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 1H21 – AFFO boosted by one-offs, underlying broadly in line</h2>
VHP has reported 1H21 AFFO +26% to reflecting higher rental income and adjusting for one-offs (tax paid on the disposal of assets and leasing). The AFFO and FFO beats were driven by these one-offs with our estimate of net distributable income broadly in line with the result (variances being higher rental income offset by interest and tax). Looking forward, VHP guided to 2H21 DPU of 4.5cps, talking full year FY21 DPS to 8.875 (in line with our current estimates). Medium term VHP target 2-3% AFFO and DPU growth with a conservative pay-out ratio.
We see little in this result to change our underlying forecasts for VHP. Our VHP rating is OUTPERFORM reflecting its better than peers distribution growth outlook underpinned by development completions.
Key takeouts:
<ul>
<li>The portfolio remains full at 99.1% occupancy and WALT lifted by one year to 19 years. The lease expiry profile remains benign with 0.8% of rent expiring 2H21 and averaging 1.5% pa over the next 10 years. Like-for-like same currency rental growth was +2.1% with CPI increases of +2.0% and fixed of +3.2%. 98% of rental income is subject to structured rent reviews.</li>
<li>VHP’s portfolio saw some continued impact from COVID-19 but this remained modest with net property income impacted by NZ$100k in 1H21. VHP operated in accordance with the Australian code of conduct in both Australia and NZ.</li>
<li>NTA lifted +7% to NZ$2.55 on the back of a NZ$61m revaluation gain which largely reflected cap rate compression (NZ$55m, cap rates firmed 20bp).</li>
<li>Gearing decreased 6.3ppts to 32.4% as a result of the recent capital raise. Post balance date VHP lifted its facility limit (undrawn debt capacity of NZ$347m) and extended its debt duration slightly (now 2.9 years from 1.8 years FY20).</li>
<li>VHP has commenced NZ$357m of development projects with NZ$225m remaining to be spent. Two major projects being Wakefield Hospital (NZ$113m completing 2021-23) in Wellington and Epworth (A$126m) in Melbourne are currently under way. VHP completed NZ$100m of asset sales and purchased Grace Hospital in Tauranga for NZ$95m in the half.</li>
<li>No change to targeted portfolio weights with key subsectors outside of target bands being Aged Care of 10-20% vs. 6% current, Life Sciences/Research of 5-10% vs. 0% currently, and Hospitals 50-70% vs. 83% currently.</li>
</ul>
Conference call at 11.30am
Webcast:&nbsp;<a href="https://edge.media-server.com/mmc/go/vital-21-hy/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://edge.media-server.com/mmc/go/vital-21-hy/&amp;source=gmail&amp;ust=1614296932401000&amp;usg=AFQjCNEDa4usvPGHm_qhJesBLVpnVErX9A" rel="noopener">https://edge.media-server.com/mmc/go/vital-21-hy/</a>
1H21 result summary
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1692616232498035099&amp;th=177d617edf1af99b&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_gbaJmFofIhmxp4r7UQ4cQkTnJlkh83sYZBgoJWJTskKmc1rr0Irn0_QwM8BC9M4zKzjcZV79iWCLmAJtybDaYUmmGQ0VAHoMqOgFi_5yrLWuYIl9AYW2VvGo&amp;disp=emb" width="637" height="312" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Forsyth Barr, Company reports
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1692616232498035099&amp;th=177d617edf1af99b&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_K4YgNFVlTmxXBlbbF7NjfS5zU08IR3vm6Cn_tcIGab1Q2z4wEfQO5dUCmW5BBMZUozfca2rFBfHLXHjPCSpKYDh6KnuGVYpO46FLOBPxKBP9z_XscJSj9qpA&amp;disp=emb" class="editor-image img-responsive"></figure>
 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Vital Healthcare 1H21 – AFFO boosted by one-offs, underlying broadly in line
VHP has reported 1H21 AFFO +26% to reflecting higher rental income and adjusting for one-offs (tax paid on the disposal of assets and leasing). The AFFO and FFO beats were driven by these one-offs with our estimate of net distributable income broadly in line with the result (variances being higher rental income offset by interest and tax). Looking forward, VHP guided to 2H21 DPU of 4.5cps, talking full year FY21 DPS to 8.875 (in line with our current estimates). Medium term VHP target 2-3% AFFO and DPU growth with a conservative pay-out ratio.
We see little in this result to change our underlying forecasts for VHP. Our VHP rating is OUTPERFORM reflecting its better than peers distribution growth outlook underpinned by development completions.
Key takeouts:

The portfolio remains full at 99.1% occupancy and WALT lifted by one year to 19 years. The lease expiry profile remains benign with 0.8% of rent expiring 2H21 and averaging 1.5% pa over the next 10 years. Like-for-like same currency rental growth was +2.1% with CPI increases of +2.0% and fixed of +3.2%. 98% of rental income is subject to structured rent reviews.
VHP’s portfolio saw some continued impact from COVID-19 but this remained modest with net property income impacted by NZ$100k in 1H21. VHP operated in accordance with the Australian code of conduct in both Australia and NZ.
NTA lifted +7% to NZ$2.55 on the back of a NZ$61m revaluation gain which largely reflected cap rate compression (NZ$55m, cap rates firmed 20bp).
Gearing decreased 6.3ppts to 32.4% as a result of the recent capital raise. Post balance date VHP lifted its facility limit (undrawn debt capacity of NZ$347m) and extended its debt duration slightly (now 2.9 years from 1.8 years FY20).
VHP has commenced NZ$357m of development projects with NZ$225m remaining to be spent. Two major projects being Wakefield Hospital (NZ$113m completing 2021-23) in Wellington and Epworth (A$126m) in Melbourne are currently under way. VHP completed NZ$100m of asset sales and purchased Grace Hospital in Tauranga for NZ$95m in the half.
No change to targeted portfolio weights with key subsectors outside of target bands being Aged Care of 10-20% vs. 6% current, Life Sciences/Research of 5-10% vs. 0% currently, and Hospitals 50-70% vs. 83% currently.

Conference call at 11.30am
Webcast:&nbsp;https://edge.media-server.com/mmc/go/vital-21-hy/
1H21 result summary

Source: Forsyth Barr, Company reports
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Vital Healthcare: 1H21 – AFFO Boosted by One-Offs, Underlying Broadly in Line