Ann: HALFYR: VHP: Vital 2013 interim result

• Release Date: 22/02/13 10:55
• Summary: HALFYR: VHP: Vital 2013 interim result
• Price Sensitive: No
• Download Document  14.16KB

					

VHP
22/02/2013 08:55
HALFYR

REL: 0855 HRS Vital Healthcare Property Trust

HALFYR: VHP: Vital 2013 interim result

21 February 2013

Vital 2013 interim result

Vital Healthcare Property Trust ('Trust' or 'Vital') today announced an
unaudited net profit after tax of $14.6 million (up 180 percent) for the six
months ended 31 December 2012, and confirmed its forecast guidance range for
a net distributable income of 7.7 to 7.9 cents per unit for the 12 months to
June 2013.

A second quarter cash distribution of 1.925 cents per unit will be paid to
unitholders on 28 March 2013.

Key highlights include:

- Gross rental income of $28.8 million, up $4.4 million or 18 percent (HY2012
[Note 1]: $24.4 million)

- Operating profit before tax of $16.5 million, up $5.2 million or 46 percent
(HY2012: $11.3 million)

- Net profit after tax of $14.6 million, up $9.4 million or 180 percent
(HY2012: $5.2 million)

- Net distributable income of $13.9 million, up $4.3 million or 44 percent
(HY2012: $9.6 million)

- Loan to value ratio (LVR) of 44.8 percent (FY20121: 42.3 percent)

- Concluded A$27 million of value-add hospital developments, improving asset
quality and yielding approximately 10% per annum

- Market leading portfolio occupancy of 99.5 percent (HY2012: 99.1 percent)

- The Trust's sector leading weighted average lease term of 12.1 years, over
twice the current New Zealand listed property sector average of 5.3 years
(excluding Vital)

- Settled the acquisition of SPORTSMEDoSA in Adelaide, South Australia for
A$29.2 million

- A total return for the 12 months to 31 December 2012 of 22 percent

Graeme Horsley, Independent Chairman of Vital Healthcare Management Limited
('the Manager') said "the interim result is a continuation of the Trust's
asset improvement programme and growth and diversification strategy in recent
years. The Trust's capability and credibility in the Australasian healthcare
social infrastructure market continues to strengthen.  This was evidenced by
the acquisition of one of Australia's leading private hospitals, SPORTSMEDoSA
in Adelaide, South Australia last year, which has just been ranked the second
best private hospital in Australia [Note 2], recognising the quality of the
operator and asset.

Management continue to focus on fundamental portfolio management activities,
whilst taking advantage of the currently low interest rate environment in
Australia as part of the overall treasury management strategy of the Trust.
As a consequence the Board remains comfortable with its 2013 full year net
distributable income guidance range of 7.7 to 7.9 cents per unit."

David Carr, Chief Executive Officer of the Trust's Manager, said "the interim
result reflects Vital's unique position as the largest healthcare real estate
fund in Australasia. As the market has come to expect, the continuation of
our core strategy correlates to the enhanced quality of returns to
unitholders."

Over the last 10 years Vital has outperformed the NZ Property Gross Index and
NZ 50 Index Gross with a compound total annual return of 12.9 percent [Note
3].  Mr Carr said "this continues to reflect the market's support of the long
term defensive attributes of the portfolio and healthcare real estate as a
significant investment class in its own right."

Financial performance

Gross rental income grew 17.8 percent or $4.4 million to $28.8 million
(HY2012: $24.4 million) reflecting the net effect of acquisitions, completed
developments, rent reviews and asset sales over the period. The largest
contributor to higher gross rental income was from value-add construction
projects that were completed during the first half of the year.  Net property
income increased 21.9 percent to $28.3 million over the period (HY2012: $23.2
million).

Administration expenses increased 17.4 percent ($0.4 million) to $2.8 million
over the period (HY2012: $2.4 million), reflecting higher management fees
($0.3 million) as a result of the larger investment portfolio. Other expenses
were down 39 percent to $0.6 million (HY2012: $1.0 million) primarily due to
the absence of internalisation and corporatisation expenses incurred in the
prior period.

Net finance expenses declined 45 percent or $6.0 million to $7.4 million
(HY2012: $13.4 million) as a result of an unrealised gain ($1.0 million) in
the fair value of interest rate derivatives at period end. The derivative
gain compares to a $4.9 million unrealised loss in the prior corresponding
period in 2012. After allowing for capitalised interest of $0.5 million
(HY2012: nil) interest costs were otherwise flat with an increased level of
debt offset by a lower average interest rate.

As a result, operating profit before tax lifted $5.2 million or 46 percent to
$16.5 million (HY2012: $11.3 million) over the period largely reflecting the
strong increase in gross rental income and flat expenses overall.

Tax for the period reflects the impact of the new Managed Investment Trust
tax regime in Australia of 15 percent (FY2012: 7.5 percent). The increased
tax rate is partly mitigated by being able to claim depreciation on buildings
in Australia, including the recently completed development works.

Portfolio activity and developments

Management continues to pro-actively manage the portfolio.  This includes the
robust and thorough analysis of the hospital redevelopment and expansion
programme and on-going strategic review of the suitability of properties in
the portfolio.

Targeted asset sales continue. This disciplined and prudent programme has to
date resulted in the sale of Pitman House in Pt Chevalier and 188 Health
Centre (Eastmed) in St Heliers totalling NZ$13.6 million during the first
half of the year, with sale proceeds recycled into improving the quality,
tenure and investment return attributes across the portfolio.

Working closely with the hospital operator, three add value development
projects were completed during the first half of the year, at Currumbin
Clinic (Gold Coast), South Eastern Private Hospital (Melbourne) and Toronto
Private Hospital (Newcastle).  The Lingard Private Hospital development works
are scheduled to be completed by April this year.  The completed projects are
forecast to generate a return of approximately 10 percent per annum.

In August the Trust commenced a A$6.1 million development project at Mayo
Private Hospital ('Mayo') in Taree, New South Wales. The Mayo development
includes construction of a third operating theatre, 24 additional single bed
rooms (to 85 beds in total) and a new stand-alone medical centre and
additional car parking. The Mayo project is practically complete and forecast
to generate a return of 10 percent per annum.

Management recognise the importance of strong and enduring tenant
relationships. By working closely with hospital operators we improve asset
quality and broaden the range of services offered; further underpinning our
credibility and capability in the sector.

The total value of Vital's investment portfolio increased $55.8 million or
9.8 percent to $623.0 million over the period. In addition to the development
projects the main contributor to the increase was the acquisition of
SPORTSMEDoSA in December for A$29.2 million.  Vital is now Australasia's
largest specialist medical and healthcare property investment fund.

Portfolio occupancy as at 31 December 2012 stood at 99.5 percent (HY2012:
99.1 percent) and remains the highest in the New Zealand listed property
sector.

The portfolio weighted average lease term ('WALT') increased to 12.1 years
(HY2012: 11.4 years) largely due to the impact of divesting assets with
shorter WALT's and the acquisition of SPORTSMEDoSA with a new 20 year lease
in place. Vital's market leading WALT continues to provide investors with a
high degree of income certainty and stability over the longer term.

During the first half of the financial year Vital completed 46 rent reviews,
equating to approximately 32 percent of portfolio income with an average
increase of 1.7 percent. Approximately 69 percent of rent reviews are
undertaken in the second half of the year, with 78 percent of those subject
to structured review mechanisms.

Over the remainder of the financial year only 1.1 percent of the Trust's
income is subject to lease expiry. Over the next five years there is, on
average, less than 2 percent per annum of rent due to expire, further
underpinning Vital's defensive and relatively stable earnings profile.

As exhibited historically, the Manager's approach is to proactively engage
with the Trust's tenants well in advance of lease expiries. The next two key
lease expiries are at Allamanda Private Hospital in Queensland, Australia and
Ascot Hospital in Auckland.  Each expiry occurs in the 2018 and 2019
financial years respectively and the Manager remains in active discussions
with both tenants.
Treasury & capital management

Vital's LVR as at 31 December was 44.8 percent (FY2012: 42.3 percent). This
follows the proactive use of the Trust's balance sheet at cyclical real
estate market lows and the subsequent prudent recycling of capital into
strategic value-add developments. The ratio remains below both the Trust's
bank and Trust Deed covenants of 50 percent. Total debt at 31 December 2012
stood at $279.0 million (FY2012: $245.8 million).

The Trust's weighted average interest rate (inclusive of margin and line fee)
for the first six months of the financial year was 6.40 percent (FY2012: 6.87
percent). The interest rate environment has been attractive for borrowers and
the Trust has benefitted from this more recently through entering of
attractive Australian dollar interest swaps, ultimately lowering the overall
cost of funding to the Trust.

As at 31 December 2012 the Trust's bank facility had a weighted average term
to expiry of 3.4 years (FY2012: 3.8 years). The Trust's debt was 86.2 percent
hedged (FY2012: 62.3 percent).
The interest cover ratio for the period was 2.6 times (FY2012: 2.3 times) and
remains comfortably above the 2.0 times bank covenant requirement.

The Trust's effective foreign exchange hedge position for the reporting
period was 88.9 percent (FY2012: 95.4 percent). During the period to 31
December 2012 a number of Transaction Hedges rolled over providing the Trust
with a realised gain of $3.9 million (before tax). This emphasises the
benefits of a foreign exchange policy where the gains form part of an offset
on any unrealised foreign exchange movements and helps protect unitholder
funds.

Units on issue have increased by 9.3 million as a result of two quarters of
unitholders participating in the Distribution Reinvestment Plan ('DRP') and
the remaining distribution being underwritten. These units were issued at a
premium to the Trust's net tangible asset backing of 99 cents per unit and
provided $11.1 million of additional equity.

Distribution

For the second quarter of the 2013 financial year, Vital unitholders will
receive a distribution of 1.925 cents per unit with imputation credits of
0.2388 cents per unit attached. The record date for the distribution is 14
March 2013 and payment will be made on 28 March 2013.

Interim unitholder distributions have been calculated using a net
distributable income based methodology. This remains consistent with the
requirements under the Trust Deed.

The DRP will remain available to unitholders for this distribution with a 1
(one) percent discount being applied when determining the strike price. The
DRP remains available to most unitholders. Unitholders who wish to
participate in the DRP for any future distribution should notify the Trust's
Registrar, Computershare Investor Services Limited below:

- Facsimile on +64 9 488 8787

- Computershare Investor Services Limited, Private Bag 92119, Victoria Street
West, Auckland 1142

or

- Computershare Investor Services Limited, Level 2, 159 Hurstmere Road,
Takapuna, Auckland

Details of the DRP are also available on our website:
www.vitalhealthcareproperty.co.nz/distribution-reinvestment-plan

Outlook

Mr Carr said, "over the balance of the financial year we remain focused on
the core portfolio management activities of the Trust. This includes the
proactive resolution of medium term lease expiries and concluding the current
development programme. We will continue to prudently evaluate and execute on
value-add opportunities as they arise. This conservative approach reinforces
Vital's reputation as a long term healthcare property investment partner and
providing opportunities to deliver enhanced returns to unitholders."

"In recognition of the activities and potential for opportunities in the
Australian market, the experienced property team in Australia will be
strengthened with the appointment of a senior executive to support the
Australian Fund Manager, Mark Norman. An announcement regarding an
appointment will be made shortly."

"We retain a long term positive view on the New Zealand sector. Whilst we
recognise limited opportunities currently exist that immediately aligns with
the Trust's strategy, we are confident opportunities will emerge that
continue to support and enhance the Trust's overall portfolio diversification
profile."

"Private health insurance levels in New Zealand remain relatively stable and
notwithstanding some political reform around rebates in Australia, private
health insurance membership continues to grow. This profile directly
supports many of the activities undertaken by tenants in the majority of the
Trust's hospital properties."

Guidance remains unchanged for a forecast net distributable income range of
7.7 to 7.9 cents per unit for the 2013 financial year.

Reconciliation of Operating Profit
All NZD$m Actual 1H13 Actual 1H12 change $m change%
Profit before income tax  17,697 5,874
Non-cash adjustments: Add/(Deduct)
Unrealised FX loss/(gain) (163) 377
Revaluation losses in Investment Property 0 68
Fair value loss/(gain) on derivatives (1,033) 4,969
Operating Profit 16,501 11,288 5,213 46%

Note 1. HY2012 is half year to 31 December 2011, FY2012 is financial year to
30 June 2012
Note 2. Annual Medibank Private Member Hospital Experience Survey
Note 3. Craigs Investment Partners. Bloomberg

- 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:00233308 For:VHP    Type:HALFYR     Time:2013-02-22 08:55:20