Vital Healthcare Property Trust · NZX:VHP
Vital Healthcare Property Trust — FY2018 Earnings Presentation
44 slides from Vital Healthcare Property Trust's earnings presentation, Aug 9, 2018
Slide 1: Annual Results FY2018
V ITA L H EA LTH C A R E PRO PERTY TRU ST 09 A U G U ST 2018 Annual Results IN V E S T IN G IN A U S T R A L A S IA S H E A L T H C A R E IN F R A S T R U C T U R E FY 2 0 1 8
Slide 2: Contents
• HIGHLIGHTS • STRATEGY Contents • INVESTMENT ACTIVITY • SECTOR DRIVERS & TRENDS • FINANCIALS • CAPITAL MANAGEMENT • PORTFOLIO • PROPERTY REVALUATIONS • 2019 FOCUS Presented by : David Carr Chief Executive Officer Stuart Harrison Chief Financial Officer 2
Slide 3: Highlights
Highlights
Slide 4: Highlights
Highlights FINANCIAL AND PORTFOLIO PERFORMANCE DELIVERING ON STRATEGY FINANCIALS STRATEGY & DRIVERS Gross rental income of $93.7m, +20.1%1 Positive demographic trend, ageing population NDI of 10.6 cpu, payout ratio of 81% +65yr cohort utilises 4x healthcare services Highlights AFFO of
Slide 5: Strategy
Strategy
Slide 6: Strategy
Strategy LONG TERM INVESTMENT IN AUSTRALASIA’S HEALTHCARE INFRASTRUCTURE 6
Slide 7: Strategic Drivers
Strategic Drivers CORE COMPONENTS DRIVING EXECUTION TO STRATEGY 7
Slide 8: Total Returns
Total Returns VITAL HAS OUTPERFORMED LOCAL INDICIES ON A COMPOUND BASIS OVER THE LAST DECADE Compound annual return 1yr 3yr 5yr 7yr 10yr VHP -7.5% 11.7% 13.3% 13.8% 13.6% S&P/NZX All Real Estate Gross 8.9% 8.7% 10.6% 11.4% 8.9% S&P/NZX 50 Index Gross 17.5% 16.0% 15.0% 14.6% 10.8% S&P/ASX 200 AREIT 1
Slide 9: NTA growth
NTA growth…. A STRONG HISTORIC INDICATOR OF UNIT PRICE PERFORMANCE Unit price performance relative to NTA per unit NTA growth has been driven by a combination of property revaluations and foreign exchange. NTA historically underpinned unit price performance Unit price premium / (discount) to NTA
Slide 10: Distribution Sustainability
Distribution Sustainability MAINTAINING PRUDENT & CONSERVATIVE PAYOUT RATIO AFFO payout ratio Industry leading payout ratio, average of 73% over last four years versus the current NZ listed property vehicle average of 101%. AFFO adjusts for non-cash charges, non- recurring items, manager’s incen
Slide 11: Healthscope (HSO) real estate opportunity
Healthscope (HSO) real estate opportunity SITUATION UPDATE STRONG ALIGNMENT TO TACTICAL DECISION TO BENEFITS OF A 10% LONG TERM STRATEGY INVEST STAKE Interest in HSO underlying Jointly secured a 10% Clear market statement of real estate is (and has interest in HSO with intent, maximize influence, al
Slide 12: Governance update
Governance update THIRD INDEPENDENT DIRECTOR TO BE APPOINTED GRAEME HORSLEY THIRD INDEPENDENT RETIREMENT AS REVISED POLICY DIRECTOR TO BE INDEPENDENT CHAIR DOCUMENTS APPOINTED Claire Higgins appointed Review and update of Appointment prior to independent Chair and Conflicts Policy, SIPO and annual m
Slide 13: Investment activity
Investment activity
Slide 14: Investment Activity
Investment Activity SCALE & DIVERSIFICATION STRATEGY SUPPORTING DISTRIBUTION SUSTAINABILITY, AND CONSERVATIVE GROWTH Vital has strategically acquired properties with expansion potential adjacent to existing properties providing opportunities to deploy incremental capital into brownfield developmen
Slide 15: Portfolio overview
Portfolio overview $1.73B PORTFOLIO OF HEALTHCARE REAL ESTATE COMPRISING 42 INVESTMENT PROPERTIES AND ~2,600 BEDS 15
Slide 16: Acquisitions update
Acquisitions update ACQUISITIONS MAINLY ‘OFF-MARKET’ WITH PARTNERS SEEKING TO MAINTAIN A RELATIONSHIP WITH VITAL Total Future Asset Purchase Development Type Price Potential Settlement The Hills Clinic (Sydney, NSW) Psych A$30.3 31-Jul-2017 Eden Rehabilitation Hospital (Cooroy, QLD) Rehab A$23.8
Slide 17: Committed development update
Committed development update BROWNFIELDS DRIVING VALUE-ADD OUTCOMES, UNDERPINS EARNINGS SUSTAINABILITY, IMPROVES ASSET QUALITY & PERFORMANCE Decision was made in conjunction with operator to base isolate Wakefield development and to provision shell space for future expansion Bowen Hospital devel
Slide 18: Sector drivers & trends
Sector drivers & trends
Slide 19: Sector drivers and trends
Sector drivers and trends PERIODIC REGULATORY REFORM, LONG TERM TRENDS UNDENIABLE ECONOMIC & MARKET INFLUENCES PUBLIC SYSTEM RELATIVELY REGULATORY PRESSURE INSULATED reform relatively constant, private system from macro financial, diversification critical critical component economic and market condi
Slide 20: Financials
Financials
Slide 21: Financial performance
Financial performance CORE BUSINESS AND STRATEGIC FOCUS DELIVERING RESULTS Actual Normalised Change Change (in 000s of $NZ, except per unit amounts) FY2018 FY2017* $m % Gross rental income 93,678 78,032 15,646 20.1% Net rental income 90,659 75,840 14,818 19.5% Other income and expenses (31,296) (22,
Slide 22: Net distributable income
Net distributable income CONSERVATIVE NET DISTRIBUTABLE INCOME PAYOUT Actual Normalised Change Change (in 000s of $NZ, except per unit amounts) FY2018 FY2017* $m % Profit before income tax 117,437 217,332 (99,895) (46.0%) (Deduct) / Add: Property revaluations and other income (80,861) (178,115) n.a.
Slide 23: Adjusted funds from operations
Adjusted funds from operations CONSERVATIVE PAYOUT RATIOS Actual Normalised Change Change (in 000s of $NZ, except per unit amounts) FY2018 FY2017* $m % Profit before income tax 117,437 217,332 (99,894) (46.0%) Revaluation (gains)/losses (85,461) (168,549) 83,088 (49.3%) Unrealised FX (gains)/losses
Slide 24: Gross rental income
Gross rental income EXCLUDING ONE-OFF ITEMS, ACQUISITIONS, DEVELOPMENTS AND RENT REVIEWS WERE KEY DRIVERS OF GROWTH Rental income bridge (NZ 000’s) Acquired ~$420m of property in the last 24 months at a weighted average yield of ~6.0% Invested ~$60m in developments over last 24 months at a weigh
Slide 25: Like for like operating results
Like for like operating results STRONG REVENUE GROWTH DRIVING POSITIVE CORE PORTFOLIO PEFORMANCE Comparative like-for-like performance In the like for like portfolio: Geography Normalized (in 000s of NZ$) FY2018 FY2017* Variance Change • Revenue increased 2.1% (0.2% on a same currency basis) Revenue
Slide 26: Balance sheet
Balance sheet PRUDENT CAPITAL POSITION, WELL PLACED FOR 2019 Actual Actual change change (in 000s of $NZ, except per unit amounts) FY18 FY17 $ % Investment properties 1,731,247 1,376,243 355,004 25.8% Gearing remains Bank debt drawn 670,124 402,649 267,475 66.4% within bank and Trust LVR (bank cov
Slide 27: Investment property
Investment property ACQUISITIONS AND REVALUATIONS KEY DRIVERS OF GROWTH Investment property bridge (NZ 000’s) Acquisitions: Purchased $2,000 $1,800 45.5 1,731.2 The Hills Clinic (A$32.3m), 85.5 194.7 29.3 Eden Rehabilitation (A$25.3m), $1,600 1,376.2 Wakefield, Bowen, Royston $1,400 Australi
Slide 28: Capital management
Capital management
Slide 29: Debt maturity
Debt maturity UTILISING THE AVAILABLE HEADROOM AND ADDING CAPACITY Renewed two tranches of existing Bank Facilities 30 Jun 2018 30 Jun 2017 bank facility in June 2018 LVR (Trust covenant) 37.5% 28.9% Tranche A of A$125m extended to March 2021. LVR (Bank covenant) 38.7% 29.3% Tranche B of A$200
Slide 30: Hedging profile
Hedging profile STRONG FINANCIAL POSITION, FLEXIBILITY FOR THE RIGHT ACQUISITION AND DEVELOPMENT OPPORTUNITIES 30 Jun 31 Dec 30 Jun Rates 2018 2017 2017 Weighted average cost of total debt 4.60% 4.09% 4.34% Weighted average fixed rate (exc’l line and margin) 3.21% 3.40% 3.37% Weighted average fixed
Slide 31: Portfolio
Portfolio
Slide 32: Portfolio composition
Portfolio composition PORTFOLIO DIVERSIFIED ACROSS GEOGRAPHY AND HEALTH CARE SUB-SECTORS Geographic Diversification Top Ten Tenants % of TAS NSW Tenant revenue Locations SA 1% 33% 4% 1 Healthe Care 49% 18 WA 2 Epworth Foundation 10% 3 6% 3 Acurity Group 7% 3 4 Hall & Prior 5% 5 QLD 13% 5 Sportsmed 4
Slide 33: Core portfolio metrics
Core portfolio metrics 5 YEAR TRENDS SHOW PORTFOLIO IN GREAT SHAPE - UNDERPINS LONG-TERM PERFORMANCE 33
Slide 34: Lease expiry
Lease expiry LOW RISK EXPIRY PROFILE SUPPORTS SUSTAINABLE, PREDICTABLE AND DEFENSIVE CASH FLOWS Lease expiries in FY2019 and FY2020 primarily reflect smaller tenancies at multi-tenant properties, with a high expectation of renewal, including: Ascot Hospital, Ascot Central, Ormiston Hospital, Epw
Slide 35: Rent Reviews
Rent Reviews HIGH PERCENTAGE OF TOTAL RENT IS REVIEWED ANNUALLY WITH CPI OR STRUCTURED REVIEW MECHANISMS Reviews by Geography Annualised Annualised FY2018 Previous Rent New Rent Increase Growth Growth ($000s) # (NZD) (NZD) (NZD) (local F/X) (local F/X) Australia 64 55,338 59,086 3,748 2.3% 0.7% New
Slide 36: Property revaluations
Property revaluations
Slide 37: Annual revaluation summary
Annual revaluation summary VITAL HAS MARKET LEADING PORTFOLIO CHARACTERISTICS WITH EMBEDDED VALUE-ADD POTENTIAL Revaluation summary Independent valuations undertaken by 6 firms, no property valued twice consecutively in two financial years Revaluation gain of $85.5m or 6.4% 90% of gain from Au
Slide 38: Independent Portfolio Revaluations
Independent Portfolio Revaluations STRONG DEMAND FOR HEALTHCARE INFRASTRUCTURE A CORE DRIVER OF CAP RATE COMPRESSION All data as at 30 June. Capitalisation rates are reflective of the income producing portfolio and exclude properties held for development 38
Slide 39: Analysis of cap rate movement
Analysis of cap rate movement LACK OF MATERIAL DIFFERENTIATION IN CAP RATE MOVEMENTS REFLECTS SECTOR SUPPLY / DEMAND IMBALANCE Cap rate movement by metro / regional location Portfolio geographic diversification by value Cap rate Cap rate Variance 30-Jun-18 30-Jun-17 (bps) Metro Australia 5.52% 5.91%
Slide 40: Capitalisation Rate
Australian real estate sector cap rates SUSTAINABLE, PREDICTABLE AND DEFENSIVE CASH FLOWS ARE UNIQUE INVESTMENT QUALITIES DRIVING DEMAND. Capitalisation Rate Structural cap rate shift over previous 24 months highlighted by ~150 bps firming in Healthcare capitalisation rates vs ~80 bps for All Prop
Slide 41: 2019 Focus
2019 Focus - Clinic Consulting Rooms
Slide 42: 2019 Focus
2019 Focus Continued proactive asset management to support operating and financial results Execute brownfield pipeline, assess and generate additional value-add opportunities Prudent capital management, assess and utilise all the ‘tools in the toolkit’ as required Leverage track record of delivery,
Slide 43: Disclaimer
Disclaimer This presentation has been prepared by Vital Healthcare Management Limited (the "Manager") as manager of the Vital Healthcare Property Trust (the "Trust"). The details in this presentation provide general information only. It is not intended as investment or financial advice and must not
Slide 44: Glossary
Glossary AFFO Cap rate CPI FX LVR NDI NTA WACR WALE Adjusted Funds From Operations is an alternate measure used for assessing distributable income. Essentially adjusts NPAT for all non-cash items (i.e. NDI) then makes adjustments for items such as maintenance capex and lease incentives paid Capitali
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