VHP
14/02/2014 09:22
HALFYR
REL: 0922 HRS Vital Healthcare Property Trust
HALFYR: VHP: VHP - Solid delivery on Vital's strategy
Solid delivery on Vital's strategy
Vital Healthcare Property Trust ('Vital') today announced an unaudited net
profit after tax of $16.6m (up 13.9%) for the six months ended 31 December
2013 and reaffirms its forecast cash distribution guidance of 7.9 cents per
unit for the 12 months to 30 June 2014. A second quarter cash distribution of
1.975 cents per unit will be paid to unitholders on 18 March 2014.
Financial highlights
- Gross rental income of $29.9m, up $1.1m or 3.8% (HY13 : $28.8m)
- Operating profit before interest and tax of $25.7m, up $0.9m or 3.6% (HY13:
$24.8m)
- Net profit after tax of $16.6m, up $2.0m or 13.9% (HY13: $14.6m)
- Net distributable income of $20.6m, up $6.7m or 48.2% (HY13: $13.9m)
- Loan to value ratio (LVR) of 33.9% (FY131: 42.4%)
Operational and performance highlights
- New 30 year lease with Ascot Hospital & Clinics Ltd ('MercyAscot') at Ascot
Hospital in Auckland
- Secured 10-year lease extensions at four Australian hospitals, increasing
the average lease term for those four properties from 17.6 to 27.6 years
- Significantly improved Vital's sector leading portfolio WALT to 14.9 years
(HY13: 12.1 years)
- Portfolio occupancy of 99.4% (HY13: 99.5%)
- Average rent review increase of 2.4%
- Completion of three development projects for A$19.4m, now yielding over
10.0% per annum
- Commenced a further A$29.9m of value-add developments on forecast yields of
circa 10.0%
- Strongly supported 1-for-10 pro-rata renounceable rights issue
- Outperformed NZSX Gross Property Index on a twelve month total return and
a sector leading ten year compound annual total return of 12.0%
Independent Chairman of Vital Healthcare Management Limited (the 'Manager'),
Graeme Horsley said "Vital's position as a leading healthcare real estate
investor has been underpinned by a strong financial and operational
performance over the first six months. The ageing population and rising
demand for healthcare remain central themes to our long term positive view of
the sector. However, it's essential that we leverage these underlying trends
to continue delivering low risk, medium returns to investors."
David Carr, the Chief Executive of the Manager said "We have had a very
productive first six months of the year. The key operational highlight was
the early resolution and retention of MercyAscot at Ascot Hospital, one of
Vital's flagship assets. To have secured MercyAscot until 2043 is an
outstanding result and further enhances the stability and diversification of
Vital's earnings.
Vital's redeveloped assets continue to demonstrate solid post-development
operational performance. The active portfolio management approach and strong
relationships Vital has with its tenants and operators underpinned the
delivery of improved portfolio metrics over the period.
As a result of additional personnel being appointed in Australia, the Manager
will shortly move into larger offices in Melbourne. This will support the
continued proactive management of the substantial Australian portfolio and
ensure we have the resources to consider the growing number of opportunities
in this market."
Financial performance
For the six months to 31 December 2013 Vital achieved gross rental growth of
3.8% driven by the combination of a full period contribution from Sportsmed
SA, brownfield development income and rental growth, offset by a stronger New
Zealand dollar over the period.
Administration expenses were down 7.8% ($0.2m) and other expenses were down
11.9% ($0.07m).
As a result, Vital's operating profit before interest and tax increased by
$0.9m or 3.6% to $25.7m.
Vital's finance expense declined by $0.7m or 7.7% to $7.9m over the first
half, primarily reflecting the lower net debt following the successful equity
raising early in the financial year. Overall, net financial expenses declined
by $2.6m or 35.8% after taking into account a higher unrealised gain on
interest rate derivatives at period end of $3.1m compared to $1.0m in the
comparable period.
Vital's net tangible asset value (NTA) per unit was $1.05, up 4.0 cents per
unit or 4% from $1.01 at 30 June 2013.
There was a $0.6m taxation credit (HY13: $3.1m expense) for the period. This
is due to two main factors. Firstly the tax deduction associated with
unrealised foreign exchange losses of $6.4m (HY13: $0.1m gain) within the six
month period which are reflected in the profit before income tax and which
may normalise over the second half of the year. Secondly, it reflects the
Inland Revenue binding ruling received in September 2013 which enabled a
$2.7m write-back of current tax provided for previously around the
application of foreign investment fund ('FIF') rules.
Net profit after tax was $16.6m for the six months, up 13.9% from $14.6m in
the prior period.
Treasury and capital management
Vital's debt-to-total assets ratio (or LVR) at 31 December 2013 was 33.9%
(FY13: 42.4%). The decline was attributable to several factors including the
funds received from the successful equity raising in August, cash receipts
under foreign exchange contracts (FEC's) and a stronger New Zealand dollar.
The LVR is well below Bank and Trust Deed covenants, which are both aligned
at 50%. This provides additional head room to undertake brownfield
developments and acquisition opportunities as they arise.
The weighted average interest rate at period end including line and margin
fees was 6.58% (FY13: 6.52%). The slightly higher rate reflected the impact
of paying down debt with proceeds received from the August equity raising and
Vital's proportionately higher fixed hedged position as at 31 December.
The interest cover ratio at 31 December 2013 was 3.1 times compared to 2.8
times at 30 June 2013 and remains comfortably above the 2.0 times bank
covenant requirement.
Vital's established foreign exchange policy framework manages the influence
of currency fluctuations. Currency can influence both the financial position
and performance of Vital.
From a financial position perspective, Vital has a natural currency hedge in
place via its bank borrowings which are all denominated in Australian
dollars. A stronger New Zealand dollar reduces the value of Vital's
Australian assets but it also reduces the value of Australian denominated
bank borrowings. With Vital's New Zealand assets being unaffected by currency
movements, Vital's LVR will generally improve with a rising New Zealand
dollar.
In accordance with our foreign exchange policy, additional hedging is put in
place through foreign exchange contracts ('FEC's') to lift the effective
hedging position to manage Vital's financial position. Over the last six
months, the policy has resulted in $18.2m being received as a result of the
strengthening New Zealand dollar.
From a transaction perspective (repatriating Australian dollar profits to
distribute to New Zealand investors) the current policy aims to provide a
degree of certainty of distributions to investors, primarily looking 12-18
months forward. The policy supports the operational and financial activities
of Vital, resulting in $1.1m being received.
Portfolio activity
"The continued proactive execution of asset management initiatives is clearly
illustrated in the significant extension of Vital's WALT to 14.9 years. This
is now more than 2.5 times longer than the New Zealand listed property sector
average. In addition, Vital's 99.4% occupancy level continues to be
consistently one of the highest in the listed property sector, averaging over
99% over the last five years" said Mr Carr.
In the 2014 financial year 81% of total rent is subject to review. During the
first half of the year 37% of this income was reviewed, with an average rent
increase of 2.4%.
"We have nine lease expiries due in the next six months, equating to 1.1% of
total income. Over the next four years Vital's average lease expiry profile
is less than 2.1% per annum. We continue to take a proactive approach to
these expiry events, which is reflected in our high occupancy levels" said Mr
Carr.
Mr Carr said "Having now successfully secured a new 30 year lease with
MercyAscot, the Allamanda Private Hospital ('Allamanda') expiry in November
2017 remains a focus for management. With the existing tenant relocating
services to a new private hospital they are building we continue to actively
consider alternative users and uses for Allamanda. To date, we have had good
initial interest from potential healthcare operators across several
sub-sectors including hospital and aged care providers."
During the period Vital announced two redevelopment opportunities. The first
is a A$28.0m redevelopment project at Hurstville Private Hospital
('Hurstville') in Sydney and a smaller A$1.9m project at Toronto Private
Hospital in Toronto, New South Wales. Both hospitals are operated by Healthe
Care, Australia's third largest for-profit hospital operator.
Hurstville is currently a 73-bed private hospital, with the development
significantly increasing acute clinical services providing increased
operating capacity and patient accommodation. On completion the total number
of beds will increase to 114, with the number of single bed private rooms
increasing from 14 to 72. Mr Carr said "Importantly the development will be
supported by and accommodate two major groups of surgeons being Sydney
Colorectal and Urology Sydney."
"On completion, the development is forecast to generate a return of
approximately 10% per annum, with a 10 year lease extension secured as part
of the agreement, which increased the lease term from 19 to 29 years" said Mr
Carr. The project is estimated to be completed by mid-2015.
Mr Carr also said "The above developments will continue to support Vital's
strategy of creating additional capacity to meet the rising demand for
healthcare services. Healthe Care remains a valuable long term partner with
whom we have a strong relationship. The opportunity to enhance the quality of
patient care, improve operational and financial performance of the assets
continues to be a very successful strategy for both parties."
Outlook
Mr Carr said "The fundamental outlook for healthcare remains positive and
continues to support all of our core portfolio activities. We remain well
positioned to deliver sound operational results supported by a robust capital
and treasury management framework. Collectively, this will support the growth
and diversification initiatives we expect to crystallise over time, which
seeks to enhance the quality and tenure of Vital's earnings.
The healthcare sector continues to be supported by strong underlying trends,
including an ageing population base with rising healthcare demands. We remain
open to all opportunities that exhibit many of Vital's existing portfolio
characteristics including bed-based care, long dated leases, structured rent
reviews and strong operator covenants."
Guidance for the 2014 financial year
Continuing the prudent approach to managing the Trust's financial position
the Board has reaffirmed its previous distribution guidance for the year
ending 30 June 2014 of 7.9 cents per unit.
- ENDS -
HY13 is half year to 31 December 2012, FY13 is financial year to 30 June
2013
Weighted Average Lease Term to expiry
Craigs Investment Partners, Bloomberg data to 31 December 2013
To 31 December 2013
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]
About Vital Healthcare Property Trust
With a portfolio value of over NZ$595m, Vital Healthcare Property Trust
(NZSX: VHP) is Australasia's largest listed investor in medical and
healthcare property infrastructure. With an expert understanding of the needs
of healthcare tenants on both sides of the Tasman, we actively select,
develop and manage quality properties to meet the growing demand for medical
and healthcare services. Our 105 tenants, in 24 properties, provide essential
healthcare services to thousands of patients while also undertaking research
and providing support services that will make a difference to many more lives
in the future.
The Manager of Vital Healthcare Property Trust, Vital Healthcare Management
Limited is owned by NorthWest Value Partners Inc., a private real estate
investment firm based in Canada with healthcare real estate interests in
Canada, Australia, New Zealand, Brazil and Germany.
vitalhealthcareproperty.co.nz
End CA:00246999 For:VHP Type:HALFYR Time:2014-02-14 09:22:46
