New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Vital Healthcare Property Trust / Equity Bottom-Up

<h2>Vital Healthcare</h2>
1H20 Result — Vital&nbsp;Defensive&nbsp;Play this Season
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022&nbsp;
NEUTRAL
Vital&nbsp;Healthcare&nbsp;(VHP) has reported a 1H20 result slightly ahead of our forecasts and it has reaffirmed its steady dividend guidance for FY20. The balance&nbsp;of FY20 will again feature corporate related activity with the Manager's proposal for a capital restructure. Meanwhile, we expect the portfolio to continue to do its job of providing a very&nbsp;defensive&nbsp;property exposure. We have not changed our forecasts but our target price has lifted +2.5% to NZ$2.76 due to a slight lift in our&nbsp;DCF&nbsp;and&nbsp;NAV&nbsp;valuations. We have pulled our investment rating back from OUTPERFORM to NEUTRAL&nbsp;given the strong share price performance over the last 12 months.&nbsp;VHP&nbsp;remains a key&nbsp;LPV&nbsp;exposure late in the cycle given the&nbsp;defensive&nbsp;nature and quality of its portfolio. NEUTRAL.
<table class="table table-striped"><colgroup><col span="12"></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">VHP</td>
<td style="width: 48pt;">Financials:Jun/</td>
<td style="width: 48pt;">19A</td>
<td style="width: 48pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 48pt;">19A</td>
<td style="width: 48pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 48pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$2.91</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 48pt;">42.2&nbsp;</td>
<td style="text-align: left; width: 48pt;">44.3</td>
<td style="text-align: left; width: 48pt;">47.8</td>
<td style="text-align: left; width: 48pt;">49.3&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 48pt;">24.5&nbsp;</td>
<td style="text-align: left; width: 48pt;">24.3</td>
<td style="text-align: left; width: 48pt;">22.6</td>
<td style="text-align: left; width: 48pt;">20.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Target Price</td>
<td style="width: 48pt;">NZ$2.76</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 48pt;">9.5</td>
<td style="text-align: left; width: 48pt;">9.8</td>
<td style="text-align: left; width: 48pt;">10.4</td>
<td style="text-align: left; width: 48pt;">10.5</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 48pt;">24.5&nbsp;</td>
<td style="text-align: left; width: 48pt;">24.3</td>
<td style="text-align: left; width: 48pt;">22.6</td>
<td style="text-align: left; width: 48pt;">20.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Risk rating</td>
<td style="width: 48pt;">Low</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 48pt;">-10.3</td>
<td style="text-align: left; width: 48pt;">3.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">5.8</td>
<td style="text-align: left; width: 48pt;">1.6</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 48pt;">30.6</td>
<td style="text-align: left; width: 48pt;">29.7</td>
<td style="text-align: left; width: 48pt;">28.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">27.6&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">446.3m</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 48pt;">8.8&nbsp;</td>
<td style="text-align: left; width: 48pt;">9.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">9.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">9.0&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 48pt;">1.3</td>
<td style="text-align: left; width: 48pt;">1.2</td>
<td style="text-align: left; width: 48pt;">1.2</td>
<td style="text-align: left; width: 48pt;">1.2</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$1,299m</td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 48pt;">3.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">3.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">3.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">3.1&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">228.9k (NZ$574k)</td>
<td colspan="3" style="width: 144pt;">*Based on normalised profits</td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 48pt;">4.3&nbsp;</td>
<td style="text-align: left; width: 48pt;">4.4&nbsp;</td>
<td style="text-align: left; width: 48pt;">4.4&nbsp;</td>
<td style="text-align: left; width: 48pt;">4.4&nbsp;</td>
</tr>
</tbody>
</table>
Slightly ahead of our forecast with FY20 season on track
VHP has reported a solid 1H20 result with net distributable income (and AFFO) of NZ$22.1m, ahead of our forecast of NZ$20.2m and up +12.4% on the pcp, helped by a slightly lower interest expense than forecast. Net property income was in line with forecasts at NZ$49.9m, up +2.1% driven by structured rent reviews and development activity. The like-for-like same currency rental growth was +2.5%. Following an interim revaluation gain of NZ$42.6m, the NTA is up +2.2% since 30 June 2019, to NZ$2.36. The revaluation gain was partially offset by new units issued for the management fee. The portfolio cap rate firmed 9bps to 5.52%. Gearing is steady at 35.1%. The 2Q20 dividend was 2.19cpu (record date 12 March/payment date 26 March), providing a flat 1H20 dividend of 4.375cpu. The 1H dividend was 89% of VHP’s calculated AFFO per unit.
Portfolio engine room
The portfolio is 99.5% occupied and the long WALT is maintained at 17.9 years. The lease expiry profile remains benign, averaging 1.6% pa over the next 10 years. VHP has commenced NZ$267m of projects and has spent NZ$72m to date. The two major projects underway remain Wakefield Hospital in Wellington and Epworth in Melbourne. VHP has previously highlighted an interest in aged care sector acquisitions and it has agreed terms with regard to purchasing three Australian aged care assets from NorthWest (still subject to due diligence). While VHP is still looking to divest some non-core assets, nothing is expected to be completed in FY20.
Outlook and ASX Foreign exempt listing proposal
VHP&nbsp;has reaffirmed its dividend guidance for FY20&nbsp;as being not less than the 8.75cpu paid&nbsp;in the&nbsp;pcp. Our forecast is 9.0cpu and we have not changed our forecasts.&nbsp;VHP&nbsp;expects to lift its dividend pay-out rate following its foreign exempt listing on the&nbsp;ASX&nbsp;and related capital structure changes.&nbsp;Unitholders&nbsp;should receive notice of meeting documentation to consider over the coming weeks with a Special&nbsp;Unitholder&nbsp;Meeting expected to be held in late March.

Vital Healthcare
1H20 Result — Vital&nbsp;Defensive&nbsp;Play this Season
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022&nbsp;
NEUTRAL
Vital&nbsp;Healthcare&nbsp;(VHP) has reported a 1H20 result slightly ahead of our forecasts and it has reaffirmed its steady dividend guidance for FY20. The balance&nbsp;of FY20 will again feature corporate related activity with the Manager's proposal for a capital restructure. Meanwhile, we expect the portfolio to continue to do its job of providing a very&nbsp;defensive&nbsp;property exposure. We have not changed our forecasts but our target price has lifted +2.5% to NZ$2.76 due to a slight lift in our&nbsp;DCF&nbsp;and&nbsp;NAV&nbsp;valuations. We have pulled our investment rating back from OUTPERFORM to NEUTRAL&nbsp;given the strong share price performance over the last 12 months.&nbsp;VHP&nbsp;remains a key&nbsp;LPV&nbsp;exposure late in the cycle given the&nbsp;defensive&nbsp;nature and quality of its portfolio. NEUTRAL.



NZX Code
VHP
Financials:Jun/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$2.91
NPAT* (NZ$m)
42.2&nbsp;
44.3
47.8
49.3&nbsp;
EV/EBITDA
24.5&nbsp;
24.3
22.6
20.8&nbsp;


Target Price
NZ$2.76
EPS* (NZc)
9.5
9.8
10.4
10.5
EV/EBIT
24.5&nbsp;
24.3
22.6
20.8&nbsp;


Risk rating
Low
EPS growth* (%)
-10.3
3.0&nbsp;
5.8
1.6
PE
30.6
29.7
28.1&nbsp;
27.6&nbsp;


Issued shares
446.3m
DPS (NZc)
8.8&nbsp;
9.0&nbsp;
9.0&nbsp;
9.0&nbsp;
Price/NTA
1.3
1.2
1.2
1.2


Market cap
NZ$1,299m
Imputation (%)
100
100
100
100
Cash div yld (%)
3.0&nbsp;
3.1&nbsp;
3.1&nbsp;
3.1&nbsp;


Avg daily turnover
228.9k (NZ$574k)
*Based on normalised profits


Gross div yld (%)
4.3&nbsp;
4.4&nbsp;
4.4&nbsp;
4.4&nbsp;



Slightly ahead of our forecast with FY20 season on track
VHP has reported a solid 1H20 result with net distributable income (and AFFO) of NZ$22.1m, ahead of our forecast of NZ$20.2m and up +12.4% on the pcp, helped by a slightly lower interest expense than forecast. Net property income was in line with forecasts at NZ$49.9m, up +2.1% driven by structured rent reviews and development activity. The like-for-like same currency rental growth was +2.5%. Following an interim revaluation gain of NZ$42.6m, the NTA is up +2.2% since 30 June 2019, to NZ$2.36. The revaluation gain was partially offset by new units issued for the management fee. The portfolio cap rate firmed 9bps to 5.52%. Gearing is steady at 35.1%. The 2Q20 dividend was 2.19cpu (record date 12 March/payment date 26 March), providing a flat 1H20 dividend of 4.375cpu. The 1H dividend was 89% of VHP’s calculated AFFO per unit.
Portfolio engine room
The portfolio is 99.5% occupied and the long WALT is maintained at 17.9 years. The lease expiry profile remains benign, averaging 1.6% pa over the next 10 years. VHP has commenced NZ$267m of projects and has spent NZ$72m to date. The two major projects underway remain Wakefield Hospital in Wellington and Epworth in Melbourne. VHP has previously highlighted an interest in aged care sector acquisitions and it has agreed terms with regard to purchasing three Australian aged care assets from NorthWest (still subject to due diligence). While VHP is still looking to divest some non-core assets, nothing is expected to be completed in FY20.
Outlook and ASX Foreign exempt listing proposal
VHP&nbsp;has reaffirmed its dividend guidance for FY20&nbsp;as being not less than the 8.75cpu paid&nbsp;in the&nbsp;pcp. Our forecast is 9.0cpu and we have not changed our forecasts.&nbsp;VHP&nbsp;expects to lift its dividend pay-out rate following its foreign exempt listing on the&nbsp;ASX&nbsp;and related capital structure changes.&nbsp;Unitholders&nbsp;should receive notice of meeting documentation to consider over the coming weeks with a Special&nbsp;Unitholder&nbsp;Meeting expected to be held in late March.


Vital Healthcare: 1H20 Result — Vital Defensive Play This Season