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Vital first-half profit boosted by property gain, buys aged-care properties for A$41M

Thursday 25th February 2016

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Vital Healthcare Property Trust, which owns and develops property for hospitals and healthcare, posted a jump in first-half profit after recognising a gain in the value of assets in Australia and announced its entry to the aged-care market by buying four properties for A$41 million.

Net profit jumped to $47.5 million, or 17.15 cents per share, including a pretax property revaluation gain of $45 million, in the six months ended Dec. 31, from $13.9 million, or 4.1 cents, a year earlier,  the Auckland-based trust said in a statement. Net distributable income rose 16 percent to $19 million, allowing Vital to flag an increase in annualised cash dividends per unit to 8.5 cents starting in the third quarter, from 8.1 cents. Net rental income in the half gained 9.1 percent to $32.9 million.

Vital is betting on a strong long-term outlook for healthcare property, having added to its portfolio with the conditional purchase of the property of Boulcott Hospital in Lower Hutt and acquired land to allow the expansion of the Sportsmed Private Hospital in Adelaide. Today it announced the purchase of four aged care properties - two each in New South Wales and Western Australia - marking its entry into the lucrative retirement sector. 

"The acquisition will further diversify Vital’s portfolio composition, geographic markets and operator covenant, and will enhance long-term sustainable earnings for our investors,” said chief executive David Carr. "We have previously articulated a strategic desire to invest in residential aged care real estate and are fortunate to have now established a partnership with a leading private provider in the Australian market."

The four properties would have an initial yield of 8 percent, and are leased on 20-year terms with renewal rights. Further capital investment in the properties "will provide attractive incremental operational and investment returns," the company said. The operator of the facilities wasn't disclosed because of confidentiality requirements of the deal until about March 1.

Vital's weighted average lease term (WALT) and occupancy rate of 99.5 percent were among the highest in the sector, the trust said. Opportunities included a brownfield site programme, consideration of greenfield or joint venture healthcare real estate investments, and the acquisition and development of more aged care real estate, it said.

Vital's finance costs rose 19 percent to $7.2 million, reflecting a 27 percent increase in bank debt to $283.7 million. However, its weighted average cost of debt fell to 5.16 percent from 5.32 percent. The increase "reflects slightly higher overall debt levels, with funding primarily applied to the value-add development programme," it said.  

The trust re-priced and extended its banking facilities on more competitive terms in the first half, and added a A$100 million tranche expiring October 2020. Vital’s weighted average bank facility term to expiry rose to 4.1 years from 2.6 years.

Other expenses rose 83 percent to $6.2 million and included a provision for a $2.3 million incentive fee for the trust's manager.

Vital's units rose 0.5 percent to $1.90 and have gained 14 percent in the past year. The units are rated a 'sell' based on a Reuters poll of four analysts.

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