Vital announces first quarter results

12 November 2019
Dear Unitholder,
NorthWest Healthcare Properties Management Ltd. is pleased to
provide you with an update on the operating performance and
financial position of Vital Healthcare Property Trust for the first
quarter ending 30 September 2019.
The core portfolio performed strongly with like-for-like net
property income growing 2.6% in the three months ended 30
September 2019 over the prior year, on a same currency basis.
Occupancy in the portfolio increased to 99.9% (from 99.4% at
30 June 2019) reflecting the lease-up of 1,000 sqm of space at
the Gold Coast Surgery Centre.
The portfolio’s weighted average lease expiry (WALE) decreased
slightly to 17.9 years (from 18.1 years at 30 June 2019) as a
result of being three months further on, partially offset by a new
lease in the quarter at Gold Coast Surgery Centre (1,000 sqm).
We currently have $284m worth of “return on cost” projects that
have recently started. There are 5 projects that make up the
pipeline with two representing the majority of this spend. One of
these is in Wellington being the Wakefield Hospital and the other
is in Melbourne at our Epworth Eastern campus.
Wakefield Hospital is Wellington’s pre-eminent private hospital.
Earlier this year we ran a formal tender process involving three
qualified parties and appointed Hawkins Construction as the lead
contractor on the first stage of the project. The first stage has a
$37m project cost and construction began in July of this year.
Currently the site is undergoing bulk excavation with retaining
walls and ground anchors well advanced. Following testing of the
prototype base isolators for earthquake strengthening,
manufacturing has commenced and installation is expected to
begin this month. We expect this first stage to be completed in
early 2021.
At our Epworth Eastern campus in Melbourne we have started the
next phase, an A$126m 14 level East Wing tower project. This
is the largest project in the Trust’s history.
Epworth Healthcare, Victoria’s largest not-for-profit
hospital operator, has pre-let 80% of the net lettable area.
For the remaining 20%, we have strong expressions of
interest for more space than we actually have available,
particularly from doctors for consulting space given they
are having to move out of the Trust’s adjacent medical
centre to make way for an Accident and Emergency
department for Epworth.
The project will further enhance one of Vital’s prime assets
and, on completion, the Epworth Eastern campus will have
a value approximating A$350m.
With these projects being fully funded by debt at circa 3%
and delivering a return of 6.1%, this will add materially to
profits and value in the next few years.
Our annual meeting was held on 31 October 2019 where
99.91% of voting Unitholders approved amendments to
the Trust Deed including changes to the Manager’s fees.
Financial results enclosed in this update were tabulated
prior to the outcome of the vote and reflect the prior base
fee structure. The new fee structure will be applied to
future results and retroactively to 1 April 2019.
We recently announced the appointment of Aaron Hockly
as Vital’s new Fund Manager, who will join us in early
December, and introduced Michael Groth, who has
stepped into the role of Vital’s Chief Financial Officer.
Sincerely,



Miles Wentworth
Interim Manager


VITAL HEALTHCARE
FIRST QUARTER UPDATE
VITAL HEALTHCARE PROPERTY TRUST | FIRST QUARTER UPDATE 2020 | PAGE 1

FINANCIAL PERFORMANCE
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2019


Unaudited
3 months
Sep-19
$000s
Unaudited
3 months
Sep-18
$000s
Gross property income from rentals 25,418 25,292
Gross property income from expense recoveries 3,918 2,605
Property expenses (4,346) (3,399)
Net property income 24,990 24,498



Corporate expenses (1,053) (807)
Strategic transaction income and expenses 274 1,404
Management fees – base
(1)
(3,575) (3,487)
Management fees – incentive
(2)
(1,342) (2,481)
Net finance expenses (7,975) (7,579)
Realised foreign exchange gain / (loss) (159) 87
Operating profit before tax and other
income
11,160 11,635



Revaluation gain/(loss) on investment property 3,772 3,174
Fair value gain/(loss) on interest rate derivatives (12,249) 545
Fair value gain/(loss) on foreign exchange and derivatives (5,306) (9,378)
Profit before income tax (2,623) 5,977



Current taxation expense (1,153) (1,901)
Deferred taxation expense 2,335 (172)
Profit for the period attributable to unitholders of the Trust (1,441) 3,904

(1) Base management fees expense reflects fee structure prior to amendments to the Trust Deed on
31 October 2019.
(2) Incentive management fee reflects the new fee structure in three months ending 30 September
2019 and the old fee structure in the three months ending 30 September 2018.


LIKE-FOR-LIKE NET PROPERTY INCOME
FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2019


Unaudited
3 months
Sep-19
$000s
Unaudited
3 months
Sep-18
$000s
Variance
$000s
Change
%
Gross property income 28,771 26,908 1,864 6.9%
Property expenses (4,398) (3,159) (1,239) 39.2%
Like-for-like net property income 24,374 23,749 625 2.6%

Net property income from acquisitions 102 - 102 n.a.
Net property income from developments 1,142 825 317 38.4%
Non-recurring R&M 17 (76) 93 n.a.
Foreign exchange (645) - (645) n.a.
Net operating income 24,990 24,498 492 2.0%
VITAL HEALTHCARE PROPERTY TRUST | FIRST QUARTER UPDATE 2020 | PAGE 2

BALANCE SHEET
FOR THE PERIOD ENDED 30 SEPTEMBER 2019



Unaudited
Sep-19
$000s
Audited
Jun-19
$000s
Assets


Investment properties 1,902,234 1,836,430
Other assets 9,640 95,113


Liabilities
Borrowings 689,928 734,211
Other liabilities 174,392 167,588
Debt to gross assets 36.1% 35.3%
(3)



Total unitholders' funds 1,047,553 1,029,744
Units on issue 451,923 446,346
Net tangible assets ($/unit) 2.32 2.31
Period end NZD/AUD exchange rate 0.9276 0.9564
(3) Excludes A$80.3m related party loan which was repaid on 2 August 2019


DEVELOPMENT PROGRESS

Development
Development work being
undertaken
Development
cost
(A$m)
Spend
to date
(A$m)
Forecast
completion
date
Lingard Day Surgery
(NSW)
New consulting building & carpark 26.0 17.5 Mid-20
Epworth Eastern
(VIC)
New 14 storey tower
incorporating 60 beds
126.2 13.6 Late-2021
The Hills Clinic (NSW) 26 bed expansion 8.3 1.8 Mid-20
Total Australian Projects 160.5 32.9
(NZ$m) (NZ$m)
Wakefield (Wgtn)
Staged demolition and
redevelopment of entire hospital
(stage 1, $37m)
98.0 11.8 Staged 21-23
Royston (HB)
Expansion including two new
theatres, recovery and admission
areas and consulting space
13.0 4.0 Mid-21
Total New Zealand Projects 111.0 15.8
Total Projects in $NZD* 284.1 51.3

* A$ converted at 30 Sept 2019 spot rate 0.9276

DISTRIBUTION
Payment date
19 December 2019
Cash distribution per unit
2.1875 cpu
Excluded distribution per unit
1.6272 cpu
Fully imputed distribution per unit
0.5603 cpu
Imputation credits
0.2179 cpu
Distribution reinvestment program available
Yes
Distribution reinvestment program discount
1%
VITAL HEALTHCARE PROPERTY TRUST | FIRST QUARTER UPDATE 2020 | PAGE 3