Full year results release
MARKET RELEASE
10 August 2020
FY20 results release
Vital Healthcare Property Trust (Vital) released its results for the year ended 30 June 2020 (FY20) today.
2020 has been a challenging year globally due to COVID-19. Notwithstanding these challenges, Vital’s
defensive portfolio helped Vital record a 5.1% total return in FY20, outperforming the S&P/NZX REIT
Index by 13.4%.
Vital’s defensive characteristics include its market-leading 18.1 year weighted average lease expiry term
(WALE), high levels of government support for healthcare operators and healthcare spending being
primarily non-discretionary or high-priority. The underlying strength of our tenants’ income helped us
achieve over 95% rent collection for FY20 in turn enabling us to meet our distribution guidance for
FY20.
FY20 Highlights
• 5.6% increase in adjusted funds from operations (AFFO) per unit (9.90 to 10.45 cpu), reflecting
3.4% net property income growth
1
and a 7.2 % net reduction in expenses.
• $249.9m or 13.6% increase in value of investment properties including $88.5m capital
expenditure
2
, $75.4m of acquisitions and $45.7m of revaluation gains.
• 2.9% increase in net tangible assets per unit from $2.31 to $2.38.
• Distributions of 8.75 cpu paid or payable on a conservative 83.7% AFFO payout ratio.
Vital’s Fund Manager, Aaron Hockly, said:
“Vital invests in healthcare ecosystems in New Zealand and Australia. Our investments help improve
patient outcomes, operator efficiency and asset resilience whilst providing a defensive income stream
for our unitholders.
Given COVID-19, we are very pleased to be able to provide FY21 distribution guidance
3
of at least
8.75 cents per unit consistent with FY19. This guidance reflects Vital’s high quality portfolio, defensive
earnings and our new 5-year portfolio strategy.
Over the medium-term, Vital is targeting 2-3% growth in AFFO per unit per annum and a
corresponding increase in distributions.”
Portfolio
Vital owns a high quality, high acuity portfolio with the longest WALE of any ASX or NZX-listed property
group, limited upcoming expiries and an average of only 1.3% of the portfolio's rent expiring per annum
1
Excluding FX impacts
2
Includes developments and other capex, capitalised interest and capitalised incentives.
3
Guidance is provided on the basis of a range of assumptions including no significant change in COVID-19
in New Zealand or Australia as well as those matters referred to in the Disclaimer at the end of this
announcement.
VITAL HEALTHCARE PROPERTY TRUST
Managed by NorthWest Healthcare Properties Management Limited
vhpt.co.nz
Page 2 of 5
over the next 10 years. Vital’s WALE remained consistent with 30 June 2019, despite 12 months
passing, reflecting leasing, development and other portfolio improvements.
Our tenants are some of the largest healthcare providers in New Zealand and Australia including
government, not-for-profit and for-profit entities.
COVID-19
Although the suspension of elective surgery due to COVID-19 resulted in temporary cashflow issues for
operators, private hospitals quickly returned to operating at full or near full capacity when restrictions
were eased. We expect this to be repeated when the recently re-imposed restrictions in Victoria are
ultimately removed. In addition, Australian hospital operators were financially supported by agreements
with State Governments.
Neither of Vital’s aged care tenants have been materially impacted by COVID-19 (to date) and no
requests for rent relief have been received from this subsector.
As a result of the above, FY20 rent abatements were less than $300,000 out of a total rent roll of over
$100m. 95% of this rent has already been collected and arrangements are expected to be agreed
shortly for the remaining 5%.
This high level of rent collection, particularly compared with other property sectors, highlights the
defensive nature of our tenants’ earnings and, as a result, Vital’s earnings. Healthcare spending is
typically non-discretionary or high priority discretionary and is underpinned by high levels of government
funding in both New Zealand and Australia.
Acquisitions & Divestments
In addition to $11.2m of strategic acquisitions, Vital acquired three aged care assets for $60.1m in
FY20. These acquisitions were acquired on a 6.5% cap rate and, as a result, immediately accretive to
earnings delivering ~$1m in additional rent over FY20 despite only settling in March. All three assets
are leased to Bolton Clarke, one of Australasia’s largest and most experienced not-for-profit aged care
and retirement living providers with over 200 years of experience, 2,500+ aged care beds across 25
facilities and operations in Australia, New Zealand and elsewhere.
There were no divestments in FY20. However, Vital will look to recycle capital particularly to help fund
its development pipeline.
Property values
The portfolio value increased by $249.9m over FY20 including $88.5m of capital expenditure
4
,
$75.4m of acquisitions and $45.7m valuation gains.
All of Vital’s investment properties were valued externally as at 30 June 2020. The gains recorded over
FY20, as compared with many of our peers, reflect Vital’s high level of rent collection as well as the high
quality of Vital’s tenants and properties. The $45.7m of valuation gains included $29.0m from net cap
rate compression (7bps reduction) with the balance coming from rent increases and development
margins.
Revaluation gains helped increase Vital’s NTA per unit by 2.9% to $2.38.
4
Includes developments, capex, capitalised interest and capitalised incentives.
VITAL HEALTHCARE PROPERTY TRUST
Managed by NorthWest Healthcare Properties Management Limited
vhpt.co.nz
Page 3 of 5
Portfolio Strategy
Vital’s board has approved a new 5-year portfolio strategy targeted at:
1. Continuing Vital's earnings growth to support our targeted 2-3% AFFO growth per annum.
2. Providing a framework for Vital's acquisitions, developments and portfolio composition including
target subsector allocations (refer below) and defining Vital's investment universe.
3. Repositioning Vital's portfolio to improve asset and income diversity as well as increasing
exposure to favoured investments (including targeted asset recycling).
New target asset allocations are:
• Hospitals – 50-70% (30 June 2020 allocation: 82% of portfolio value).
• Out-patient/Medical office buildings – 10-20% (30 June 2020: 12%).
• Aged Care - 10-20% (30 June 2020: 6%).
• Life Sciences / Research - 5-15% (30 June 2020: 0%). The initial focus for this subsector
will be New Zealand. Hospitals and aged care are the priority for Vital’s growth in Australia
at least in the near-term.
Developments
Developments remain an important driver of Vital’s assets, earnings and portfolio construction as they
typically:
1. Provide an accretive return on cost for Vital.
2. Enhance Vital's NTA and WALE.
3. Respond to our tenants’ business and operating requirements (reducing their costs and / or
increasing their revenues).
4. Ensure Vital’s assets are modern, fit-for-purpose and accord with community / patient
expectations.
5. Strengthen our relationships with key operators.
In addition to value add and maintenance capex, Vital undertook significant development projects in
New Zealand and Australia during FY20 including completion of two developments (The Hills Clinic in
Sydney and Lingard Day Centre in Newcastle) and commencement of two new significant developments
(Epworth Eastern in Melbourne and Wakefield Hospital in Wellington). Refer to the Investor Presentation
and Annual Report released today for full details of developments completed and underway.
AFFO
Cash from operations available to unitholders, measured by AFFO, increased 7.5% to $47.2m
equating to10.45 cents per unit, 5.6% above FY19. In addition to underlying income growth, this AFFO
increase was supported by a 7.2% reduction in overall expenses including a 13.2% reduction in finance
expenses and a 6.1% reduction in management fees.
Finance expenses declined due to lower base rates and increased development activity partly offset by
higher total borrowings.
Management fees (excluding activity-based fees) declined by $7.2m due to lower incentive fees and the
introduction of a tiered base management fee regime as approved by unitholders in October 2019. As
a result of these changes, base management fees for FY20 were $2.2m lower than they otherwise
would have been.
10.45 cents per unit in AFFO enabled 8.75 cents to be paid in distributions per unit on a conservative
payout ratio of 83.7%.
VITAL HEALTHCARE PROPERTY TRUST
Managed by NorthWest Healthcare Properties Management Limited
vhpt.co.nz
Page 4 of 5
Capital Management
Debt to total assets ratio was 38.7% at 30 June 2020 (30 June 2019: 35.3%). Given the nature of
Vital’s portfolio, the Board and Management are comfortable with both the current and projected levels
of debt. Vital currently has approximately $225m of headroom under its current debt facilities and has
asset recycling planned to cover some of its development expenditure.
Weighted average cost of debt as at 30 June 2020 was 3.59% (30 June 2019: 4.40%) with this
decrease being primarily a result of a decline in floating rates.
The average debt maturity of 1.81 years remains below where the Board and Management would like
this to be. Measures to extend Vital’s debt term are underway.
Foreign exempt listing proposal on the ASX
At a Special Meeting in April 2020, 66% of eligible unitholders voted in favour of a proposal to
restructure Vital to facilitate a foreign exempt listing on the ASX. In addition, NorthWest, holder of 25%
of Vital’s units, was unable to vote on the proposal but was supportive of the transaction.
This 66% of eligible unitholders voting in favour was below the required 75% threshold and so the
proposal did not proceed. Approximately $8m was spent on the proposal (including amounts
capitalised from prior periods) and this was expensed during FY20.
Outlook
Healthcare property remains a defensive asset class underpinned by growing demand, high levels of
government support in Australia and New Zealand and growing institutional interest.
As Australasia’s leading listed owner of healthcare real estate, Vital is well positioned to take advantage
of opportunities in this sector to continue to provide attractive risk-adjusted returns for unitholders.
Conference call and webcast
A conference call will be held at 10am today. Participants can register for the conference call by
navigating to: https://s1.c-conf.com/diamondpass/10008321-invite.html
Please note that registered participants will receive a personal pin upon registration allowing direct entry
to the call.
Presentation slides and audio can be viewed by copying the following URL into your internet browser:
https://edge.media-server.com/mmc/p/wmjspbj9
You will be required to input your name, email address and company name to register for the webcast.
A copy of the webcast will be available on Vital’s website later in the day at: www.vhpt.co.nz
– ENDS –
ENQUIRIES
Aaron Hockly
Fund Manager, Vital Healthcare Property Trust
Tel 09 973 7301, Email aaron.hockly@nwhreit.com
Michael Groth
Chief Financial Officer, NorthWest Healthcare Properties Management Limited
Tel +61 409 936 104, Email michael.groth@nwhreit.com
VITAL HEALTHCARE PROPERTY TRUST
Managed by NorthWest Healthcare Properties Management Limited
vhpt.co.nz
Page 5 of 5
About Vital (NZX code VHP):
Vital Healthcare Property Trust is an NZX-listed fund that invests in high-quality healthcare properties in
New Zealand and Australia including private hospitals (~81% of rent), Medical Office Buildings (~11%
of rent) and aged care (~8% of rent).
Vital is the only specialist listed landlord of healthcare property in Australasia and currently has a
portfolio valued at over $2 billion.
Vital is managed by NorthWest Healthcare Properties Management Limited, a subsidiary of Toronto
Stock Exchange listed NorthWest Healthcare Properties REIT, a global owner and manager of
healthcare property.
For more information, visit our website: www.vhpt.co.nz
Disclaimer:
This announcement has been prepared by NorthWest Healthcare Properties Management Limited (the
"Manager") as manager of the Vital Healthcare Property Trust (the "Trust"). The details in this
announcement provide general information only. It is not intended as investment , legal, tax or financial
advice or recommendation to any person 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.
All references to $ are to New Zealand dollars unless otherwise indicated.
This announcement may contain forward-looking statements. Forward-looking statements can include
words such as “expect”, “intend”, “plan”, “believe”, “continue” or similar words in connection with
discussions of future operating or financial performance or conditions. The forward-looking statements
are based on management's and directors’ current expectations and assumptions regarding the Trust’s
business, assets and performance and other future conditions, circumstances and results. As with any
projection or forecast, forward-looking statements are inherently susceptible to uncertainty and to any
changes in circumstances. The Trust’s actual results may vary materially from those expressed or implied
in the forward-looking statements. The Manager, the Trust, and its or their directors, employees and/or
shareholders have no liability whatsoever to any person for any loss arising from this presentation or any
information supplied in connection with it. The Manager and the Trust are under no obligation to update
this announcement or the information contained in it after it has been released. Past performance is no
indication of future performance.
---
3
CONTENTS
6MANAGER'S REPORT
10ABOUT VITAL AND NORTHWEST
11FINANCIAL SUMMARY AND PORTFOLIO METRICS
12SUSTAINABILITY
14ACQUISITIONS
17DEVELOPMENTS
26PORTFOLIO OVERVIEW
28ASSET ALLOCATION
30AUSTRALIAN PORTFOLIO
38NEW ZEALAND PORTFOLIO
41GOVERNANCE AND MANAGEMENT
50FINANCIAL STATEMENTS
85INDEPENDENT AUDITOR'S REPORT
88UNITHOLDER STATISTICS
89DIRECTORY
INVESTING IN
H
E
ALTHCARE
INFRASTRUCTURE IN NEW
ZEALAND AND AUSTRALIA
VALUE OF INVESTMENT PORTFOLIO
$2.
09B
11TH CONSECUTIVE YEAR OF OCCUPANCY ABOVE
99%
WEIGHTED AVERAGE LEASE TERM TO EXPIRY (WALE)
18
.1years
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
4
Vital Healthcare Property TrustBrand Identity Guidelines Version 1
Vision
Be the leading global diversified healthcare
real estate company.
Mission
Provide best in-class real estate solutions to
the healthcare industry and deliver
exceptional shareholder value to investors.
Values
Excellence (delivering exceptional outcomes),
integrity (doing what’s right), and partnership
(succeeding together).
Vision
To be Australia and New Zealand’s
leading listed healthcare property fund.
Mission
Deliver stable and growing total unitholder
returns, including an attractive risk-adjusted
income distribution, majority sourced from
healthcare real estate.
•
Manager of Vital
•
Over 40 pr
ofessionals in the region across 2+
investment platforms
•
Of
fices in Auckland, Melbourne and Sydney
We value
Hard work, integrity, collaboration, drive,
flexibility, team work, fun and results.
NorthWest
(Australia and New Zealand)
NorthWest
REIT
5
HIGHLIGHTS
F
O
R 2020
LIKE-FOR-LIKE
RENTAL GROWTH
$1.6m
Up 1.6%
NTA PER UNIT
$2.38
Up 2.9%
PORTFOLIO VALUE
$2.09bn
Up 13.6%
OCCUPANCY
99.4%
AFFO GROWTH
7.5%
OUTPERFORMANCE
13.4%
Vital FY20 outperformance vs.
NZ
X/S&P All Real Estate Index
TARGET AFFO GROWTH
2-3%
Per unit, per annum
UNDERLYING NPI GROWTH FY20
3.4%
(excluding FX)
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
6MANAGER'S REPORT
Manager’s Report
As Australasia’s leading listed owner of healthcare property, Vital is well positioned to take
advantage of opportunities in this sector.
Dear Unitholders,
North
West Healthcare P
roperties Management Limited, the Manager of
Vital Healthcare Property Trust (Vital), is pleased to report Vital’s results for
the year ended 30 June 2020 (FY20).
Key achievements include:
•7.5% increase in adjusted funds from operations (AFFO) from $43.9m
to $47.2m.
•5.6% increase in AFFO per unit from 9.90 cents per unit (cpu) to 10.45
cpu.
•5.1% total return
1
exceeding the S&P/NZX REIT Index by 13.4%.
•2.9% increase in net tangible assets (NTA) per unit from $2.31 to
$2.38.
•Distributions of 8.75 cpu paid or payable; an 83.7% AFFO payout
ratio.
•Maintenance of market-leading weighted average lease expiry term
(WALE) of 18.1 years.
•Board approval of a 5-year portfolio plan covering the period 1 July
2020-30 June 2025 (refer below for more details).
•$75m of acquisitions completed and / or committed.
•Significant development progress including practical completion being
reached at The Hills Clinic and Lingard Day Centre.
•7.2% reduction in expenses and costs.
•Target FY21 AFFO of 2-3% above FY20 and distributions of 8.75 cpu.
Movements in Vital’s key metrics over the 12 months ended 30 June 2020:
30 June
2020
30 June
20
1
9% change
Unit price ($)2.502.46
1
1.4%
NTA per unit ($)2.382.312.9%
Investment Property Value
($m)
2,0861,83613.6%
Investment Properties (no.)44
2
424.8%
Avg. Property Value ($m)47.443.78.4%
WALE (yrs)18.118.10.0%
Occupancy99.4%99.4%0.0%
AFFO ($m)47.243.97.5%
AFFO per unit (cpu)10.459.95.6%
1 28 June 2019
2Additions include 3 Bolton Clarke aged care acquistions and Lingard Day Centre, whilst two
property consolidations have occurred, being Sportsmed Consulting property into Sportsmed
Hospital asset and Ascot Central Carparks (right of use) has been consolidated into the one
property
1
Source: F
orsyth Barr analysis.
“Vital’s focus during COVID-19 has
been supporting small-medium size
tenants whilst also recognising
temporary
cashflow implications for
larger tenants”
COVID-19 impact
Restrictions on the general movement of people, elective surgery and of
accessing premises had a significant impact on most of our tenants in both
Australia and New Zealand. Vital’s focus has been supporting small-
medium size tenants whilst also recognising temporary
cashflow
implications for larger tenants.
Key financial impacts:
•95% of FY20 rent collected as at the date of this report with
arrangements expected to be agreed shortly for the remaining 5%.
•Several leases extended or in the process of being extended as a way
of supporting Vital's tenants and enhancing Vital's portfolio.
•A small amount of future development income is expected to be
delayed as construction slowed in both New Zealand and Australia.
Foreign exempt listing proposal
A proposal to restructure Vital to facilitate a foreign exempt listing on the
ASX received 66% support (excluding Vital’s Manager and 25% holder
NorthWest, who was unable to vote) at a Special Meeting in April 2020.
This was below the required 75% threshold and so the proposal did not
proceed. Approximately $8m was spent on the proposal (including
amounts capitalised from prior periods) and this was expensed during
FY20.
Portfolio overview
Vital’s portfolio remains high quality, high acuity with a market-leading
WALE and limited upcoming expiries (1.3% of the portfolio's rent expires
on average per annum for the next 10 years). Vital's tenants are some of
the largest healthcare providers in New Zealand and Australia including
government, not-for-profit and for-profit entities.
7
Acquisitions
In addition to $1
1
.2m of strategic acquisitions, the following income
producing acquisitions were completed in FY20:
AssetOperatorLocationBeds / TypeAcquisition PriceCap RateWALE (yrs)
Darlington Aged CareBolton ClarkeBanora Point, NSW90 single roomsA$16.9m6.5%16.8
Baycrest Aged CareBolton ClarkeKawungan, QLD101 single roomsA$18.1m6.5%16.5
Tantula Rise Aged
Care
Bolton ClarkeAlexandra Headland, QLD120 single roomsA$22.5m6.5%16.5
Total/average311 bedsA$57.5m6.5%16.6
Divestments
There were no divestments in FY20.
Net property income
Net property income increased by 3.4% from FY1
9 (excluding foreign
exchange impacts), reflecting contributions from the structured rent reviews
within the portfolio, completed developments and acquisitions. After
adjusting for foreign exchange, net property income increased by 2.5%.
Leasing
Vital’s WALE was 18.1 years at 30 June 2020. This was consistent with
30 June 2019 despite 12 months passing reflecting leasing, development
and other portfolio improvements. Vital's WALE remains the longest of any
ASX or NZX-listed property group.
Property values
The portfolio value increased by $249.9m over FY20 as follows:
All values reflected in $m
30 June
2020
Opening Valuation (30/06/19)1,836.4
Acquisitions75.4
Capital Expenditure88.5
1
Property Revaluations45.7
Right of Use Asset4.0
Foreign Exchange36.3
Closing Balance (30/06/20)2,086.3
1 Includes development expenditure, capitalised interest and capitalised incentives
“Stable, long-term 18.1yr WALE and
significant
increase in total portfolio
value by $249.9m over FY20”
The weighted average capitalisation rate (WACR) across Vital’s port
folio
firmed by 7 basis points over FY20 as shown in the table below:
Location
WACR –
30 June
201
9
WACR –
30 June
2020
Change
(Basis Points)
1
Australia5.57%5.50%-7bps
New Zealand5.72%5.66%-7bps
Total5.61%5.54%-7bps
1 Values may not sum due to rounding
“
Healthcare property is a defensive
asset class underpinned by growing
demand and high le
vels of
government support in Australia and
New Zealand. ”
Developments
In addition to value add and maintenance capex, Vital had
significant
development projects underway in New Zealand and Australia as shown
in the table on the following page.
Developments are an important driver of Vital’s assets, earnings and
portfolio construction as they typically:
•Provide an accretive return on cost for Vital.
•Enhance Vital's NTA and WALE.
•Respond to our tenants’ business and operating requirements (reducing
their costs and / or increasing their revenues).
•Ensure Vital’s assets are modern, fit-for-purpose and accord with
community / patient expectations.
•Strengthen our relationships with key operators.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
8MANAGER'S REPORT
DevelopmentDevelopment work being undertaken
Development
Costs
Spend to
date
Forecast
Completion
Date
Australian projects:(A$m)(A$m)
Epworth Eastern (VIC)New 14 storey tower incorporating 5 operating theatres, 60
beds, consulting and refurbish
ment of e
xisting Medical
Centre
126.230.5Late-21
Eden Rehab (QLD)New 26 bed mental health ward, Rehabilitation Unit and
refurish
ment of e
xisting wards
12.41.2Late-21
South Eastern (VIC)New Day Oncology Centre, new 10 bed ward and
conversion of shared rooms to singles
9.94.1Early-21
North West Private (TAS)New 8 bed mental health unit3.50Mid-21
1
Total Australian projects (A$m)152.035.8
New Zealand projects:(NZ$m)(NZ$m)
Wakefield (Wellington)Staged demolition and redevelopment of entire hospital9831.6 Staged 21-23
Royston (Hawke’s Bay) and DSUNew CSSD, reception upgrade, two theatre shells, one
theatre fitout and standalone two theatre Day Surgery Unit
19.17.9Late-21
Total New Zealand projects (NZ$m)117.139.5
Total Projects in $NZm
2
279.877.8
1 Project currently suspended.
2A$ converted at 30 June 20
20 spot rate: 0.9345
Financial Results
Cash from operations available to unitholders, measured by AFFO,
increased 7
.5% to $47.2m. AFFO per unit was 10.45 cents; a 5.6%
increase from FY19.
Expenses were $59.4m, 7.2% lower than FY19 notwithstanding a 13.6%
increase in assets. Expenses comprised:
•$28.3m net finance expenses, 13.2% down on FY19 primarily due to
lower base rates and increased development activity partly offset by
higher total borrowings.
•$18.7m management expenses, 28.5% below FY19 primarily due to
lower incentive fees and the introduction of a tiered base management
fee regime under Vital's revised fee structure.
•$7.8m net strategic expenses, 81.7% above FY19 due to the proposed
ASX listing (which did not proceed).
•$4.6m corporate expenses, 27.2% above FY19 due in part to
increased costs for the fee and governance review and increased
foreign duty and land tax surcharges in Australia.
Vital’s NTA per unit increased by 2.9% to $2.38 primarily due to $45.7m
of property revaluation gains.
Capital Management
The debt to total assets ratio was 38.7% at 30 June 2020 (30 June 2019:
35.3%). Given the defensive nature of Vital’s portfolio, the Board and
Management are comfortable with both the current and projected levels
of debt. Vital currently has approximately $225m of headroom under its
current debt facilities and has asset recycling planned to cover some of its
development expenditure.
Vital’s all-in weighted average cost of debt as at 30 June 2020 was
3.59% (30 June 2019: 4.40%) with this decrease being primarily a result
of a decline in floating rates.
The average debt maturity at 1.81 years remains below where the Board
and Management would like this to be, particularly in light of Vital’s
industry leading WALE. Measures to extend Vital’s debt term are
underway.
Management Fees
Vital’
s new management fee structure was approved by unitholders in
October 2019. The key change was to reduce the base management fees
from a fixed 0.75% of gross assets to a tiered fee structure:
Gross Value of Vital
Base
Management
Fee
1
< / = $1 billion0.65%
>$1 billion to < / = $2 billion0.55%
>$2 billion to < / = $3 billion0.45%
= / > $3 billion0.40%
1 Note that the above fees are tiered on the basis that management fees charged on the first
$1 billion of gross asset value are 0.65% notwithstanding the total value, similarly for
$1-2 billion at 0.55% and $2-3 billion at 0.45%.
There were also changes to activity-based fees.
As a result of these changes, base management fees for FY20 were
$2.2m lower than they otherwise would have been. Total fees were
$1
.9m lower than FY1
9.
Base management fees
$2.2m
lower due to revised fee structure
9
5 year portfolio plan
The board has approved a new 5 year port
folio targeted at:
1
.Continuing Vital's earnings growth as a means to deliver 2-3% AFFO
growth per unit per annum.
2.Providing a framework for Vital's acquisitions, developments and
portfolio composition including target subsector allocations (refer to
pages 28-29 of this report) and defining Vital's investment universe.
3.Repositioning Vital's portfolio to improve asset and income diversity as
well as increasing exposure to favoured investments (including targeted
asset disposals).
Outlook
Healthcare property remains a defensive asset class underpinned by
growing demand, high levels of government support in Australia and New
Zealand and growing institutional interest. As Australasia’s leading listed
owner of healthcare real estate, Vital is well positioned to take advantage
of opportunities in this sector.
Our plan for the short to medium term is:
•Deploy Vital’s new 5-year portfolio plan (refer above for more detail)
including asset recycling.
•Continue to consider further acquisition and development opportunities
across Australia and New Zealand.
•Extend debt maturity profile and, potentially, diversify sources of debt.
On behalf of your Board and Management, thank you for your on-going
support.
Bernard Crotty
Chair
Aaron Hockly
Fund Manager
NorthWest Healthcare Properties Management Limited the Manager
of Vital Healthcare Property Trust
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
10ABOUT VITAL AND NORTHWEST
About Vital and NorthWest
Vital benefits from being managed by a global healthcare property owner and manger
About Vital
Vital Healthcare P
roperty Trust (Vital, the Trust) is an NZX-listed investment fund (NZX:VHP) that invests in high-quality healthcare properties in New
Zealand and Australia. The Trust is e
xternally managed by NorthWest Healthcare Properties Management Limited.
Vital's portfolio of 44 properties is valued at more than NZ$2.0B with 76% (by value) located in Australia and the balance in New Zealand. The
portfolio has over 120 tenants and over 2,900 beds.
Vital’s tenants include hospital operators and healthcare providers who deliver a wide range of services across the full spectrum of health services.
Further information is available at vhpt.co.nz
“
Vital is the only NZX listed specialist landlord of healthcare property and the
fourth largest NZX listed property vehicle”
About the Manager
NorthWest Healthcare P
roperties Management Limited (NWHPM, the Manager) is an external manager that provides management services to Vital
and its unitholders. The Manager’s primary responsibilities include the day-to-day administration of Vital, portfolio management, sourcing new
opportunities and conducting due diligence on potential acquisitions. The Manager is also responsible for providing specialist property management,
project management, development management and leasing services to the Trust.
The Manager’s board of five comprises three independent directors and two NorthWest appointees. Refer to pages 42-43 for more details.
Vital's leadership team is led by Aaron Hockly (Fund Manager), and draws on the skills and experience of over 40 real estate professionals across New
Zealand and Australia with offices in Auckland, Melbourne and Sydney. Refer to pages 44-45 for more details.
NorthWest REIT
NWHPM is a subsidiary of Toronto Stock Exchange-listed NorthWest Healthcare Properties REIT (NorthWest REIT). NorthWest REIT operates across
six countries in four continents and was founded by its current CEO, Paul Dalla Lana, in 2004. Among other roles, Paul is a director of Vital's Manager.
NorthWest REIT has NZ$7.4bn of AUM globally and over 250 real estate professionals including 40 professionals across New Zealand and Australia.
In Australia and New Zealand, NorthWest is led by regional CEO, Craig Mitchell.
“NorthWest REIT is a global healthcare real estate investor and manager with
over NZ$7
.4B of assets under management.”
Our Structure - A Unit Trust
11
Financial Summary
All figures are in New Zealand dollars (NZD) unless otherwise stated
2016
$000s
2017
$000s
2018
$000s
2019
$000s
2020
$000s
FINANCIAL PERFORMANCE
Net property income68,27489,65790,65997,683100,147
Revaluation gain/(loss) on investment properties101,869168,54985,461103,55645,703
AFFO and DISTRIBUTIONS
Adjusted Funds From Operations
1
n/an/a47,074
2
43,89747,211
AFFO - cents per unit
3
n/an/a10.849.9010.45
Cash distribution to unitholders - cents per unit8.308.508.508.758.75
FINANCIAL POSITION
Total assets978,1741,392,2281,786,8281,931,5432,105,218
Borrowings345,310402,649670,124734,211813,515
Total equity523,719879,821987,9761,029,7451,078,979
Debt to total assets ratio36.3%29.3%38.7%35.3%38.7%
Net tangible assets - dollars per unit1.512.052.262.312.38
1 2016 and 2017 data not readily available to calculate on a consistent basis
2AFF
O for FY18 has been restated to include the notional impact of the 1 July 2018 introduction of Attributed FIF tax rule changes
3 As above
Portfolio Metrics
20162017201820192020
Investment properties ($m)951.91,376.21,731.21,836.42,086.3
Number of investment properties
1
2937424244
2
Occupancy (%)99.699.199.399.499.4
Weighted average lease term to expiry (years)18.417.718.218.118.1
12 month lease expiry (% of income)2.51.71.81.71.4
1 Excludes properties held for development
2Additions include 3 Bolton Clarke aged care acquistions and Lingard Day Centre, whilst two property consolidations have occurred, being Sportsmed Consulting property into Sportsmed Hospital
asset and Ascot Central Carparks (right of use) has been consolidated into the one property
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
12SUSTAINABILITY
Vital and NorthWest are
considering Vital’s
sustainability strategy
focused on our critical roles
in communities as a large
owner / manager of
healthcare property. This
section highlights some of
our FY20 key achievements
in sustainability.
Environmental
The World Green Building Council has
outlined in its 2013 “Business Case for
Green Building” that “green” healthcare
facilities provide better patient care in
particular:
.
8.5%
REDUCTION HOSPITAL STAYS
15%
FASTER RECOVERY RATES
22%
REDUCTION IN NEED
FOR PAIN RELIEF
11%
REDUCTION IN
SECONDARY INFECTIONS
Sustainability principles are incorporated into
each development to the extent appropriate
for that project. We have highlighted below
key sustainability measures in Vital’s largest
projects: Epworth Eastern in Melbourne and
Wakefield in Wellington.
EPWORTH EASTERN, MELBOURNE,
AUSTRALIA - A$126.2M ESTIMATED
DEVELOPMENT COST
• External ecologically sustainable design
advisers appointed
•
Green Star – Design and As Built tools
used (targeting 4 star equivalent
considered Australian Best Practice)
•
Solar panels on r
oof
•
R
ainwater harvesting for toilet flushing
and irrigation
•
Motion sensor lighting
•
Insulation to exceed minimum code
requirements by at least 15%
•
Low volatile or
ganic compounds or VOC
products
•
Ener
gy efficient plant and equipment
•
Automatic monitoring of electricit
y of
water and energy
•
Ener
gy efficient façade design
•
R
esponsibly sourced steel
•
Sustainably sour
ced timber
•
Build
ing tuning after practical completion
$
98M
$
126.2M
EPWORTH EASTERN DEVELOPMENT
WAKEFIELD HOSPITAL DEVELOPMENT
Sustainability
13
Social
(employees and community)
COMMUNITY
• Support for small and medium sized tenants impacted by COVID-19
(including voluntarily applying Australian SME code of conduct for New
Zealand tenants)
• Donations of $68,000 including $25,000 to the Epworth Foundation,
$25,000 to the Australian Red Cross in response to the January 2020
bushfires and $11,500 for Keystone New Zealand Property Education Trust
EMPLOYEE WELLBEING AND DIVERSITY
• Increased women in A/NZ leadership team from 0% to 17%
•
Incr
eased women in A/NZ management from 13% to 33%
•
Maintained gender d
iversity in regional employees (44% of employees
female at 30 June 2020)
•
Intr
oduced Maternity Policy across Australia and New Zealand
•
In June 2
020, all regional employees undertook a 10,000 steps per day
challenge with the aim of encouraging daily physical activity and also
raising funds for charity
•
~400 h
ours of inhouse staff training in addition to external training and
events
•
Mental W
ellness program launched
•
Global (Vir
tual) offsite held for all Manager’s employees
COVID-19
• Daily team check-ins, weekly all staff regional calls
• Global weekly COVID-19 Health & Safety committee established for
pandemic planning
•
Global all employee communications r
e: COVID-19
•
Global all employee sentiment/satisfaction surveys; work from home and
return to office; 94% participation rate in both surveys company-wide
•
Global r
eturn to office on-boarding process & policies and
online compliance training
Governance
• Consistent with previous undertakings, an Independent Chair is expected to
be appointed by the 2020 AGM
• Fee and governance review completed (99% approval at 2019 special
meeting)
• Unitholder and other stakeholder engagement increased
• Following extensive stakeholder engagement, restructuring to support
foreign exempt listing on the ASX proposed but not successful (66%
approval, below 75% required noting that NorthWest, holder of 25% of
units, could not vote)
BUSINESS CONTINUITY
• Weekly Global Business Continuity Committee meetings
•
Global Emer
gency Preparedness Policy Framework introduced
WAKEFIELD, WELLINGTON,
NEW ZEALAND - NZ$98M
ESTIMATED DEVELOPMENT COST
• Project reviewed by sustainability
consultant
•
Good pr
actice fresh air rates
•
Good practice acoustic design
•
Good practice lighting design and
utilisation of daylight and views
• Reuse of existing land including
remediation of contamination
Donations of $68,000
including $25,000 to the
Epworth Foundation,
$25,000 to the Australian
Red Cross in response to the
January 2020 bushfires and
$11,500 for Keystone
New Zealand Property
Education Trust.
$
98M
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
14ACQUISITIONS
Acquisitions
15
Acquisition of three aged
care facilities in Australia for
$60.1m comprising 311 beds
and a 16.6 year WALE.
In March 2020, Vital completed the acquisition of three aged
care facilities, two in Queensland and one in New South
Wales, for A$57.5m (NZ$60.1m). The three assets comprise
an aggregate of 311 beds, year one income of A$3.7m and
a combined WALE of 16.6yrs. The tenant for all three assets is
Bolton Clarke, a reputable, high quality, not-for-profit aged care
operator.
The acquisitions provide Vital with increased exposure to aged
care, a subsector Vital is seeking to increase its exposure to (refer
to pages 28-29 for more details), secured by long term leases to
a high-quality aged care provider.
Located in Kawungan, a coastal suburb approximately
148km north of the Sunshine Coast, QLD, Baycrest is a
purpose-built 101 bed aged care facility. All rooms have a
single bed and an ensuite.
Acquired for A$18.08m, reflecting a 6.5% yield and
16.5yr WALE.
Located in Banora Point, approximately 25km south of the
Gold Coast, NSW, Darlington is a purpose-built 90 bed
aged care facility. All rooms have a single bed and an
ensuite.
Acquired for A$16.9m, reflecting a 6.5% yield and
16.8yr WALE
BAYCREST AGED CARE, QLDDARLINGTON AGED CARE, NSW
Aged Care Acquisitions
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
16ACQUISITIONS
Aged Care Attractiveness
Aged care is considered a good asset subclass for
Vital due to:
1. Growing underlying demand from an ageing
population.
2.
High
er rental yields particularly when compared
to hospitals.
3. Current and future challenges for aged care
operators potentially leading to-;
• operator consolidation (i.e. larger, more
robust operators like Bolton Clarke); and
• potential acquisition opportunities for Vital.
4. Aged care represents approximately one third of
healthcare property assets by value in Australia.
As a result, we are targeting 5%-15% of Vital portfolio
assets being in aged care (versus 6% as at 30 June
2020) with investment expected to be focused on
Australia.
Refer to pages 28-29 for more details.
Located in Alexandra Headlands on the Sunshine Coast, QLD
approximately 90km north of the Brisbane CBD. Tantula Rise
is a three level, purpose-built 120 bed aged care facility. All
rooms have a single bed and an ensuite.
Acquired for A$22.52m, reflecting a 6.5% yield and
16.5yr WALE
BOLTON CLARKE
Bolton Clarke is one of Australasia’s largest and most
experienced not-for-profit aged care and retirement
living providers with over 200 years of experience,
2,500+ aged care beds across 25 facilities and has
operations in Australia, New Zealand, the UK, Hong
Kong, Singapore and China.
Bolton Clarke is a leading social enterprise founded
on a proud history of care and respect that reinvests
in services and innovation to benefit residents and the
wider community with over 6,300 employees and 400
volunteers. Bolton Clarke have total assets of ~$1.3bn
and group annual EBITDA of ~$32.4m. Each of the three
assets had an EBITDA (after an allowance for corporate
overheads) in excess of $1m for FY19 and FY18, and a
portfolio rent/EBITDAR ratio of ~45% .
Further details are available at:
https://www.boltonclarke.com.au
TANTULA RISE AGED CARE, QLD
17
Developments
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
18DEVELOPMENTS
"Stage 1 of the Wakefield project is well advanced. The design and ECI
process with the builder for Stage 2 is nearing completion providing for
a transition to the next stage of the project in 2021. The commitment to
the quality of the building including base isolation will entrench the
hospital as one of New Zealand’s leading private hospitals."
Chris Adams - Executive Director, Projects
Wakefield Hospital
STAGE 1
$37m
SPEND TO DATE
$31. 6m
TOTAL ESTIMATED VITAL INVESTMENT
$98m
PRECINCT VALUE ON COMPLETION
$13 0m
19
LEASE TERM
30yrs
RENTALISATION YIELD
6.3%
TOTAL ESTIMATED VITAL INVESTMENT
$98m
PRECINCT VALUE ON COMPLETION
$13 0m
ANNUAL RETURN ADJUSTMENTS
1.5X CPI
*Artist render of Wakefield Hospital exterior post project completion.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
20 DEVELOPMENTS
“ The project has entered the structure phase having completed key
risk elements of bulk excavation and piling immediately adjacent to a
live operating hospital. Despite the challenges to the project operating
in the COVID environment the project remains on track with positive
momentum supported by a strong relationship between Epworth,
NorthWest and the project team.”
Chris Adams - Executive Director, Projects
Epworth Eastern
*Artist render of Epworth Eastern.
FORECAST PROJECT COST
A$12 6m
SPEND TO DATE
A$30.5m
PRECINCT VALUE ON COMPLETION
A$380m
PRE-LEASED OCCUPANCY
80%
LEASE TERM WITH RENTAL ESCALATORS
FOR THE EPWORTH LEASE
30yr
RENTALISATION YIELD
6%
21
*Artist render of Epworth Eastern.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
22 DEVELOPMENTS
Lingard Day Centre
TOTAL COST
A$28m
PRECINCT VALUE
A$19 0m
PROJECT YIELD
6.5%
• New standalone day surgery unit, consulting suites and
basement carpark
•
Material expansion of “Lingar
d Health Precinct”, one of
the leading healthcare precincts in the Hunter Region
•
1
00% occupancy and significant 25.7yr WALE
23
ASSET TYPE
Day Surgery / MOB
COMPLETION DATE
June 2020
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
24DEVELOPMENTS
The Hills Clinic
TOTAL COST
A$8.3m
PRECINCT VALUE
A$45m
PROJECT YIELD
6%
• Added 26 beds and refurbishment of adolescent ward
• 100% occupancy of new beds already achieved
• Future expansion options being explored
•
Significant 2
7yr WALE
25
ASSET TYPE
Mental Health
COMPLETION DATE (AHEAD OF SCHEDULE)
May 2020
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
26PORTFOLIO OVERVIEW
Portfolio Overview
at 30 June 2020
Vital Portfolio by Geography
AUSTRALIANEW ZEALAND
Vital is the fourth largest listed property vehicle, and only specialist
healthcare Landlord, on the NZX.
NZ$10 0m
NET PROPERTY INCOME
NZ$1.59bn
33* PROPERTIES (AUS)
NZ$492m
11* PROPERTIES (NZ)
5.54%
WEIGHTED AVERAGE CAP RATE
(5.5% - AUSTRALIA, 5.66% - NZ)
*Excludes strategic assets.
WESTERN
AUSTRALIA
SOUTH
AUSTRALIA
4
2
NEW SOUTH
WALES
14
VICTORIA
5
TASMANIA
1
QUEENSLAND
7
NORTHERN
TERRITORY
11
27
Sub-sector Diversity
(% of Value)
Tenant Diversification
(% of Rent)
NZ$2.09bn
†
44* PROPERTIES (AUS/NZ)
NZ$492m
11* PROPERTIES (NZ)
18 .1YRS
WALE
12 .1YRS
AVERAGE BUILDING AGE*
99.4%
PORTFOLIO OCCUPANCY
*Average building age = the later of the date of
construction or last significant capital works.
† Figures may not sum due to rounding.
Healthe Care
47%
Other
18%
Sportsmed
3%
Mercy Ascot
4%
Bolton Clarke
4%
Hall & Prior
5%
Acurity Group
9%
Epworth Foundation
10%
Surgical
56%
Mental Health
14%
Aged Care
6%
Medical Office
Buildings
12%
Rehabilitation
12%
H
O
S
P
I
T
A
L
8
2
%
O
T
H
E
R
1
8
%
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
28 ASSET ALLOCATION
COMPRISES:
Pu
blic, private, rehabilitation and
mental health hospitals and similar
facilities
TARGETING:
Government supported or high private
health insurance catchments with
growing populations
T
ARGET PORTFOLIO WEIGHTING:
50 - 70% (30 June 2020: 82%)
COMPRISES:
Administration, diagnostic services
and specialist out-patient facilities
TARGETING:
Facilities located in a healthcare
precinct* and/or from where
healthcare is delivered
TARGET PORTFOLIO WEIGHTING:
10 - 20% (30 June 2020: 12%)
*Healthcare precinct = area or hub for healthcare delivery typically including at least two of a public hospital, major private
hospital, health teaching facility or health research facility
Asset Allocation
Vital invests in health ecosystems in New Zealand and Australia.
Target Portfolio Weightings
HOSPITALS
OUT-PATIENT/
MEDICAL OFFICE
BUILDINGS
50-70%10-20%
29
COMPRISES:
Residential aged care facilities
(excluding retirement facilities)
TARGETING:
High quality operators with substantial
balance sheets and <45% Rent/
EBITDAR and high-quality
infrastructure
TARGET PORTFOLIO WEIGHTING:
10 - 20% (30 June 2020: 6%)
COMPRISES:
Biotechnology, pharmaceutical,
biomedical, university and other
research facilities
TARGETING:
Specialised facilities and/or facilities
located in a healthcare precinct*
TARGET PORTFOLIO WEIGHTING:
5-15% (30 June 2020: 0%)
†
Investments targeted to provide earnings growth from a
diversified and defensive asset base.
† The initial focus for this sub-sector will be New Zealand. Hospitals and aged care are the priority for Vital's growth in Australia at
least in the near-term.
Target Portfolio Weightings
AGED CARE
LIFE SCIENCES/
RESEARCH
10-20%5-15%
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
30 AUSTRALIAN PORTFOLIO
VICTORIA
• Ekera Medical Centre
•
Epwor
th Eastern Hospital
•
Epwor
th Eastern Medical Centre
•
Epworth Rehabilitation Hospital
•
South Eastern Private Hospital
SOUTH AUSTRALIA
• Sportsmed Hospital, Clinic & Consulting
• Sportsmed Office
WESTERN AUSTRALIA
• Abbotsford Private Hospital
• Hamersley Aged Care
•
Marian Clinic
•
R
ockingham Aged Care
4
5
Australian
Portfolio Overview
2
TASMANIA
• North West Private Hospital
1
31
QUEENSLAND
• Baycrest Aged Care
•
Belmont Private Hospital
•
Eden R
ehabilitation
• Gold Coast Surgery Centre
• Palm Beach Currumbin Clinic
• Tantula Rise Aged Care
•
T
he Southport Private Hospital
NEW SOUTH WALES
• Clover Lea Aged Care
• Darlington Aged Care
• Dubbo Private Hospital
• Fairfield Aged Care
• Grafton Aged Care
• Hirondelle Private Hospital
•
Hur
stville Private Hospital
•
Lingar
d Day Centre
•
Lingar
d Private Hospital
•
Maitland Private Hospital
•
Mayo Private Hospital
•
Mons R
oad Medical Clinic
•
T
he Hills Clinic
•
T
oronto Private Hospital
Australian
Portfolio Overview
14
7
PRIVATE HOSPITALS (AUS)
20
hospitals (surgical, rehabilitation and
mental health)
4 hospital operators
62% of portfolio value; 61% of rent
WALE:
19. 9 years
AGED CARE
8 facilities
2 operators
6% of portfolio value; 8% of rent
WALE:
16 years
OUT-PATIENT FACILITIES
/ MEDICAL OFFICE
BUILDINGS
5 assets
8% of portfolio value; 7% of rent
WALE:
6.2 years
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
32AUSTRALIAN PORTFOLIO
Australian Portfolio
LINGARD PRIVATE HOSPITAL
Newcastle / New South Wales
MARKET VALUE A$15
2,000,000
MARKET CAPITALISATION RATE 5.25%
WALE 25.7
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Lingard Private Hospital is a 99-bed, 7
theatre acute medical and surgical hospital
located 3km south of the Newcastle CBD.
Over recent years Lingard has undergone
significant redevelopment which has
included a new 40-bed ward, two
additional operating theatres and improved
diagnostic imaging areas.
MAITLAND PRIVATE HOSPITAL
Newcastle / New South Wales
MARKET VALUE A$102,2
00,000
MARKET CAPITALISATION RATE 5.50%
WALE 17.5
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Maitland Private is a 156-bed private
hospital located approximately 30km north-
west of Newcastle in NSW and offers a
comprehensive range of specialities and on-
site medical, surgical, mental health,
rehabilitation and allied health ser
vices, all
supported by the latest technology and
facilities.
HURSTVILLE PRIVATE HOSPITAL
Sydney / New South Wales
MARKET VALUE A$74,2
00,000
MARKET CAPITALISATION RATE 6.25%
WALE 21.8
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Hurstville is a 94-bed private hospital
located approximately 16km south-west of
the Sydney CBD specialising in surgical
ser
vices and obstetrics. Vital acquired
Hurstville in May 2012 and has undertaken
major redevelopment work, including
increased operating theatre capacity,
patient accommodation and consulting
rooms.
THE HILLS CLINIC
Sydney / New South Wales
MARKET VALUE A$44,900,000
MARKET CAPITALISATION RATE 5.00%
WALE 27.0
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Located in the suburb of Kellyville,
approximately 40km north-west of the
Sydney CBD, The Hills is a two-level
purpose-built mental health hospital of
fering
specialist inpatient programs. Comprises 8
5
beds and a medical clinic with 8 consulting
rooms and approximately 30 referring
clinicians. A$8.3m expansion, adding 26
beds completed in May 2020.
TORONTO PRIVATE HOSPITAL
Newcastle / New South Wales
MARKET VALUE A$41
,100,000
MARKET CAPITALISATION RATE 5.7
5%
WALE 22.5
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Toronto Private Hospital is an 85-bed
private hospital located in Toronto (NSW)
and is approximately 2
0 km from
Newcastle. The three-level facility is located
on the western side of Lake Macquarie and
specialises in rehabilitation, medical,
palliative care and mental health ser
vices.
MAYO PRIVATE HOSPITAL
Taree / New South Wales
MARKET VALUE A$40,000,000
MARKET CAPITALISATION RATE 6.00%
WALE 11.5
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Mayo Private Hospital is a 79 bed hospital
located approximately 1
7
0km north of
Newcastle and operated by Healthe Care.
Mayo specialises in surgical, acute medical,
post natal and rehabilitation services. Mayo
has associated specialist consulting rooms
and a rehabilitation centre.
33
MONS ROAD MEDICAL CENTRE
Sydney / New South Wales
MARKET VALUE A$34,300,000
MARKET CAPITALISATION RATE 5.75%
WALE 4.5
OCCUPANCY 94.5%
MAJOR TENANT Castlereagh
Mons Road is a modern, multi-tenanted,
four-level medical office building. It is
approximately 26km west of the Sydney
CBD within the Westmead medical precinct,
which is considered Australia’
s largest
health services precinct.
LINGARD DAY CENTRE
Newcastle / New South Wales
MARKET VALUE A$32,600,000
MARKET CAPITALISATION RATE 5.25%
WALE 25.7
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
New stand-alone day surgery unit,
consulting suites and basement carpaking
completed in June 202
0. Lingard Day
Centre is a material expansion of the
"Lingard Health Precinct"; one of the
leading health precincts in the Hunter
Valley.
HIRONDELLE PRIVATE HOSPITAL
Sydney / New South Wales
MARKET VALUE A$25,9
70,000
MARKET CAPITALISATION RATE 5.50%
WALE 21.9
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Hirondelle is a 53-bed private rehabilitation
hospital located within Sydney’s lower north
shore suburb of Chatswood, approximately
1
0km north-west of the CBD. Most recently
refurbished in 2014, the hospital is a
modern rehabilitation facility including
hydrotherapy pool.
DUBBO PRIVATE HOSPITAL
Dubbo / New South Wales
MARKET VALUE A$18,2
00,000
MARKET CAPITALISATION RATE 6.00%
WALE 11.6
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Dubbo Private Hospital has 52 beds and
provides general surgical, obstetric,
rehabilitation and neonatal intensive care.
Dubbo is located in regional New South
Wales, approximately six hours' drive
north-west of Sydney
.
FAIRFIELD AGED CARE
Sydney / New South Wales
MARKET VALUE A$17
,300,000
MARKET CAPITALISATION RATE 7
.00%
WALE 15.7
OCCUPANCY 100.0%
MAJOR TENANT Hall & Prior
Fairfield residential aged care is located
approximately 2
8km west of the Sydney
CBD in the suburb of
Fairfield. It is a two-
level high-care facility with 93 beds
including an 18-bed secure dementia unit.
Fairfield is operated by Hall & Prior, a
private Australian Commonwealth
Government approved residential aged
care provider.
DARLINGTON AGED CARE
Banora P
oint / NSW
MARKET VALUE A$16,900,000
MARKET CAPITALISATION RATE 6.50%
WALE 16.3
OCCUPANCY 100.0%
MAJOR TENANT Bolton Clarke
Darlington comprises a one and two level,
purpose-built nursing home that provides
90 beds in single bed room configurations
with private ensuites. Located in Banora
P
oint, approximately 2
5km south of the
Gold Coast.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
34AUSTRALIAN PORTFOLIO
CLOVER LEA AGED CARE
Sydney / New South Wales
MARKET VALUE A$12,900,000
MARKET CAPITALISATION RATE 7.00%
WALE 15.7
OCCUPANCY 100.0%
MAJOR TENANT Hall & Prior
Clover Lea residential aged care is located
approximately 12km west of the Sydney
CBD. It is a high-care, single level facility
with 64 beds. Clover Lea is operated by
Hall & Prior, a private Australian
Commonwealth Government approved
residential aged care provider
.
GRAFTON AGED CARE
Sydney / New South Wales
MARKET VALUE A$10,650,000
MARKET CAPITALISATION RATE 7.2
5%
WALE 16.8
OCCUPANCY 100.0%
MAJOR TENANT Hall & Prior
Grafton Aged Care is a residential aged
care facility located in South Grafton,
NSW, approximately 70km north of Cof
fs
Harbour. The site overlooks the Clarence
River and benefits from uninterrupted views.
The facility comprises 83 beds across a mix
of single, double and triple rooms.
EPWORTH EASTERN HOSPITAL
Melbourne / Victoria
MARKET VALUE A$19
5,637,717
MARKET CAPITALISATION RATE 5.00%
WALE 20.7
OCCUPANCY 100.0%
MAJOR TENANT Epworth Foundation
Epworth Eastern Hospital is located in Box
Hill about 14km from the CBD, a
significant
regional hub for the middle and outer
eastern suburbs. Completed in 2005, the
hospital accommodates a ground-floor
reception, radiology and café, ten
operating theatres, 227 beds and 284 car
parks.
SOUTH EASTERN PRIVATE HOSPITAL
Melbourne / Victoria
MARKET VALUE A$66,41
7,612
MARKET CAPITALISATION RATE 5.1
3%
WALE 20.7
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
South Eastern Private Hospital is located
around 2
6km south-east of Melbourne’
s
CBD. It is a two-storey 167 bed hospital.
The hospital provides general medicine and
rehabilitation services. South Eastern
recently underwent a redevelopment project
that added 30 rehabilitation beds, 30
mental health beds and 79 car parks.
EPWORTH EASTERN MEDICAL CENTRE
Melbourne / Victoria
MARKET VALUE A$39,1
00,000
MARKET CAPITALISATION RATE 5.2
5%
WALE 9.9
OCCUPANCY 74.8%
MAJOR TENANT Epworth Foundation
Originally built in 1986, the Epworth
Eastern Medical Centre was completely
refurbished in 2
005. The Medical Centre
adjoins Epworth Eastern Hospital and
houses consulting suites, pathology
laboratory and collection centre and
radiotherapy bunkers.
EKERA MEDICAL CENTRE
Melbourne / Victoria
MARKET VALUE A$30,400,000
MARKET CAPITALISATION RATE 5.50%
WALE 4.1
OCCUPANCY 97
.1%
MAJOR TENANT Imaging Associates
Constructed in 2014, Ekera is a modern,
multi-tenanted four level medical office
building comprising a total area of 3,605
sqm with basement parking for 1
3
3 cars.
Ekera’s major tenant is Imaging Associates,
representing approximately 40% of rental
income. Other tenants include: Epworth
Foundation, Monash IVF and Sportsmed
Biologic.
35
EPWORTH REHABILITATION
Melbourne / Victoria
MARKET VALUE A$26,000,000
MARKET CAPITALISATION RATE 5.50%
WALE 3.6
OCCUPANCY 100.0%
MAJOR TENANT Epworth Foundation
Epworth Rehabilitation is a purpose-built
rehabilitation facility with a licence for 67
beds. The facility of
fers a comprehensive
range of services, including specialised
rehabilitation units for orthopaedic/
musculo-skeletal, neurological and cardiac
patients. The facility includes a purpose-built
rehabilitation gymnasium and pool.
BELMONT PRIVATE HOSPITAL
Brisbane / Queensland
MARKET VALUE A$77
,800,000
MARKET CAPITALISATION RATE 5.00%
WALE 15.7
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Belmont Private Hospital is a 150-bed
general psychiatric hospital in Queensland,
approximately 12km from Brisbane’
s CBD
and is the largest of its type in Brisbane.
Belmont Private Hospital offers a range of
specialist acute mental health services
catering for both inpatient and day patients.
PALM BEACH CURRUMBIN CLINIC
Gold Coast / Queensland
MARKET VALUE A$57
,500,000
MARKET CAPITALISATION RATE 5.25%
WALE 11.6
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Palm Beach Currumbin Clinic is located 6km
from Burleigh Heads, on Queensland’s
Gold Coast and has a catchment area that
extends into New South Wales. P
alm Beach
is a 104 bed private hospital providing
psychiatric services, including rehabilitation.
In 2012, Healthe Care and Vital completed
a redevelopment at the facility adding 34
beds.
THE SOUTHPORT PRIVATE HOSPITAL
(FORMERLY ALLAMANDA PRIVATE
HOSPITAL)
Gold Coast / Queensland
MARKET VALUE A$45,900,000
MARKET CAPITALISATION RATE 5.2
5%
WALE 24.7
OCCUPANCY 100.0%
MAJOR TENANT Ramsay
Southport Private Hospital (formerly
Allamanda Private) is located in Southport
on the Gold Coast. The facility provides a
range of comprehensive mental health and
rehabilitation ser
vices. Operated by
Ramsay Health Care, the facility includes a
44 bed rehabilitation unit and a 2
2 bed
private inpatient mental health clinic.
EDEN REHABILITATION
Sunshine Coast / Queensland
MARKET VALUE A$27
,308,599
MARKET CAPITALISATION RATE 5.50%
WALE 17.4
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Eden Rehab is a 48 bed private inpatient
rehabilitation hospital and medical centre
located in Cooroy, approximately 2
5
minutes inland from Noosa in Queensland.
Eden has provided rehabilitation and
medical care to Sunshine Coast residents for
over 1
5 years and is the only sub-acute
stand-alone private rehabilitation hospital
between Brisbane and Cairns.
TANTULA RISE AGED CARE
Alexandra Headland / Queensland
MARKET VALUE A$23,0
10,000
MARKET CAPITALISATION RATE 6.50%
WALE 16.0
OCCUPANCY 100.0%
MAJOR TENANT Bolton Clarke
Tantula Rise is a three level, purpose-built
nursing home that provides 1
2
0 beds in
single bedroom configurations with private
ensuites. Located in Alexandra Headlands
on the Sunshine Coast, approximately
90km north of the Brisbane CBD.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
36 AUSTRALIAN PORTFOLIO
BAYCREST AGED CARE
Hervey Bay / Queensland
MARKET VALUE A$18,4
75,000
MARKET CAPITALISATION RATE 6.50%
WALE 16.0
OCCUPANCY 100.0%
MAJOR TENANT Bolton Clarke
Baycrest comprises a one and two level,
purpose-built aged care facility that
provides 10
1 beds within a number of
interconnected buildings. Located in
Kawungan, a coastal suburb approximately
148km north of the Sunshine Coast, QLD.
GOLD COAST SURGERY CENTRE
Gold Coast / Queensland
MARKET VALUE A$12,7
50,000
MARKET CAPITALISATION RATE 7.50%
WALE 3.2
OCCUPANCY 88.9%
MAJOR TENANT South Coast Radiology
The Gold Coast Surgery Centre is a multi
tenanted medical office building located in
Southport, Queensland. The building
comprises a three-level medical centre with
podium and basement car parking. It is
home to various practitioners operating in
radiology, breast cancer and gynaecology.
HAMERSLEY AGED CARE
Perth / Western Australia
MARKET VALUE A$12,2
00,000
MARKET CAPITALISATION RATE 7.1
2%
WALE 15.7
OCCUPANCY 100.0%
MAJOR TENANT Hall & Prior
Hamersley residential aged care is located
in the suburb of Subiaco, approximately
2km west of the Perth CBD. It is a high-care,
two level facility with 78 beds. Hamersley is
operated by Hall & Prior, a private
Australian Commonwealth Government
approved residential aged care provider
.
MARIAN CENTRE
Perth / Western Australia
MARKET VALUE A$49,400,000
MARKET CAPITALISATION RATE 5.1
3%
WALE 14.1
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
The Marian Centre was acquired by Vital in
August 2
0
14. It is a 69-bed stand-alone
private psychiatric hospital in the
established medical precinct of Subiaco,
Western Australia. The Marian Centre
provides both inpatient and outpatient
services along with a range of therapy
programs.
ABBOTSFORD PRIVATE HOSPITAL
Perth / Western Australia
MARKET VALUE A$28,7
00,000
MARKET CAPITALISATION RATE 5.1
3%
WALE 21.7
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Abbotsford is situated within the inner Perth
suburb of West Leeder
ville, approximately
1km west of the major Subiaco health
precinct. It is a modern 30-bed inpatient
private mental health hospital with a focus
on drug and alcohol rehabilitation ser
vices.
ROCKINGHAM AGED CARE
Perth / Western Australia
MARKET VALUE A$6,600,000
MARKET CAPITALISATION RATE 7
.1
2%
WALE 15.7
OCCUPANCY 100.0%
MAJOR TENANT Hall & Prior
Rockingham residential aged care is
located in the suburb of Rockingham,
approximately 50km south of the Perth
CBD. It is a high-care, single level 40-bed
facility
. Rockingham is operated by Hall &
Prior, a private Australian Commonwealth
Government approved residential aged
care provider
.
37
SPORTSMED HOSPITAL, CLINICS &
CONSULTING
Adelaide / South Australia
MARKET VALUE A$68,500,000
MARKET CAPITALISATION RATE 5.50%
WALE 15.3
OCCUPANCY 100.0%
MAJOR TENANT Sportsmed SA
Sportsmed SA incorporates a state of the art
dedicated orthopaedic facility, with five
operating theatres and 45 private rooms.
Sportsmed consulting is adjacent to
Sportsmed hospital & clinic buildings.
Located in the suburb of Stepney
approximately four kilometres north-east of
Adelaide’s CBD, in South Australia.
SPORTSMED OFFICE
Adelaide / South Australia
MARKET VALUE A$4,600,000
MARKET CAPITALISATION RATE 6.00%
WALE 15.6
OCCUPANCY 100.0%
MAJOR TENANT Sportsmed SA
Sportsmed office is adjacent to Sportsmed
SA hospital & Clinics. The Sportsmed Office
building houses the administration and
executive offices of Sportsmed SA. It is a
two storey building with medium-term
redevelopment potential to support clinical
growth at Sportsmed.
NORTH WEST PRIVATE HOSPITAL
Burnie / Tasmania
MARKET VALUE A$23,4
19,819
MARKET CAPITALISATION RATE 6.00%
WALE 16.4
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
North West Private Hospital is a 48-bed
single-storey facility providing acute
medical, surgical, psychiatric and obstetric
services and co-located with the Burnie
Public Hospital and University of Tasmania.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
38 NEW ZEALAND PORTFOLIO
WELLINGTON
• Boulcott Private Hospital
•
Bowen Private Hospital
•
W
akefield Private Hospital
HAWKE'S BAY
• Napier Health Centre
• Royston Hospital
New Zealand
Portfolio Overview
PRIVATE HOSPITALS
8 hospitals (all surgical)
5 hospital operators
20% of portfolio; 20% of rent
WALE:
22.3 years
AUCKLAND
• Apollo Health and Wellness
• Ascot Central
• Ascot Carpark (right of use)
• Ascot Hospital & Clinics
• Ormiston Hospital
5
NORTHLAND
• Kensington Hospital
2
3
OUT-PATIENT FACILITIES
/ MEDICAL OFFICE
BUILDINGS
3 assets
4% of portfolio; 4% of rent
WALE:
6.3 years
*includes Ascot Carpark (right of use).
1
39
New Zealand Portfolio
ASCOT HOSPITAL
Auckland
MARKET VALUE $11
7,000,000
MARKET CAPITALISATION RATE 5.13%
WALE 18.0
OCCUPANCY 99.3%
MAJOR TENANT Ascot Hospital and Clinics Limited
Ascot Hospital and Clinics is a private
surgical and medical hospital with
associated consulting areas.
Ascot Hospital is one of the Trust’s
flagship
properties and is considered one of New
Zealand's premier private surgical and
medical facilities, with 12 operating
theatres, 88 inpatient beds, and a 24-hour
accident and emergency clinic.
ROYSTON HOSPITAL
Hastings
MARKET VALUE $64,138,8
46
MARKET CAPITALISATION RATE 5.75%
WALE 29.5
OCCUPANCY 100.0%
MAJOR TENANT Acurity Health Group
Royston Hospital is a single-level hospital
facility and two-level consulting centre,
located in the city of Hastings. Royston is the
only private hospital within the regional hub
of the Hawkes Bay and one of two hospitals
in the region serving 1
60,000 residents.
Originally constructed in 1931, the facility
had undergone major upgrades as recently
as 2005.
WAKEFIELD HOSPITAL
Wellington
MARKET VALUE $58,81
9,099
MARKET CAPITALISATION RATE 5.50%
WALE 27.5
OCCUPANCY 100.0%
MAJOR TENANT Acurity Health Group
Wakefield Hospital is the largest private
hospital in the Wellington region. Vital has
committed to a full redevelopment planned
in stages to minimise disruption to ongoing
business continuity. The completed
development will result in a seismically
resilient, modern and functional facility
including 8 operating theatres, 4
2 beds and
a 3,000sqm medical consulting building.
BOWEN HOSPITAL
Wellington
MARKET VALUE $53,77
1,506
MARKET CAPITALISATION RATE 5.50%
WALE 29.5
OCCUPANCY 100.0%
MAJOR TENANT Acurity Health Group
Bowen Hospital is a two level hospital
facility and five-level specialist consulting
buiding. Originally constructed in 1
9
71, the
facility has undergone a $34m
development adding three operating
theatres and consulting building housing
consulting space, an endoscopy unit and
chemotherapy clinic.
BOULCOTT PRIVATE HOSPITAL
Lower Hutt
MARKET VALUE $41
,250,000
MARKET CAPITALISATION RATE 5.63%
WALE 18.0
OCCUPANCY 100.0%
MAJOR TENANT Healthe Care
Boulcott is a 38-bed private surgical
hospital located in Lower Hutt. It has three
operating theatres and approximately 45
specialist consultants and surgeons who
provide ser
vices across a range of surgical
specialties, including orthopaedics,
ophthalmology and urology ser
vices. It is
located directly adjacent to the Hutt public
hospital.
ORMISTON HOSPITAL
Auckland
MARKET VALUE $40,500,000
MARKET CAPITALISATION RATE 5.63%
WALE 3.0
OCCUPANCY 100.0%
MAJOR TENANT
Ormiston Surgical and Endoscopy Limited
Ormiston Hospital is situated in Flat Bush,
2
5km south of the Auckland CBD. Ormiston
is anchored by Ormiston Surgical and
Endoscopy Limited, a business whose
cornerstone shareholder is Southern Cross
Hospitals Limited, New Zealand’
s largest
private hospital operator.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
40 NEW ZEALAND PORTFOLIO
ASCOT CENTRAL
Auckland
MARKET VALUE $38,000,000
MARKET CAPITALISATION RATE 5.38%
WALE 6.1
OCCUPANCY 100.0%
MAJOR TENANT Fertility Associates Limited
Ascot Central is a high-quality, five-level
medical office building located next to
Ascot Hospital in Greenlane, Auckland. The
major tenant is Fertility Associates, New
Zealand’
s leading provider of fertility
diagnosis, support and treatment.
APOLLO HEALTH & WELLNESS CENTRE
Auckland
MARKET VALUE $25,800,000
MARKET CAPITALISATION RATE 6.50%
WALE 8.5
OCCUPANCY 81
.9%
MAJOR TENANT Apollo Medical Limited
Apollo is home to a diverse range of
specialist healthcare tenants including
audiologists, physiotherapists, laboratory
and radiology providers, fertility specialists
and GPs. The largest tenant is Apollo
Medical, a general practice with over 15
GPs.
KENSINGTON HOSPITAL
Whangarei
MARKET VALUE $20,300,000
MARKET CAPITALISATION RATE 5.88%
WALE 26.0
OCCUPANCY 100.0%
MAJOR TENANT Kensington Hospital Limited
Kensington Hospital is utilised for both
inpatient and day-stay surgery. The site is
centrally located in the Whangarei suburb
of Kensington, approximately 2.5km from
the Whangarei CBD.
NAPIER HEALTH CENTRE
Napier
MARKET VALUE $10,9
50,000
MARKET CAPITALISATION RATE 8.00%
WALE 3.5
OCCUPANCY 100.0%
MAJOR TENANT Hawke's Bay District Health Board
Napier Health Centre is the first
comprehensive ambulatory facility in the
Hawke's Bay and provides day-patient and
outpatient ser
vices. These include 2
4-hour
urgent medical, laboratory, radiology (x-
ray), minor surgeries and physiotherapy.
ASCOT CARPARK (RIGHT OF USE)
Auckland
MARKET VALUE $7,4
10,715
MARKET CAPITALISATION RATE 1
0.7
0%
WALE 15.3
OCCUPANCY 99.8%
MAJOR TENANT Ascot Hospital and Clinics Limited
Ground lease tenure. Comprises Ascot
Central Carparks (1
7
6 carparks) and Ascot
Hospital Carparks (273 carparks).
41
Governance and Management
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
42 GOVERNANCE AND MANAGEMENT
Our Board
The board comprises five highly qualified directors;
three of whom are independent.
BERNARD CROTTY
Chairman (Acting)
Bernard Crotty is the President and a Trustee of
North
West Healthcare P
roperties REIT and a
Director of the Manager of Vital Healthcare
Property Trust and previously served as President
and Trustee of NorthWest International
Healthcare Properties REIT.
Previously, Bernard acted as Chairman and/or
Chief Executive Officer of Certicom Corp., a
provider of cryptographic software and services
that was acquired by the then Research in
Motion Ltd and Chairman and/or Chief
Executive Officer of Comnetix Inc., a provider of
biometric identification and authorisation
solutions that was acquired by L-1 Identity
Solutions, Inc.
In addition, Bernard has served on a variety of
public company boards and was counsel to the
law firm Gibson, Dunn & Crutcher LLP in Los
Angeles and a partner at the law firm McCarthy
Tétrault, LLP in Toronto and London, England.
Bernard received his BA from the University of
Alberta, LL.B. from the University of Toronto,
LL.M. from the London School of Economics and
his MBA from Duke University. He is also a
graduate of the Toronto ICD-Rotman Directors
Education Program.
ANDREW EVANS
Independent Director
Andrew Evans has over 25 years’ experience in
commercial real estate and asset management,
pre
viously holding e
xecutive positions in listed
and unlisted real estate investment businesses.
Andrew is Chairperson of Accessible Properties
NZ Limited and Infinity Investment Group
Holdings Limited, is a Director of Holmes Group
Limited, Holmes GP Fire Limited and Trust
Investments Management Limited, and is a
former director of Argosy Property Limited.
In addition, Andrew is a past National President
of the Property Council of New Zealand, a
fellow of the New Zealand Property Institute,
and a government appointee to the Land
Valuation Tribunal (Waikato No.1). He is a
Chartered Fellow of the Institute of Directors of
New Zealand and is on the Auckland Branch
Committee.
Andrew has a Bachelor of Business Studies and
MBA (with distinctions) from Massey University
and a Diploma in Finance from Auckland
University.
PAUL DALLA LANA
Director
Paul Dalla Lana is the founder and Chief
Executive Officer of North
West Healthcare
P
roperties REIT – the 100% owner of NorthWest
Healthcare Properties Management Limited, the
Manager of Vital Healthcare Property Trust.
Over the past 25 years, Paul has led NorthWest
in the acquisition and development of over
$7.0 billion worth of real estate transactions, with
a significant focus on healthcare properties.
Prior to founding NorthWest, Paul was a
professional in the Real Estate Capital Markets
Group of Citibank, N.A. and an economist with
B.C. Central Credit Union. Paul received his BA
(Economics) and his MBA (Finance and Real
Estate) from The University of British Columbia.
Paul serves as Chairman of the Board of
NorthWest Healthcare Properties REIT.
Additionally, he is actively involved in
addressing public health and education issues in
Canada and around the world. He is an
Advisory Board member of the Dalla Lana
School of Public Health and on the President’s
Advisory Council at the University of Toronto.
43
Directors are based
in Auckland, Toronto
and Melbourne.
Their current and
prior executive
experience includes
healthcare, property,
legal and finance.
DR MICHAEL STANFORD
Independent Director
Michael Stanford is an experienced Non-
Executive Director (“NED”) and health ser
vices
advisor having moved into NED roles following
a distinguished 30 year senior e
xecutive career
in the health care sector, including 23 years in
Group Chief Executive Officer roles across the
private and public health sectors.
His current Board roles include:
Virtus Health (ASX:VRT), the market leading
provider of Assisted Reproductive Services in
Australia, Ireland and Denmark, with a growing
presence in the UK and Singapore; and
Nucleus Networks, the first global, multi-site,
early phase clinical trial organisation with
facilities in Australia and the USA. Nucleus
Networks is owned by the private equity group
Crescent Capital Partners.
In the last 3 years Michael’s other Board roles
have been with Healthscope (ASX:HSO),
Australia’s second largest hospital group with 43
facilities, which was acquired by Brookfield
Private Equity in June 2019, and Australian
Clinical Laboratories, Australia’s third largest
diagnostic services provider (private equity
owned).
In 2018 Michael was awarded a Member of
the Order of Australia for significant service to
the health sector through executive roles, to
tertiary education and the WA community. In
2010 he received the WA Citizen of the Year
Award – Industry and Commerce category.
GRAHAM STUART
Independent Director
Graham Stuart is an experienced corporate
director with an established track record of
performance in governance and in prior
e
xecutive roles. He is currently the Independent
Chairman of EROAD Limited and an
Independent Director and Chair of the Audit
Committee at Tower, and an Independent
Director of Metro P
erformance Glass. He served
for 7 years as the Chief Executive Officer of
Sealord Group and prior to that was Director,
Strategy and Growth and Chief Financial
Officer of Fonterra Co-operative Group.
Graham is a Fellow of Chartered Accountants
Australia & New Zealand (CAANZ). Graham
has a Masters of Science from Massachusetts
Institute of Technology and a Bachelor of
Commerce with first class honours from the
University of Otago.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
44 GOVERNANCE AND MANAGEMENT
Our Executive Team
Vital's executive team comprises real estate professionals with
extensive e
xperience in New Zealand, Australia and beyond.
AARON HOCKLY
Fund Manager – Vital Healthcare
P
roperty Trust
Aaron Hockly returned to New Zealand in 2018
after 17 years in senior management and
advisory roles in Australia. He has an e
xtensive
property, funds management and legal
background with his last role in Australia being
the Chief Operating Officer for Growthpoint
Properties Australia. Growthpoint is a A$4.1bn
ASX listed real estate investment trust with a
portfolio of quality office and industrial
properties. At Growthpoint Aaron had direct
management responsibility for strategy,
transaction structuring and execution (property,
debt and equity), reporting and investor
relations.
Among other qualifications, Aaron has a
Masters in Applied Finance and a BA/LLB from
the University of Auckland. He is a Fellow of
both Governance New Zealand and the
Financial Services Institute of Australasia
(FINSIA).
MICHAEL GROTH
Chief Financial
Officer
Michael Groth is a qualified Chartered
Accountant, has over thirteen years’ experience
in senior
finance roles in the listed and unlisted
property funds and funds management industry.
His most recent role has been as the Group
Chief Financial Officer of the Melbourne based
and ASX listed APN Property Group Limited
(APN). APN is a specialist real estate investment
manager currently managing 2 ASX listed and
10 unlisted funds, with total Funds under
Management of A$2.8bn.
Michael has over 5 years’ experience in
healthcare property funds management through
his involvement with Generation Healthcare
REIT, which was in the APN stable of funds
before it was privatised and delisted from the
ASX.
CHRIS ADAMS
Executive Director - Developments
Chris Adams has e
xtensive experience in the
property industry in Australia, New Zealand and
the United Kingdom, including over 20 years'
experience in health sector property acquisitions,
transaction structuring and large scale hospital
de
velopment.
Responsibilities with respect to NorthWest
include overseeing development management
and joint responsibility for acquisitions
undertaken by the business. Chris was one of the
founding Executives at Generation Healthcare
REIT (now NorthWest Healthcare Properties
Australia REIT).
Prior to joining Generation, Chris established
Vital Health Care’s presence in Australia in 1999
and served as General Manager – Australia
following various roles with the group in New
Zealand. Chris holds a Bachelor of Property
from Auckland University.
.
45
NorthWest has over
250 employees globally
including over 40 real
estate professionals in
New Zealand and
Australia.
RICHARD ROOS
Executive Director - Port
folio
Richard Roos moved to Melbourne with his
family to join Vital seven years ago after
spending the pre
vious six years in a senior
executive role with NorthWest Healthcare
Properties REIT in Canada. He has over 25
years of career experience in commercial real
estate financing, acquisitions and property
management.
In his role as Executive Director, Richard is
responsible along with his Melbourne based
team for the asset management of the Australian
and New Zealand portfolio, including
acquisitions, development, leasing and tenant
relationships.
VANESSA FLAX
Regional General Counsel A/NZ
and Company Secretary
Vanessa Flax joined the team on 1 May 2019,
prior to which she was a special counsel at
Ashurst Australia. Vanessa has 2
5 years of deep
and broad ranging property law e
xperience in
Australia and New Zealand, including acting
(for approximately 15 years) for Vital and
NorthWest. Vanessa's experience covers all
aspects of real property transactions, including
acquisitions, divestments and sales, leasing and
Crown leasing, development transactions and
due diligence.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
46 GOVERNANCE AND MANAGEMENT
Corporate
G
o
vernance
THE TRUST AND SUPERVISOR
Vital Healthcare Property Trust (Vital) was originally established as a unit
trust established under the Unit Trust Act 1
960 by a Trust Deed dated
11 February 1994 as subsequently amended and replaced. Vital became
a registered managed investment scheme under the Financial Markets
Conduct Act 2013 on 29 November 2016. Vital units are listed on the
NZX Main Board (NZX code: VHP).
The Supervisor of Vital is Trustees Executors Limited. The Supervisor is
required to be licensed by the FMA under the Financial Markets
Supervisors Act 2011 to act as a trustee of a managed investment scheme.
The Supervisor’s role is to supervise the administration and management of
Vital in accordance with the Trust Deed, and to ensure the Manager
complies with its duties and responsibilities under the Trust Deed.
The Supervisor holds title to the New Zealand assets and units in the
Australian based trusts of Vital in trust for the unitholders, subject to the
terms and conditions of the Trust Deed. The Supervisor also has certain
discretions and powers to approve investment and divestment proposals
recommended to it by the Manager and reviews and authorises all
payments made by Vital.
THE MANAGER
The Manager of Vital is NorthWest Healthcare Properties Management
Limited, a wholly owned subsidiary of NorthWest Healthcare Properties
REIT (NWH REIT). The Manager has responsibility for the management of
Vital in accordance with the Trust Deed.
The Manager’s responsibilities include the day-to-day management of
Vital’s portfolio of properties and assets, negotiating the acquisition and
disposal of assets, development and construction planning and
management, treasury and funding management, ensuring Vital meets its
financial, reporting and other statutory and regulatory obligations and
communicating with unitholders and the market.
Vital does not engage or employ any directors or employees of its own.
The Manager provides a highly experienced and diverse range of
professionals with expertise across a range of areas.
CODE OF CONDUCT
All directors and employees of the Manager must abide by the
Manager’s Code of Conduct. The Manager recognises the importance of
a work environment which actively promotes best practice and does not
compromise business ethics or principles. The purpose of the Code of
Conduct is to uphold the highest ethical standards, acting in good faith
and in the best interests of unitholders at all times. The Code of Conduct
outlines the Manager’s policies in respect of conflicts of interest, fair
dealing, compliance with applicable laws and regulations, maintaining
confidentiality of information, dealing with Vital’s assets and use of Vital’s
information.
The policy provides a practical set of guiding principles and operates in
conjunction with other policies relating to minimum standards of behaviour
and conduct.
Compliance with this policy is a condition of employment with the
Manager. The policy can be found on Vital’s website www.vhpt.co.nz.
JOINT INVESTMENT POLICY
Under the terms of the Joint Investment P
olicy which applies to NWH REIT
and its owned and controlled entities (including the Manager), an
Investment Committee has been established to avoid, manage and
resolve actual or perceived conflicts of interests between members of the
NWH REIT group in a manner which complies with any relevant legal
obligations and is equitable to each party. The Joint Investment Policy can
be found on Vital’s website: www.vhpt.co.nz.
THE BOARD OF DIRECTORS
The role of the Board of Directors is to set the strategic direction of Vital
and to support management in monitoring the delivery of this against
specific performance objectives. The Board also ensures, all business risks
are appropriately identified and managed and, compliance with all
applicable regulatory, statutory, financial, health and safety and social
responsibilities of the Manager.
Board Composition
The Manager is committed to having an effective Board providing a
balance of independent skills, knowledge, experience and perspectives.
The Constitution of the Manager provides for there to be not more than
seven directors, nor less than three Directors. All Directors bring a
significant breadth and depth of expertise and have the composite skills to
optimise the financial and portfolio performance of Vital and returns to
unitholders.
Attendance at Board
Meetings
Eligible to
Attend / AttendedDate of Appointment
Bernard Crotty
(Chair)
9 / 9
16 January 2012
(Appointed Chair 1 April
20
1
9)
Andrew Evans9 / 920 August 2007
Paul Dalla Lana9 / 916 January 2012
Michael Stanford6 / 619 November 2019
Graham Stuart9 / 912 November 2018
The Board does not impose a restriction on the tenure of any Director as it
considers such a restriction may lead to the loss of experience and
e
xpertise.
Appointment
Unitholders have the opportunity to appoint two of the Independent
Directors of the Manager. Unitholders are able to nominate and vote on
one Independent Director of the Manager each year. The nominee
receiving the most votes will be approved as a director of the Manager
by the Manager’s shareholders, and will hold the position for a two year
term.
As the Manager is a wholly owned subsidiary of NWH REIT, appointment
of other directors is made by NWH REIT.
47
The terms of a director’s appointment are contained within the Board
Charter
. The purpose of the Charter is to set out the role, composition and
responsibilities of the Board, and how its powers and responsibilities will
be e
xercised and discharged. The Charter reaffirms directors must comply
with their duties as set out in the Companies Act 1993, including to act in
good faith, together with other duties which include (but are not limited to)
conducting themselves in an appropriate manner. The Charter can be
found on Vital’s website www.vhpt.co.nz.
The table below shows all relevant interests of Directors in units, which
include legal and beneficial interests in Vital units.
Holdings (number of
units) non-beneficial
Holdings (number of
units) beneficial
Andrew Evans54,723489,485
Paul Dalla Lana
1
112,743,175
Bernard Crotty
Michael Stanford
Graham Stuart
1 Paul Dalla Lana is the founder, Chairman, CEO, Trustee and largest unitholder of NorthWest
Healthcare Properties Real Estate Investment Trust (a trust organised under the laws of
Ontario, Canada, Corporation). North
West Healthcare Properties Real Estate Investment
Trust directly or indirectly holds approximately 112.4 million units in Vital Healthcare Property
Trust, which Mr Dalla Lana is considered to have a relevant interest in. Mr Bernard Crotty is
President and Trustee of NorthWest Healthcare Properties Real Estate Investment Trust, but is
not considered to have a relevant interest in its units in Vital.
Independent Directors
The Manager recognises that Independent Directors are important in
assuring unitholders that the Board is properly fulfilling its role and is
diligent in holding management accountable for its performance. The
procedures in place for determining independence is whether the director
is independent of management and free of any business or other
relationship which could materially interfere with, or could reasonably be
perceived to materially interfere with, the exercise of their unfettered and
independent judgement.
Biographies of each Board member including their skills, e
xperience and
expertise are included in the Board of Directors section on pages 42-43.
Diversity
At a Board level, diversity of experience is critical to ensure a healthy
exchange of ideas and opinions to deliver higher quality decision making
and outcomes. All Board appointments are always based on merit and
diversity (including gender and ethnicity).
Healthcare real estate is a specialised sector and the Board believes it is
important to have members with a diverse range of backgrounds, skills
and experience to ensure robust discussion. It is also important to balance
skills and knowledge gained through length of tenure and the value of
fresh ideas in decision-making. The table below summarises the skills,
e
xperience and length of ser
vice of the current Board.
A majority of the directors are members of professional organisations such
as the Institute of Directors (or equivalent) or other industry specific and
relevant organisations which support the ongoing education and training
of professional directors.
Chair
At the financial year end and at the date of this report, Bernard Crotty is
Chair of the Manager. Bernard's role as Chair is to provide leadership to
the Board of Directors and as Chair he is accountable to the Board.
The Manager has announced that at an appropriate time prior to the
2020 annual meeting, one of the Independent Directors will replace Mr.
Crotty as Chair of the Manager.
AUDIT COMMITTEE
The Audit Committee is responsible for overseeing the financial and
accounting responsibilities of Vital. The minimum number of members on
the Audit Committee is three members who must be directors. The majority
of members must be Independent Directors and at least one member must
have an accounting or financial background.
The Audit Committee Charter is available on Vital’s website
www.vhpt.co.nz.
The members of the Audit Committee are Graham Stuart (Chair), Andrew
Evans and Bernard Crotty
The Audit Committee assists the Board in fulfilling its corporate governance
and disclosure responsibilities with particular reference to financial matters,
and internal and external audit, and is specifically responsible for:
•Recommending to the Board the appointment/ removal of Vital’s
external auditor
•Supervising and monitoring external audit requirements
Attendance at Audit
Committee
Eligible to Attend /
AttendedDate of Appointment
Andrew Evans4 / 414 November 2011
Bernard Crotty4 / 416 January 2012
Graham Stuart (chair)4 / 49 May 2019
Directors and Officers have a standing invitation to attend Audit
Committee meetings. Employees may attend on an invitation basis only
Skills & ExperienceAndrew EvansBernard CrottyPaul Dalla LanaGraham StuartMichael Stanford
Accounting / finance / economics●●●●●
Commercial real estate / asset management /
valuation
●●●●
Corporate governance●●●●●
Legal / regulatory●●
International business●●●●●
Healthcare practitioner●
Tenure (years)138.58.51.70.7
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
48 GOVERNANCE AND MANAGEMENT
CONTINUOUS DISCLOSURE
It is important that the market and investors feel confident in the timing or
manner of any buying or selling of Vital units. As a NZX issuer, the
Manager is acutely aware of the need to ensure the market, investors and
regulators remain fully informed of any material or price sensitive
information relevant to Vital. The Board and all management employees
are aware of the NZX Continuous Disclosure requirements and Vital has
internal procedures in place to ensure compliance.
SUSTAINABILITY
F
rom a sustainability perspective, the Board is conscious that an
awareness of an organisation’s impact on the environment over and
above its financial performance is important to investors. The Board
acknowledges this and wherever possible, actively looks to encourage
environmentally sustainable behaviour from its staff (through paper and
waste recycling), investors (greater use of electronic communications) and
key partners (recommending environmentally sustainable practices for
brownfield projects).
COMMUNITY / SOCIAL RESPONSIBILITY
The Board and the Manager recognise that engaging with investors
means more than just measuring traditional financial performance or
shareholder returns. As part of its corporate and social responsibility
programme, the Manager has a charity and sponsorship committee which
aims to support its employees and the communities in which it operates.
These provide two types of sponsorships as follows:
•eligible employees are entitled to take one day per year paid leave to
participate in company sponsored charity activities, or individual charity
activities as approved by the Charity Committee; and
•an individual employee may request sponsorship for healthcare related
charity events in which they participate.
Organisations which have benefitted from this support include Oxfam, the
Child Cancer Foundation, Breast Cancer Foundation, Canteen, the
Epworth Foundation and the Keystone Trust.
On 23 January 2020 Vital and the Manager jointly donated $25,000
($12,500 each) to the St Vincent de Paul Society (Vinnies) Bushfire
Appeal in response to the devastating bushfires across Australia.
MANAGER'S REMUNERATION
The basis on which the Manager is entitled to receive management fees
and incentive fees is stipulated in the Trust Deed which was amended
following an annual meeting on 31 October 2019.
Base management fees are charged at:
•0.65% per annum of the monthly average of the gross value of the
assets of the Trust up to $1 billion,
•0.55% per annum of the monthly average of the gross value of the
assets of the Trust between $1 billion and $2 billion,
•0.45% per annum of the monthly average of the gross value of the
assets of the Trust between $2 billion and $3 billion, and
•0.40% per annum of the monthly average of the gross value of the
assets of the Trust over $3 billion
Activity services and activity fees are charged based on the following
categories:
a) Leasing
Vital pays the Manager leasing fees where the Manager has negotiated
leases instead of or alongside a real estate agent. Consistent with general
market rates, these fees are charged at 11% of the annual rental for terms
of 3 years or less (to a minimum of $2,500),
12% of the annual rental for terms of 3 years, and 12% plus an additional
1% for each year greater than three years (to a maximum of 20%).
Lease renewals are charged at 50% of a new lease.
Structured rent re
views or market re
views which do not result in a rental
increase are charged an administration fee of $1,000. Open market
reviews are charged at 10% of the rental increase achieved in the first
year.
Leasing fees are capitalised to the respective investment or development
property in the Statement of Financial Position and amortised over the term
of the life of the lease.
b) Property management
Vital pays the Manager property management fees where the Manager
acts as the property manager instead of or alongside a real estate agent.
These fees are charged at 1% - 2% of gross income depending on the
type of property. These fees are expensed through direct operating
expenses in the year in which they arise.
c) Facilities management
Vital pays a facilities management fee on a cost recovery basis to the
Manager. These fees are expensed through direct operating expenses in
the year in which they arise.
d) Acquisitions
Vital pays fees to the Manager for managing the due diligence, financing,
legal aspects and settlement of the purchase of properties instead of or
alongside a real estate agent. These fees are charged at 1.5% of the
purchase price. Acquisition fees are capitalised to the respective
investment or development property in the Statement of Financial Position.
e) Development management
Vital pays development management fees where the Manager acts as a
development manager on Vital developments. These fees are charged at
4% of the committed spend, exclusive of land. Development management
fees are capitalised to the respective investment or development property
in the Statement of Financial Position.
f) Project management
Vital pays project management fees to the Manager for managing capital
expenditure projects, instead of engaging an external project manager.
These fees are charged at 2% of the committed spend where the
Manager is the project lead and 1% of committed spend where the
Manager has an oversight role. Project management fees are capitalised
to the respective property in the Statement of Financial Position.
Incentive Fee
The incentive fee is an amount equal to 10% of the average annual
increase in the Net Tangible Assets of Vital over the relevant financial year
and two preceding financial years subject to a three year high-water
mark.
The Manager and the Supervisor are both entitled to be reimbursed out of
the Trust Fund for all expenses, costs or liabilities incurred by them
respectively in acting as Manager and Supervisor.
Supervisor’s Remuneration
The Supervisor is entitled to receive fees in respect of its services based on
the average gross value of the assets of Vital as follows: 0.10% per annum
on the first $100m, then 0.08% per annum on the next $25m, then 0.05%
per annum on the next $25m and 0.03% per annum on any amount over
$151m. The Supervisor is also entitled to reasonable reimbursement for
special attendances.
49
Directors Remuneration
The basis for directors’ fees is set out in the Board Charter which seeks to
pay market le
vel remuneration which is fair and reasonable. The Manager
belie
ves it is important to attract and retain high quality directors who can
bring a valuable and diverse set of skills and experience to the Trust.
Insurance and Indemnities
In accordance with the Board Charter, the Manager has provided
insurance and indemnities to its directors and officers for any liability /
losses arising in respect of actions or omissions occurring during the
normal carrying out of their duties.
RISK MANAGEMENT
The Board of Directors maintains a sound understanding of key risks faced
by Vital. Effective management of all financial and non-financial risks is
fundamental to the delivery of the Board’s strategy.
As part of its framework, the Board and Audit Committee work closely with
Management and external auditors to support the identification,
management and reporting of certain financial and non-financial risks to
Vital. In addition, the Manager will engage other external advisers as
appropriate to deal with specific risks.
Vital and the Manager have a risk management framework which is
integrated into day-to-day operations. This is part of Vital’s overall
compliance assurance programme which is audited on an annual basis
with risk groups reviewed annually.
SECURITY TRADING POLICY
The Manager’s directors, officers and employees, their families and
related parties must comply with the Security Trading Policy. The Manager
is committed to ensuring compliance with legal and regulatory
requirements with respect to insider trading and restricted persons trading.
To assist with such compliance, the Manager’s Security Trading Policy
identifies circumstances where directors, officers and other restricted
persons are permitted to trade or are prohibited from trading, units in Vital.
Compliance with these policies is monitored by the Board. In addition, all
trading by directors and officers of the Manager is required to be
reported to NZX in accordance with the Financial Markets Conduct Act
2013. The holdings of directors of the Manager are disclosed on page
47.
The Manager’s Securities Trading Policy is available on Vital’s website
www.vhpt.co.nz.
HEALTH AND SAFETY
The directors and Manager are committed to ensuring that as far as
practical, a safe and healthy working environment is provided for all
employees, tenants, contractors and others who may visit our properties.
The Trust’s Health & Safety policy aims to reflect this commitment. Vital and
the Manager have implemented site specific hazard registers in New
Zealand which can be updated in real time and similar processes apply in
Australia. The Manager has implemented an Operational Risk and
Compliance Committee which meets on a regular basis and a standing
agenda item is Health and Safety.
EXTERNAL AUDITORS
The Audit Committee Charter sets out the procedures to be followed to
ensure the independence of the Trust’s external auditor.
The Audit Committee is responsible for recommending the appointment of
the external auditor and maintaining procedures for the rotation of the
external audit engagement partner. Under the Audit Committee Charter,
the external audit engagement partner must be rotated at least every five
years.
The Audit Committee Charter covers provision of non-audit ser
vices with
the general principle being that the e
xternal auditor should not have any
involvement in the production of financial information or preparation of
financial statements such that they might be perceived to be auditing their
own work. It is however appropriate for the external auditor to provide
services of due diligence on proposed transactions and accounting policy
advice.
To maximise the effectiveness of communication at the Annual Meeting,
the Manager also requires its external auditors to attend the meeting and
be prepared to answer unitholders’ questions about the conduct of the
audit, as well as the preparation and content of the independent auditor’s
report.
Vital undertakes an annual audit engagement with its external auditor. As
part of the process the Audit Committee identifies any key areas of focus
and reporting required of the auditors. Management is required to attend
the meeting to discuss the findings of the report and respond to queries.
Any recommendations for improvement are discussed and management is
required to agree a timetable for the implementation of the changes.
Following careful consideration and recommendation from the Audit
Committee, the Board appointed the firm of Deloitte as the Trust’s statutory
auditor.
The firm of KPMG has been appointed as the auditor of the Manager.
COMMUNICATION WITH UNITHOLDERS
A key focus of investor relations is to ensure the market and investors are
informed of all details necessary to assess their investment and Vital’s
performance as specified by NZX Listing Rules.
The Board aims to foster constructive communications and encourages all
stakeholders to engage with Vital.
A key element of corporate communication is the Trust’s website at
www.vhpt.co.nz. The website enables all existing and potential unitholders
to view information including: an overview of the business and corporate
structure, a history of financial and investment performance, key calendar
dates and the ability to access and download all NZX announcements,
presentations and investor forms.
The website also includes key corporate governance documents including
the Board Charter, Statement of Investment Policies and Objectives (SIPO)
and other key policy documentation.
The Manager also actively encourages engagement through a
communication strategy which includes:
•The Annual Meeting for the unitholders to meet with and ask questions
of the Board, the Supervisor, management and external auditors
•Any other meetings called to obtain approval for the Manager’s action
as appropriate
•Results webcasting providing all investors with the ability to listen and
ask questions of Management
•Various investor communications including Annual and Interim Report
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
0
Financial Statements
Consolidated Statement of Comprehensive IncomeFIN-1
Consolidated Statement of Financial PositionFIN-2
Consolidated Statement of Changes in EquityFIN-3
Consolidated Statement of Cash FlowsFIN-4
Notes to the Consolidated Financial StatementsFIN-5
ABOUT THIS REPORTFIN-5
1Reporting EntityFIN-5
2Basis of PreparationFIN-5
3Significant Accounting PoliciesFIN-6
PERFORMANCEFIN-7
4Segment InformationFIN-7
5TaxationFIN-8
6Investment PropertiesFIN-10
7Other Income and ExpensesFIN-15
CAPITAL STRUCTURE , FINANCING AND RISK MANAGEMENTFIN-16
8Units on IssueFIN-16
9Earnings per UnitFIN-17
10Distributable IncomeFIN-17
11BorrowingsFIN-18
12Lease LiabilitiesFIN-19
13DerivativesFIN-20
14Financial and Risk ManagementFIN-21
15Commitments and ContingenciesFIN-26
EFFICIENCY OF OPERATIONSFIN-27
16Statement of Cash Flows Reconciliation from Operating ActivitiesFIN-27
17Trade and Other ReceivablesFIN-28
18Other AssetsFIN-28
19Trade and Other PayablesFIN-29
OTHER NOTESFIN-30
20Investment in SubsidiariesFIN-30
21Subsequent EventsFIN-30
22Related Party TransactionsFIN-31
Independent Auditor's Report85
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 20
20
Note
2020
$000s
2019
$000s
Gross property income from rentals103,306101,052
Gross property income from expense recoveries11,11310,321
Property expenses(14,272)(13,690)
Net property income4100,14797,683
Other income and expenses7(23,268)(29,505)
Net strategic transaction expenses22(7,764)(4,273)
Strategic transaction interest income222682,672
Finance income66123
Finance expense11(28,317)(32,665)
Operating profit41,13234,035
Other gains/(losses)
Revaluation gain on investment property645,703103,556
Fair value gain/(loss) on foreign exchange derivatives(75)102
Fair value gain/(loss) on interest rate derivatives(13,456)(36,314)
Realised gain/(loss) on foreign exchange(6)5,447
Unrealised gain/(loss) on foreign exchange(2,997)207
29,16972,998
Profit before income tax70,301107,033
Taxation expense5(12,175)(13,611)
Profit for the year attributable to unitholders of the Trust58,12693,422
Other comprehensive income
Items that may be reclassified subsequently to profit and loss:
Movement in foreign currency translation reserve20,319(38,411)
Realised foreign exchange gain/(loss) on hedges-4,633
Current taxation (expense)/credit-(1,297)
Fair value gain/(loss) on net investment hedges(2,940)5,548
Deferred taxation (expense)/credit823(1,553)
Total other comprehensive income/(loss) after tax18,202(31,080)
Total comprehensive income after tax76,32862,342
Earnings per unit
Basic and diluted earnings per unit (cents)912.8721.07
The notes on pages FIN 5 to FIN 34 form part of and are to be read in conjunction with these financial statements.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-2
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
Note
2020
$000s
20
19
$000s
Non-current assets
Investment properties62,086,3091,836,430
Other non-current assets756793
Deferred tax56,792-
Total non-current assets2,093,8571,837,223
Current assets
Cash and cash equivalents165,2656,068
Trade and other receivables175,2021,300
Other current assets1885286,875
Derivative financial instruments134277
Total current assets11,36194,320
Total assets2,105,2181,931,543
Unitholders' funds
Units on issue8594,752576,300
Reserves(3,869)(16,469)
Retained earnings488,096469,914
Total unitholders' funds1,078,9791,029,745
Non-current liabilities
Borrowings11699,527734,211
Lease liability - ground lease123,675-
Other payables1910,268-
Derivative financial instruments1363,23849,436
Deferred tax5104,15090,867
Total non-current liabilities880,858874,514
Current liabilities
Trade and other payables1919,00213,815
Income in advance870652
Derivative financial instruments13232540
Lease liability - ground lease12136-
Taxation payable11,15312,277
Borrowings11113,988-
Total current liabilities145,38127,284
Total liabilities1,026,239901,798
Total unitholders' funds and liabilities2,105,2181,931,543
For and on behalf of the Manager, NorthWest Healthcare Properties Management Limited.
B Crotty, Chairman
10 August 20
20
G Stuart, Director
The notes on pages FIN 5 to FIN 34 form part of and are to be read in conjunction with these financial statements.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 20
20
Units on issue
$000s
Retained
earnings
$000s
Translation
of foreign
operations
$000s
Foreign
e
xchange
hedges
$000s
Share based
payments
$000s
Total
unitholders'
funds
$000s
For the year ended
30 June 201
9
Balance at the start of the period556,878415,469(54,911)57,44513,095987,976
Changes in unitholders' funds19,422---(13,095)6,327
Manager's incentive fee----12,07712,077
Profit for the period-93,422---93,422
Distributions to unitholders-(38,977)---(38,977)
Other comprehensive income for
the period
Movement in foreign currency
translation reser
ve--
(38,411)--(38,411)
Realised foreign exchange gains
on hedges---3,336-3,336
Fair value gains on net investment
hedges---3,995-3,995
Balance at the end of the year576,300469,914(93,322)64,77612,0771,029,745
For the year ended
30 June 2020
Balance at the start of the period576,300469,914(93,322)64,77612,0771,029,745
Changes in unitholders' funds18,452---(12,077)6,375
Manager's incentive fee----6,4756,475
Profit for the period-58,126---58,126
Distributions to unitholders-(39,944)---(39,944)
Other comprehensive income for
the period
Movement in foreign currency
translation reser
ve--
20,319--20,319
Fair value gains on net investment
hedges---(2,117)-(2,117)
Balance at the end of the year594,752488,096(73,003)62,6596,4751,078,979
The notes on pages FIN 5 to FIN 34 form part of and are to be read in conjunction with these financial statements.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-4
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 20
20
Note
2020
$000s
2019
$000s
Cash flows from operating activities
Property income99,16599,324
Recovery of property expenses11,65110,028
Interest received66123
Property expenses(13,051)(15,169)
Management and trustee fees(14,464)(13,250)
Interest paid(27,795)(32,041)
Tax (paid)(9,681)(5,717)
Tax received1,212-
Other trust expenses(2,667)(2,684)
Net cash provided by/(used in) operating activities1644,43640,614
Cash flows from in
v
esting activities
Receipts from foreign exchange derivatives1825,183
Capital additions on investment properties(84,929)(36,183)
Purchase of properties(65,261)(23,469)
Prepaid transaction costs(59)(127)
Disposal of properties64-
Repayment of loan provided to related parties84,495-
Advances provided to related parties-(42,400)
Payments for foreign exchange derivatives(190)-
Strategic transaction expenses(5,427)-
Strategic transaction third party interest268(9,551)
Strategic transaction settlement-1,761
Strategic transaction interest income-2,955
Net cash provided by/(used in) investing activities(70,857)(101,831)
Cash flows from financing activities
Debt drawdown142,978118,401
Repayment of debt(83,382)(23,517)
Loan issue costs(409)(308)
Costs associated with Distribution Reinvestment Plan(58)(29)
Distributions paid to unitholders(33,511)(32,650)
Net cash from/(used in) financing activities25,61861,897
Net increase/(decrease) in cash and cash equivalents(803)680
Cash and cash equivalents at the beginning of the period6,0685,388
Cash and cash equivalents at the end of the year5,2656,068
The notes on pages FIN 5 to FIN 34 form part of and are to be read in conjunction with these financial statements.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ABOUT THIS REPORT
1 REPORTING ENTITY
Vital Healthcare Property Trust (“
VHP” or the “Trust”) is a unit trust established under the Unit Trusts Act 1960 by a Trust Deed dated 11 February 1994 (as
subsequently amended and replaced), domiciled in New Zealand, with its registered office at Level 16, AIG Building, 41 Shortland Street, Auckland.
The Trust is managed by NorthWest Healthcare Properties Management Limited (the “Manager”).
The consolidated financial statements of VHP for the year ended 30 June 2020 comprise VHP and its subsidiaries (together referred to as the “Group”).
VHP is listed on the New Zealand Stock Exchange (NZX) and is a FMC reporting entity for the purpose of the Financial Markets Conduct Act 2013. The
Group's principal activity is investment in high quality Health Sector related properties.
These consolidated financial statements were approved by the Board of Directors of the Manager on 10 August 2020.
2 BASIS OF PREPARATION
(a) Statement of compliance
These financial statements have been prepared in accordance with Generally Accepted Accounting P
ractice in New Zealand (NZ GAAP) and comply
with New Zealand equivalents to International F
inancial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as
appropriate for profit-oriented entities. Accordingly these financial statements comply with International Financial Reporting Standards (IFRS).
(b) Basis of consolidation
The Group’s financial statements incorporate the financial statements of the Trust and entities controlled by the Trust (its subsidiaries) as set out in Note
20. Control is achieved where the Trust has power over the investees; is exposed, or has rights, to variable returns from its involvement with the investees;
and has the ability to use its power to affect its returns. The results of subsidiaries are included in the consolidated financial statements from the date of
acquisition to the date of disposal. All significant intra-group transactions, balances, cashflows, income and expenses are eliminated on consolidation.
(c) Basis of measurement
The Group uses the historical cost basis except for derivative financial instruments and investment properties which are measured at fair value. Historical
cost is based on the fair value of the consideration given or received in exchange for assets or liabilities. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price
is directly observable or estimated using another valuation technique.
(d) Functional and presentation currency
These financial statements are presented in New Zealand Dollars ($), which is the Trust's functional and presentation currency. All information has been
rounded to the nearest thousand dollars ($000), unless stated otherwise.
In preparing the financial statements, transactions in currencies other than an entity’s functional currency (i.e. a foreign currency transaction) are recorded
at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, foreign currency denominated monetary items
are retranslated at the rate of exchange prevailing at that time. Exchange differences are recognised in profit or loss in the period in which they arise,
except for exchange differences on transactions entered into to hedge foreign currency exposure.
The assets and liabilities of the Group’s foreign operations are translated to New Zealand Dollars using exchange rates prevailing at the end of the
reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are
recognised in other comprehensive income and the foreign currency translation reserve.
(e) Changes in accounting policy and presentation
The Group has adopted NZ IFRS16 Leases for the first time during this reporting period. This standard eliminates the distinction between operating and
finance leases for lessees (refer Note 6 for further details). All other accounting policies have been applied on a basis consistent with the prior year's
financial statements. Where necessary, comparative figures have been adjusted to conform with changes in presentation in these financial statements.
(f) Standards and Interpretations in issue not yet effective
At the date of authorisation of the financial statements the following standards and interpretations were in issue but not yet effective:
•Amendments to NZ IFRS 3, Definition of a business, effective for accounting periods beginning on or after 1 January 2020;
•Amendments to NZ IAS 1 and NZ IAS 8, Definition of material, effective for accounting periods beginning on or after 1 January 2020;
•Amendments to NZ IFRS 9, NZ IAS 39 and NZ IFRS 7, Interest rate benchmark reform, effective for accounting periods beginning on or after
1 January 2020; and
•Amendment to NZ IAS 1, Classification of Liabilities as Current and Non-current, effective for accounting periods beginning on or after
1 January 2022.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(g) Other accounting policies
Significant accounting policies that summarise the measurement basis used and are relevant to an understanding of the consolidated
financial statements
are provided throughout the notes to the consolidated financial statements.
(h) Impact of COVID-19
In March 2020 the World Health Organisation declared the outbreak of a novel coronavirus ('COVID-19') as a pandemic, which has now spread
throughout New Zealand, Australia, and the world. Governments in New Zealand and Australia responded with lock-downs, business trading
restrictions and social distancing measures all of which have impacted large parts of the economy, including the ability for the Group's tenants to operate
on a business as usual basis.
In response to these challenging economic conditions it has been necessary to support some tenants with rent abatement and/or rent deferral
arrangements. Accordingly, trade receivables outstanding at the reporting date are elevated and loss allowances have been made. While Government
restrictions have recently been relaxed, as at the reporting date, businesses have not fully returned to normal operations and accordingly there is less
certainty as to the recoverability of all outstanding trade receivables (refer Note 17 for further details).
COVID-19 has also potentially impacted the previous market evidence used by independent valuers to inform assumptions and opinions that determine
the fair value of investment property. Accordingly less certainty and a higher degree of caution is recommended in respect to the fair values of the
Group's investment property as at the reporting date (refer Note 6 for further details).
There remains a risk of a COVID-19 second wave that would likely adversely impact the viability of the Group's tenants and therefore potentially the
operating performance and financial position of the Group.
(i) The notes to the consolidated financial statements
The following notes include information required to understand these financial statements that is relevant and material to the operations, financial position
and performance of the Group. The notes have been collated into sections to help users find and understand inter-related information. Information is
considered material and relevant if, for example:
•the amount in question is significant by virtue of its size or nature;
•it is important to understand the results of the Group;
•it helps explain the impact of significant changes in the Group's business; or
•it relates to an aspect of the Group's operations that is important to its future performance.
3 SIGNIFICANT ACCOUNTING POLICIES
Critical accounting estimates and judgements
In the application of NZ IFRS, the Board and management are required to make judgements, estimates and assumptions about carrying values of assets
and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on e
xperience and other factors
that are belie
ved to be reasonable under the circumstances, however actual results may differ from these estimates and assumptions.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
The critical judgements, estimates and assumptions made in the current period are contained in the following notes:
NoteDescription
Note 5Current and deferred taxation
Note 6Valuation of investment properties
Note 22Related party transactions
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PERFORMANCE
This section shows the results and performance of the Group and its reporting segments and includes detailed information in respect to its revenues,
e
xpenses and profitability. It also provides information on the investment properties that underpin the Group's performance.
4 SEGMENT INFORMATION
The principal business activity of the Group is to invest in Health Sector related properties. Segment profit represents the profit earned by each segment
including allocation of identifiable administration costs, finance costs, revaluation gains/(losses) on investment properties, and gains/(losses) on
disposal of investment properties. This is the measure reported to the Board, who are the chief operating decision makers for the purposes of resource
allocation and assessment of segment performance. The Group operates in both Australia and New Zealand.
The following is an analysis of the Group’
s results by reportable segment.
Australia
$000s
New Zealand
$000s
Total
$000s
Segment profit/(loss) for the year ended 30 June 2020:
Gross property income from rentals77,84125,465103,306
Gross property income from expense recoveries5,0156,09811,113
Property expenses(7,756)(6,516)(14,272)
Net property income75,10025,047100,147
Other expenses(11,256)(12,012)(23,268)
Net strategic transaction expenses(648)(7,116)(7,764)
Strategic transaction interest income268-268
Net finance e
xpense(9,8
25)(18,426)(28,251)
53,639(12,507)41,132
Fair value gain/(loss) on interest rate derivatives-(13,456)(13,456)
Revaluation gains on investment properties38,7856,91845,703
Other foreign exchange gains/(losses)-(3,078)(3,078)
Total segment profit before income tax92,424(22,123)70,301
Taxation expense(12,175)
Profit for the year58,126
Segment profit/(loss) for the year ended 30 June 20
1
9:
Gross property income from rentals75,28225,770101,052
Gross property income from expense recoveries5,0015,32010,321
Property expenses(7,069)(6,621)(13,690)
Net property income73,21424,46997,683
Other expenses(12,125)(17,380)(29,505)
Net strategic transaction expenses(4,273)-(4,273)
Strategic transaction interest income2,672-2,672
Net finance e
xpense(1
9,685)(12,857)(32,542)
39,803(5,768)34,035
Fair value gain/(loss) on interest rate derivatives-(36,314)(36,314)
Revaluation gains on investment properties80,36323,193103,556
Other foreign exchange gains/(losses)(1)5,7575,756
Total segment profit before income tax120,165(13,132)107,033
Taxation expense(13,611)
Profit for the year93,422
Net property income comprises rental income and expense recoveries from tenants less property expenses. The Group has two Australian tenants that
contributed $61
.7m of gross property income (2019: two Australian tenants that contributed $56.5m).
There were no inter-segment sales during the year (2019: nil).
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4 SEGMENT INFORMATION (continued)
Australia
$000s
New Zealand
$000s
Total
$000s
Segment assets at 30 June 2020:
Investment properties1,594,519491,7902,086,309
Other non-current assets6146,9347,548
Current assets8,6822,67911,361
Consolidated assets1,603,815501,4032,105,218
Segment assets at 30 June 2019:
Investment properties1,387,661448,7691,836,430
Other non-current assets284509793
Current assets90,9633,35794,320
Consolidated assets1,478,908452,6351,931,543
Segment liabilities at 30 June 2020:
Borrowings516,680296,835813,515
Other liabilities132,44380,281212,724
Consolidated liabilities649,123377,1161,026,239
Segment liabilities at 30 June 2019:
Borrowings466,093268,118734,211
Other liabilities105,98661,601167,587
Consolidated liabilities572,079329,719901,798
All assets and liabilities have been allocated to reportable segments.
5 TAXATION
Income tax recognised in the consolidated statement of comprehensive income
2020
$000s
20
19
$000s
Profit/(loss) before tax for the period70,301107,033
Taxation (charge)/credit - 28% on profit before income tax(19,684)(29,969)
Effect of different tax rates in foreign jurisdictions12,01516,043
Tax exempt income2,9807,013
Foreign tax credits4,9682,090
Tax charges on overseas investments(12,031)(9,932)
Over/(under) provided in prior periods39-
Other adjustments(462)1,144
Taxation (expense)/credit(12,175)(13,611)
The taxation (charge)/credit is made up as follows:
Current taxation(7,238)(7,572)
Deferred taxation(4,937)(6,039)
Total taxation (expense)(12,175)(13,611)
The key assumptions used in the preparation of the Group’s tax calculation are as follows:
Tax rate:
The Group's New Zealand entities are subject to New Zealand tax on assessable income at a rate of 28% while its Australian subsidiary trusts are
subject to Australian witholding tax on assessable income at a rate of 15% as they are currently considered Managed Investment Trusts (MIT) for
Australian tax purposes.
Attributable Foreign Investment Fund Income:
Distributions received by Vital Healthcare Property Limited from Vital Healthcare Australian Property Trust are no longer eligible for the foreign dividend
exemption provided by section CW 9 of the Income Tax Act 2007 and are therefore treated as a taxable distribution.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Deferred Tax balances
Interest rate
swaps
$000s
Revaluation
of inv
estment
properties
$000s
Borrowings
$000s
Other
$000s
Total
$000s
At 1 July 201913,982(97,123)(7,897)171(90,867)
Charge to profit and loss for the year3,768(8,756)-11(4,937)
Change in exchange rate-(2,382)-5(2,377)
Charge to other comprehensive income--823-823
At 30 June 202017,750(108,221)(7,074)187(97,358)
At 1 July 20183,814(84,940)(6,344)674(86,796)
Charge to profit and loss for the year10,168(15,716)-(491)(6,039)
Change in exchange rate-3,533-(12)3,521
Charge to other comprehensive income--(1,553)-(1,553)
At 30 June 201913,982(97,123)(7,897)171(90,867)
2020
$000s
2019
$000s
Deferred tax asset6,792-
Deferred tax liability(104,150)(90,867)
Total deferred tax(97,358)(90,867)
Imputation credits
2020
$000s
2019
$000s
Imputation (deficit)/credits at end of year(2,183)(1,146)
Recognition and measurement
Income tax comprises current and deferred tax for the Group. It is recognised in the consolidated profit or loss unless it relates to items recognised in
other comprehensive income, in which case the current or deferred tax is recognised in other comprehensive income.
Current tax
Current tax is the e
xpected tax payable on the taxable income of the Group for the
financial year, determined using tax rates enacted or substantively
enacted at the reporting date in the countries where the Group operates, and any adjustments to tax payable in respect of previous financial years.
Management periodically evaluates positions taken in tax returns where the applicable tax regulation is subject to interpretation and establishes
appropriate provisions on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is provided using the balance sheet liability method, recognising temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their amounts for taxation purposes.
Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences
and carried forward tax losses, to the extent that it is probable that taxable profit will be available to utilise them.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to utilise them.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset or liability giving rise to them is
realised or settled, based on the tax rates and laws enacted or substantively enacted at balance date.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to set off, they relate to the same taxation authority, and the Group
intends to settle its obligations on a net basis.
Significant estimates and judgements made in the determination of deferred tax include:
•Deferred tax on depreciation – deferred tax is provided in respect of New Zealand based properties for the depreciation expected to be recovered
on the sale of investment property.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•Deferred tax on changes in fair value of investment properties – deferred tax for Australian based properties is provided on the capital gain expected
to be assessable on the land and building component from the sale of investment properties at fair value.
•
Deferred tax on fixtures and fittings – it is assumed that all fixtures and fittings will be sold at their tax book value.
6 INVESTMENT PROPERTIES
Investment properties comprise real estate predominately leased, or targeted to be leased, to health sector tenants that is held for either deriving rental
income, for capital appreciation or both.
6A RECONCILIATION OF CARRYING AMOUNTS
2020
$000s
2019
$000s
Carrying value of investment property at the beginning of the year1,836,4301,731,247
Acquisition of properties75,41925,158
Capitalised costs84,16934,566
Capitalised interest costs3,624633
Net capitalised incentives753(520)
Foreign exchange translation difference36,256(58,210)
Change in fair value45,703103,556
Right of use asset recognised3,955-
Carrying value of investment property at the end of the year2,086,3091,836,430
The Group holds the freehold to all properties except the car parks at the rear of Ascot Hospital and Ascot Central, which are the subject of a ground
lease ("right of use" asset) that has a weighted average term remaining of 1
8.8 years (20
19: 19.8 years). As at reporting date the fair value of this right-
of-use asset totals $7.4m (2019: $3.6m) and includes the first time adoption of NZ IFRS 16 adjustment of $4.0m determined by discounting the 30 June
2019 lease commitment of $5.8m at the Group's incremental borrowing rate of 4.25%.
6B JOINT ARRANGEMENTS
During 201
9 the Group purchased a 50% tenants-in-common interest in an investment property in Elizabeth Vale, South Auastralia for future development
with a Northwest Group entity. Subject to a Co-ownership Deed, this arrangement constitutes a joint operation whereby the Group recognises its share
of assets and liabilities in the consolidated statement of financial position and share of revenue earned and expenses incurred in the consolidated
statement of comprehensive income.
No new joint arrangements have been entered into in the current year.
6C ACQUISITION OF PROPERTY
During the year the Group:
•entered into an agreement to acquire Thames Street, Box Hill, Victoria for A$10.1m plus transaction costs. Settlement, which is subject to conditions in
favour of the Group, is deferred until no later than October 20
21. This property has been recognised as Investment Property, with a corresponding
liability (refer Note 19) recognised for the outstanding consideration payable; and
•acquired 3 aged care investment properties located in Australia for A$57.5m plus transaction costs.
6D LEASING ARRANGEMENTS
The majority of the investment properties are leased to tenants under long term operating leases. Rentals are receivable from tenants monthly.
Minimum lease payments to be received under non-cancellable operating leases of investment properties not recognised in the consolidated
financial
statements as receivable are as follows:
2020
$000s
2019
$000s
Not later than one year111,09398,632
Later than one year and not later than five years475,619432,696
Later than five years920,164833,808
1,506,8761,365,136
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6E CONTRACTUAL ARRANGEMENTS
The Group was party to contracts to purchase or construct property (including in respect to Epworth Eastern, Victoria and Wakefield Private Hospital,
Wellington) not recognised in the
financial statements for the following amounts:
2020
$000s
2019
$000s
Capital expenditure commitments208,198222,213
6F INDIVIDUAL VALUATIONS AND CARRYING AMOUNTS
The details of the New Zealand and Australian investment property portfolio, including its location, independent valuer, fair value, market capitalisation
rate, occupancy and weighted average lease e
xpiry term are as follows:
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair valueMarket capitalisation rateOccupancyWALE
PropertiesLocation30 June 2020 Valuer
$000s
2020
$000s
20
1
9
%
2020
%
2019
%
2020
%
2019
Years
2020
Years
2019
Australia
Lingard Private HospitalMerewether, New South WalesErnst & Young162,654149,9375.35.5100.0100.025.726.7
Maitland Private HospitalEast Maitland, New South WalesErnst & Young109,362103,5135.55.5100.0100.017.518.5
Hurstville Private HospitalSydney, New South WalesColliers International79,40177,5836.36.3100.0100.021.822.8
The Hills ClinicKellyville, New South WalesErnst & Young48,04734,6095.05.3100.0100.027.028.1
Toronto Private HospitalToronto, New South WalesErnst & Young43,98141,9805.85.8100.0100.022.523.5
Mayo Private HospitalTaree, New South WalesJones Lang LaSalle Australia42,80439,7326.06.3100.0100.011.512.5
Mons Road Medical CentreWestmead, New South WalesErnst & Young36,70434,9235.85.894.594.54.53.6
Lingard Day CentreMerewether, New South WalesErnst & Young34,885-5.3n.a.100.0n.a.25.7n.a.
Hirondelle Private HospitalChatswood, New South WalesErnst & Young27,79026,8405.55.5100.0100.021.922.9
Dubbo Private HospitalDubbo, New South WalesColliers International19,47618,7166.06.0100.0100.011.612.6
Fairfield Aged CareFairfield, New South WalesM318,51317,8807.07.0100.0100.015.716.7
Darlington Aged CareBanora Point, New South WalesErnst & Young18,085-6.5-100.0-16.3-
Clover Lea Aged CareBurwood Heights, New South WalesM313,80413,4887.07.0100.0100.015.716.7
Grafton Aged CareSouth Grafton, New South WalesM311,39611,2927.27.2100.0100.016.817.8
Epworth Eastern HospitalBox Hill, VictoriaErnst & Young209,350180,7635.05.0100.0100.020.720.8
South Eastern Private HospitalNoble Park, VictoriaValued Care71,07362,7885.15.3100.0100.020.721.7
Epworth Eastern Medical CentreBox Hill, VictoriaErnst & Young41,84139,7325.35.374.8100.09.98.5
Ekera Medical CentreBox Hill, VictoriaErnst & Young32,53130,3225.55.897.192.14.13.1
Epworth RehabilitationBrighton, VictoriaJones Lang LaSalle Australia27,82227,1855.55.5100.0100.03.64.6
Belmont Private HospitalCarina Heights, QueenslandJones Lang LaSalle Australia83,25376,1195.05.3100.0100.015.716.7
Palm Beach Currumbin ClinicCurrumbin, QueenslandJones Lang LaSalle Australia61,53059,0765.35.3100.0100.011.612.6
The Southport Private HospitalSouthport, QueenslandErnst & Young49,11745,7975.35.5100.0100.024.718.6
Eden RehabilitationCooroy, QueenslandJones Lang LaSalle Australia29,22326,7675.55.8100.0100.017.418.5
Baycrest Aged CareHervey Bay, QueenslandErnst & Young19,770-6.5-100.0-16.0-
Gold Coast Surgery CentreSouthport, QueenslandErnst & Young13,64414,5347.57.288.963.23.20.9
Hamersley Aged CareSubiaco, Western AustraliaM313,05512,5477.17.2100.0100.015.716.7
Marian CentrePerth, Western AustraliaColliers International52,86249,4565.15.3100.0100.014.115.1
Abbotsford Private HospitalWest Leederville, Western AustraliaColliers International30,71228,8585.15.3100.0100.021.722.7
Rockingham Aged CareRockingham, Western AustraliaM37,0636,7977.17.2100.0100.015.716.7
Sportsmed Hospital, Clinic & ConsultingAdelaide, South AustraliaErnst & Young73,30170,3155.55.5100.0100.015.315.9
Sportsmed OfficeAdelaide, South AustraliaErnst & Young4,9224,7056.06.0100.0100.015.616.6
Tantula Rise Aged CareAlexandra Headland, QueenslandErnst & Young24,623-6.5-100.0-16.0-
North West Private HospitalBurnie, TasmaniaJones Lang LaSalle Australia25,06124,2586.06.0100.0100.016.417.4
Total Australia1,537,6551,330,512
New Zealand
Ascot Hospital & ClinicsGreenlane, AucklandAbsolute Value117,000112,9895.15.399.399.018.018.2
Royston HospitalHastings, Hawkes BayJones Lang LaSalle New Zealand64,13857,5365.85.8100.0100.029.528.5
Wakefield HospitalNewtown, WellingtonJones Lang LaSalle New Zealand58,81933,0765.55.5100.0100.027.528.5
Bowen HospitalCrofton Downs, WellingtonJones Lang LaSalle New Zealand53,77251,3005.55.5100.0100.029.528.5
Boulcott Private HospitalLower Hutt, WellingtonJones Lang LaSalle New Zealand41,25040,2005.65.6100.0100.018.019.0
Ormiston HospitalFlatbush, AucklandAbsolute Value40,50038,4975.66.0100.0100.03.04.2
Ascot CentralGreenlane, AucklandColliers International New Zealand Limited38,00039,0005.45.6100.0100.06.14.4
Apollo Health & Wellness CentreAlbany, AucklandColliers International New Zealand Limited25,80028,0006.56.181.994.28.56.4
Kensington HospitalWhangarei, NorthlandColliers International New Zealand Limited20,30020,1005.96.0100.0100.026.027.0
Napier Health CentreNapier, Hawkes BayAbsolute Value10,95010,9008.09.0100.0100.03.54.5
Ascot Carpark (right of use asset)Greenlane, AucklandSee footnote
1
7,4113,60010.79.599.8100.015.315.2
Total New Zealand477,940435,198
Properties held for development70,71470,720
TOTAL FAIR VALUE OF INVESTMENT PROPERTIES2,086,3091,836,4305.55.699.499.418.118.1
1 Absolute Value and Colliers International New Zealand Limited
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair valueMarket capitalisation rateOccupancyWALE
PropertiesLocation30 June 2020 Valuer
$000s
2020
$000s
20
1
9
%
2020
%
2019
%
2020
%
2019
Years
2020
Years
2019
Australia
Lingard Private HospitalMerewether, New South WalesErnst & Young162,654149,9375.35.5100.0100.025.726.7
Maitland Private HospitalEast Maitland, New South WalesErnst & Young109,362103,5135.55.5100.0100.017.518.5
Hurstville Private HospitalSydney, New South WalesColliers International79,40177,5836.36.3100.0100.021.822.8
The Hills ClinicKellyville, New South WalesErnst & Young48,04734,6095.05.3100.0100.027.028.1
Toronto Private HospitalToronto, New South WalesErnst & Young43,98141,9805.85.8100.0100.022.523.5
Mayo Private HospitalTaree, New South WalesJones Lang LaSalle Australia42,80439,7326.06.3100.0100.011.512.5
Mons Road Medical CentreWestmead, New South WalesErnst & Young36,70434,9235.85.894.594.54.53.6
Lingard Day CentreMerewether, New South WalesErnst & Young34,885-5.3n.a.100.0n.a.25.7n.a.
Hirondelle Private HospitalChatswood, New South WalesErnst & Young27,79026,8405.55.5100.0100.021.922.9
Dubbo Private HospitalDubbo, New South WalesColliers International19,47618,7166.06.0100.0100.011.612.6
Fairfield Aged CareFairfield, New South WalesM318,51317,8807.07.0100.0100.015.716.7
Darlington Aged CareBanora Point, New South WalesErnst & Young18,085-6.5-100.0-16.3-
Clover Lea Aged CareBurwood Heights, New South WalesM313,80413,4887.07.0100.0100.015.716.7
Grafton Aged CareSouth Grafton, New South WalesM311,39611,2927.27.2100.0100.016.817.8
Epworth Eastern HospitalBox Hill, VictoriaErnst & Young209,350180,7635.05.0100.0100.020.720.8
South Eastern Private HospitalNoble Park, VictoriaValued Care71,07362,7885.15.3100.0100.020.721.7
Epworth Eastern Medical CentreBox Hill, VictoriaErnst & Young41,84139,7325.35.374.8100.09.98.5
Ekera Medical CentreBox Hill, VictoriaErnst & Young32,53130,3225.55.897.192.14.13.1
Epworth RehabilitationBrighton, VictoriaJones Lang LaSalle Australia27,82227,1855.55.5100.0100.03.64.6
Belmont Private HospitalCarina Heights, QueenslandJones Lang LaSalle Australia83,25376,1195.05.3100.0100.015.716.7
Palm Beach Currumbin ClinicCurrumbin, QueenslandJones Lang LaSalle Australia61,53059,0765.35.3100.0100.011.612.6
The Southport Private HospitalSouthport, QueenslandErnst & Young49,11745,7975.35.5100.0100.024.718.6
Eden RehabilitationCooroy, QueenslandJones Lang LaSalle Australia29,22326,7675.55.8100.0100.017.418.5
Baycrest Aged CareHervey Bay, QueenslandErnst & Young19,770-6.5-100.0-16.0-
Gold Coast Surgery CentreSouthport, QueenslandErnst & Young13,64414,5347.57.288.963.23.20.9
Hamersley Aged CareSubiaco, Western AustraliaM313,05512,5477.17.2100.0100.015.716.7
Marian CentrePerth, Western AustraliaColliers International52,86249,4565.15.3100.0100.014.115.1
Abbotsford Private HospitalWest Leederville, Western AustraliaColliers International30,71228,8585.15.3100.0100.021.722.7
Rockingham Aged CareRockingham, Western AustraliaM37,0636,7977.17.2100.0100.015.716.7
Sportsmed Hospital, Clinic & ConsultingAdelaide, South AustraliaErnst & Young73,30170,3155.55.5100.0100.015.315.9
Sportsmed OfficeAdelaide, South AustraliaErnst & Young4,9224,7056.06.0100.0100.015.616.6
Tantula Rise Aged CareAlexandra Headland, QueenslandErnst & Young24,623-6.5-100.0-16.0-
North West Private HospitalBurnie, TasmaniaJones Lang LaSalle Australia25,06124,2586.06.0100.0100.016.417.4
Total Australia1,537,6551,330,512
New Zealand
Ascot Hospital & ClinicsGreenlane, AucklandAbsolute Value117,000112,9895.15.399.399.018.018.2
Royston HospitalHastings, Hawkes BayJones Lang LaSalle New Zealand64,13857,5365.85.8100.0100.029.528.5
Wakefield HospitalNewtown, WellingtonJones Lang LaSalle New Zealand58,81933,0765.55.5100.0100.027.528.5
Bowen HospitalCrofton Downs, WellingtonJones Lang LaSalle New Zealand53,77251,3005.55.5100.0100.029.528.5
Boulcott Private HospitalLower Hutt, WellingtonJones Lang LaSalle New Zealand41,25040,2005.65.6100.0100.018.019.0
Ormiston HospitalFlatbush, AucklandAbsolute Value40,50038,4975.66.0100.0100.03.04.2
Ascot CentralGreenlane, AucklandColliers International New Zealand Limited38,00039,0005.45.6100.0100.06.14.4
Apollo Health & Wellness CentreAlbany, AucklandColliers International New Zealand Limited25,80028,0006.56.181.994.28.56.4
Kensington HospitalWhangarei, NorthlandColliers International New Zealand Limited20,30020,1005.96.0100.0100.026.027.0
Napier Health CentreNapier, Hawkes BayAbsolute Value10,95010,9008.09.0100.0100.03.54.5
Ascot Carpark (right of use asset)Greenlane, AucklandSee footnote
1
7,4113,60010.79.599.8100.015.315.2
Total New Zealand477,940435,198
Properties held for development70,71470,720
TOTAL FAIR VALUE OF INVESTMENT PROPERTIES2,086,3091,836,4305.55.699.499.418.118.1
1 Absolute Value and Colliers International New Zealand Limited
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recognition and measurement
Inv
estment Property
Investment properties are initially measured at cost, including any related transaction costs. Expenditure is capitalised to a property's carrying value only
when its cost can be measured reliably and it is probable that future economic benefits will flow to the Group. All other repairs and maintenance
expenditure is charged to the statement of comprehensive income.
Subsequent to initial recognition, investment properties, including investment properties held for sale, are measured at fair value (inclusive of adjustments
for straight line rental revenue recognition, unamortised lease incentives and costs, and capital expenditure obligations) with any gains or losses arising
on re-measurement recognised in profit or loss.
Lessee arrangements and Right of Use assets
The Group has applied the modified retrospective method, using permitted practical expedients, to adopt NZ IFRS 16 Leases from 1 July 2019 for those
arrangements where the leases to which the Group is a lessee are not short-term or over low-value assets. Under this method, the standard is applied
retrospectively to recognise a 'right-of-use' asset and corresponding 'lease liability' at the adoption date, determined as the cumulative effect of applying
this standard from the inception of the lessee arrangement. No adjustment has been made to comparative disclosures.
On inception of a lessee arrangement, the lease liability is initially measured as the aggregate of fixed and variable lease payments due (net of
incentives receivable), expected residual value guarantees and the exercise price of purchase options (if reasonably certain to be exercised) and
expected lease termination payments, discounted using the interest rate implicit in the lease or, if this cannot be determined, the Group's incremental
borrowing rate.
Subsequent to initial recognition, lease payments are allocated between a finance cost (which is expensed to the consolidated statement of
comprehensive income over the term of the lease using the effective interest rate method) and a reduction of the initial lease liability recognised. Refer to
Note 12 for the lease liabilities recognised by the Group.
Right-of-use assets are initially measured at cost, comprising the aggregate of the initial measurement of the lease liability (net of incentives received),
lease payments made before commencement date, initial direct costs and restoration costs and are classified as Investment Property.
Subsequent to initial recognition, right-of-use assets are measured at fair value.
Development of investment property
Investment property that is being developed is measured at cost until either its fair value becomes reliably measurable or the development reaches
practical completion. Borrowing costs are capitalised from when activities to prepare the property for development commence, until the property is
substantially ready for use.
Rental income
Rental income from investment properties is comprised of lease components (including base rent, recoveries of property taxes and insurance) and non-
lease components (including property outgoings recoveries). Rental income is recognised at the fair value of consideration receivable (excluding GST).
Rental income relating to lease components is recognised on a straight-line basis over the term of the lease for the period where the rental income is
fixed and determinable. For leases where the rental income is determined based on unknown future variables such as inflation, market reviews or other
factors, rental income is recognised on an accruals basis in accordance with the terms of the lease.
Rental income from property outgoing recoveries is recognised as the costs are incurred, which is typically when the services are provided.
Rental income not received at reporting date is reflected in the consolidated statement of financial position as a receivable or, if paid in advance, as
income in advance.
Lease incentives, commissions and other costs
Lease incentives provided to tenants, such as fit-outs or rent free periods, and leasing commissions and other costs incurred when entering into a lease
are recognised as a reduction of rental income on a straight-line basis over the non-cancellable term of the lease.
Derecognition
An investment property is derecognised upon disposal or when no future economic benefits are expected from use. The gain or loss arising on
derecognition of the property is measured as the difference between the net proceeds from disposal and the carrying amount at disposal date and is
recognised in the consolidated statement of comprehensive income in the period in which the property is derecognised.
Valuation process
The purpose of the valuation process is to ensure that investment properties are held at fair value. In accordance with the Group's valuation policy,
external valuations are performed by independent professionally qualified valuers who hold a recognised and relevant professional qualification and
have specialised expertise in the type of investment property being valued. The valuation policy requires that a valuer may not value the same property
for more than two consecutive years. All valuations are reviewed by the Manager and approved by the Board.
The methods used for assessing the fair value of investment property are the Direct Comparison, Discounted Cash Flow (using a risk adjusted discount
rate), Capitalisation of Contract and Market Income approaches and are unchanged from the prior year. The principal assumptions in establishing the
valuation include the capitalisation rate, occupancy and the weighted average lease term to expiry (WALE).
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
COVID-19 impact
Independent professionally qualified valuers have cautioned that, in determining the fair value of investment property at the reporting date, the previous
market e
vidence used to inform assumptions and opinions may not reflect current market conditions for comparison purposes, as conditions have
changed and may change rapidly. Consequently, less certainty and a higher degree of caution should be attached to the independently determined fair
values of the Group's investment property as at the reporting date.
Fair Value Hierarchy
As the valuation methods use assumptions and judgements that are not based on observable market data, investment properties are classified as Level 3
under the fair value hierarchy.
Generally, as:
•occupancy and weighted average lease term term to expiry increase, yields firm, resulting in increased fair values for investment properties and vice
versa;
•capitalisation rates and discount rates used in the valuation approaches decrease (firm), the fair value of the investment property will increase, and
vice versa.
7 OTHER INCOME AND EXPENSES
2020
$000s
2019
$000s
Expenses
Auditor's remuneration:
Audit and review of financial statements218183
Manager's fees12,23313,839
Manager's incentive fee6,47512,077
Trustee fees588587
Other operating income/expenses3,7542,819
Total other income and expenses23,26829,505
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL STRUCTURE , FINANCING AND RISK MANAGEMENT
This section outlines how the Group manages its capital structure and related financing activities and presents the resultant returns delivered to unitholders
via distributions and earnings per unit.
8 UNITS ON ISSUE
2020
$000s
2019
$000s
Balance at the beginning of the year576,300556,878
Issue of units under Distribution Reinvestment Plan6,4346,376
Issue of units to satisfy Manager's incentive fee12,07713,095
Issue costs of units(59)(49)
18,45219,422
Balance at the end of the year594,752576,300
2020
000s
2019
000s
Reconciliation of number of units
Balance at the beginning of the year446,346436,893
Issue of units under the Distribution Reinvestment Plan2,5172,947
Units issued to satisfy Manager's incentive fee4,9206,506
Balance at the end of the year453,783446,346
Distributions paid in the financial year were 8.75 cents per unit (20
19: 8.75 cents per unit). Subsequent to the reporting date the final quarter's distribution
of 2.1875 cents per unit (2019: 2.1875 cents per unit) was declared. Refer Note 21 for details.
Recognition and measurement
Issued capital
Issued and paid up units are recognised at the fair value of the consideration received by the Group, net of directly incurred transaction costs. Fully paid
ordinary units carry one vote per unit and carry the right to distributions.
Distributions are recognised as a liability in the Group’s financial statements in the period in which the distributions are approved.
Share based payments (Managers incentive fee)
Subject to the Trust Deed, the Manager is entitled to an incentive fee that are settled in newly issued units (i.e. a share based payment). As such, the
incentive fee expense is recognised in the share based payment reserve as the services are provided until such a time as it is settled via the issuance of
new units, at which point the amount is reclassifed to units on issue.
On 22 August 2019, 4,919,883 units were issued against the 2019 Manager’s incentive fee of $12.1m (2019: 6,505,957 were issued against the 2018
Manager’s incentive fee).
Capital risk management
The Managers objective when managing the capital of the Group is to ensure compliance with the capital requirements under the Trust Deed (i.e. total
borrowings do not exceed 50% of the gross value of the Trust Fund) and that the Group will be able to continue as a going concern while maximising
the return to investors through the optimisation of the Group's cost of capital. The Manager maintains or adjusts the capital of the Group through various
methods including by adjusting the quantum of distributions paid, raising or repaying debt, issuing or buying back units, or buying or selling assets.
As at reporting date, the Group's total borrowings to the Gross Value of the Group (as defined in the Trust Deed) was 38.7% (2019: 38.1%).
The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors. There have been no material
changes in the Group’s overall capital risk management strategy during the year.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9 EARNINGS PER UNIT
20202019
Profit attributable to unitholders of the Trust ($000s)58,12693,422
Weighted average number of units on issue (000's of units)451,563443,453
Basic and diluted earnings per unit (cents)12.8721.07
Recognition and measurement
Basic and diluted earnings per unit is calculated by dividing the profit attributable to unitholders of the Trust by the weighted average number of ordinary
units on issue during the year.
10 DISTRIBUTABLE INCOME
Statutory profit attributable to unitholders is determined in accordance with NZ GAAP and includes a number of non-cash items including fair value
movements, straight line lease accounting adjustments and amortisation of borrowing and leasing costs and incentives.
The Manager has adopted, for the first time this year, Adjusted F
unds from Operations (AFF
O) and AFFO per unit as the Group's key performance
metric, representative of the Group's underlying performance, and as a guide to informing the Group's distribution policy. AFFO adjusts statutory profit
attributable to unitholders for certain items that are non-cash, unrealised, capital in nature or are one-off or non-recurring (i.e. outside the Group's
ordinary operations or not reflective of its underlying performance). As AFFO is a non GAAP measure it may not be directly comparable with other
entities.
A reconciliation of statutory profit attributable to unitholders to AFFO and AFFO per unit is outlined as follows:
2020
$000s
2019
$000s
Adjusted funds from operations
Operating profit before tax and other income41,13234,035
Add/(deduct):
Current tax expense(7,238)(7,572)
Incentive fee6,47512,077
Net strategic transaction expenses7,7644,273
Current tax e
xpense/(benefit) on translation of borrowings(1
,234)38
Amortisation of borrowing costs611470
Amortisation of leasing costs & tenant inducements1,084931
IFRS 16 Operating lease accounting(144)-
Funds from operations (FFO)48,45044,252
Add/(deduct):
Non-recurring corporate costs3231,050
Actual capex & leasing from continuing operations(1,562)(1,405)
Adjusted funds from operations (AFFO)47,21143,897
AFFO (cpu)10.459.90
Distribution per unit (cpu)8.758.75
AFFO payout ratio84%88%
Units on issue (weighted average, 000s)451,563443,453
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11 BORROWINGS
2020
$000s
2019
$000s
AUD denominated loans790,037718,172
NZD denominated loans24,50017,250
Borrowing costs(1,022)(1,211)
Total borrowings813,515734,211
Current liability113,988-
Non current liability699,527734,211
Total borrowings813,515734,211
2020
$000s
2019
$000s
Total borrowings at the beginning of the year734,211668,712
Drawdowns during the year142,978118,401
Repayments during the year(83,382)(23,517)
Additional facility refinancing fee(409)(308)
Facility refinancing fee amortised during the year611470
Foreign exchange movement19,506(29,547)
Total borrowings at the end of the year813,515734,211
Recognition and measurement
Borrowings are initially measured at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost
using the effective interest rate method. Gains and losses on derecognition are recognised in the consolidated statement of comprehensive income in the
period in which they arise. The carrying values of these balances are approximately equivalent to their fair values because the loans have
floating rates
of interest that reset every 90 days.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the facility for at least 12 months after the
reporting date.
11A SUMMARY OF BORROWING ARRANGEMENTS
The Group has a syndicated revolving multi-currency facility with ANZ Bank New Zealand Limited, Australia and New Zealand Banking Group Limited,
Bank of New Zealand Limited and National Australia Bank Limited. The facilities e
xpiry profile and undrawn facility limits are as follows:
20202019
TrancheA$m LimitA$m UndrawnExpiryA$m LimitA$m UndrawnExpiry
A125.018.531 Mar-21125.0-31 Mar-21
B200.0-31 Jul-22200.0-31 Jul-22
C125.025.030 Oct-23100.0-30 Oct-20
D115.015.030 Oct-21100.0-30 Oct-20
E175.091.620 Nov-21175.0128.520 Nov-21
F150.01.715 Jan-22150.034.615 Jan-22
G
35.035.0
24 Sep-21
--
A$ Facility
925.0186.8850.0163.1
NZ$ Facility50.025.530 Oct-2320.02.830 Oct-20
The syndicated revolving multi-currency facility is secured and cross collateralised over the Group's investment properties (by first ranking real property
mortgages) and other assets (via a first ranking general 'all assets' security agreement).
The syndicated revolving multi-currency facility contains both
financial and non-financial covenants and undertakings that are customary for secured
facilities of this nature. The key financial covenants (with capitalised terms being defined terms in the facility agreement) are as follows:
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Covenant
2020
Actual
2019
Actual
Banking Covenants
Loan to value ratio< 50%40.2%41.3%
Interest cover> 2.00x2.442.19
Weighted average lease term> 3.5 years18.118.09
Total assets of Obligors v total assets of GroupNot < 90%100%100%
Total value of unmortgaged properties v total assets of GroupNot > 5%1.7%2.9%
11B FINANCE EXPENSE
2020
$000s
2019
$000s
Expenses
Interest expense31,94133,770
Borrowing costs capitalised(3,624)(1,105)
Total finance expenses28,31732,665
The effective interest rate on the borrowings, incorporating interest rate hedges, as at the reporting date was 3.59% per annum (2019: 4.40%). The
contractual rate for the borrowings varies between the tranches from 0.96% to 1
.3
4% (2019: 2.33% to 2.85%).
Recognition and measurement
Interest expense is recognised in the consolidated statement of comprehensive income using the effective interest rate method except where it is incurred
in relation to any qualifying assets, where it is capitalised during the period of time that is required to hold, complete and/or prepare the asset for its
intended use. It comprises interest payable on borrowings and interest paid on interest rate hedging instruments.
The effective interest rate method calculates the amount to be recognised over the relevant period at the rate that exactly discounts estimated future cash
receipts through the expected life of the financial instrument or a shorter period where appropriate, to the net carrying amount on initial recognition.
12 LEASE LIABILITIES
The Group holds a ground lease over the car parks at the rear of Ascot Hospital and Ascot Central that has a weighted average term remaining of 1
8.8
years (20
19: 19.8 years).
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13 DERIVATIVES
13A INTEREST RATE SWAPS
The Group has exposure to a debt facility that is subject to
floating interest rates. The Group uses derivative financial instruments, on a portfolio basis, to
manage its exposure to interest rates such as interest rate swaps (to lock in fixed interest rates) and/or interest rate caps (to limit exposure to rising
floating interest rates). At the reporting date, 60.4% of borrowings were at fixed rates (2019: 72.5%). Refer Note 14C for further information on the
Group's exposure to interest rate risk.
All derivative financial instrument providers receive the benefit of pari-passu security and cross collateralisation rights over the Group’s investment
properties (via first registered real property mortgages) and other assets (via a first ranking general 'all assets' security agreement) pursuant to the
Group’s revolving multi-currency facility.
Generally, interest rate contracts settle on a quarterly basis coinciding with the dates on which the interest is payable on the underlying debt. The floating
rate incurred on the debt is based on New Zealand BKBM or Australian BBSW. The difference between the fixed and floating interest rate is settled on
a net basis by the relevant counterparty. The interest rate contracts have not been identified as hedging instruments and any movements in the fair value
are recognised immediately in the consolidated statement of comprehensive income.
2020
$000s
2019
$000s
Current liabilities
Interest rate derivative liabilities(155)(502)
Non-current liabilities
Interest rate derivative liabilities(63,238)(49,436)
Total(63,393)(49,938)
During the period the Group recognised a fair value loss of $13.5m (2019: $36.3m] on interest rate contracts. The Group's interest rate swaps
outstanding at the reporting date are as follows:
2020
$000s
2019
$000s
Nominal value of interest rate swaps - AUD460,000510,000
Average fixed interest rate3.01%3.12%
Floating rates based on AUD BBSW0.15%1.45%
Interest rate derivatives mature over the next ten years and have fixed interest rates ranging from 1.5
4% to 4.99% (2019: from 1.54% to 4.99%).
Recognition and measurement
Derivatives are categorised as financial instruments at fair value through profit or loss and are initially recognised and subsequently measured at fair
value derived from counterparty bank valuations. Counterparty bank valuations are tested for reasonableness by discounting the estimated future
cashflows and using market interest rates for a substitute instrument at the measurement date. The resulting gain or loss is recognised immediately in the
consolidated statement of comprehensive income as hedge accounting has not been applied.
13B FORWARD EXCHANGE CONTRACTS
The Group has exposure to foreign currency risk arising from owning investment property in Australia. Derivative
financial instruments, such as forward
exchange contracts, may be used to reduce its exposure to foreign exchange risk by locking in the conversion of Australian dollar denominated income
(transaction hedging) or net assets (translation hedging) to New Zealand dollars. Refer Note 14C for further details on the Group's exposure to foreign
exchange risk.
Transaction hedging arrangements generally settle on a quarterly basis while translation hedging arrangements settle on a periodic basis depending on
the term of the contract. At reporting date forward exchange contracts have not been designated as hedging instruments and any movements in the fair
value are recognised immediately in the consolidated statement of comprehensive income.
2020
$000s
2019
$000s
Current assets
Foreign exchange derivative assets4277
Current liabilities
Foreign exchange derivative liabilities(77)(38)
Total(35)39
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
During the period the Group recognised a fair value loss of $0.08m (2019: $0.1m gain) on forward exchange contracts. The Group's forward
exchange contracts outstanding at the reporting date are as follows:
2020
$000s
20
19
$000s
Nominal value of foreign exchange contracts - AUD18,10012,600
Average foreign exchange rate0.93620.9519
Recognition and measurement
Derivatives are categorised as financial instruments at fair value through profit or loss and are initially recognised and subsequently measured at fair
value derived from counterparty bank valuations. Counterparty bank valuations are tested for reasonableness by using a valuation model based on the
applicable forward price cur
ves derived from obser
vable forward prices. As hedge accounting has not been applied any resulting gain or loss is
recognised immediately in the consolidated statement of comprehensive income.
13C FAIR VALUE HIERARCHY
The following table provides an analysis of derivatives that are measured at fair value at reporting date, grouped into Levels 1 to 3 based on the degree
to which the fair value inputs are obser
vable:
Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The Group has determined that interest rate swaps and foreign exchange contract derivatives are Level 2 fair value measurement instruments, that are
measured using observable prices of similar instruments. There have been no reclassifications between levels in the current year (2019: nil).
14 FINANCIAL AND RISK MANAGEMENT
The Group’
s activities e
xpose it primarily to credit risk, market risk (interest rate risk and foreign exchange risk) and liquidity risk. The Group’s overall risk
management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial
performance. The Group uses financial derivatives to manage market risks. The use of financial derivatives is governed by the Group’s policies approved
by the Board, which provide written principles that are consistent with the Group’s risk management strategy. The Group does not use derivative financial
instruments for speculative purposes.
14A FINANCIAL INSTRUMENTS
The Group has the following financial instruments:
•cash and cash equivalents;
•receivables;
•payables;
•borrowings and
•derivative financial instruments.
Transactions in these instruments e
xpose the Group to a variety of
financial risks including market risk (which includes interest rate risk, foreign exchange
risk and other price risks), credit risk and liquidity risks.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Categories of financial instruments
The Group’s
financial instruments are classified as:
Financial assets at
amortised cost
$000s
Financial
liabilities at
amortised cost
$000s
Financial
assets at fair
value through
profit
or loss
$000s
Financial
liabilities at fair
value through
profit or loss
$000s
30 June 202010,467(846,596)42(63,470)
30 June 201994,243(748,026)77(49,976)
Cash, cash equivalents, trade and other receivables, trade and other payables, borrowings and related party advances
The carrying values of these financial instruments approximate their fair values because of their short terms to maturity or interest reset dates.
As a result of the transition to IFRS 9 in 20
1
9, financial instruments, cash and trade and other receivables previously classified as "loans and receivables"
are now classified as "financial assets at amortised cost". There have been no changes to the carrying value of these financial instruments as a result of
the transition.
14B CREDIT RISK
The Group is subject to credit risk (the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group)
predominately through its trade and other receivables, derivatives and cash exposures. The maximum e
xposure to credit risk at a reporting date is the
carrying value of each financial asset as disclosed in the applicable note to the financial statements.
Credit risk is managed by:
•ensuring that at the time of entering into a contractual arrangement or acquiring a property, counterparties or tenants are of appropriate credit
worthiness, provide appropriate security or other collateral and/or do not show a history of default;
•seeking to optimise tenant mix by actively managing the property portfolio composition and leasing arrangements;
•only entering into foreign exchange and interest rate derivative transactions and placing cash and deposits with high credit quality financial institutions.
The Group applies an expected credit losses (ECL's) model (simplified approach) that uses historical experience, external indicators and forward
looking information to calculate the expected lifetime credit loss for financial assets carried at amortised cost.
The expected lifetime credit loss of trade receivables is assessed on a collective basis (grouped based on days past due), reflecting shared credit
characteristics, and is determined based on the forecast shortfalls in contractual cash flows considering the potential for default at any point during the
life of the financial instrument. Details of the expected credit loss recognised in relation to trade receivables is disclosed in Note 17A.
14C MARKET RISK
The Group is subject to market risk (the risk that borrowings or derivatives are repriced to dif
ferent interest rate margins on
refinance or renewal arising
from changes in the debt markets), interest rate risk (the risk of a change in interest rates may impact the Group’s profitability, cashflows and/or financial
position) and foreign exchange risk (the risk of a change in foreign exchange rates on translation of foreign currency denominated assets, liabilities,
revenue and expenses) predominately through its investment property, borrowings, derivatives and cash exposures.
The interest rates applicable to each category of financial instrument are disclosed in the relevant note to the financial statements.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Interest rate risk
The following table indicates the effective interest rates and the earliest period in which
financial instruments reprice. Fixed rate balances are presented
with the effect of hedging derivatives:
Weighted
effectiv
e
interest rate
%
Less than
1 year
$000s
1-2 years
$000s
2-3 years
$000s
3+ years
$000s
Total
$000s
30 June 2020
Cash and cash equivalents (floating rates)0.15%5,265---5,265
Borrowings (floating rates)1.18%(322,296)---(322,296)
Borrowings (fixed rates)4.03%(21,402)(32,103)(21,402)(417,335)(492,242)
(338,433)(32,103)(21,402)(417,335)(809,273)
30 June 2019
Cash and cash equivalents (floating rates)1.45%6,068---6,068
Borrowings (floating rates)2.49%(202,173)---(202,173)
Borrowings (fixed rates)4.16%(52,279)(20,912)(31,368)(428,690)(533,249)
(248,384)(20,912)(31,368)(428,690)(729,354)
Interest rate sensitivity
The Group’s sensitivity to interest rate risk can be e
xpressed in two ways:
Fair value sensitivity
A change in interest rates impacts the fair value of the Group’s fixed rate financial instruments. Fair value changes impact profit or loss or equity only
where the instruments are carried at fair value. Accordingly, the fair value sensitivity to a 100 bps movement in interest rates (based on the financial
instruments held at reporting date) is:
Impact on
profit/(loss)
2020
$000s
Impact on
unitholders'
funds
2020
$000s
Impact on
profit/(loss)
201
9
$000s
Impact on
unitholders'
funds
2019
$000s
If interest rates had been 100 bps higher:29,76229,76229,47429,474
If interest rates had been 100 bps lower:(31,967)(31,967)(32,289)(32,289)
Cash flow sensitivity analysis
A change in interest rates impacts interest income and expense on the Group’s interest bearing floating rate financial instruments. Accordingly, the one-
year cash flow sensitivity to a 100 bps movement in interest rates (based on the financial instruments held at reporting date) is:
Impact on
profit/(loss)
2020
$000s
Impact on
unitholders'
funds
2020
$000s
Impact on
profit/(loss)
2019
$000s
Impact on
unitholders'
funds
2019
$000s
If interest rates had been 100 bps higher:(3,223)(3,223)(1,849)(1,849)
If interest rates had been 100 bps lower:3,2233,2231,8491,849
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Foreign exchange risk
The following table presents the foreign currency risk that the Group is exposed to arising from Australian dollar (AUD) denominated assets and liabilities:
2020
$000s
20
19
$000s
Non-financial instrument assets and liabilities denominated in Australian dollars
Investment properties1,594,5191,387,661
Other assets863107,288
Deferred tax(104,150)(93,097)
Total non-financial instrument assets and liabilities1,491,2321,401,852
Non-derivative financial instruments
Cash and cash equivalents3,7555,002
Trade and other receivables4,6771,111
Trade and other payables(28,293)(12,889)
Borrowings(790,037)(718,172)
Total exposure from non-derivative financial instruments(809,898)(724,948)
Derivative financial instruments
Foreign exchange derivatives(35)39
Interest rate swaps(63,393)(49,938)
Total exposure from derivative instruments(63,428)(49,899)
Net exposure to currency risk617,906627,005
Foreign currency sensitivity
A change in the New Zealand dollar (NZD) / AUD exchange rate impacts
profit after tax and equity on the conversion of AUD denominated assets,
liabilities, revenue and expenses. A 10% change in the exchange rate (2019: 10%), based on year end exposures, has the following effect:
2020
$000s
2019
$000s
If the New Zealand Dollar versus the Australian Dollar was 10% higher for the year:
Profit and loss14,92712,326
Other comprehensive income(83,963)(76,240)
Unitholders' funds(69,036)(63,914)
If the New Zealand Dollar versus the Australian Dollar was 10% lower for the year:
Profit and loss(18,244)(15,065)
Other comprehensive income102,62293,183
Unitholders' funds84,37878,118
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14D LIQUIDITY RISK
The Group is subject to liquidity risk (the risk that the Group will not be able to meet its contractual or other operating obligations).
Liquidity risk is managed by continuously monitoring forecast and actual cash flows, maintaining appropriate head room under debt facilities and
matching the maturity profiles of financial assets and liabilities. To help reduce liquidity risks the Group:
•has readily accessible unutilised credit facilities and other funding arrangements in place;
•seeks a debt maturity profile that limits the total debt maturing in any one 1
2-month period; and
•
seeks to maintain sufficient loan covenant headroom to ensure that the Group can withstand downward movements in investment property valuations,
a reduction in revenue and/or an increase in interest rates without breaching loan facility covenants.
Liquidity risk exposure
The following table details the Group’s exposure to liquidity risk based on the contractual undiscounted cash flows relating to financial liabilities, foreign
exchange contracts and interest rate derivatives:
Carrying
v
alue
$000s
Contractual cash
flows
$000s
Less than 1 year
$000s
1-2 years
$000s
2-3 years
$000s
3+ years
$000s
30 June 2020
Non-deriv
ative financial
instruments
Borrowings (excluding
borrowing costs)(814,537)(817,468)(115,121)(356,058)(214,524)(131,765)
Trade and other payables(29,270)(29,270)(19,002)(10,268)--
Lease liability - ground lease(3,811)(3,812)(136)(142)(148)(3,386)
(847,618)(850,550)(134,259)(366,468)(214,672)(135,151)
Derivative financial
instruments
Interest rate swaps(63,393)(63,859)(12,646)(12,049)(10,005)(29,159)
Foreign exchange derivatives(35)(35)(35)---
(63,428)(63,894)(12,681)(12,049)(10,005)(29,159)
30 June 2019
Non-derivative financial
instruments
Borrowings (excluding
borrowing costs)(735,422)(752,343)(8,246)(362,379)(172,383)(209,335)
Trade and other payables(13,815)(13,815)(13,815)---
(749,237)(766,158)(22,061)(362,379)(172,383)(209,335)
Derivative financial
instruments
Interest rate swaps(49,938)(50,800)(9,653)(9,422)(8,721)(23,004)
Foreign exchange derivatives393939---
(49,899)(50,761)(9,614)(9,422)(8,721)(23,004)
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14E HEDGE ACCOUNTING
The Group is exposed to foreign e
xchange risk on its net investment in its Australian functional currency subsidiaries and seeks to hedge this risk using
Australian-denominated borrowings and foreign exchange derivatives (net investment hedges).
The face value of financial instruments designated as net investment hedges is:
2020
$000s
2019
$000s
Borrowings128,411125,471
Foreign exchange derivatives (nominal amount)--
There has been no ineffectiveness gain/loss on the net investment hedges during the reporting period (2019: nil).
Recognition and measurement
For a
financial instrument to be classified and accounted for as an effective hedge there must be:
•an economic relationship between the hedged item and the financial instrument;
•the effect of credit risk does not dominate the value changes that result from that economic relationship; and
•the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the
quantity of the financial instrument that the Group actually uses to hedge that quantity of hedged item.
The Group documents its hedging relationships at their inception in accordance with the requirements of NZ IFRS 9 and the Board approved risk
management strategy.
Hedge effectiveness is determined by the Group at the inception of the hedge relationship, and through semi-annual prospective effectiveness
assessments, to ensure that an economic relationship exists between the hedged item and the financial instrument. That portion of the foreign exchange
differences arising on the financial instruments determined to be an effective hedge is recognised directly in other comprehensive income. Any ineffective
portion is recognised in profit or loss.
On disposal of the foreign operation, the cumulative value of such gains or losses recognised in other comprehensive income is reclassified to the profit
and loss in the statement of comprehensive income.
15 COMMITMENTS AND CONTINGENCIES
Other than the contractual obligations disclosed in Note 6E and Note 1
5A, there are no other commitments and contingencies in ef
fect at the reporting
date (2019: nil).
15A NZSX BANK BOND
As a condition of listing on the New Zealand Stock Exchange (NZSX), NZS
X requires all issuers to provide a bank bond to NZSX under NZSX/DX
Listing Rule 1.23.2. The bank bond required by the Trust for listing on the NZSX is $50,000.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
EFFICIENCY OF OPERATIONS
This section presents the Group's working capital position and the efficiency in which it converts operating profits into cash available for unitholders or
reinvestment back into the operations of the Group.
16 STATEMENT OF CASH FLOWS RECONCILIATION FROM OPERATING ACTIVITIES
2020
$000s
2019
$000s
Cash and cash equivalents
Australian financial institutions3,7555,002
New Zealand financial institutions1,5101,066
Cash at bank5,2656,068
Reconciliation of profit after income tax to net cash flows from operating activities
Profit after tax for the year58,12693,422
Adjustments for non-cash items
Change in fair value of investment properties(45,703)(103,556)
Fair value (gain)/loss on derivative financial instruments13,53136,212
Unrealised foreign exchange (gain)/loss2,997(207)
Realised foreign exchange (gain)/loss6(5,447)
Deferred taxation4,9376,040
Income in advance217(1,628)
Manager's incentive fee6,47512,077
Other1,55437
Operating cash flow before changes in working capital42,14036,950
Change in trade and other payables1,895692
Change in taxation payable(1,124)3,083
Change in trade and other receivables(3,902)(111)
Items classified as investing activities5,427-
Net cash from operating activities44,43640,614
Excluded from investing and financing activities are distributions paid during the year of $6.4m (201
9: $6.4m) that have been reinvested under the
Distribution Reinvestment Plan (DRP).
Recognition and measurement
Cash and cash equivalents comprise cash at bank and call deposits, net of outstanding bank overdrafts.
The statement of cash flows is prepared on a GST exclusive basis. The GST component of cash flows arising from investing and financing, which is
recoverable from, or payable to, the taxation authority, is classified as part of operating cash flows.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17 TRADE AND OTHER RECEIVABLES
2020
$000s
2019
$000s
Trade receivables5,316930
Loss allowance(281)(4)
5,035926
Other receivables167374
Total trade and other receivables5,2021,300
17A AGEING OF RECEIVABLES PAST DUE
2020
$000s
2019
$000s
0-30 days past due1,811402
31-60 days past due1,478174
61-90 days past due1,44837
beyond 90 days past due134
4,750617
2020
$000s
2019
$000s
Movement in the loss allowance
Balance at the beginning of the year469
(Decrease)/increase in allowance recognised in profit or loss277(65)
Balance at the end of the year2814
During the year the Group recognised a bad debt write off of nil (2019: $0.1m) in the statement of comprehensive income.
The Group holds $2.4m security or other collateral (201
9: $2.3m) in respect of rent receivables past due. The Group has significant credit risk exposure
to one single counterparty or counterparties having similar characteristics in respect of rent receivables past due totaling $4.5m (2019: $0.7m). There are
no significant financial assets that have had renegotiated terms that would otherwise have been past due.
Recognition and measurement
Rent receivables
Rent receivables are recorded initially at fair value (including GST) and subsequently at amortised cost in accordance with NZ IFRS 9 Financial
Instruments (“IFRS 9”).
Impairment of financial assets and rent receivables
Loss allowances for rent receivables and other financial assets (other than those measured at fair value through profit and loss) are measured using the
simplified approach based on a lifetime expected loss allowance. Refer Note 14B for further details.
18 OTHER ASSETS
2020
$000s
2019
$000s
Current
Related party advance-83,966
Other8522,909
Total Current85286,875
On 2 August 2019 the related party advance (refer note 22) to NWH Australia Asset Trust of A$80.3m was repaid in full.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19 TRADE AND OTHER PAYABLES
2020
$000s
2019
$000s
Current liabilities
Interest accrued on borrowings3,4573,546
Other creditors and accruals15,54510,269
Total current liabilities19,00213,815
Non current liabilities
Other payables (Thames St)10,268-
Total trade and other payables29,27013,815
Recognition and measurement
Trade and other payables are recognised initially at fair value (inclusive of GST) and subsequently measured at amortised cost using the ef
fective interest
method. The average credit term on purchases is generally 30 days and they are non-interest bearing. The Group has management policies in place to
ensure that all amounts are paid within the applicable credit terms.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
OTHER NOTES
20 INVESTMENT IN SUBSIDIARIES
The Trust has control over the following subsidiaries:
Holding
Name of subsidiaryPrincipal activity
Place of
incorporation
and operation20202019
Vital Healthcare Australian Property TrustProperty investmentAustralia100%100%
Vital Healthcare Investment TrustProperty investmentAustralia100%100%
Vital Healthcare Property LimitedProperty investmentNew Zealand100%100%
Colma Services LimitedHolding companyNew Zealand100%100%
All subsidiaries have the same reporting date as the Trust.
21 SUBSEQUENT EVENTS
On 28 July 20
20 the Victorian State Government suspended all non-urgent category two elective surgeries across public and private hospitals in
metropolitan Melbourne as a result of a renewed outbreak of COVID-1
9. Approximately 20% of the Group's income is derived from Victorian private
hospitals, the operators of which currently remain subject to agrreements to make their facilities and services available to the State of Victoria during the
COVID-19 pandemic. The financial impact of the renewed outbreak, if any, on the viability of the Group's tenants and therefore potentially the operating
performance and financial position of the Group is not currently known.
On 10 August 2020 a final cash distribution of 2.1875 cents per unit was announced by the Trust. The Record Date for the final distribution is
10 September 2020 and a payment is scheduled to unitholders on 24 September 2020. Imputation credits of nil cents per unit will be attached to the
distribution.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22 RELATED PARTY TRANSACTIONS
The Manager
Vital is managed by NorthWest Healthcare P
roperties Management Limited (the "Manager"), a wholly owned subsidiary of NWI Healthcare Properties
LP (NWIHLP).
The ultimate parent of NWIHLP is Toronto listed NorthWest Healthcare Properties Real Estate Investment Trust (NW REIT) that, as at reporting date,
holds a 24.8% (2019:24.9%) interest in Vital. NW REIT and its controlled entities (including the Manager) are considered related parties to Vital and its
controlled entities by virtue of common ownership and/or directorships.
Other related parties by virtue of common ownership and/or ownership and/or directorship to the Manager of Vital include Australian Properties
Limited and NorthWest Healthcare Australian Property Limited.
Remuneration of the Manager
Vital pays fees to the Manager in accordance with the Trust Deed. The aggregate of Base Fees, Incentive Fees and Activity Fees is capped at 1.75% per
annum of Vital's gross asset value (GAV) as at the end of a financial year.
Following unitholder approval on 31 October 2019, the Trust Deed was amended to adopt the revised basis for fees (as outlined below) in accordance
with the undertakings made in the Trusts’ Fee and Governance Review announcement of 1 April 2019. Up until the Trust Deed was amended, the
Manager procured that the fees charged would not exceed those that would have been charged if the amendments that were approved by unitholders
on 31 October 2019 had been approved on 1 April 2019.
Current fee arrangements
In accordance with and from the effective date of the amended Trust Deed, the fee arrangements are as follows:
Base Fee
The Base Fee structure is as follows:
•65 bps per annum up to $1bn of GAV:
•55 bps per annum from $1bn to $2bn of GAV;
•45 bps per annum from $2bn to $3bn of GAV; and
•40 bps per annum over $3bn of GAV.
Incentive Fee
The Incentive Fee is determined as 10% of the average annual increase in Vital’s Net Tangible Assets (NTA) (as defined by the Trust Deed) over the
respective financial year and the two preceding financial years, with payment being made by way of subscribing for new units. The incentive fee
calculations are also subject to a ‘three year high watermark”, such that the Manager will not be paid an Incentive Fee in a year where NTA grows if it is
still below where it was on the last business day of any of the past three financial years.
Activity Fees
The Activity Fee structure is as follows:
a. Leases or licences
Vital pays the Manager leasing or licence fees where the Manager has negotiated leases or licences. The fees are charged at 11% of the aggregate
annual rental for terms less than 3 years, 12% of the aggregate annual rental for terms of 3 years, and 12% plus an additional 1% for each year or part
thereof for terms greater than three years (to a maximum of 20%), subject to a minimum fee of $2,500.
Lease or licence renewals are charged at 50% of a new lease or licence fee.
Leasing or licence fees are capitalised to the respective investment or property in the consolidated statement of financial position and amortised over the
term of the lease.
b. Property management
Vital pays the Manager property management fees where the Manager acts as the property manager. These fees are charged at 1% - 2% of gross
income depending on the number of tenants at the property and may be recovered from tenants if permitted under lease agreements.
Property management fees, net of recoveries from tenants, are expensed through the consolidated statement of comprehensive income in the year in
which they arise.
c. Facilities management
Vital pays the Manager a facilities management fee where the Manager acts as a property facilities manager based on the market rate (referenced to a
reputable and high-quality third party service provider) for similar services at similar properties. This fee may be recovered from tenants if permitted under
lease agreements.
Facilities management fees are expensed, net of recoveries from tenants, through the consolidated statement of comprehensive income in the year in
which they arise.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
d. Project management
Vital pays project management fees to the Manager for managing capital expenditure projects where the purpose of the project is to upgrade, repair or
otherwise extend the life of the property, including via the replacement or repair of major plant and equipment, structural items and building envelope.
Project management fees for projects with a budget of between $0.2m and $2.5m are 2% of the committed spend where the Manager is the project
lead and 1% of committed spend where the Manager has an oversight role, increasing to 4% and 2% respectively for projects with a budget greater
than $2.5m.
Project management fees are capitalised to the respective investment or property in the consolidated statement of financial position.
Additional Costs
The Additional Costs structure is as follows:
a. Acquisitions
Vital pays fees to the Manager for managing the due diligence, financing, legal aspects and settlement of the purchase of an investment or property
instead of, or alongside, a third party agent. These fees are charged at 1.5% of the capitalised cost of the relevant investment or property, being the
contracted price payable, excluding any deductions netted off the settlement price (such as rates), together with other related capitalised acquisition
costs.
Acquisition fees are capitalised to the respective investment or property in the consolidated statement of financial position.
b. Disposals
Vital pays fees to the Manager for managing the due diligence, legal aspects and settlement of the sale of an investment or property instead of, or
alongside, a third party agent. These fees are charged at 1% of the contracted sale price of the relevant investment or property actually received,
provided that, if a third party agent has been engaged to provide services for the disposal, then the fee payable to the Manager will be net of the third
party agent’s costs and commissions.
Disposal fees are expensed through the consolidated statement of comprehensive income in the year in which they arise.
c. Development Management
Vital pays fees where the Manager acts as a development manager on Vital developments. These fees are charged at 4% of the committed spend
(excluding land) approved by the Board of the Manager provided that, if a third party agent has been engaged to provide development management
services, then the fee payable to the Manager will be reduced by the non-rentalisable third party costs paid.
Development management fees are capitalised to the respective property in the consolidated statement of financial position.
Historical fee arrangements
Prior to the unitholder approved amendments to the Trust Deed, the fee arrangements were:
Base Fee
The Base Fee was 75 bps per annum of the Gross Value (as defined at the time by the Trust Deed) of the Trust.
Incentive Fee
The annual Incentive Fee was 10% of the average annual increase in the Gross Value (as defined at the time by the Trust Deed) of the Trust Fund over the
relevant financial year and the two preceeding financial years.
Other amounts
In accordance with the Trust Deed, the Manager is permitted to engage related parties to provide services to the Trust, such as development
management. The provision of these services is subject to compliance with the restrictions on related party transactions in the Financial Markets Conduct
Act 2013.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Transactions with related parties
Amounts charged by the Manager and related parties and owing are as follows:
30 June 2020
$000s
30 June 2019
$000s
Statement
of
Comprehensive
Income
Statement
of Financial
Position
Total
Amounts
Owing/
(Receivable)
Statement
of
Comprehensive
Income
Statement
of Financial
PositionTotal
Amounts
Owing/
(Receivable)
Base fee12,233-12,233-13,839-13,839830
Incentive Fee
1
6,475-6,4756,47512,077-12,07712,077
Activity Fees:
Leasing/licensing
2
43303346346----
Property management
3
969-969194214-214-
Facilities management
4
--------
Project management--------
AFSL fee
898-898-834-834-
20,61830320,9217,01526,964-26,96412,907
Additional Costs:
Acquisitions-980980--222222-
Disposals--------
Development management
5
-4,7744,774525-1,2081,2081,070
-5,7545,754525-1,4301,4301,070
Other Amounts:
Reimbursement of third party
e
xpenses:
Amounts paid to directors:
Andrew E
vans60-60--5050-
Graham Stuart67-67--5050-
Claire Higgins-----105105105
Other expenses35-35-195-195151
Strategic – transaction fees
6
----2,834-2,834(56)
Strategic – capital charge----3,259-3,259-
Strategic – financing cost
----2,387-2,387-
162-162-8,6752058,880200
20,7806,05726,8377,54035,6391,63537,27414,177
1 Manager's incentive fee outstanding at 30 June 2020 of $6.5m (Jun19: $12.1m) is payable to NorthWest Healthcare Properties Management Limited
2Amounts outstanding at 30 June 20
20 are: NorthWest Healthcare Properties Management Limited $0.1m (Jun19: nil); NorthWest Healthcare Australian Property Limited $0.2m (Jun19: nil)
3 Property Management and Facilities Management fees, exclusive of recoveries from tenants, incurred by the Trust totalled $1.0m and nil respectively for the 30 June 2020 year (Jun19: $0.2m and
nil respectively). Amounts outstanding at 30 June 2020 are: NorthWest Healthcare Properties Management Limited $0.1m (Jun19: nil); NorthWest Healthcare Australian Property Limited $0.1m
(Jun19: nil)
4 Property Management and Facilities Management fees, net of recoveries from tenants, incurred by the Trust totalled $1.0m and nil respectively for the 30 June 2020 year (Jun19: $0.2m and nil
respectively). Amounts outstanding at 30 June 2020 are: NorthWest Healthcare Properties Management Limited $0.1m (Jun19: nil); NorthWest Healthcare Australian Property Limited $0.1m
(Jun19: nil)
5 Amounts outstanding at 30 June 2020 are: NorthWest Healthcare Properties Management Limited $0.1m (Jun19: nil); NorthWest Healthcare Australian Property Limited $0.4m (Jun19: nil)
6 Due to the significant nature of the proposed HSO real estate transaction the Manager initially charged a prepaid acquisition fee. This was subsequently amended in the period to 30 June 2019 to
be a fee for the acquisition of the HSO derivative of $2.8m which was based on the cost incurred and work performed by the Manager, plus a capital charge of $3.3m based on NW REIT
providing security to Deutsche Bank for all of the HSO derivative participation and a recharge of financing costs of $2.4m which was charged based on the sharing of costs under the Joint
Investment Policy.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
FIN-34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other Related Parties
The following table summarises the transactions that occurred during the reporting period or remain outstanding at the reporting date:
2020
$000s
2019
$000s
During the period there have been transactions between the Trust and NWHAAT
Related party advance/(repayment)(84,495)40,293
Interest income2682,672
Healthscope dividend-7,363
Realised gain on strategic transaction derivatives-6,128
2020
$000s
2019
$000s
Balances outstanding at the end of the year are unsecured and on normal trading terms
Amounts owing from related party-83,966
The related party advance provided by the Group to NWH Australia AssetCo Pty Limited as trustee of NWH Australia Asset Trust (NWHAAT), a wholly
owned subsidiary of NWH Healthcare Properties LP
, was fully repaid on 2 August 2019.
In the Consolidated Statement of Comprehensive Income, net strategic transaction expenses includes nil related party costs in FY20 (2019: net income of
$5.0m) and third party costs of $7.8m (2019: $9.3m).
On 26 March 2020, the Group acquired 3 aged care investment properties from the NorthWest Australia Real Estate Investment Trust for their
independently determined valuation of A$57.5m.
85
Independent Auditor’s Report
To the Unitholders of Vital Healthcare Property Trust
Opinion We have audited the consolidated financial statements of Vital Healthcare Property Trust and its
controlled entities (the ‘Group’ or ‘Trust’), which comprise the consolidated statement of financial
position as at 30 June 2020, and the consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the
year then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying financial statements, on pages FIN 1 to FIN 34, present fairly,
in all material respects, the consolidated financial position of the Group as at 30 June 2020, and
its consolidated financial performance and cash flows for the year then ended in accordance with
New Zealand Equivalents to International Financial Reporting Standards (‘NZ IFRS’) and
International Financial Reporting Standards (‘IFRS’).
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’) and
International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
International Code of Ethics for Assurance Practitioners (including International Independence
Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board
and the International Ethics Standards Board for Accountants’ International Code of Ethics for
Professional Accountants (including International Independence Standards), and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
Other than in our capacity as auditor, we have no relationship with or interests in the Group.
Audit materiality We consider materiality primarily in terms of the magnitude of misstatement in the financial
statements of the Group that in our judgement would make it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced (the
‘quantitative’ materiality). In addition, we also assess whether other matters that come to our
attention during the audit would in our judgement change or influence the decisions of such a
person (the ‘qualitative’ materiality). We use materiality both in planning the scope of our audit
work and in evaluating the results of our work.
We determined materiality for the Group financial statements as a whole to be $2,500,000.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How our audit addressed the key audit matter
Valuation of Investment Properties
The Group’s investment properties consist of health
sector properties totalling $2,086 million as at 30 June
2020. Revaluation gains on the Group’s investment
properties for the year ended 30 June 2020 of $46
million were recognised in profit or loss. Information
about the Group’s property portfolio and valuation are
set out in Note 6.
Investment properties are carried at fair value. Where
significant development is in progress at a property,
this is carried at cost, until either its fair value becomes
reliably measurable or the development reaches
practical completion.
The valuation of investment property is highly
dependent on forecasts and estimates including a
We have evaluated the appropriateness of the valuation of
investment property by performing the following:
Reviewing the external valuers’ valuation reports. We
evaluated the key metrics, including capitalisation rate,
market rent and contract rent on a property and portfolio
basis for year on year movements and assessed whether in
our judgement, the movements represented outliers to
investigate. We held discussions, on a sample basis, with the
valuers and challenged assumptions, including the possible
outliers identified.
Agreeing property specific information supplied to the
external valuer, including occupancy data, current rentals,
and lease terms, to the underlying records held by the
Group.
Evaluating the objectivity, independence and expertise of the
86
number of unobservable inputs to take into account
property-specific attributes.
The Group’s policy is to engage external valuers for no
more than two years as per the Trust Deed, to perform
valuations for each of the properties on an annual
basis. The valuation methods used for assessing the
fair value include a combination of direct comparison,
discounted cash flow, capitalisation of contract and
market capitalisation approaches.
The external valuers, amongst other matters, take into
consideration occupancy rates, weighted average lease
term to expiry (‘WALE’) and capitalisation rates.
On 11 March 2020 the World Health Organisation
declared the outbreak of COVID-19 to be a pandemic,
resulting in severe restrictions put in place by the
Australian and New Zealand governments. Certain
restrictions remain in place at the time of signing the
financial statements. This is creating uncertainty
for the economy as a whole and is likely to impact
property market values.
Given the market conditions that existed at 30 June
2020, the independent registered valuers have
reported on a basis of “material valuation uncertainty”
and note that, as a result, less certainty and a higher
degree of caution should be attached to the valuations.
The valuation of investment properties is a key audit
matter due to the subjective judgements and
assumptions in the valuation models, including those
that relate to the impact of COVID-19.
external valuers.
With respect to significant property developments:
o where management has determined the
development has reached practical completion,
obtaining evidence supporting management’s
estimates of the expected future rental cash flows
that will apply upon completion and the costs to
complete the development;
o where property developments are carried at cost,
testing the cost incurred to date on a sample
basis.
Involving our valuation specialists to consider and challenge,
on a sample basis, the reasonableness of the assumptions
and valuation methodology applied, including comparing
assumptions to market data where available.
Reviewing valuation reports for the impacts of Covid-19 and
how this was considered in the valuation, including rental
deferrals or abatements.
Reviewing the valuations for any limitations of scope, as a
result of COVID-19, that would impact the reliability of the
valuations.
Other information
The Board of Directors of the Manager is responsible on behalf of the Group for the other
information. The other information comprises the information in the Annual Report that
accompanies the consolidated financial statements and the audit report.
Our opinion on the consolidated financial statements does not cover the other information and we
do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and consider whether it is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If so, we are required to report that fact. We have
nothing to report in this regard.
Board of Directors’
responsibilities for the
consolidated financial
statements
The Board of Directors of the Manager is responsible on behalf of the Trust for the preparation
and fair presentation of the consolidated financial statements in accordance with NZ IFRS and
IFRS, and for such internal control as the Board of Directors of the Manager determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors of the Manager is responsible on
behalf of the Trust for assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting
unless the Board of Directors of the Manager either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities
for the audit of the
consolidated financial
statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs and ISAs (NZ)
will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the consolidated financial statements is
located on the External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-
report-1
This description forms part of our auditor’s report.
87
Restriction on use
This report is made solely to the Trust’s unitholders, as a body. Our audit has been undertaken so
that we might state to the Trust’s unitholders those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Trust’s unitholders as a body, for our
audit work, for this report, or for the opinions we have formed.
Silvio Bruinsma, Partner
for Deloitte Limited
Wellington, New Zealand
10 August 2020
This audit report relates to the consolidated financial statements of Vital Healthcare Property Trust (the ‘Group’) for the
year ended 30 June 2020 included on the Group’s website. The Board of Directors of the Manager is responsible for the
maintenance and integrity of the Group’s website. We have not been engaged to report on the integrity of the Group’s
website. We accept no responsibility for any changes that may have occurred to the consolidated financial statements
since they were initially presented on the website. The audit report refers only to the consolidated financial statements
named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these
consolidated financial statements. If readers of this report are concerned with the inherent risks arising from electronic
data communication they should refer to the published hard copy of the audited consolidated financial statements and
related audit report dated 6 August 2020 to confirm the information included in the audited consolidated financial
statements presented on this website.
VITAL HEALTHCARE PROPERTY TRUST, MANAGED BY NORTHWEST PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 2020
88
UNITHOLDER STATISTICS
Analysis of shareholding as at 30 June 2020
Holding range
Number of
unitholdersTotal units
% of total
units issued
1 to 1,999533441,2400.10
2,000 to 4,9997842,690,7510.59
5,000 to 9,99910627,587,0261.67
10,000 to 49,999206444,330,4109.77
50,000 to 99,99928519,176,6614.23
100,000 to 499,99912321,777,5484.80
500,000 to 999,999106,638,1991.46
1,000,000 and above28351,140,86077.38
Total4,889453,782,695100.00
Substantial security holders as at 30 June 2020
Unitholder
Date notice
files
Number
of units
% of total
units issued
NORTHWEST HEALTHCARE PROPERTIES REAL ESTATE INVESTMENT TRUST28 August 2019112,743,17524.98%
FORSYTH BARR INVESTMENT MANAGEMENT LIMITED28 April 202036,564,0108.07%
ACCIDENT COMPENSATION CORPORATION24 June 201922,511,4435.04%
Twenty largest security holders as at 30 June 2020
UnitholderTotal
% of total
units issued
NZGT SECURITY TRUSTEE LIMITED111,923,29224.66
FORSYTH BARR CUSTODIANS LIMITED54,030,42211.91
ACCIDENT COMPENSATION CORPORATION - NZCSD25,844,3495.70
CITIBANK NOMINEES (NEW ZEALAND) LIMITED - NZCSD20,787,1494.58
HSBC NOMINEES (NEW ZEALAND) LIMITED - NZCSD18,162,5104.00
CUSTODIAL SERVICES LIMITED13,916,4943.07
BNP PARIBAS NOMINEES (NZ) LIMITED - NZCSD10,663,9452.35
CUSTODIAL SERVICES LIMITED10,198,0152.25
NEW ZEALAND DEPOSITORY NOMINEE LIMITED8,648,8851.91
CUSTODIAL SERVICES LIMITED8,582,1531.89
HSBC NOMINEES (NEW ZEALAND) LIMITED A/C STATE STREET -NZCSD7,870,6641.73
INVESTMENT CUSTODIAL SERVICES LIMITED7,236,9571.59
JPMORGAN CHASE BANK NA NZ BRANCH-SEGREGATED CLIENTS ACCT - NZCSD6,686,9841.47
FNZ CUSTODIANS LIMITED6,624,2371.46
ANZ WHOLESALE TRANS-TASMAN PROPERTY SECURITIES FUND - NZCSD6,584,0181.45
JBWERE (NZ) NOMINEES LIMITED4,160,1720.92
CUSTODIAL SERVICES LIMITED4,155,3940.92
TEA CUSTODIANS LIMITED CLIENT PROPERTY TRUST ACCOUNT - NZCSD3,711,7970.82
CUSTODIAL SERVICES LIMITED3,362,2060.74
ANZ WHOLESALE PROPERTY SECURITIES - NZCSD3,354,9030.74
Totals336,504,54674.16
Total units on issue453,782,695
89
DIRECTORY
MANAGER
NorthWest Healthcare Properties Management Limited
Le
vel 1
6, AIG Building 41 Shortland Street
Auckland 1010
PO Box 6945, Wellesley Street
Auckland 1141
Telephone: 0800 225 264 (NZ freephone); +64 9 973 7300
Email: enquiry@vhpt.co.nz
NorthWest Healthcare Properties Management - Australia
Level 45, Rialto South Tower, 525 Collins Street
Melbourne 3000
BOARD OF THE MANAGER
Bernard Crotty - Chairman
Andrew Evans - Independent Diretor
Paul Dalla Lana - Director
Dr Michael Stanford - Independent Director
Graham Stuart - Independent Director
Aaron Hockly - Fund Manager
Michael Groth - Chief Financial Officer
Vanessa Flax - Regional General Counsel A/NZ and Company
Secretary
AUDITOR
Deloitte Limited
Deloitte Centre
80 Queen Street
Auckland 1010
Private Bag 115-033
Auckland 1140
Telephone: +64 9 303 0700
Facsimile: +64 9 303 0701
LEGAL ADVISERS TO THE TRUST AND THE MANAGER
Bell Gully
Vero Centre
48 Shortland Street
PO Box 4199
Auckland 1140
Telephone: +64 9 916 8800
Facsimile: +64 9 916 8801
Ashurst Australia
Level 26
181 William Street
GPO Box 4958
Melbourne, Victoria 3001
Australia
Telephone: +61 3 9679 3000
Facsimile: +61 3 9679 3111
SUPERVISOR
Trustees Ex
ecutors Limited
Le
vel 7, 51 Shortland Street
Auckland 1010
PO Box 4197
Auckland 1140
Telephone: +64 9 308 7100
Facsimile: +64 9 308 7101
BANKERS TO THE TRUST
ANZ Bank New Zealand Limited
ANZ Centre
23-29 Albert Street
Auckland 1010
Australia and New Zealand Banking Group Limited
2/100 Queen Street
Melbourne, Victoria 3000
Australia
Bank of New Zealand
Deloitte Centre
80 Queen Street
Auckland 1010
UNIT REGISTRAR
Computershare Investor Services Limited
159 Hustmere Road
Takapuna, Auckland 0622
Private Bag 92119
Auckland 1142
New Zealand
vital@computershare.co.nz
Telephone: +64 9 488 8777
Facsimile: +64 9 488 8787
This document is printed on an environmentally responsible paper,
produced using Elemental Chlorine Free (ECF), FSC(R) certified, Mixed
Source pulp from Responsible Sources, and manufactured under the strict
ISO14001 Environmental Management System.
---
FY20 ANNUAL RESULTS
PRESENTATION
10 August 2020
Managed by NorthWest Healthcare Properties Management Limited
PRESENTED BY:
CONTENTS
Page
•Overview of Vital3
•FY20 highlights7
•Financial results & capital management13
•Portfolio overview & update19
•Overview of Developments25
•Outlook & Guidance33
•Appendices35
2
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Aaron Hockly
Fund Manager
Richard Roos
Exec. Director, Portfolio
Michael Groth
Chief Financial Officer
Chris Adams
Exec. Director, Projects
All amounts are in NZD unless otherwise shown
OVERVIEW
3
VITAL HEALTHCARE PROPERTY TRUST
OVERVIEW OF VITAL
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
4
VITAL IS THE FOURTH LARGEST LISTED PROPERTY VEHICLE AND THE ONLYSPECIALIST HEALTHCARE LANDLORD ON THE NZX
Vital Healthcare Property Trust (Vital) is:
✓the owner of a $2.09 billion property portfolio in New Zealand (24% of assets) and Australia (76%);
✓the only NZX-listed specialist healthcare landlord (NZX ticker: VHP) with no ASX-listed equivalent;
✓externally managed by a subsidiary of Toronto-listed, global healthcare real estate owner and
manager, NorthWest Healthcare Properties REIT (TSX ticker: NWH);
✓the fourth-largest NZX-listed property vehicle; and
✓targeting 2-3% AFFO and DPU growth per annum whilst retaining a conservative pay-out ratio.
Calculated in accordance with Vital’s Trust Deed
44* properties (A/NZ)
4
2
5
14
1
7
11
$1.59bn
$492m
$2.09bn
11* Properties
(NZ)
33* properties (AUS)
*Excludes strategic assets
Figures may not sum due to rounding
Vital Portfolio by Geography
99.4%
occupancy
~$100m
net property
income
18.1 years
W ALE;
12.1 years average building age*
5.54%
weighted average cap
rate
(5.5% -Australia, 5.66% -NZ)
Portfolio as at 30 June 2020
$410m
development pipeline
(current and potential)
$45.7m
FY20 net
revaluation
gain
*average building age = the later of the date of construction or last significant capital works
AUSTRALIA
NEW ZEALAND
38.7%
debt/assets
ASSET ALLOCATION
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
5
VITAL INVESTS IN HEALTH ECOSYSTEMS IN NEW ZEALAND & AUSTRALIA
OUT-PATIENT /
MEDICAL OFFICE BUILDINGS
HOSPITALS
LIFE SCIENCES / RESEARCH
AGED CARE
Comprises: public, private, rehabilitation and
mental health hospitals and similar facilities
Targeting: Government supported or high private
health insurance catchments with growing
populations
Target portfolio weighting: 50 -70% (30 June
2020: 82%)
Comprises: administration, diagnostic services
and specialist out-patient facilities
Targeting: facilities located in a healthcare
precinct
(1)
and/or from where healthcare is
delivered
Target portfolio weighting: 10 -20% (30 June
2020: 12%)
Target Portfolio Weightings
10%-20%
5%-15%
50%-70%
10%-20%
Comprises: biotechnology, pharmaceutical,
biomedical, university and other research
facilities
Targeting: specialised facilities and/or facilities
located in a healthcare precinct
(1)
Target portfolio weighting: 5-15% (30 June
2020: 0%)
(2)
Comprises: residential aged care villages
(excluding retirement facilities)
Targeting: high quality operators with substantial
balance sheets and <45% Rent/EBITDAR and high-
quality infrastructure
Target portfolio weighting: 10 -20% (30 June
2020: 6%)
VITAL
Investments targeted to provide earnings growth from a diversified and defensive asset base
(1)Healthcare precinct = area or hub for healthcare delivery typically including at least two of a public hospital, major private hospital,
health teaching facility or health research facility
(2)The initial focus for this subsector will be New Zealand. Hospitals and aged care are the priority for Vital’s growth in Australia at
least in the near-term.
WHY INVEST IN VITAL
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
6
VITAL IS THE ONLY SPECIALIST NZX-LISTED OWNER OF HEALTHCARE PROPERTY; NO ASX-LISTED EQUIVALENT
DEFENSIVE SECTOR
HIGH DEMAND
HIGH QUALITY
PORTFOLIO
DEVELOPMENT
UPSIDE
EARNINGS
GROWTH
Private healthcare is
typically a non-
discretionary or high
priority discretionary
spend
Less impacted by
economic or business
cycles than other
property sectors
Ageing demographics
and growing population
in both Australia and
New Zealand
Rising life expectancy
Improvements in
science, technology and
healthcare increase
service offerings
NZ$410m 3-year
pipeline of
developments ($280m
existing and $130m
proposed) funded by
asset recycling and
existing debt facilities
W eighted average
project yield of 6.1%;
provide value creation
and earnings growth
Targeting 2-3% AFFO
and DPU growth with a
conservative pay-out
ratio
94% of leases increase
by CPI or fixed %
Embedded earnings
growth enhanced by
acquisitions and
developments
Landlord to some of New
Zealand and Australia’s
leading private
healthcare operators
$2.09B portfolio
99.4% occupancy
W ALE: 18.1 years
Average building age*:
12.1yrs
*averagebuildingage=thelaterofthedateofconstructionorlastsignificantcapitalworks
Vital seeks to deliver stable and growing total unitholder returns, including an attractive risk-adjusted income distribution, sourced
from healthcare property
FY20 HIGHLIGHTS
7
VITAL HEALTHCARE PROPERTY TRUST
FY20 HIGHLIGHTS
✓AFFO up $3.3m (+7.5% from FY19)
✓NTA of $2.38 (+2.9% from 30 June 2019)
✓Gearing
(1)
of 38.7%, up from 35.3% at 30
June 2019; remains well within covenants
✓Debt liquidity healthy with undrawn
capacity at $225.3m
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
8
ACQUISITIONS AND DEVELOPMENTS HELPING TO GROW AFFO
✓Property revaluation gains of $45.7m
(+2.5% increase in portfolio value from
June 2019)
✓W eighted average cap rates firmed 7 bps
to 5.54%
(2)
✓Like-for-like, same currency rental growth
of 1.6%
✓COVID-19 impacts managed efficiently
and in alignment with National Code of
Conduct (Australia)
✓$75.4m of acquisitions, including $60.1m
of aged care acquisitions and $10m of
committed acquisitions of strategic sites
for future activation
✓$88.5m
(3)
invested developments with a
weighted average return on cost of 6.1%
and other capital works
Financial
(1)Debt to Gross Assets calculated in accordance with Vital’s Trust Deed
(2)Income Producing Property
(3)Total capitalised costs, including development expenditure, capitalised interest on developments and capitalised incentives
Portfolio
Acquisitions and
Developments
NETPROPERTY INCOME
Leasing activity
Southport Private Hospital extension and
variation of lease for 25 years to Ramsay
Healthcare (full hospital)
IVF Australia Ltd renewal for a further 5 years
(876sqm) at Mons Road, Sydney
Rent reviews completed at an annualised rate of
1.6%
Acquisition income from settlement of Aged
Care acquisitions (late March 2020)
Development income rentalisation of capital
expenditure and holding income from strategic
site acquisitions
COVID-19 support includes lease extensions and
other portfolio enhancing initiatives (includes
provision for doubtful debts)
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
9
2.5% NPI GROWTH AIDED BY ACQUISITIONS, DEVELOPMENTS AND RENT REVIEWS
(000’s)
3.4% grow th (excl. FX)
Net Property Income Bridge
*Provision for doubtful debt
COMPARATIVE RETURNS
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
10
VITAL HAS OUTPERFORMED THE INDEX ON A TOTAL RETURN
(1)
BASIS
Source: Forsyth Barr
(1) Total returns measured by change in unit price plus post-tax distributions to 30 June 2020
(2) S&P/NZX All Real Estate Index data from 31 December 2004
Total return to 30 June
2020
1yr
5yr
(p.a.)
10yr
(p.a.)
Index
Inception
(p.a.)
(2)
Vital5.1%13.5%14.6%13.5%
S&P/NZX All Real Estate
Index
-8.3%9.1%11.9%8.7%
Vital’s outperformance13.4%4.4%2.7%4.9%
VHP vs S&P NZX Real Estate Index
Outperformance against the S&P/NZX All Real
Estate Index since inception
13.4% outperformance versus benchmark over last
12 months
Outperformance highlights the defensive nature of
healthcare real estate compared to other real estate
classes
REAL ESTATE RETURNS
11
HEALTHCARE REAL ESTATE CONTINUES TO PERFORM STRONGLY
Vital has outperformed all three core real estate asset classes in Australia over the 1, 3 and 5 year periods.
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Returns by real estate asset class in Australia versus Vital’s real estate level returns (non-compounding) year ended 31 March 2020
Source: MSCI & Vital, 2020
Returns shown are on a nominal, unlevered “all asset” basis (inclusive of development and transaction activity). Vital returns include Australian and New Zealand Portfolio
Capital
Growth
Income
Growth
10.7%
36.3%
63.1%
-0.6%
13.3%
34.6%
10.8%
33.9%
57.7%
11.8%
45.4%
88.4%
-20%
0%
20%
40%
60%
80%
100%
1yr3yr5yr1yr3yr5yr1yr3yr5yr1yr3yr5yr
% Return
Vital portfolio returns
Office (Aus)Retail (Aus)
Industrial (Aus)
ASX Listing
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
12
PROPOSED FOREIGN-EXEMPT ASX LISTING RECEIVED OVER 90% SUPPORT BUT DID NOT PROCEED
Board and management are
reflecting on:
Significant support for the
proposal; and
Feedback from unitholders
and other stakeholders.
75% approval (excluding
NorthWest) required for
restructuring therefore
proposal not proceeding
66% of eligible unitholders
voted in favour
NorthWest, holder of ~25%
of Vital’s units was
supportive of the proposal
but unable to vote
PROCESS
OUTCOMELOOKING AHEAD
FINANCIAL RESULTS & CAPITAL MANAGEMENT
13
VITAL HEALTHCARE PROPERTY TRUST
FINANCIAL PERFORMANCE
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
14
STRONG PROPERTY LEVEL PERFORMANCE SUPPORTED AFFO GROWTH
Actual
Actual
($)
(%)
FY2020
FY2019
change
change
Net property income
100,147
97,683
2,464
2.5%
Corporate expenses
(4,581)
(3,477)
(1,104)
(31.8%)
Management fees
(18,709)
(25,916)
7,207
27.8%
Strategic transaction income and expenses
(7,764)
(4,273)
(3,491)
(81.7%)
Strategic transaction interest income
268
2,672
(2,404)
(90.0%)
Realised transaction gains / (losses)
22
(112)
134
(119.6%)
Net finance expenses
(28,251)
(32,542)
4,291
13.2%
Operating profit before tax and other
income
41,132
34,035
7,097
20.9%
Property revaluations and other unrealised
income
29,169
72,998
(43,829)
(60.0%)
Profit before income tax
70,301
107,033
(36,732)
(34.3%)
Adjusted funds from operations (AFFO)
47,211
43,897
3,314
7.5%
Adjusted funds from operations (cpu)
10.45
9.90
0.56
5.6%
Average NZD/AUD exchange rate in the period
0.9488
0.9444
(in 000s of $NZ, except per unit amounts)
Contribution from structured rent reviews,
acquisitions and progress on
development pipeline (development rents)
AFFO enhanced by developments and
acquisitions as well as a reduction in
costs
Reduction in floating rates over the prior
period
Recently introduced Australian foreign
owner surcharge land taxes and
unitholder vote on fee and governance
changes costs
Refer to page 36 for a breakdown of how
AFFO has been calculated including the
restatement of FY19 AFFO
BALANCE SHEET
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
15
STABLE POSITION
Increase due to:
development and capital works
expenditure of $88.5m
(3)
acquisitions totaling $75.4m
revaluation gains of $45.7m
F/X impact of $36.3m
right of use asset of $4.0m
Manager’s incentive fee paid in units
Distribution Reinvestment Plan at a 1%
discount to market
(1)Calculated in accordance with Trust Deed
(2)Excludes A$80.3m related party loan which was repaid on 2 August 2019 and used to repay bank debt
(3)Total capitalised costs, including development expenditure, capitalised interest on developments and capitalised incentives
Actual
Actual
($)
(%)
FY2020
FY2019
change
change
Investment properties
2,086,309
1,836,430
249,879
13.6%
Other assets
18,909
95,113
(76,204)
(80.1%)
Bank debt
814,537
735,422
79,115
10.8%
Other liabilities
211,702
167,588
44,114
26.3%
Debt to gross assets
1, 2
38.7%
35.3%
9.6%
Unitholder funds
1,078,979
1,029,745
49,234
4.8%
Units on issue (000s)
453,783
446,346
7,437
1.7%
Net tangible assets ($/unit)
2.38
2.31
0.07
2.9%
Period end NZD/AUD exchange rate
0.9345
0.9564
(in 000s of $NZ, except per unit amounts)
NET TANGIBLE ASSETS
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
16
REVALUATION GAINS HAVE LED TO NTA GROWTH PER UNIT
Revaluation gain of $45.7m; 2.5%
increase in portfolio value from June
2019
85% of gain from Australian
portfolio, 15% from New Zealand
$29m of the gain from cap rate
compression with the balance from
rent increases and development
margin
NTA Per Unit Bridge
DEBT
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
17
CONSERVATIVE DEBT LEVELS RETAINED
Overview
Looking to extend duration now that foreign exempt listing on
ASX not proceeding
Healthcare real estate sector is defensive, benefiting from
long-term structured cashflows to quality tenants, considered
as essential service national infrastructure
Sufficient liquidity and headroom available to support Vital’s
requirements, including developments
Debt strategy focus is targeting
Diversification of financiers
Refinance of near-term facility maturities
Introduction of long duration debt facilities to complement long
term structured cashflows from tenants
38.7%
DEBT / ASSETS
Calculated in accordance with Vital’s Trust Deed
✓Debt levels considered conservative given
cashflow security: high quality tenants,
long leases, minimal upcoming expiries,
high quality properties and defensive
asset class
✓Focus on extending debt tenure
DEBT MATURITY
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
18
UTILISING AVAILABLE HEADROOM AND ADDING CAPACITY
Debt Maturity Profile
Bank Facilities30 Jun 202030 Jun2019
Debt to gross assets (TrustDeed)38.7%35.3%
(1)
Bank loan to value ratio –actual40.2%35.5%
(1)
Bank loan to value ratio –covenant50.0%50.0%
W eighted average duration to expiry1.8 years2.2 years
Undrawn facility limit$225m$257m
(1)
Trust Deed debt ratio is based on total borrowings to
gross asset value of the Trust
Bank LVR is based on total borrowings to secured
property value as determined by external valuers
(1)Pro forma for A$80.3m related party loan which was repaid on 2 August 2019.
Targeting diversification of finance providers and
increased debt duration
FY21 debt expiries: A$125m in March 2021
Discussions commenced with new and existing
finance providers to extend and diversify debt
19
PORTFOLIO OVERVIEW & UPDATE
VITAL HEALTHCARE PROPERTY TRUST
PORTFOLIO OVERVIEW
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
20
ALL FOUR KEY ASSET GROUPINGS PERFORMING WELL
Private hospitals -Australia
20 hospitals (surgical,
rehabilitation and mental health)
Four hospital operators
62% of portfolio value; 61% of rent
W ALE: 19.9 years
Private hospitals-New Zealand
8* hospitals (all surgical)
Five hospital operators
20% of portfolio value; 20% of rent
W ALE: 22.3 years
Out-patient facilities / medical
office buildings –Australia and NZ
8 assets (Australia: 5, NZ: 3)
Multiple tenants
12% of portfolio value; 11% of rent
W ALE: 6.2 years
Aged care -Australia
8 facilities (all in Australia)
Two operators
6% of portfolio value; 8% of rent
W ALE: 16 years
Subsector diversity (by value)
*Includes Ascot Carpark
PORTFOLIO OVERVIEW (continued)
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
21
$2+ BILLION INVESTED IN 44 CORE HEALTHCARE PROPERTIES WITH OVER 120 TENANTS AND ~2,900 BEDS
Rent
FY20 rental growth of 1.6% (like-for-
like, same currency basis)
Positive rent growth forecast for FY21
through a combination of CPI and
fixed rent increases
Diversification
As shown on this page, Vital has a
diverse portfolio by location and
tenant
Seeking to continuously improve
diversity of income
WA 5%
SA 4%
VIC 20%
NSW 34%
QLD 12%
NZ 24%
TAS 1%
Tenant Diversification (% of rent)
Geographic Diversification (by value)
PORTFOLIO STRATEGY
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
22
NEW 5 YEAR PORTFOLIO STRATEGY (2020-2025)
Acuity
Seeking higher acuity offerings and
investments which are a core part of the
health ecosystem
Regulated and precinct offerings preferred
Example: aged care, not retirement
Investment characteristics
Acquisitions, developments and disposals to
be considered across a range of metrics
including IRRs, impact on overall portfolio,
earnings growth and management capability
Focus on high quality, well capitalised
operators
Earnings growth
Portfolio designed to support AFFO target
growth of 2-3% per annum
Quality
Continue to improve portfolio quality
Aiming to maintain or improve average
building age
Location
Australia or New Zealand
Focus on metropolitan assets with growing
populations
COVID-19 IMPACTS
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
23
$2+ BILLION PORTFOLIO RESILIENT THROUGH COVID-19 PANDEMIC
Portfolio and tenants held up well during COVID-19
Vital operated in accordance with code of conduct (principles
opposite) including in New Zealand (principles of the code
voluntarily applied in NZ)
Rent abatements less than $300,000 for FY20
Rent deferrals across FY20 and FY21 expected to be <5% of
net rent
Lease enhancements have been or are being negotiated as part
of support packages including lease extensions
COVID-19: National Code of Conduct, Commercial Leasing (AUS)
Set of principles for commercial tenancies.
Mandatory application for small to medium sized tenants (turnover
<$50 million plus other criteria) but landlords also required to take
code into account for all other tenants.
Rent reductions to be based on the tenant’s decline in turnover to
ensure that the burden is shared between landlords and tenants.
Reductions can be either waivers or deferrals.
Local and foreign banks are expected to support landlords and
tenants in implementing this code.
Tenants must stay committed to their lease terms (subject to
amendments).
6 month hold on evictions.
COVID-19 IMPACTS (continued)
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
24
SOME DIFFERENCES EXPERIENCED ACROSS KEY ASSET GROUPINGS
Private hospitals(AUS)
Reduction in private hospital activity due to the restrictions on
non-urgent, category 2 and 3 elective procedures in Australia
from 23 March 2020
State Government funding agreements with private operators to
support the financial viability of the sector due to COVID-19 and
secure bed use by the public system for COVID19 patients, if
required.
Although restrictions remain in some places (notably Victoria),
there has been a significant recovery across most other
locations who are now operating at or near 100% capacity
Private hospitals(NZ)
Similar restrictions on elective surgeries were adopted in NZ as
in AUS but now fully operating
Limited COVID-19 related Government support provided to
private hospital operators in FY20
Quick recovery to at or near 100% capacity once restrictions
were lifted in mid-May
Aged care
Limited impact on Vital’s tenants (to date)
No rent relief requested
Medical office buildings
Reduced activity levels across portfolio due to COVID-19
Telehealth sessions have been adopted by most tenants,
providing income despite stringent lockdowns in some States
OVERVIEW OF DEVELOPMENTS
25
VITAL HEALTHCARE PROPERTY TRUST
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
26
ACTIVELY PURSUING DEVELOPMENT OPPORTUNITIES IN NEW ZEALAND AND AUSTRALIA
Developments are key for:
1. Earnings growth
Attractive return on cost
Accretive for unitholders
Valuation upside on completion
2. Improving the portfolio
Helps tenants increase their revenues (typically strengthening Rent/EBITDAR) resulting in better
tenant covenants
New builds match current requirements -improvements are fit-for-purpose and meet current tenant,
patient and community requirements.
Reduces average building age
Extension / maintenance of W ALE
NorthWest has specialist healthcare development skills in New Zealand and Australia. Key people have 20+ years experience;
unmatched in the sector
DEVELOPMENTS DELIVER VALUE
DEVELOPMENT STRATEGY
VITAL HEALTHCARE PROPERTY TRUST
27
REPLENISHING DEVELOPMENT PIPELINE TO ENHANCE EARNINGS GROWTH
Overview
Targeting 10-15% of the portfolio
value under development (limit of
25%)
Partnership approach with key
operating partners including return on
cost procurement structure
Other development opportunities
being considered where strategic in
nature including key health precincts
Pipeline
$280m of current developments with
>$200m of spend remaining
$130m new potential opportunities
identified, (subject to business cases,
due diligence and approvals)
Development is primarily tenant-led
(75%+) but may include some
greenfield development
Expected Financial Impacts
Current development pipeline
delivering 6.1% yield on cost
Funding expected to come from asset
recycling and existing debt facilities
Pipeline forecasted to be delivered on
a staged basis over the medium term
Both earnings/NTA accretive and
portfolio enhancing
FY20 COMPLETED DEVELOPMENTS
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
28
TWO DEVELOPMENTS COMPLETED IN FY20
AssetThe Hills Clinic, Sydney
Asset TypeMental Health
Total CostA$8.3m
Project Yield6%
Completion DateMay 2020 (ahead of schedule)
DescriptionAdded 26 beds and refurbishment of adolescent ward
100% occupancy of new beds already achieved and
27yr WALE
Future expansion options being explored
Precinct ValueA$45m
AssetLingard Day Centre, Newcastle
Asset TypeDay Surgery / MOB
Total CostA$27.7m
Project Yield6.5%
Completion DateJune 2020
DescriptionNew standalone day surgery unit, consulting suites and
basement carpark
Material expansion of “Lingard Health Precinct”; one of the
leading healthcare precincts in the Hunter Region
100% occupancy and 25.7yr WALE
Precinct ValueA$190m
The Hills Clinic, Sydney (2020)
Lingard Day Centre, Newcastle (2020)
Lingard Health Precinct, Newcastle (2020)
Lingard Private
Hospital
Vital Owne d
Future
Expansion
Lingard Day
Centre
COMMITTED DEVELOPMENTS
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
29
BROWNFIELD DEVELOPMENTS ENHANCE EARNINGS GROWTH AND IMPROVE ASSET QUALITY
(1)To 30 June 2020
(2)Stage 1 has a forecast development cost of $37m is well progressed, Stage 2 for $61m is forecast to start mid-2021
Project yields represent a 500+ bps premium over the
New Zealand and Australian 10-year Government
bond yields.
Committed developments reduce average building age
from 12.1 years at June 2020 to 10.0 years at June
2022 (despite 2 years passing) on a pro-forma basis.
Forecast
Development
Cost
Spend to
date
(1)
Cost to
Complete
Forecast
Income Return
Forecast
Completion Date
Epworth Eastern (VIC)
A$126.2
A$30.5
A$95.7
6.0%
Late-2021
South Eastern Private (VIC)
A$9.9
A$4.1
A$5.8
6.0%
Early-21
Eden Rehab (QLD)
A$12.4
A$1.2
A$11.2
6.0%
Early-21
North West Private (TAS)
A$3.5
A$0.0
A$3.5
7.0%
Early-21
Total Australian Projects
A$152.0
A$35.8
A$116.2
6.0%
Wakefield Hospital (Wellington, NZ)
(2)
NZ$98.0
NZ$31.6
NZ$66.4
6.3%
Staged 2021-2023
Royston Hospital (Hastings, NZ)
NZ$19.1
NZ$7.9
NZ$11.2
6.3%
Late-21
Total New Zealand Projects
NZ$117.1
NZ$39.5
NZ$77.6
6.3%
Total Projects in NZD
NZ$279.7
NZ$77.8
NZ$201.9
6.1%
The Epworth Eastern development
is progressing well with excavation
and piling complete. Structure has
commenced along with
refurbishment of the existing
Medical Centre for hospital use.
The Eden and North W est
developments are on hold due to
Covid-19 but are expected to
resume in the near term; Eden as a
staged development.
New Day Oncology Centre, new 10
bed ward and conversion of shared
rooms to singles.
Royston Hospital scope increased to
include a freestanding day surgery
unit.
All values shown in $m
EPWORTH EASTERN
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
30
ENABLING EPWORTH MEET RISING DEMAND FOR HEALTHCARE SERVICES IN THIS CATCHMENT
Project Summary
Construction of a new 14 storey tower under a lease
agreement with Epworth Healthcare to lease
approximately 80% of the expansion
The project will add an additional 5 operating
theatres, 62 beds, an emergency department and
seven levels of specialist consulting
Construction Update
Early works including piling and excavation complete
Structure commenced and tower crane erected
First basement slab poured
First stage of existing medical centre refurbishment
complete and handed over
Remains on target for late calendar 2021 completion
to Epworth for hospital use
Precinct Value on CompletionA$380m
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
31
ENHANCING WELLINGTON’S PRE-EMINENT PRIVATE HOSPITAL INCLUDING SEISMIC RESILIENCE (ABOVE CODE)
Project Summary
$98m staged redevelopment of the W akefield Hospital
30-year lease agreement with Acurity Health Group
6.3% rentalisation yield with annual rent reviews of 1.5x CPI
Adopting base isolation which will ensure enhanced seismic resilience which exceeds building code
requirements
Construction Update
Structure for Stage 1 is substantially complete with
roof works commenced
Services installation approximately 50% complete
COVID-19 closed site down during the NZ lockdown
period however site is now operating at 100%
Stage 1 expected to be complete in the second
quarter of calendar 2021
Design significantly progressed for Stage 2 and Early
Contractor Involvement or “ECI” process progressing
with the contractor
WAKEFIELD HOSPITAL
Precinct Value on CompletionA$130m
ROYSTON HOSPITAL PROJECT
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
32
EXPANSION AND REDEVELOPMENT OF LEADING HAWKE’S BAY PRIVATE HOSPITAL
Project Summary
Extension of the existing hospital and reconfiguration of patient admission and recovery areas
Two new theatre shells for future expansion
New stand-alone Day Surgery unit with one operating theatre and provision for additional theatres at
later date. To be operated by a joint venture between existing tenant Acurity, along with several leading
Hawke's Bay orthopedic surgeons
Construction Update
The structure of the existing hospital extension is
almost complete and internal fit-out works are
progressing well.
W orks to the existing hospital expected to be
complete in the fourth quarter of calendar 2020 with
the Day Surgery Unit completed approximately 12
months later.
Resource consent for the Day Surgery Unit has been
received and in ground works have commenced on
site.
Precinct Value on CompletionA$75m
OUTLOOK AND GUIDANCE
33
VITAL HEALTHCARE PROPERTY TRUST
OUTLOOK
34
FOCUSSED ON EARNINGS GROWTH
FY20 distribution guidance of
8.75cpu met; 84% payout ratio on
AFFO of 10.45 cpu
FY21 distribution
(1)
guidance at
least8.75cpu
Distributions paid quarterly by equal
instalments
Extension and diversification of
debt being progressed
$410m development pipeline
(including existing and potential
developments)
~$100m of asset sales to be
progressed in FY21 to enhance
portfolio and fund development
pipeline
Value adding acquisition
opportunities continue to be
considered in New Zealand and
Australia
Foreign exempt listing on the ASX
not proceeding; no immediate
impacts on Vital’s strategy or
operations
Appointment of Independent
Chair by 2020 AGM
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
(1)Guidance provided on the basis ofa number of assumptions
including no significant change in COVID-19 in Australia or New
Zealand and the notes on page 46 of this presentation
VITAL HEALTHCARE PROPERTY TRUST
35
APPENDICES
ADJUSTED FUNDS FROM OPERATIONS (AFFO)
36
CONSERVATIVE PAYOUT RATIO
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Adjustment for the effects of
NZ IFRS 16 Lease
accounting on the Ascot
carparks ground lease
Current tax on unrealised FX
losses on foreign currency
denominated borrowings
ActualActual($)(%)
FY2020FY2019changechange
Operating profit before tax and other income 41,132 34,035 7,097 20.9%
Add/(deduct):
Current tax expense (7,238) (7,572) 334 4.4%
Incentive fee 6,475 12,077 (5,602) (46.4%)
Net strategic transaction expenses 7,764 4,273 3,491 n.a.
Current tax expense/(benefit) on translation of borrowings (1,234) 38 (1,272) 3,347.4%
Amortisation of borrowing costs 611 470 141 30.0%
Amortisation of leasing costs & tenant inducements 1,084 931 153 16.4%
IFRS 16 operating lease accounting (144) - (144) n.a.
Funds from operations (FFO) 48,450 44,252 4,198 9.5%
Add/(deduct):
Non-recurring corporate costs 323 1,050 (727) n.a.
Actual capex & leasing from continuing operations (1,562) (1,405) (157) (11.2%)
Adjusted funds from operations (AFFO) 47,211 43,897 3,314 7.5%
AFFO (cpu)10.45c9.90c0.56c 5.6%
Distribution per unit (cpu)8.75c8.75c
AFFO payout ratio84%88%
Units on issue (weighted average, 000s)451,563443,453
(in 000s of $NZ, except per unit amounts)
Note: 2019 AFFO has been restated to exclude
realised currency gains on settlement of
intercompany borrowings, income tax arising on
unrealised FX on foreign currency denominated
borrowings and the adjustment to normalise for
the first-time impact of the amendment to
Attributable FIF income rules.
MOVEMENT IN INVESTMENT PROPERTY
37
REVALUATIONS KEY DRIVER OF GROWTH
Investment property bridge
✓Acquisitions: $75.4m of acquisitions, including $60.1m
of aged care acquisitions and $10m of committed
acquisitions of strategic sites for future activation
Capital additions: $88.5m* spent on projects
Property revaluations: $29m of the gain from cap rate
compression with the balance from rent increases and
development margin.
Right of use asset: Represents the fair value
adjustment to Vital’s leasehold interest in the Ascot
Hospital and Ascot Central car parks in accordance with
NZ IFRS 16.
Foreign exchange: Period end NZD/AUD exchange
rate decreased to 0.9345 from 0.9564 at 30 June 2019.
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
(NZ millions)
NZ AssetsAU Assets
*Includes development expenditure, capitalised interest costs and net capitalised incentives
LEASE EXPIRY PROFILE
Lease expiries in FY20 and FY21 primarily reflect smaller tenancies at multi-tenant properties, including:
FY21 Expiries:
Ekera Medical Centre (1 tenancy, 83sqm), Apollo Health & W ellness Centre (1 tenancy, 265sqm) and Gold Coast Surgical Centre (2
tenancies, 244 sqm)
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
38
LOW RISK EXPIRY PROFILE SUPPORTS SUSTAINABLE, PREDICTABLE AND DEFENSIVE CASH FLOWS
10-year average annual lease
expiry of only 1.3% (as % of
total portfolio income)
(1)Includes fixed percentage and CPI reviews
RENT REVIEWS
39
HIGH PERCENTAGE OF TOTAL RENT IS REVIEWED ANNUALLY WITH STRUCTURED
1
REVIEW MECHANISMS
Rent Reviews –FY20 (excludes acquisitions)
Rent reviews were completed
for 164 leases in FY20
Structured reviews
represented 94%
(1)
of leases
by income as at Jun-20
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Jun-19 Rent p.a.Jun-20 Rent p.a.Increase
Annualised
Growth
#
(NZD)(NZD)(NZD)(Stable currency)
Australia7773,909,74475,003,6811,093,9371.5%
New Zealand8124,592,85225,062,816469,9641.9%
Total15898,502,596100,066,4971,563,9011.6%
Jun-19 Rent p.a.Jun-20 Rent p.a.
Increase
Annualised
Growth
#
(NZD)(NZD)(NZD)(Stable currency)
CPI10587,363,01188,688,6481,325,6371.5%
Fixed438,083,8688,250,932167,0642.1%
Market92,150,8072,150,807--
Turnover1904,910976,11071,2007.9%
Total15898,502,596100,066,4971,563,9011.6%
CORE PORTFOLIO METRICS
40
5 YEAR TRENDS HIGHLIGHT PORTFOLIO STRENGTH AND UNDERPIN LONG-TERM PERFORMANCE
11
th
consecutive year of
portfolio occupancy
>99%
Long WALE maintained
through active portfolio
management
High degree of
confidence that future
expiries will be renewed
or replaced in advance
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
(1)
(1)Reflects the average % of total portfolio income that expires over each of the next 10 years.
TOTAL INCOME SUBJECT TO STRUCTURED RENT REVIEWS
WALEOCCUPANCY
AVERAGE 10 YR LEASE EXPIRY
INTEREST RATE HEDGING PROFILE
41
COST OF DEBT WELL HEDGED, MANAGING RISK
Hedging Maturity Profile ($A)
NOTE: Fixed rates exclude line fees and margin
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Rates
31 Jun
2020
30 Jun
2019
Weightedaverage cost of debt3.59%4.40%
Weightedaverage fixed rate
(excluding line fee and margin)
3.01%3.12%
Weightedaverage fixed rate
duration
6.1 years6.4 years
% of drawn debt fixed60%73%
PORTFOLIO OVERVIEW
42
$2.09B PORTFOLIO OF HEALTHCARE REAL ESTATE COMPRISING 44 INVESTMENT PROPERTIES AND 2,900+ BEDS
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Belmont Private Hospital, QLD
Maitland Private Hospital, NSW
VITAL’S STRUCTURE
Vital Structure Overview
Vital is a unit trust, managed by
NorthW est Healthcare Properties
Management Limited, and supervised by
Trustees Executors Limited in
accordance with the Trust Deed
The Board of Directors is responsible for
the governance of Vital
Vital’s ability to grow unitholder returns is
enhanced by NorthW est (a global
healthcare property specialist) as it is a
highly aligned manager owning ~25% of
Vital
Specialist team of over 250 professionals
globally including over 40 in New Zealand
and Australia
43
VITAL IS A UNIT TRUST EXTERNALLY MANAGED BY A LEADING GLOBAL HEALTHCARE REAL ESTATE INVESTOR AND MANAGER
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
Supervises Vital and
ensures compliance with its
requirements under the
Trust Deed
NorthW est Healthcare
Properties Management
Limited (Manager)
Board of Directors
Trustees
Executors Limited
(Supervisor)
Vital unitholders
Healthcare properties
Board comprises
3 Independent Directors and
2 NorthWest appointees
Management of Vital
in accordance with
the Trust Deed
100%
24.9%
75.1%
OVERVIEW OF NORTHWEST –VITAL’S MANAGER
44
NORTHWEST: A FOCUSED HEALTHCARE REAL ESTATE INVESTMENT OWNER ANDMANAGER
NZ$7.4Bn
Assets under management
Global scale, local relationships
Partner of choice for leading operators in each market it invests
Deep healthcare real estate expertise
200+ healthcare property professionals based in 3 of the largest
global healthcare markets
Execution excellence
15+ years of healthcare real estate investment, management and
development
Entrepreneurial culture, institutional capabilities
10+ year public company track record
A proven track record
Track record of delivering strong risk-adjusted returns for investors
Scalable platform with embedded growth
Its operator relationships and existing portfolio provide a robust
acquisition and development pipeline
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
GLOSSARY
45
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
IPP
Income Producing Property
DISCLAIMER
VITAL HEALTHCARE PROPERTY TRUST | ANNUAL RESULTS 2020
46
This presentation has been prepared by NorthW est Healthcare Properties 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 ,
legal, tax or financial advice or recommendation to any person 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.
This presentation may contain forward-looking statements. Forward-looking statements can include words such as “expect”, “intend”,
“plan”, “believe”, “continue” or similar words in connection with discussions of future operating or financial performance orconditions. The
forward-looking statements are based on management's and directors’ current expectations and assumptions regarding the Trust’s
business, assets and performance and other future conditions, circumstances and results. As with any projection or forecast, forward-
looking statements are inherently susceptible to uncertainty and to any changes in circumstances. The Trust’s actual results mayvary
materially from those expressed or implied in the forward-looking statements. The Manager, the Trust, and its or their directors, employees
and/or shareholders have no liability whatsoever to any person for any loss arising from this presentation or any informationsupplied in
connection with it. The Manager and the Trust are under no obligation to update this presentation or the information contained in it after it
has been released. Past performance is no indication of future performance.
10 August 2020
---
VITAL HEALTHCARE PROPERTY TRUST vhpt.co.nz
Managed by NorthWest Healthcare Properties Management Limited p1
MARKET RELEASE
10 August 2020
Results Announcement
Results for announcement to the market
Name of issuerVital Healthcare Property Trust
Reporting Period12 months to 30 June 2020
Previous Reporting Period12 months to 30 June 2019
CurrencyNZD
Amount (000s)Percentage change
Revenue from continuing operations$100,1472.52%
Total revenue$100,1472.52%
Net profit/(loss) from continuing
operations$58,126-37.78%
Total net profit/(loss)$58,126-37.78%
Interim/Final Dividend
Amount per Quoted Equity Security$0.021875
Imputed amount per Quoted Equity
Security$0.000000
Record Date10 September 2020
Dividend Payment Date24 September 2020
Current periodPrior comparable period
Net tangible assets per Quoted
Equity Security$2.38$2.31
A brief explanation of any of the
figures above necessary to enable
the figures to be understoodRefer announcement
Authority for this announcement
Name of person authorised to make
this announcementMichael Groth
Contact person for this
announcementMichael Groth
Contact phone number+61 409 936 104
Contact email addressMichael.Groth@nwhreit.com
Date of release through MAP10 August 2020
The Annual Report accompanies this announcement
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.