Vital on track to meet full year payout

23.02.12_VHPT_interim_accounts_fin_stats.pdf
23.02.12_VHPT_interim_accounts_fin_stats.pdf

23 February 2012

MARKET RELEASE

Vital on track to meet full year payout

Leading Australasian healthcare property investor Vital Healthcare Property Trust (“Trust”), (NZSX ticker: VHP), today announced an unaudited profit before income tax of $5.87m for the six months ended 31 December 2011, and confirmed its full year guidance of a net distributable income of 7.7 cents per unit for the 12 months to 30 June 2012. A second quarter cash distribution of 1.925 cents per unit will be paid to unitholders.

Gross rental income for the period was $24.44m (2010: $13.51m), an increase of 80.9% on the prior period, reflecting the positive contribution from the Australian portfolio acquisition in December 2010.

David Carr, Chief Executive of the Trust’s manager, Vital Healthcare Management Limited, (“Manager”) said the interim result reflected the benefits of a diversified healthcare property portfolio supported by strong underlying population growth, an ageing demographic and relatively stable industry trends.

“Our 2010 Australian portfolio acquisition and subsequent development commitments will continue to enhance the portfolio as projects are completed, with an average forecast yield on cost of 10%. We continue to develop an already strong working partnership with all our tenants, and in December acquired Mayo Private Hospital in New South Wales in conjunction with Healthe Care Australia Pty Ltd, who acquired the operating business of Mayo Private Hospital. The hospital was acquired on a yield of approximately 10% after costs."

“We also made good progress renegotiating lease renewals well before expiry dates fell due which provides strong cash flow certainty over the medium term. A great example of this was the early renewal of the lease at Epworth Rehabilitation hospital in Melbourne which was due to expire in 2014, and has now been extended for five years to expire in 2019,” Mr Carr said.

Portfolio occupancy sits at 99.1%, having been maintained at greater than 99% now for more than two years, with the Trust’s weighted average lease term of 11.4 years more than double the listed property sector average in New Zealand. Over the six months to 31 December 2011 70 rent reviews were completed resulting in an average increase over passing rent of 4.0%.

Graeme Horsley, the new Chairman of the Manager and Independent Director said: “I am delighted with the performance of the Trust’s portfolio and was pleased to see David and his team continue to further entrench the Trust’s leading position in the sector supported by strong relationships between the management team and the Trust’s tenants”.

Operating profit
The Trust’s operating profit before tax was up 62% to $11.29 million (2010: $6.98m). As detailed in Appendix One, in calculating the operating profit before tax, the impact of unrealised items including foreign exchange gains/(losses), interest rate swaps movement and revaluation losses on investment properties have been removed.

Mark-to-market adjustments on interest rate hedges gave rise to a loss of $4.97m (2010: gain of $2.24m) and foreign currency exchange movements principally on the unhedged portion of Australian dollar denominated borrowings, gave rise to a loss of $0.38m (2010: gain of $0.61m).

These adjustments are made in accordance with International Financial Reporting Standards and the accounting treatment of these unrealised items has no effect on the Trust’s cash distributions to unitholders.

Treasury and capital management As a result of sales, development capital expenditure and the Mayo Private Hospital acquisition the Trust’s debt-to-total-assets ratio is 39.0% as at 31 December 2011 (taking into account financing costs offset against borrowings), well below the Trust Deed covenant limit of 50% and bank facility covenant of 45%.

Gearing as at 30 June 2012, not allowing for any further asset sales or revaluation gains and making provision for the current development programme, is forecast at 42.9%. Notwithstanding this headroom to Trust Deed and bank facility covenants, the Board maintains the view that over the medium to long term the Trust’s gearing is targeted to remain below 40%. The Trust’s bank facility is secured until September 2013.

The Trust continues with its foreign exchange policy of seeking to minimise the impact of movements in the Australian versus the New Zealand dollar.

Other events
In addition to the acquisition of the Mayo Private Hospital in December the Trust also settled the sale of the Pt Chevalier property for $12.55m, in line with the 2011 book value.

Subsequent to the end of the period under review, NorthWest Value Partners Inc. (“NorthWest”) completed the purchase of a 19.8% interest in the Trust and acquired 100% of the shares in the Manager.

Following the sale of the management rights, Bill Thurston resigned as Chairman and Independent Director and Peter Brook resigned as Non-independent Director. Mr Horsley said “it has been a pleasure to work with Bill and Peter over the last few years and I would like to thank them for their invaluable contribution during their tenure whilst overseeing the activities of the Trust".

As part of the Board changes, Australia-based Claire Higgins, has been appointed as a Director of the Manager and Paul Dalla Lana and Bernard Crotty have been appointed to the Board as representatives of NorthWest. In addition to Mr Horsley, the Board of the Manager has determined that Andrew Evans and Mrs Higgins are Independent Directors, in terms of the NZSX Listing Rules.

Outlook

Looking forward, the Manager continues to monitor private health insurance trends in Australia and New Zealand as a leading indicator of tenant performance.

Mr Carr said there was a clear divergence with hospital treatment insurance having steadily increased in Australia over recent years, while there was an opposing trend in New Zealand.

Notwithstanding those indicators, it is forecast that there will be a doubling of the over 65 age group population in the next 20 years in both countries with that age group estimated to use healthcare services at four times the rate of the rest of the population.

The Manager is closely following the debate in Australia on the proposed means testing of private health insurance rebates, which was passed in the lower house of the Australian Parliament in mid February and now requires the support of the upper house to become law. While the Australian Treasury expects any negative impact on levels of private health insurance to be modest, industry participants remain divided on the extent of any impact. The Manager will continue to watch this closely and update unitholders of any developments in due course.

“Whilst we see some near term pressure in New Zealand, the current relative strength of the Australian market continues to support our diversification and growth strategy into that market where 80% per cent of our hospital assets are now located,” Mr Carr said.

The Manager’s focus remains on delivering on core asset management activities and extracting full value from the 2010 Australian acquisitions, including the completion of a number of value-add development projects through the remainder of 2012.

The Trust has 3.4% of leases expiring over the next two years with less than 1% of leases due to expire in the period to 30 June 2012. The Manager is in discussions with a number of tenants around their longer term operational requirements and actively seeks to secure tenants with strong covenants, on long lease terms with a structured rent review profile. Of the 131 rent reviews to complete in the 12 months to 30 June 2012 approximately 60 remain, with the majority of these subject to review by reference to the consumer price index.

The Board has re-confirmed its full year guidance for a net distributable income of 7.7 cents per unit for the 12 months to 30 June 2012.

Distribution

The Trust will deliver a second quarter distribution of 1.925 cents per unit to unitholders. This distribution is comprised entirely of cash and has no imputation credits attached. The record date for the distribution will be 8 March 2012, and the payment date will be 22 March 2012.

As detailed in the first quarter distribution announcement, it is the view of the Board of the Manager that costs incurred investigating the internalisation proposals should not form part of the calculation of net distributable income.

The Manager advises that participation in the Distribution Reinvestment Plan (“DRP”) will be available to unitholders for the second quarter distribution that will be paid on 22 March 2012.

Unitholders who have previously elected to participate in the DRP will automatically continue to participate in the DRP. Unitholders are able to amend their instructions, or elect to participate, prior to the record date of 8 March 2012. The discount applicable to any units issued pursuant to the DRP will be 1%.

– ENDS –

Appendix One

Reconciliation of Operating Profit | HY2012 $000s | HY2011$000s
Profit/(loss) before income tax | 5,874 | (2,483)
Add Back/(Deduct):
Unrealised foreign exchange loss/(gain) | 377 | (605)
Interest rate swaps loss/(gain) - held for trading | 4,969 | (2,244)
Revaluation losses on investment property| 68 | 12,316
Operating Profit | 11,288 | 6,984 61.6%
Realised (gain)/loss on sale of properties | 2 | (14)
Internalisation costs | 528 | -
Gross Distributable Income | 11,818 | 6,970

Vital Healthcare Property Trust

With a portfolio value of over NZ$550m, Vital Healthcare Property Trust (NZSX: VHP) is New Zealand’s largest listed entity investing in medical and healthcare properties in Australasia. 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 124 tenants, in 25 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 a healthcare real estate interests in Canada, Australia, New Zealand, Brazil and Germany.

23.02.12_VHPT_interim_accounts_fin_stats.pdf
23.02.12_VHPT_interim_accounts_fin_stats.pdf

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