period Vital announced a number of strategic acquisitions
including:
- Hopkins Street property for A$7.8m, immediately adjacent to Lingard Private
Hospital in Newcastle
- Two parcels of land adjacent to Sportsmed Private Hospital in Adelaide for
A$5.2m and construction of a A$9.5m stand-alone medical consulting building.
Vital also announced the conditional acquisition of Boulcott Hospital in
Lower Hutt for $30.7m reflecting an initial yield of 6.85%. Also acquired
was an adjacent property providing future expansion capability. The Boulcott
acquisition reaffirms Vital's commitment to the New Zealand market and
complements the growth experienced in Australia. Settlement is anticipated
to occur mid-2016 following receipt of satisfactory regulatory approvals.
Mr Carr said "The mainstay of Vital's performance over recent years has been
the value-add brownfield development programme. During the period we spent
approximately $31.1m and effectively completed and started receiving rent on
three developments: Hurstville, Belmont and Maitland Private Hospitals. This
accretive development work continues with two projects, one at South Eastern
Private Hospital in Melbourne and the other at the Marian Centre in Perth,
with a forecast remaining capital spend of approximately A$12.0m.
Subject to due diligence and final Board approvals we anticipate commencing a
minimum of A$50.0m of brownfield projects in the next 12 months."
Vital to acquire four Australian residential aged care properties
David Carr said "We have previously articulated a strategic desire to invest
in residential aged care real estate and are fortunate to have now
established a partnership with a leading private provider in the Australian
market. This initial portfolio of four properties, two each in New South
Wales and Western Australia comprises 275 operational places. The
acquisition will further diversify Vital's portfolio composition, geographic
markets and operator covenant, and will enhance long-term sustainable
earnings for our investors."
Highlights of the conditional acquisition include:
- Four properties to be acquired for A$41.0m, at an initial yield of 8%
- 20 year initial lease term, with two ten year rights of renewal
- Leases are triple net with annual CPI reviews and periodic reviews to
market
- The operator is an experienced, highly regarded operator with a strong
focus and reputation for resident care
- Underlying drivers of residential aged care demand closely align with core
drivers of Vital's historic performance, including a growing and ageing
population
- Aged care is predominantly government funded. Recent and ongoing reforms
encourage new investment and underpin the long-term sustainability of the
sector, and
- The residential aged care real estate market provides attractive long-term
growth potential via consolidation, acquisition and development opportunities
to meet increasing demand
Outlook
Mr Carr said "We started 2016 in a strong financial and portfolio position
after a very productive 2015. A growing and ageing population continues to
support long-term demand for healthcare services and our outlook remains
positive, notwithstanding reviews across parts of the healthcare system in
Australia.
We continue to consider healthcare real estate opportunities that support our
scale and diversification strategy, and will prudently assess each
acquisition and development opportunity on its merits. I look forward to
updating investors through 2016."
- 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:00278286 For:VHP Type:HALFYR Time:2016-02-25 09:44:58
