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Vital Healthcare portfolio value drops about 1.1 percent

Monday 6th August 2012

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The value of Vital Healthcare Property Trust's portfolio has fallen about $6.2 million or 1.1 percent in the year ended June 30, led by a drop in the value of its Mercy Ascot Hospital in Auckland.

Vital's manager said the New Zealand portfolio's value fell $5.3 million and the Australian portfolio's value dropped $900,000.

The Mercy hospital and the Allamanda Private Hospital in Southport on Australia's Gold Coast have both decreased in value because they each have medium-term lease expiries, it said.

"Whilst these leases are not due to expire until full-year 2018 and full-year 2019 (five and seven years respectively), the manager has proactively initiated discussions with the tenants at both of these properties," it said.

"Excluding Allamanda and Mercy Ascot, the overall result would be a revaluation gain of $3.1 million."

The drop in value means the manager won't be entitled to an incentive fee for the year - the revaluations are preliminary only and subject to the trust's annual audit.

In January, Australia & New Zealand Banking Group sold the trust's management contract and its 9 percent stake in the trust to Canada's NorthWest Value Partners for $11.5 million. The purchase took North West's stake to 19.8 percent.

Through last year, a number of investors had agitated for the management contract to be internalised because the manager's fees were out of whack with shareholder returns but the then-independent directors baulked at the high $14 million price ANZ had demanded.

Today, the manager said it has reviewed the trust's existing strategy and decided on no change. As well, "it will not be proceeding with any change in the manager's fee structure at this point in time."

David Carr, chief executive of the manager, said the trust continues to benefit from its development and acquisition program.

"We have concluded development projects at Maitland and Belmont private hospitals, having spent circa A$32 million, which are now generating returns of 9.5 percent per annum on average," Carr said.

"We expect to conclude projects at three additional properties over coming months which are forecast to yield returns of approximately 10 percent per annum on average on a spend of approximately A$28 million," he said.

The trust is relatively insulated from ongoing local and global economic headwinds, demand for the services its medical properties provide underpinned by the aging population, but isn't entirely immune from external events such as tax changes and levels of health insurance, he said.

The manager expects to release the trust's annual results on Aug. 24 and will then provide guidance for the 2013 financial year, Carr said.

Vital Healthcare units fell 0.8 percent to $1.25 in morning trading, just below yesterday's year high at $1.26 and up from $1.06 in August last year.

The manager said the trust delivered a 9.6 percent gross return for the year ended June 30 compared with the 1.4 percent decline in the NZX 50 Gross Index and the 11.9 percent return from the NZX Property Gross Index. However, in the seven years to June 30, the trust returned 101.2 percent compared with the property index's 49.9 percent return.

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