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
