Vital 2017 Annual Meeting of Unitholders

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Chairman’s Address, Vital Healthcare Property
Trust Annual Meeting, 9 November 2017
The following is the address of the Chairman of Vital
Healthcare Management Limited for the Vital Healthcare
Property Trust Annual Meeting held at the Princes Ballroom,
Pullman Hotel, Auckland at 1.00pm on Thursday 9
November.
___________________________________
[Slide 1 – Cover slide]
[Welcome]
Welcome ladies and gentlemen to the 2017 Annual Meeting
of Vital Healthcare Property Trust.
My name is Graeme Horsley, I am the Chairman and an
Independent Director of your Trust’s Manager.
The conduct of this meeting will be governed by the
Financial Markets Conduct Act 2013, the Financial Markets
Conduct Regulations 2014 and the Trust Deed of the Trust.
Under the terms of the Trust Deed I have been appointed
the Chairman of this meeting.
Before we get started I ask you to note that should we
need to evacuate the exit is located at the rear of the room.
In the unlikely event of an emergency, an alarm will sound
and everyone should exit and meet outside directly in front
of the Pullman Auckland sign. Could I also please ask that
your mobile phones are turned to silent mode.

[Notice of Meeting]
The Notice of Annual Meeting, including all resolutions to be
considered, has been circulated to all Unitholders.

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[Quorum & Proxies]
Before the business of the meeting can commence it is
necessary for there to be a quorum.
Proxies have been received from Unitholders holding
184,579,227 units which equates to 42.5% of units on
issue and therefore represent over 10% of the number of
units on issue.
On that basis, I am pleased to confirm that there is a
quorum present and I declare the 2017 Annual Meeting of
Unitholders of Vital Healthcare Property Trust open.
___________________________________
[Slide 2 – Meeting Agenda]
[Meeting process/agenda]
I’ll first run through the order of the meeting before
introducing my fellow Directors and members of the
Executive Team along with the Trustee, legal and audit
representatives who are also here today.
 I will then give my address looking at our
performance, strategy and our focus for the year
ahead;
 David Carr, the Chief Executive Officer of the
Manager will then speak, briefly recapping our 2017
results and then provide you with an update of
activities for the year to date and outlook;
 I will then invite you to ask any questions you may
have regarding the Trust;
 We will then move to the one Resolution for voting
upon – being the re -election of myself as an
Independent Director on the Board of the Manager;
 We will then conclude the meeting, following which
there will be refreshments, and I invite all Unitholders
to remain and enjoy these with us.

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The Annual Report and Financial Statements for the year
end 30 June 2017 have been circulated to all Unitholders
and are now formally tabled at the meeting.
Copies of the minutes of last year’s Annual Meeting are
available for inspection at the entrance to the room.
___________________________________
[Slide 3 – Introductions]
[Introductions – Slide 4 Board of Directors]
Before going any further I would like to take the
opportunity to introduce my fellow Directors.
To my right is, Claire Higgins and to her right is Andrew
Evans and unfortunately due to other business
commitments in Canada, we have Bernard Crotty from
NorthWest attending via conference call and an apology
from Paul Dalla Lana. Good afternoon Bernard.
The Board composition remains unchanged from last year,
with Andrew, Claire, and myself as independents and
Paul and Bernard as representatives of the Manager.
___________________________________
[Slide 5 – In attendance today]
I would also like to introduce members of the Executive
Team of Vital Healthcare Management Limited.
First is the Chief Executive Officer, David Carr and next to
David is the Chief Financial Officer and Company Secretary,
Stuart Harrison.
Also in the audience today are a number of staff from the
management team.
Also present today are:
1. Loriza Ramzan from Trustees Executors Limited, the
Supervisor of Vital Healthcare Property Trust

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2. Peter Gulliver f rom Deloitte, the auditors for the Trust
and
3. Andrew Harmos from Harmos Horton Lusk Limited,
the legal advisers to the Manager
___ ________________________________
[Divider slide 6 – Chairman’s address]
__________________________________
Ladies and gentleman, over the last few years prior to
discussing the details of the Annual Meeting we’ve shown
you a short video clip of our properties alongside our
operators.
[Slide 7 – Sportsmed]
This year I thought we’d provide you with a clip from one of
our smaller, but no less important partners, SportsMed, in
Adelaide, South Australia.
We acquired the SportsMed Hospital and Medical Centre
from the operator in December 2012 and it has been a
fantastic investment.
SportsMed is an industry leading private orthopaedic
hospital, surgery and multidisciplinary healthcare provider
that offers patients access to world-leading healthcare in
state-of-the art facilities that is proudly South Australian
owned and operated.
We’ve also recently completed a A$6.1m development of a
stand-alone medical consulting building as you can see in
this photo, which is so recent it doesn’t appear on the
video, so I thought it would be good to show you that.
We acquired SportsMed on a 9.1% yield five years ago, and
as at 30 June this year it was independently valued at
6.0%, providing a positive valuation gain of approximately
A$20 m over the last five years, or circa 11 % per annum, so
it’s been a great investment. Let’s now take a look at the
video clip please.

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[Slide 8 - PLAY VIDEO] I trust you all enjoyed seeing a
real time perspective of the sort of assets Vital invests in.
[Slide 9 – Vital’s unit price performance]
Moving onto the core part of the presentation, starting with
Vital’s ongoing total return outperformance compared to
the wider market and our real estate peers over the last 10
years.
At last year’s Annual Meeting the unit price was $2. 01
compared to Tuesday’s closing price of $2. 22 , which on its
own (excluding any distributions over the period)
represents a 10.4% return to unitholders.
As you can see as at 31 October 2017, the last 10 years
has produced a compounded total annual return of 13.4%.
I am of the firm view that this outperformance continues to
be driven by Vital sticking to its clearly stated strategy set
by the Board and delivered on again over the last year by
David and his management team.
Vital is the only listed healthcare real estate vehicle in
Australasia and with a long dated track record of delivery
and performance, has a hard earned reputation with both
investors and tenants as a market leader.
With a commitment to continue with our scale and
diversification strategy, we remain focused on ‘more of the
same’ and all things being equal expect 2018 to be another
productive year.
[Slide 10 - Chairman’s 2017 report card]
You should all be familiar with this slide as I’ve often used
it over recent years (and I make no apologies for the
repetition).
In essence the slide details the core elements and focus for
Vital.
To quickly recap on each (and David will expand on some
specific elements in his part of the presentation) we have:

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 Maintained a high quality pure-play Australasian
healthcare real estate portfolio with exceptional metrics,
embedded growth potential, backed by market leading
operators and tenants. And remember all of this
continues to be underpinned by undeniable growth and
an increase in demand for healthcare services - driven by
a growing and ageing population;
 We continue with the attractive brownfield development
programme and we absolutely expect brownfields to
continue into the foreseeable future on the back of
increasing demand. This pipeline over the next 5 years
or so (whilst not currently committed) could quite easily
run into the hundreds of millions of dollars;
 Acquisitions remain a core feature of our scale and
diversification strategy and after a relatively quiet period
a couple of years ago, we’ve now executed on a number
of these through the course of 2017. Again David will
run through some of these in his presentation;
 We successfully completed the $160m capital raising in
August last year, with a very high 87% take up from
existing unitholders, and in August this year we added
A$ 175m to the debt facility to further support our growth
strategy;
As always we have a number of tools in the toolkit to
manage our capital requirements and one of these is the
potential sale of non-core assets, with management
continually reviewing the portfolio, assessing where the
opportunities are for future asset sales;
 And from a management team perspective, the core
team remains in place, in addition to the Manager having
recruited a number of new very experienced people over
the year;

Managing healthcare real estate requires a unique skill
set, and I personally consider the team as absolute
market leaders in this regard which ensures that our

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tenants / operators and their patients and staff are
working in high quality (and typically highly acute)
healthcare environments and facilities;
 The last and by no means least part of this equation is
the circle on the right hand side of this slide. As we have
represented for a number of years , our focus has been,
and remains ultimately on these core outcomes, being
sustainability of the distribution and long term value
creation.
 I’d like to expand on each using a couple of charts.
[Slide 11 – Distribution Sustainability]
This chart portrays a number of important points.
In essence, what it shows is the historically conservative
nature of the Board’s approach towards distributions to
investors.
This is reflected in what the market calls a payout ratio. A
payout ratio is essentially the percentage of total cash
earnings (or AFFO (which is ‘Available Funds From
Operations’)) in a year that is paid to investors.
As you can see Vital’s payout ratio for the last 3 years has
been very conservative, averaging 73 % over the period.
For the 2017 Financial Year independent research shows
the average New Zealand Listed Property Sector AFFO
payout ratio was over 100%, this compares to Vital’s 2017
AFFO payout ratio of 72 %, which adjusts for a one-off lease
termination receipt of $13.8m in 2017.
Just for clarity, typically, if you are paying out over 100%
of your free cash flow it is likely you are us ing debt to pay
for distributions. This is not a sustainable strategy
.
In saying that, to be fair, there may be good strategic
business reasons for this, however, the Vital Board has
taken a much more moderate and conservative approach

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and as I have noted has focused more on the absolute
sustainability of the distribution.
[Slide 12 – Investment Activity]
I’d also like to point out that we’ve been re-deploying any
retained earnings (or “working capital”) into acquisition
opportunities and highly accretive brownfield development -
further preserving (through diversification) the
sustainability of the distribution.
This is shown in this chart (which we also showed you last
year) where scale and diversification through acquisition
and development has underpinned DPU growth, but more
importantly, without sounding like a broken record,
distribution sustainability.
[Slide 1 3 – Distribution Growth]
Also - just in case you don’t recall we have periodically
increased the distribution and the chart shown here
compares Vital’s compound annual growth rate of its
distribution over the last 5 years against the NZ Listed
Property Sector.
As you can see we have in fact been delivering above
market average distribution growth over the period shown.
In my view this reflects a very fair and reasonable outcome
for investors, balanced with a prudent and responsible
approach to managing desired equity returns and the
capital requirements and demands of the business in
delivering on its stated str ategy.
In essence we are not just sitting here on ‘autopilot’ waiting
for a reason to say ‘no’. The Board’s preference has been
(and continues) to be very thoughtful about balancing the
needs of both the business and investors – and again based
on feedback and performance to date we see the market as
giving us a clear ‘vote of support’ in that regard.
[Slide 1 4 – Total Return Performance]

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Remember also, everything I have just mentioned excludes
the capital gain (which makes up the total return) in unit
price to investors.
If we look at this chart on Slide 14 over a 5 year period,
Vital’s compound annual total return has been 17.9%, as
compared to the New Zealand listed property sector at
9.8%.
So wrapping up my thoughts on this important concept, it
simply reinforces and hopefully clarifies for investors our
distribution sustainability and long term value creation
message. This will continue to be balanced with and
underpinned by our scale and diversification strategy.
[Slide 1 5 – Valuation update]
I just thought a few slides on our property valuations would
be helpful in understanding the underlying performance of
the portfolio. These revaluation gains have underpinned
Vital’s NTA and supported unit price performance for many
years now, so it’s a hugely important metric.
[Slide 1 6 – Independent portfolio revaluations]

On Slide 16 we provide a 4 year track of capitalisation rates
(or cap rates) for Australia, New Zealand and the total Vital
portfolio.
The chart’s self-explanatory, but as you can see for the last
12 months to 30 June 2017 Vital’s Independent Valuers’
analysis has resulted in the portfolio weighted average
capitalisation rate firming 113 basis points to just over 6%,
and a $168.5m revaluation gain.
In my opinion, this partly structural shift reflects the
market’s new found appreciation of the unique
characteristics and underlying drivers of healthcare real
estate – with these trends being amplified by Vital’s leading
portfolio metrics.

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Where do I see capitalisation rates going in the near
future? Well, everyone will have a view on this and
remember it’s an art not a science. In my own opinion I
think it would not be unreasonable to expect that they will
likely moderate over the next 12 months or so.
___________________________________
[Slide 1 7 – Healthcare Sector Capitalisation Rates]
Slide 17 considers both asset and market drivers of cap
rate firming to help provide some context to the strong
revaluation gains over recent years I spoke to on the
previous slide.
Asset drivers are the elements we largely have control over
and include:
1. High occupancy levels and long dated lease expiry’s;
2. Provision for structured rent growth, with periodic
reviews to market; and
3. Tenant performance, covenant and asset quality.
The market drivers listed on this slide include external
influences on value.
Without a doubt, transaction evidence, supply and demand
and a low interest rate environment has certainly supported
the firming thematic - and that’s right across the real
estate sector, not just for healthcare real estate.
We have also seen a number of well capitalised new
entrants enter market which has also certainly changed the
dynamic over recent years.
___________________________________
[Slide 18 – Portfolio Lease Expiry]

At a portfolio level, these two charts are just an example of
how elements of our strategy ha ve delivered significant
benefits.
The left hand chart shows our average annual 10 year
income due to expire has reduced from 4.4% per annum in
2012 to just 2. 0% now.

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This mitigates significant income risk from the portfolio
whilst providing greater earnings certainty over the long
term.
The risk reduction is driven by proactive management and
our relationship focused approach.
On the right hand side we have reduced our largest single
tenant expiry exposure over the next 10 years from 13.1%
of total income in 2012, to just 1.8% now.
[Slide 19 – Acurity Healthcare partnership]

I thought I’d take the opportunity to steal a bit of David’s
thunder and update you on the conditional acquisition we
announced on 11 May 2017 of Wakefield and Bowen
Hospital’s in Wellington from the Acurity Healthcare Group.
Whilst those conditions have not yet been satisfied I am
advised that we certainly hope to be able to confirm such in
the next few months.
[Slide 20 & 21– Photo of ‘now’ and ‘ proposed’ of
Wakefield Hospital, Newtown, Wellington]
For Wakefield hospital, as part of the acquisition, Vital has
conditionally committed to a large scale re development
over the next 3 years, resulting in an effective total re-build
of Wakefield Hospital.
[CLICK FOR SLIDE 21 – New Wakefield]
As you see in this slide the proposed transformation at
Wakefield Hospital will be significant. The development will
be completed in stages to minimise disruption to existing
operations, and on completion will result in a world class,
seismically rated, modern, functional facility providing
exceptional quality healthcare services.
The new Wakefield is expected to include 8 theatres, 40
beds, and 265 carparks, with additional expansion capacity
built into the design as required. Vital’s forecast capital
spend is approximately $8 0 million and is expected to
commence in 2018 and be completed in 2021.

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[Slide 22 – Bowen Hospital, Crofton Downs,
Wellington]
In addition Vital will also acquire Bowen Hospital in Crofton
Downs along with the potential for a commitment to
development of necessary infrastructure for radiation
oncology services at Bowen. These works will include
oncology bunkers that will house a single Linear Accelerator
with capacity to grow to two.
The service will be operated by a joint venture between
Acurity Health Group and Icon Cancer Care, Australia’s
largest private provider of cancer care. Radiation Oncology
services are a logical expansion following the recent
commencement of private medical oncology services at
Bowen by the joint venture.
The project is forecast to commence in the first half of 2018
and is expected to take approximately twelve months to
complete.
Both Wakefield and Bowen will be leased to Acurity for
initial lease terms of 30 years, reflecting the long term
intent of both parties, including Vital partnering with Acurity
as its exclusive real estate capital partner on future
opportunities.
[Slide 2 3 – Divider Slide ‘Focus’]
Pause
[Slide 2 4 – Focus for 2018]
In closing, we continue to have some of the strongest and
most attractive portfolio metrics of any real estate vehicle
in Australasia, with a conservatively managed balance
sheet and overall financial position.
This enables us to be selective and prudent in considering
opportunities as they arise – remaining focused on our core
foundations in building a healthy future I spoke to earlier.
The Board remains supportive and confident in David and
his management team’s ability to continue delivering on all
of the key focus areas for 2018.

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A core part of this is remaining focused on our scale and
diversification strategy working alongside both existing and
potential new partners.
Recognising the ongoing market support for our core
philosophies – being distribution sustainability and long
term value creation, as announced at the August results,
the Board has determined to maintain current cash
distribution guidance at 8.5 cents per unit for the 2018
Financial Year.
I am therefore pleased to announce the Board has today
approved a first quarter cash distribution of 2.125 cents per
unit, which is payable on 18 December to unitholders, with
a record date of 4 December.
I would like to thank all unitholders for their continued
support and look forward to updating you on various
initiatives as we move through 2018.
I will now pass you over to David who will run through his
presentation.
[Graeme to pass the meeting to David].

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Chief Executive Officer’s address
___________________________________
Slide 25 Chief Executive Officer’s address
Thank you Graeme, welcome and good afternoon everyone.
My name is David Carr and it’s a pleasure to be here today
to update you on the activities of the Trust.
________________________________
Slide 26 – FY17 Results Summary
In terms of the agenda I’ll start by reviewing the 2017
results highlights and then provide an update on a range of
activities and healthcare real estate themes, building on the
areas of focus for 2018 that Graeme discussed.
______________________________
Slide 27 – FY17 results summary
As we announced in August, the Trust had a solid 2017
financial y e a r, underpinned by consistent performance across
all facets of the business.
In terms of operating results, we had gross rental income of
$91.8m, a 31% increase for the period. It should be noted
however that this included the benefit of a one-off lease
termination receipt of $13.8m from two of our properties on
the Gold Coast.
If you excluded this one-off receipt, rent growth was still up
around 11%, driven by contributions from acquisitions,
completed brownfield developments and rent reviews.
Reported NPAT was $217.6m, but once you strip out
unrealised
components, like revaluation gains and foreign
exchange influences, a more appropriate or relevant
measure for unitholders is Net Distributable Income which
was $61.8m, up 54%, equating to 14.7 cents per unit.
Again if we normalised this to account for the lease
termination receipt I mentioned earlier, net distributable
income would have been approximately 11.7 cents per unit
for the full year, in lin e with 2016.

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And remember, this follows completion of the $160m rights
issue in August 2016 which added more units and gave us
balance sheet capacity to execute on 7 major acquisitions
through the year, and having delivered on the Board’s 2017
guidance of 8.5 cents per unit.
________________________________
Slide 28 - Treasury and Capital Management
Vital’s LVR, or Loan to Value ratio of 29.3%, is well below
the 36.3% from a year earlier, again recognising the net
position resulting from the August 2016 capital raise,
revaluation gains and application of funds to acquisitions and
brownfield developments.
At just under 30%, our LVR remains well below our bank
and Trust Deed covenants of 50%, so we have plenty of
balance sheet capacity to invest into future opportunities.
Another positive trend has been the continued reduction in
our weighted average cost of debt to 4.34%, which is our
5th consecutive year of lower bank debt funding. It reflects
a combination of:
• Low Australian interest rates,
• Lower bank fees achieved at each tranche of the facility
renewals and
• Strong ongoing support from our Banking partners.
Post balance date, in August this year we also added a
further A$175m of capacity to our debt facilities – which
attracted slightly higher bank fees, but extended the
weighted average facility term out to approximately 3 years.
With NTA or Net Ta n g i b l e Assets at $2.05, this was driven up
by the equity raise at above NTA, retained profit and the
strong revaluation gains achieved at year end.
Even after allowing for this 36% increase it is still great to
see Vital’s units consistently trading at a healthy premium to
NTA which in my view recognises the benefits of a large,
well-diversified, high quality healthcare real estate portfolio.
________________________________

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Divider slide 29 – Portfolio update
___________________________________
Slide 30 – Strong core portfolio
Slide 30 shows our core portfolio metrics remain in great
shape.
Our current occupancy of 99.3% maintains our track record
of over 99% for the last 8 years. This is a strong indicator of
performance and one the team are proud of as it goes to the
heart of both the quality of Vital’s properties and the
enduring depth of our tenant relationships.
Our WALE (or Weighted Average Lease Te rm to Expiry) of
17.7 years is market leading, and I’ll speak to the benefit of
a long WALE in a couple of slides.
We have just 1.4% of total income expiring in 2018, and
based on historic renewal trends as at today, I’d reasonably
expect over 90 % of these tenants will agree to stay on.
Supporting these core metrics, we also have approximately
90% of our total income with structured type rent reviews
due over 2018, with the majority of these reviews CPI
based.
___________________________________
Slide 31 – Portfolio diversification
This slide simply shows Vital’s portfolio diversification by
geographic mix and asset type.
We are comfortable with the diversification as shown here,
and I note that we don’t have any set policy or target
weightings.
Our preference is to assess any new opportunities as they
arise and within the over-arching context of whether it aligns
with our core strategy.
_________________________________
Slide 32 – Market leading WALE
As I touched on earlier our WALE is 17.7 years and if you
look back over the last 5 years we’ve had an average WALE

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of 16.4 years – a great achievement and key point of
difference when compared to the wider listed property sector
at just 6.8 years.
A long dated WALE recognises Vital’s portfolio quality and
long term suitability of our properties for our tenants and
operators - as we have proven over recent years with a
number of tenants signing new 30 year leases. Lease terms
of this length are effectively un -heard of in the wider
commercial property market.
Ultimately a long dated WALE provides contracted long term
rental income stability for investors, and directly supports
the Board’s distribution sustainability message.
___________________________________
Slide 33 – Lease expiry profile
This chart shows that our current average annual lease
expiry is only 2.0% per annum for the next 10 years.
Due to our proactive approach to managing future lease
expiries well in advance, we have now mitigated a lot of this
risk as Graeme explained earlier.
In essence this chart shows that over the next 10 years we
have just 20% of our total current income expiring, with the
balance 80% expiring between 2028 and 2047.
Also, as you can see, we do still have work to do with some
near term lease expiries, but be assured that the team
remains focused on resolving these early to ensure we
maintain this type profile for years to come.
Slide 34 - Sector drivers and trends
We now consider the sector drivers of demand and trends
for healthcare services.
________________________________
Slide 35 - Sector drivers and trends
While the potential for periodic healthcare reforms can cause
short term uncertainty, particularly in Australia at the
moment, we maintain a view that the underlying demand for

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healthcare services largely remains intact and will continue
to grow.
This compounding growth is as a result of a growing and
ageing population, adding to the complexity of healthcare
needs, and people having increasingly high expectations of
receiving quality, timely and cost effective care, whether
that be in the public or private system.
One barometer we look at is private health insurance levels
as a percentage of population.
More recently, Australian policy holder growth has declined
slightly, however conversely in New Zealand in June this
year the Health Funds Association noted that it has now
recorded 9 consecutive quarters of policy-holder growth, and
in fact had seen some of the strongest growth in Private
Health Insurance levels since 2001.
For context though, please remember, whilst Australia may
be under some pressure, it still has around 46% of its
population with health insurance, as compared to New
Zealand at approximately 30%, so Australia it is still our
strongest market in that sense.
On balance we retain a net positive outlook, particularly over
the longer term and we don’t expect external influences or
changes to the fundamental structure and characteristics of
healthcare services to change that view.
___________________________________
Divider slide 36 - Development update
I’ll now run through a development update.
___________________________________
Slide 37 – Development update
On this slide you can see a summary of four development
projects that continue, where we’re spending approximately
A$40 m building additional capacity in hospital beds,
operating theatres and related infrastructure. At the bottom
part of the slide you can see we have recently completed
developments at Maitland Private and SportsMed in
Adelaide.

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These types of capital investments continue to reposition
and modernise the portfolio and entrench our long term
strategic partnerships.
We also continue to look to acquire strategic sites adjacent
to existing properties. This is essential so we can continue to
create capacity for our operating partners and protect and
enhance long term value.
In terms of our outlook for development projects, over the
next few years I’d expect that we’ll likely commit to at least
$25m to $50m per annum on average as a result of
continued demand for healthcare infrastructure.
___________________________
Divider slide 38– Acquisition activity
In the next two slides I’ll update you on some of our more
recent acquisition activities, noting Graeme has already
discussed the conditional acquisition of Wakefield and Bowen
Hospital’s in Wellington.
____________________________
Slide 39 – Recent acquisitions (Ormiston Hospital,
Auckland)

The first acquisition is Ormiston Hospital, here in Auckland
which we settled in May.
Ormiston Hospital is situated in Flat Bush, approximately
25km south of the Auckland CBD and was purpose built in
2008.
Ormiston is around 5km east of Auckland’s largest public
hospital – Middlemore, and serves a significant catchment in
one of Auckland’s strongest population growth corridors,
with a resident population of well over half a million people.
Comprising 5,000 sqm of floor area across three levels, with
basement car parking, Ormiston has over 70 leading medical
specialists and surgeons using the hospital’s 31 beds and 6
surgical theatres.

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The main tenant is Ormiston Surgical and Endoscopy Limited
– a business whose cornerstone shareholder is Southern
Cross Hospitals, New Zealand’s largest private hospital
operator, and without a doubt we’ll look to strengthen this
new partnership over coming years.
____________________________
Slide 40 – Recent acquisitions (The Hills Clinic,
Sydney)
Mid-June we announced the off -market acquisition of The
Hills Clinic, a private mental health hospital located in
Sydney’s north western growth corridor.
Built in 2011, The Hills is a 59 -bed private inpatient mental
health facility, including a medical clinic with 8 consulting
rooms and approximately 30 referring clinicians.
The Hills is differentiated by its dedicated youth mental
health program providing modern, innovative care for
adolescents with drug, alcohol, depression and anxiety
disorders.
Healthe Care, Vital’s largest tenant partner and Australia’s
third largest corporate private hospital operator has leased
The Hills from Vital on a 30 -year lease.
The Hills Clinic is Vital’s fifth mental health hospital in
Australia and its first in NSW. The site has expansion
capability, with potential for an additional 24 beds, which fits
nicely with our philosophy of supporting our operating
partners as population growth and wider demand pressure
for mental health services increases over time.
____________________________
Divider slide 41 – Summary
Finally, Vital’s strategy is delivering and we continue to build
on recent successes.
___________________________________
Slide 42 – Summary: Themes, drivers and
opportunities

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Healthcare real estate remains an attractive long term
investment proposition.
Proactive asset and portfolio management is an essential
and core part of our role as Manager and the team takes
pride in delivering outcomes both the market and investors
have come to expect.
This, supported by a strong financial position remains the
foundation of what we do and allows us to deliver on the
Board’s scale and diversification strategy.
More recently the unique investment characteristics of
healthcare assets has been recognised by sophisticated and
professional investors, with multiple new entrants and large
amounts of capital looking to secure opportunities in the
sector.
We’ve successfully maintained our key point of difference
which has seen the prudent execution of a number of off -
market acquisitions, reflecting the strength of relationships
Vital has with both existing and new partners.
We remain excited about the future and are still of the view
that there is a potential investible universe of healthcare real
estate in our market in excess of $3bn. We will carefully
consider each opportunity as it arises, recognising that these
will be intergenerational long term investments.
In finishing I’d like to thank my full management team, they
are great people doing exceptional work.
Thank you also to Graeme and the Board for their ongoing
guidance and support.
And last and certainly by no means least, a big “thank you”
to you, our investors, we certainly appreciate your ongoing
support.
I will now pass you back to the Chairman, Graeme.....

---

ANNUAL MEETING OF UNITHOLDERS
BUILDING A HEALTHY FUTURE
9
th
NOVEMBER 2017

MEETING AGENDA

► Introductions
► Chairman’s Address
► Chief Executive Officer’s Address
► Questions
► Resolution
► Voting
► Close of Meeting
► Refreshments
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INTRODUCTIONS

BOARD OF DIRECTORS

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IN ATTENDANCE

Management Team
► David Carr – Chief Executive Officer
► Stuart Harrison – Chief Financial Officer

Trustee, audit and legal representatives
► Loriza Ramzan – Trustees Executors
► Peter Gulliver - Deloitte
► Andrew Harmos – Harmos Horton Lusk
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CHAIRMAN’S
ADDRESS

SPORTSMED • SA (RECENT DEVELOPMENT)

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VITAL HEALTHCARE PROPERTY TRUST - MEETING OF UNITHOLDERS
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VIDEO CLIP – INSIDE SPORTSMED • SA

VITAL’S PERFORMANCE
Strong execution on scale and diversification strategy driving material outperformance
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Source: Craigs Investment Partners. Data to 31 October 2017

CHAIRMAN’S REVIEW – 2017 REPORT CARD
Building (blocks) to a healthy future
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Stabilised
portfolio,
strong
underlying
thematics
Brownfield
developments
(capacity
expansion)
Acquisitions

Sustainable
long term
earnings &
value
creation
Management
Aligned / Stable / Experienced / Credible / Capable
Capital &
Treasury
 



Consistently strong performance delivering on overall strategy

DISTRIBUTION SUSTAINABILITY
Vital’s AFFO payout ratio, NZ listed property sector is above 100%

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*FY2017 excludes lease termination receipt of $13.8m
Vital
Average

INVESTMENT ACTIVITY
Distribution sustainability supported by prudent investment activities
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0.9%
2.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
NZ Listed Property SectorVital
DISTRIBUTION GROWTH
Vital has outperformed its NZ peers over the past 5 years
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5 Year Compounded Annual Growth Rate of Distribution
Source; First NZ Capital

TOTAL RETURN PERFORMANCE
Vital has produced sector leading total returns for its investors
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Source: Craigs Investment Partners. Data through 31 October 2017
5 Year Compounded Annual Total Return

VALUATION
UPDATE

INDEPENDENT PORTFOLIO REVALUATIONS
Since FY14, Australian cap rate firmed ~336 bps vs NZ ~160 bps

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As at 30 June 2017

HEALTHCARE SECTOR CAP RATES
Asset and market factors have led to cap rate firming
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High occupancy and long WALE
Experienced, proven managers
Structured rent growth, periodic reviews to
market
Quality covenant, financial performance
Asset drivers
Market drivers
Transactional evidence
Increasing investor interest/understanding
Supply/demand imbalance
Low interest rate environment
Drivers of cap rate firming
Asset quality and strong catchment area
Underlying strong demand for healthcare
services

PORTFOLIO LEASE EXPIRY
Low lease expiries support income sustainability over the long term

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Largest Tenant Expiry in Next 10 Years 10 Year Average Annual Lease Expiry
4.4%
2.0%
0%
2%
4%
6%
8%
10%
12%
14%
20122017
Lease expiry by income
13.1%
1.8%
0%
2%
4%
6%
8%
10%
12%
14%
20122017
Lease expiry by income

ACURITY HEALTHCARE PARTNERSHIP

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WAKEFIELD HOSPITAL, WELLINGTON - NOW

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WAKEFIELD HOSPITAL - PROPOSED

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* ARCHITECTS CONCEPT ONLY – SUBJECT TO CHANGE

BOWEN HOSPITAL, WELLINGTON

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FOCUS FOR 2018

FOCUS FOR 2018
Building a healthy future. Repeat our success
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Continued proactive asset management to support operating and financial results

Execute brownfield pipeline, assess and generate additional value-add opportunities
Take a strategic long term approach to opportunities, leverage track record and global
expertise
Enhance existing relationships, foster and expand on new strategic partnerships
Prudent capital management, assess and utilise all the ‘tools in the toolkit’ as required
Deliver sustainable distributions, create long term value

CHIEF
EXECUTIVE
OFFICER’S
ADDRESS

FY17 RESULTS
SUMMARY

FY17 RESULTS SUMMARY
Strong operating and portfolio performance
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$91.8m
*Gross rental income, +30.6%
$61.8m
Net distributable income, +53.6%
$217.6m
Net profit after tax, +85.6%
8.5cpu
Cash distribution +2% from FY2016
*includes one-off lease termination receipt of $13.8m

TREASURY AND CAPITAL MANAGEMENT
Prudent balance sheet provides management ability to deploy capital for right
opportunities
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29.3%
LVR, reduced by 700bps following
completed $160m capital raise
4.34%
Weighted average cost of debt,
79.5% hedged with a 6.0 year term

A$175m
Additional credit facility
$2.05
NTA, +36.0%

PORTFOLIO
UPDATE

STRONG CORE PORTFOLIO
Portfolio metrics remain in great shape

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99.3%

Occupancy averaging +99% for
the last 8 years
17.7yr
WALE, longest listed vehicle in
Australia and New Zealand
1.4%
Rents expiring in FY18
~90%
of FY18 rents have
structured reviews
* As at September 30 2017

NSW
36%
NZ
18%
VIC
21%
QLD
12%
SA
4%
TAS
1%
WA
6%
Geographic
Diversification
Acute Surgical
56%
Medical office
buildings
13%
Mental health
15%
Rehabilitation
9%
Aged care
4%
Strategic
2%
Sector
Diversification
PORTFOLIO DIVERSIFICATION
Portfolio is 82% weighted to Australian assets by asset value
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MARKET LEADING WALE
Longest weighted average lease term among NZ listed property vehicles
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* Forsyth Barr, Real Estate Reflections October 2017. Sector avg. excludes VHP
16.4 years
average

0%
2%
4%
6%
8%
10%
12%
Sep 18
Sep 19
Sep 20
Sep 21
Sep 22
Sep 23
Sep 24
Sep 25
Sep 26
Sep 27
Percentage of portfolio (by income)
Total expiry
Largest single expiry
LEASE EXPIRY PROFILE
Low risk expiry profile = sustainable, predictable and defensive cash flows

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2.0% p.a.
average lease
expiry over the
next 10 years
~80% of
income
expires
from 2028

SECTOR
DRIVERS AND
TRENDS

SECTOR DRIVERS AND TRENDS
Periodic regulatory reform, long term trends undeniable

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Regulatory
Public system
pressure
Relatively
insulated
reform relatively constant,
diversification
critical
private system
critical component
from macro financial,
economic and market
conditions

Economic & market influences
2x
80% ~4x
>65 year demographic
forecast over
the next 40 years
>65 year demographic
have at least
one chronic disease
utilisation of
healthcare services
by >65 year demographic
Strong forecast demand, undeniable trends

DEVELOPMENT
UPDATE

DEVELOPMENT UPDATE
Development continues to enhance asset quality and portfolio value

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•Average development yields of ~8%, material spread to current WACR
•Expectation brownfield development program will continue at $25-$50m per annum, on average
ForecastSpendForecast
development costto datecompletion
Development(A$m)(A$m)date
Lingard Private (NSW)23.84.5Jun-18
Toronto Private (NSW)9.46.2Apr-18
Palm Beach Currumbin (QLD)6.35.9Oct-17
North West Private (TAS)1.00.3Nov-17
Total40.516.9
Recently Completed
Maitland Private Stage 1 (NSW) - A$7.6m
Sportsmed Consulting (SA) - A$6.1m

ACQUISITION
ACTIVITY

RECENT ACQUISITION: Ormiston Hospital, Auckland
Purpose built private hospital in strong and growing catchment.
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RECENT ACQUISITION: The Hills Clinic, NSW
The leader in mental health treatment in Sydney's north west

SUMMARY

THEMES, DRIVERS AND OPPORTUNITIES
Healthcare real estate remains an attractive long term investment proposition.
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Higher relative returns, lower volatility
Structural cap rate firming reflecting unique investment characteristics and performance
Sector consolidation to continue, opportunity in medium term
Capital constrained sector, operators considering alternative capital solutions
Proven track record as investment manager & capital partner sees Vital well placed.
Potential pool of healthcare real estate opportunities of over $3bn

QUESTIONS
Please state your name and whether you
are a Unitholder or a Proxy holder

RESOLUTION

THANK YOU

DISCLAIMER
This presentation has been prepared by Vital Healthcare Management
Limited (the "Manager") as manager of the Vital Healthcare Property Trust
(the "Trust"). The details in this presentation provide general information
only. It is not intended as investment or financial advice and must not be
relied on as such. You should obtain independent professional advice prior
to making any decision relating to your investment or financial needs.
The provision of this presentation does not constitute an offer, invitation or
recommendation to subscribe for or purchase units in the Trust.
Past performance is no indication of future performance.
No money is currently being sought, and no applications for units will be
accepted, or money received, unless the unitholders have received an
investment statement and a registered prospectus from the Trust.

9
th
November 2017

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