Vital Healthcare Property Trust Units

Tuesday 24th February 2015

Vital Healthcare Property Trust (VHP.NZ) is an NZX-listed investment fund that invests in high-quality health and medical-related properties in New Zealand and Australia. VHP’s tenants are hospital and healthcare operators who provide a wide range of medical and health services and carry out vital research. VHP is the only medical and healthcare property investment fund listed on the NZX.

VHP’s properties are diversified and has historically included ownership of surgical and medical facilities, primary healthcare and health support facilities and aged care facilities. The Company operates in both Australia (74%) and New Zealand (26%). The Trust is managed by Vital Healthcare Management Limited and Vital is owned by NorthWest Value Partners Inc. - a private real estate investment firm based in Toronto, Canada.

The units were listed in September 1999. Previously it used to be called ING Property Trust and on 1 October 2010 the company changed its name to Vital Healthcare Property Trust. The Trust’s portfolio includes Apollo Health and Wellness Centre in Albany and Ascot Hospital in Remuera suburbs of Auckland.

VHP’s 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, slightly down by 0.7% from prior year.
In line with Vitals’ 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.

VHP’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). The Weighted Average Certificate rate (WACR) firmed by 31 bps to 8.95% with the portfolio now valued at $613.1m.
VHP’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.
VHP’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.Net distributable income per unit was 10.4cpu, an increase of 10.8% from prior year.

VHP stated that on the basis of solid financial result, distributable earnings growth and its strong capital position the outlook for FY2015 is positive from management point of view. VHP managed to secure a 30-year lease extension at Ascot Hospital and also acquired its first property In Western Australia and diversify the portfolio geographically. The company expected "opportunities in the order of A$50 million to materalise over the course of 2015”.

VHP also managed to increase the weighted average lease term (WALT) to 15.1 years from 11.8 years. Vital Healthcare will make a fourth-quarter distribution of 1.975 cents a unit on 25^th September, 2014 taking the full-year payment to 7.9 cents, and expected to distribute 8 cents per unit in 2015.

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