Vital announces 3rd quarter results, update on Healthscope

10 May 2019
Vital announces third quarter results, an update on the
Healthscope opportunity and current projects
NorthWest Healthcare Properties Management Limited (NWM), the manager of Vital Healthcare Property Trust
(Vital), today released its third quarter report for the nine months ending 31 March 2019. It also confirmed a third
quarter cash distribution of 2.1875 cents per unit will be paid to unitholders on 20 June 2019, an increase of 2.9%
over the prior year period.

Healthscope transaction update
After due consideration, Vital has declined to participate in the Healthscope real estate opportunity with NorthWest
Healthscope Properties REIT (“NWH REIT”).
In early 2018, Vital and NWH REIT agreed to jointly pursue the acquisition of the Healthscope real estate opportunity.
A derivative position on Healthscope shares was entered into to retain influence over the real estate outcome in a
complicated takeover process.
The sale of the Healthscope real estate portfolio represented an excellent strategic opportunity for Vital to jointly
participate in the acquisition of a portfolio of high quality Australian hospitals backed by a leading operator.
In accordance with Vital and NWH REIT’s joint investment policy, Vital has the right to acquire a 50% interest in any
property acquisitions NWH REIT pursues in Australia and New Zealand. NWH REIT formally signed up to acquire
50% of the Healthscope real estate portfolio in late January 2019 and offered 50% of this portfolio, on exactly the
same terms, to Vital. However, when considering all current factors, it was decided that participation in the
Healthscope opportunity by Vital should be declined.
Independent Directors Andrew Evans and Graham Stuart said: “Consideration of this rare opportunity has been a
very thorough and detailed process for the Board and Vital. Unfortunately, despite the Board’s collective view earlier
in calendar 2018 that the Healthscope real estate opportunity was in line with Vital’s strategy, we were unable to
see that the opportunity met all the overall investment objectives for the Trust.”
“Further, management and directors have also listened carefully to a range of investor feedback over the last few
weeks and it has factored heavily into our conclusion. Turning away from a quality and scale portfolio opportunity
can be a difficult decision but, for Vital in this instance, we are satisfied it is the right decision at this time in light of
the broadest range of applicable considerations.”
After today’s decision to not participate it has been agreed with NWH REIT that in the circumstance where the
Healthscope real estate opportunity closes as anticipated, fees and third party due diligence costs relating to the
Healthscope real estate opportunity will not be borne by Vital. Vital will still participate in 50% of NWH REIT’s
derivative position in Healthscope shares including the payment of associated fees. These arrangements along with
the related financing will be settled in accordance with their terms following the completion of the transaction.
As at 31 December 2018, Vital had recorded costs capitalised on its balance sheet of $9.0m and a net expense
through the income statement of $3.6m. It is forecast that Vital’s financial statements to 30 June 2019 will show that
the net expense from 31 December 2018 will improve by approximately $1m and there will be no costs remaining
on the balance sheet.
1






1
Assumes Healthscope shareholders vote to approve the Scheme of Arrangement in June 2019.

A summary of the foregoing is set out below:


Leadership change
NWM advises that David Carr has today given notice of his resignation as the Chief Executive Officer of the Manager
of Vital. The Board would like to thank Mr Carr for 13 years of dedicated service and market outperformance. Mr
Carr’s last day will be 15 June 2019.
Miles Wentworth has been appointed as Interim Manager with immediate effect and will be responsible for the
Trust’s day to day operations.
With 23 years of experience in the New Zealand and Australian healthcare property sector, Mr Wentworth is ideally
suited to ensure a smooth transition and continuity of Vital’s operations. He is a New Zealand national, and has an
extensive executive management career.
Mr Wentworth held the positions of Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of
Vital over a 10 year period, when it was known as the NZX-listed Calan Healthcare Properties Trust. In 2006, Mr
Wentworth relocated to Melbourne, where he was a founding partner and CEO of the ASX-listed ING Real Estate
Healthcare Fund, subsequently renamed Generation Healthcare REIT (“GHC”). In 2018, following 12 years as CEO
of GHC, Mr Wentworth became a Director and Advisor of NorthWest. Mr Wentworth and Mr Carr will work together
on a seamless transition of duties over the coming weeks.
Chairman Bernard Crotty said “After 13 years of service, David has decided that he would like to take a well-earned
break and to look at new opportunities. On behalf of all Directors and the NorthWest management team, I extend
our sincere thanks to David for his substantial contribution to Vital’s growth and performance.
“I am delighted to be handing interim responsibility for Vital’s day to day operations to someone with such extensive
experience in healthcare property that Miles has.”
“Miles will have excellent support from the NorthWest management team and our unitholders can be comfortable
that there will be no interruption to management’s focus.” Mr Crotty said.

Fees and governance update
As previously announced, on 1 April 2019 the Independent Directors of NWM reached an agreement with NWH
REIT on a new governance and fees structure for Vital.
After discussion with the Supervisor, the proposed changes will be put to a meeting of all unitholders to ensure
investors have a say in these enhancements, both financially in relation to lower fees as well as changes to the Trust
Deed on governance matters.
The meeting will be held before the end of October 2019. If approved, the fee reductions will apply from 1 April 2019,
excluding the inventive fee which will take affect from 1 July 2019.
NWM and its associates (including NWH REIT) confirmed they will not vote on the resolutions to be put to
unitholders.
Unaudited
9 months
Mar-19
$000s
Dividend income received
(7,363)


Expenses
18,259


Strategic transaction costs
10,896


(Deduct) / Add:
Interest income on related party loan
(1,828)


FV (gain)/loss on strategic transaction derivatives
(7,256)


Realised and unrealised strategic transaction costs
1,812

Operational update
The Trust reported a strong occupancy of 99.3%, consistent with the previous quarter. The portfolio’s weighted
average lease expiry (“WALE”) decreased slightly to 17.9 years (from 18.0 years at 31 December 2018) on the
natural roll down of the portfolio’s lease term, partially offset by 400 sq. metres of lease renewals at Ekera Medical
Centre, Ormiston Hospital and Ascot Hospital.
The portfolio generated solid same property net operating income (“NOI”) growth of 2.2% for the nine months ended
31 March 2019 on a same currency basis. This reflects organic rental growth of 1.9% owing to structured reviews
and assisted by no increase in property expenses versus the prior year period. On an unadjusted currency basis,
same property NOI growth was 0.7% in the nine months ending 31 March 2019 due to a stronger New Zealand
dollar versus the prior year period.

Project update
The Trust currently has NZ$240m of projects in various stages of development expected to produce an average
6.25% yield on cost at completion. These projects are forecast for completion between 2020 and 2023, with
NZ$214.4m of costs to complete of which approximately NZ$60m is to be spent over the next 18 months.
In January 2019, completion was achieved at Bowen Private Hospital in Wellington, where a radiotherapy suite,
linear accelerator bunkers, and consulting suites were developed for a total cost of NZ$4.0m. Rentalisation of this
project will contribute an additional NZ$270k of rental income based on a 6.8% yield on cost.
Additionally, practical completion was achieved at Maitland in January 2019, expanding the facility to include a new
intensive care unit and 7 chair chemotherapy unit for an expected total cost of A$3.1m upon occupancy.
Rentalisation of this project will contribute an additional ~A$215k of rental income based a 7.0% yield on cost.
We expect to record a combined NZ$1.5m gain on these projects at the year-end reflecting an approximate 125bps
rentalisation spread.
The finalisation of a construction contract at Epworth Eastern with the preferred builder is expected to be completed
in the next month. Subject to receiving the final permit, construction is expected to commence in the fourth quarter
of FY2019 with the project forecast to have an approximately 30 month build time.


- ENDS –
ProjectWork being undertaken
Budgeted
cost
(A$m)
Spend
to date
(A$m)
Forecast
completion
date
Maitland ICU
(NSW)
New ICU and 7 chair day chemotherapy unit3.12.3
Practically
complete
Epworth Eastern
(VIC)
New 14 storey tower incorporating 60 beds126.210.4Late-2021
Total Australian Projects
129.312.7
(NZ$m)(NZ$m)
Wakefield (Wgtn)Staged demolition and redevelopment of entire hospital.88.06.1Staged 20-23
Royston (HB)
Expansion including two new theatres, recovery and admission
areas and consulting space.
13.02.1Mid-20
Bowen (Wgtn)
New build to create radiotherapy suite including two bunkers
for linear accelerators, and associated consulting space.
4.03.8Complete
Total New Zealand Projects105.012.0
Total Projects in $NZD
*
239.925.2
* A$ converted at 31 March 2019 spot rate 0.9587

About Vital Healthcare Property Trust
Vital Healthcare Property Trust (NZX: VHP) is Australasia’s largest listed investor in healthcare real estate. Tenants include hospital
operators and healthcare practitioners who deliver a wide range of medical and healthcare related services. The Manager of Vital
Healthcare Property Trust is NorthWest Healthcare Properties Management Limited.
vhpt.co.nz


ENQUIRIES
Craig Mitchell, Chief Executive Officer - Australia & New Zealand
NorthWest Healthcare Properties Management Limited, Phone +61 3 8609 8418, Email cmitchell@nwhpm.com.au

Stuart Harrison, Chief Financial Officer
NorthWest Healthcare Properties Management Limited, Telephone 09 973 7302, Email sharrison@vhpt.co.nz

Jason Kepecs, Director, Investments & Investor Relations
NorthWest Healthcare Properties Management Limited, Telephone 09 973 7303, Email jkepecs@vhpt.co.nz

---

VITAL THIRD
QUARTER UPDATE
31 MARCH 2019
Vital unitholders will receive a third quarter distribution of 2.1875 cpu (cents per unit) with 0.2764 cpu of
imputation credits. The record date is 6 June 2019 and payment will be made on 20 June 2019. Vital’s
Distribution Reinvestment Plan (DRP) will remain available to investors for this distribution, with a 1% discount
being applied when determining the strike price.
Distribution
Payment date20 June 2019
Cash distribution per unit2.1875 cpu
Excluded distribution per unit1.4767 cpu
Fully imputed distribution per unit0.7108 cpu
Imputation credits0.2764 cpu
DRP availableYes
DRP discount1%

Consolidated Statement of Comprehensive Income
For the period ended 31 March 2019
Unaudited
9 months
Mar-19
$000s
Unaudited
9 months
Mar-18
$000s
Gross property income from rentals75,86369,089
Gross property income from expense recoveries7,7637,950
Property expenses(10,186)(10,190)
Net property income73,44066,849
Other expenses(20,091)(19,028)
Strategic transaction costs(10,896)-
Profit before finance income/(expense) and other gain/(loss)42,45347,821
Finance income/(expense)
Finance income1,88786
Finance expense(24,716)(16,558)
Fair value gain/(loss) on interest rate derivatives(22,343)(2,007)
(45,172)(18,479)
Other gains/(losses)
Revaluation gain/(loss) on investment property43,00752,952
Fair value gain/(loss) on foreign exchange derivatives251659
Fair value gain/(loss) on strategic transaction derivatives7,256-
Unrealised gain/(loss) on foreign exchange6,1623,715
56,67657,326
Profit before income tax53,95786,668
Taxation expense(9,285)(14,259)
Profit for the period attributable to unitholders of the Trust44,67272,409
Other comprehensive income
Items that may be reclassified subsequently to profit and loss:
Movement in foreign currency translation reserve(40,423)6,072
Realised foreign exchange gain/(loss) on hedges4,6331,457
Current taxation (expense)/credit(1,297)(251)
Unrealised foreign exchange gain/(loss) on hedges-1,294
Deferred taxation (expense)/credit-(362)
Fair value gain/(loss) on net investment hedges5,845(1,185)
Deferred taxation (expense)/credit(1,637)331
Total other comprehensive income/(loss) after tax(32,879)7,356
Total comprehensive income after tax11,79379,765
Earnings per unit
Basic and diluted earnings per unit (cents)10.0916.70

Consolidated Statement of Financial Position
For the period ended 31 March 2019
Unaudited
Mar-19
$000s
Audited
Jun-18
$000s
Non-current assets
Investment properties1,766,4581,731,247
Derivative financial instruments-856
Other non-current assets84,07643,984
Total non-current assets1,850,5341,776,087
Current assets
Cash and cash equivalents9,4635,388
Trade and other receivables1,3501,189
Other current assets14,9333,801
Derivative financial instruments189363
Total current assets25,93510,741
Total assets1,876,4691,786,828
Unitholders' funds
Units on issue574,371556,878
Reserves(22,841)15,629
Retained earnings430,948415,469
Total unitholders' funds982,478987,976
Non-current liabilities
Borrowings744,864668,712
Derivative financial instruments35,22414,444
Deferred tax86,81786,796
Total non-current liabilities866,905769,952
Current liabilities
Trade and other payables13,18116,965
Income in advance1,2282,281
Derivative financial instruments743460
Taxation payable11,9349,194
Total current liabilities27,08628,900
Total liabilities893,991798,852
Total unitholders' funds and liabilities1,876,4691,786,828

Same property net operating income
For the nine months ended 31 March 2019
Unaudited
Mar-19
$000s
Unaudited
Mar-18
$000s
Variance
$000s
Same property revenue from investment properties63,16862,865303
Same property operating costs(8,969)(9,052)83
54,19953,814386
Acquisitions2,3781,597781
Developments16,86311,4385,425
Investment properties
$000s
Balance - 30 June 20181,731,247
Acquisitions23,666
Additions29,679
Fair value adjustment43,007
Foreign exchange translation difference(61,141)
Balance - 31 March 20191,766,458
Development progress
DevelopmentDevelopment work being undertaken
Development
cost
(A$m)
Spend
to date
(A$m)
Forecas
t
completion
date
Maitland ICU (NSW)New ICU and 7 chair day chemotherapy unit3.12.3
Practically
complete
Epworth Eastern (VIC)New 14 storey tower incorporating 60 beds126.210.4Late-2021
Total Australian Projects129.312.7
(NZ$m)(NZ$m)
Wakefield (W
gtn)S
taged demolition and rede
velopment of entire hospital.88.06.1
Staged
20-23
Royston (HB)
Expansion including two new theatres, recovery and
admission areas and consulting space.
13.0
2.1Mid-20
Bowen (Wgtn)
New build to create radiotherapy suite including two
bunkers for linear accelerators, and as
sociated consulting
space.
4.03.8Complete
Total New Zealand Projects105.012.0
Total Projects in $NZD
*
239.925.2
* A$ converted at 31 March 2019 spot rate 0.9587
Strategic Transaction Costs
Unaudited
9 months
Mar-19
$000s
(7,363)Dividend income received
Expenses18,259
10,896
(1,828)
Strategic transaction costs
(Deduct) / Add:
Interest income on related party loan
FV (gain)/loss on strategic transaction derivatives(7,256)
Realised and unrealised strategic transaction costs1,812

PORTFOLIO
METRICS
As at 31 March 2019
PORTFOLIO VALUE
$1.77BN
WALE
17.85YEARS
NUMBER OF PROPERTIES
42
OCCUPANCY
99.3%
FY19 DISTRIBUTION GUIDANCE
8.75CENTS PER UNIT
NET TANGIBLE ASSETS
$2.21PER UNIT
Tenant composition
For profit hospitals anchor the portfolio
For profit hospital 55%
Medical specialist 24%
Not for profit hospital 13%
Aged care 6%
Other 2%
Government 1%
Portfolio geographic composition
Well diversified by geography
New South Wales 33%
Victoria 19%
Queensland 13%
Auckland 12%
NZ ex-Auckland 12%
Western Australia 6%
South Australia 4%
Tasmania 1%
Ten-year total return performance
Well-executed strategy providing long-term value
for investors
Index rebased to 100
S&P/ASX 200 REIT IndexS&P/NZX All Real Estate Gross
VHPS&P/NZX 50 Index Gross
20102012201420162018
0
100
200
300
400
Source: Craigs Investment Partners as at 31 March 2019
Ten-year lease expiry profile
Average lease expiry per annum over the next
ten years of 1.6%
Lease expiry by income (%)
Total expiryLargest single expiry
Jun 19 Jun 20 Jun 21 Jun 22 Jun 23 Jun 24 Jun 25 Jun 26 Jun 27 Jun 28
0
2
4
6
8
10
12