Vital announces third quarter results

Dear Unitholders,
NorthWest Healthcare Properties Management Limited, manager
of the Vital Healthcare Property Trust (Vital), is pleased to update
you on Vital’s operating performance and financial position for
the quarter ended 31 March 2020.
Acquisitions
During the quarter, we announced and settled the acquisition of
three Australian aged care assets for a total of NZ$59.1m. The
assets are leased to one of Australasia’s oldest and most
reputable operators, Bolton Clarke, for a weighted average lease
expiry (WALE) of 16.5 years and provide a 6.5% yield on the
purchase price. Vital’s six aged care assets (~8% of Vital’s
revenue) have performed well despite COVID-19 with no cases
reported in any of these facilities.
Portfolio
The portfolio’s WALE remained sector leading at 17.6 years;
down from 17.9 years at 31 December 2019 due to acquisitions
and the passage of time.
Like-for-like net property income for the nine months ended 31
March 2020 grew 2.1% from the prior corresponding period (on
a same currency basis).
Portfolio occupancy remained high at 99.4%; slightly down from
99.9% at 31 December 2019 reflecting temporary relocations to
accommodate the Epworth Eastern East Tower development.
Net revaluation gains of NZ$8m were recorded in the quarter,
primarily due to rent reviews in the Australian portfolio. The
weighted average portfolio capitalisation rate increased to
5.55%, from 5.52%, due to the acquisition of three aged care
assets on a 6.5% capitalisation rate (higher than the previous
average). In accordance with our normal practice these
valuations were “Directors’ valuations” with the full portfolio to
be externally valued at 30 June 2020.
Acquisitions, revaluations and developments have resulted in
Vital’s portfolio being valued at just over NZ$2 billion.
Foreign exempt listing
The proposed foreign exempt listing on the ASX did not achieve
the required 75% threshold and so will not be proceeding. Costs
incurred for the proposal, including prior year costs, have been
expensed in the March quarter but will not impact distributions.
Impact of COVID-19
As will be the case for most of you, COVID-19 has presented a
range of challenges across every aspect of our business.
Restrictions on elective surgery and accessing premises have had
a significant impact on most of our tenants. Our support has been
focussed on helping small-medium sized tenants (specialists,
consultants, allied health professionals, small retailers, GPs etc.)
experiencing up to a 100% loss of revenue with minimal
government support and limited ability to recoup their losses in
the future. Support to these smaller tenants (<10% of Vital’s


revenue) comprises a mix of rent deferrals and
abatements in accordance with Australia’s Code of
Conduct – Commercial Tenancies (as required in
Australia and voluntarily applied in New Zealand
tenants).
Hospital operators in Australia (~60% of Vital’s revenue)
have either agreed, or are in the process of finalising
agreements, with each State government to provide
facilities and services during the pandemic. In return,
operators are expected to recover a substantial portion
of their costs from Australian governments.
The situation for New Zealand hospitals (~20% of Vital’s
revenue) is less clear with no government support for
private hospitals to date.
Unlike some other businesses, elective surgeries are
expected to rebound as restrictions are eased over the
coming weeks. We are providing partial rent deferrals to
many of our hospital operator tenants in New Zealand
and Australia to assist them with their cashflows until
this rebound occurs.
As COVID-19 restrictions were not put in place until just
prior to the end of the third quarter, the rent support we
are providing is not currently expected to have a material
impact on earnings or cashflow this financial year.
Developments
Toward the end of the quarter, all of Vital’s major
development projects in New Zealand were impacted by
the overall lockdown of construction for non-essential
projects in accordance with Government Guidelines. In
the main, projects in Australia continued to be
progressed, including at Epworth Eastern, albeit at lower
levels of efficiency given COVID-19 related protocols.
The exception being small scale projects in Australia
where it has been deemed prudent to suspend works at
this time. Currently, we anticipate that this may result in
delays in Vital’s income (rather than a loss of income).
However, this will depend on government actions in both
countries and the length of time restrictions are in place.
Balance sheet
Vital’s balance sheet has recently been strengthened by
NZ$107 million of additional debt facilities and term
extensions for near-term debt expiries. These
enhancements to Vital’s financial flexibility and liquidity
mean that Vital now has over NZ$243 million in undrawn
debt facilities available from its long-term financiers and
no debt expiring before March 2021 and only NZ$128.5
million expiring before September 2021.


Aaron Hockly, Fund Manager
14 May 2020
THIRD QUARTER UPDATE
VITAL HEALTHCARE PROPERTY TRUST | THIRD QUARTER UPDATE 20200 | PAGE 1

FINANCIAL PERFORMANCE (UNAUDITED)
FOR THE NINE MONTHS ENDED 31 MARCH 2020


9 months
to Mar-20
$000s
9 months
to Mar-19
$000s Change
Gross property income from rentals 76,501 75,863
Gross property income from expense recoveries 9,080 7,763
Property expenses (11,024) (10,186)
Net property income 74,557 73,440 1.5%




Corporate expenses (3,332) (2,199)
Strategic transaction income and expenses (7,947) (3,639)
Strategic transaction interest income 267 1,828
Management fees – base (9,188) (10,388)
Management fees – incentive (4,870) (7,504)
Net finance expenses (21,154) (24,658)
Operating profit before tax and other
income
28,333 26,880 5.4%




Revaluation gain/(loss) on investment property 50,588 43,007
Fair value gain/(loss) on interest rate derivatives (12,440) (22,343)
Fair value gain/(loss) on foreign exchange derivatives 143 251
Realised foreign exchange gain/ (loss) 5 -
Unrealised gain/(loss) on foreign exchange 2,005 6,162
Profit before income tax 68,634 53,957 27.2%




Current taxation expense (7,552) (7,236)
Deferred taxation expense (4,170) (2,049)
Profit for the period attributable to unitholders of
the Trust
56,912 44,672 27.4%

LIKE-FOR-LIKE INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED 31 MARCH 2020



9 months
to Mar-20
$000s

9 months
to Mar-19
$000s
Variance
$000s
Change
%
Gross property income 84,649 81,573 3,076 3.8%
Property expenses (10,629) (9,102) (1,527) 16.8%
Like-for-like net property income 74,020 72,471 1,549 2.1%

Net property income from acquisitions 54 - 54
Net property income from developments 2,115 511 1,604
Straight-line rent - 1,175 (1,175)
Non-recurring R&M (680) (716) 36
Foreign exchange (952) - (952)
Net operating income 74,557 73,441 1,116 1.5%
VITAL HEALTHCARE PROPERTY TRUST | THIRD QUARTER UPDATE 2020 | PAGE 2
Important note: The information in this investor update is general information only and does not contain all
information necessary to make an investment decision. The financial information in this investor update has not
been audited. No representation or warranty, express or implied, is made to the accuracy, adequacy or reliability of
information in this update, including the financial information. This investor update contains forward looking
statements which are inherently susceptible to uncertainty. Vital’s actual results may vary materially from those
expressed or implied in this investor update. The Manager is under no obligation to provide any update the
information included in this update, including as a result of the audit process

BALANCE SHEET (UNAUDITED)






31 Mar-20
$000s

31 Dec-19
$000s Change
Assets



Investment properties 2,008,157 1,926,743 4.2%
Other assets 9,035 11,889 (24.0%)


Liabilities
Borrowings 758,331 679,608 11.6%
Other liabilities 206,711 189,194 9.3%
Debt to gross assets 37.6% 35.1%


Total unitholders' funds 1,052,150 1,069,830 (1.7%)
Units on issue 453,167 452,581 0.1%
Net tangible assets ($/unit) 2.32 2.36
(1.8%)
Period end NZD/AUD exchange rate 0.9725 0.9601


DEVELOPMENT PROGRESS

Development
Development work being
undertaken
Development
cost

Spend
to date

Forecast
completion
date
Australian projects: (A$m) (A$m)
Lingard Day Surgery
(NSW)
New consulting building &
carpark
31.3 25.9 Mid-20
Epworth Eastern (VIC)
New 14 storey tower
incorporating 60 beds
126.2 25.5 Late-2021
The Hills Clinic (NSW) 26 bed expansion 8.6 7.6 Complete
(1)

Eden Rehab (QLD) Service diversification 12.4 1.0 Late-21
(2)

South Eastern (VIC) New oncology centre 9.9 1.8 Mid-21
(3)

North West Private (TAS) New 8 bed mental health ward 3.5 0 Mid-21
(2)

Total Australian projects 191.9 61.8
New Zealand projects: (NZ$m) (NZ$m)
Wakefield (Wellington)
Staged demolition and
redevelopment of entire
hospital
101.9 25.7 Staged 21-23
Royston (Hawke’s Bay)
Expansion including new day
surgery, two new theatres,
recovery and admission areas
and consulting space
18.7 6.7 Early-21
Total New Zealand projects 120.6 32.4
Total Projects in $NZD* 317.9 95.9

* A$ converted at 31 Mar 2020 spot rate: 0.9725
(1) Practical completion was achieved on 4 May 2020
(2) Projects currently suspended
(3) Project under review, builder engaged by way of Letter of Intent only

DISTRIBUTION
Payment date
25 June 2020
Cash distribution per unit
2.1875 cpu
Excluded distribution per unit
0.8572 cpu
Fully imputed distribution per unit
1.3303 cpu
Imputation credits
0.5173 cpu
Distribution reinvestment program available
Yes
Distribution reinvestment program discount
1%
VITAL HEALTHCARE PROPERTY TRUST | THIRD QUARTER UPDATE 2020 | PAGE 3