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<br>FY21 Result&nbsp;— A Clean Bill of Health</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Vital&nbsp;Healthcare&nbsp;Property (VHP) has reported an FY21 result ahead of our expectations, reflecting better rental income and lower tax. Solid top-line growth was underpinned by acquisitions and developments. VHP provided FY22 guidance for AFFO of at least 11.8cps and DPS of 9.5cps. DPS guidance is +7% vs. FY21 distributions and partly reflects a catch-up after a conservative year. We expect&nbsp;VHP's&nbsp;portfolio to continue to provide investors with a defensive property exposure and&nbsp;good distribution growth prospects, partly driven by developments (we forecast growth of 4% per&nbsp;annum&nbsp;to FY24); albeit, largely priced into the share price. We retain our NEUTRAL rating.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22-24 DPS +2.0%/+1.5%/+3.1%</li>
<li><strong>Target price</strong>:&nbsp;+5cps to NZ$3.20.</li>
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<h3>Portfolio metrics remain healthy</h3>
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<p>​​​​​Portfolio metrics remained strong; ​occupancy is currently 99.2%,&nbsp;and WALT lifted to 18.7 years. The lease expiry profile remains subdued with 1.7% of rent expiring in FY22 and averaging 1.6% pa over the next 10 years. Like-for-like same currency rental growth was +1.5%, with 95% of rental income&nbsp;subject to structured rent reviews. Furthermore, recent acquisitions and the break-up of&nbsp;Healthe.care will reduce VHP’s tenant concentration.</p>
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<h3>Acquisitions add to development pipeline</h3>
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<p>VHP has completed NZ$269m of acquisitions in FY21 and is unconditional on a further NZ$51m (mostly Lower&nbsp;Hutt&nbsp;Health Hub). In addition to the NZ$312m of development projects under construction, acquisitions have lifted&nbsp;VHP's&nbsp;uncommitted development pipeline by c.50% to&nbsp;NZ$740m. Broadly half of&nbsp;this pipeline is Box Hill, Melbourne. VHP targets c.10–15% of its portfolio being development assets and we&nbsp;believe the next likely development projects to commence&nbsp;are at Grace Hospital,&nbsp;Tauranga&nbsp;(NZ$50m) and&nbsp;Ormiston&nbsp;Hospital in Auckland (NZ$60m).</p>
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<h3>Balance sheet re-geared</h3>
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<p>Acquisitions have lifted&nbsp;VHP's&nbsp;gearing to 35.0% and close to 40% on a committed basis.&nbsp;VHP does have some capital returning with repayment of an incentive it paid to&nbsp;Healthe.care (but in exchange for lower rent), solid uptake of its dividend reinvestment programme, an asset sale and likely further&nbsp;revaluation gains. This may be enough to keep gearing contained given size of&nbsp;the next development projects likely to proceed. However, scale acquisitions and larger development projects such as Box Hill and Brisbane (longer dated, FY23+) will likely require further capital.</p>
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Vital Healthcare FY21 Result&nbsp;— A Clean Bill of Health

NEUTRAL
Vital&nbsp;Healthcare&nbsp;Property (VHP) has reported an FY21 result ahead of our expectations, reflecting better rental income and lower tax. Solid top-line growth was underpinned by acquisitions and developments. VHP provided FY22 guidance for AFFO of at least 11.8cps and DPS of 9.5cps. DPS guidance is +7% vs. FY21 distributions and partly reflects a catch-up after a conservative year. We expect&nbsp;VHP's&nbsp;portfolio to continue to provide investors with a defensive property exposure and&nbsp;good distribution growth prospects, partly driven by developments (we forecast growth of 4% per&nbsp;annum&nbsp;to FY24); albeit, largely priced into the share price. We retain our NEUTRAL rating.


What's changed?&nbsp;



Earnings:&nbsp;FY22-24 DPS +2.0%/+1.5%/+3.1%
Target price:&nbsp;+5cps to NZ$3.20.



Portfolio metrics remain healthy


​​​​​Portfolio metrics remained strong; ​occupancy is currently 99.2%,&nbsp;and WALT lifted to 18.7 years. The lease expiry profile remains subdued with 1.7% of rent expiring in FY22 and averaging 1.6% pa over the next 10 years. Like-for-like same currency rental growth was +1.5%, with 95% of rental income&nbsp;subject to structured rent reviews. Furthermore, recent acquisitions and the break-up of&nbsp;Healthe.care will reduce VHP’s tenant concentration.


Acquisitions add to development pipeline


VHP has completed NZ$269m of acquisitions in FY21 and is unconditional on a further NZ$51m (mostly Lower&nbsp;Hutt&nbsp;Health Hub). In addition to the NZ$312m of development projects under construction, acquisitions have lifted&nbsp;VHP's&nbsp;uncommitted development pipeline by c.50% to&nbsp;NZ$740m. Broadly half of&nbsp;this pipeline is Box Hill, Melbourne. VHP targets c.10–15% of its portfolio being development assets and we&nbsp;believe the next likely development projects to commence&nbsp;are at Grace Hospital,&nbsp;Tauranga&nbsp;(NZ$50m) and&nbsp;Ormiston&nbsp;Hospital in Auckland (NZ$60m).


Balance sheet re-geared


Acquisitions have lifted&nbsp;VHP's&nbsp;gearing to 35.0% and close to 40% on a committed basis.&nbsp;VHP does have some capital returning with repayment of an incentive it paid to&nbsp;Healthe.care (but in exchange for lower rent), solid uptake of its dividend reinvestment programme, an asset sale and likely further&nbsp;revaluation gains. This may be enough to keep gearing contained given size of&nbsp;the next development projects likely to proceed. However, scale acquisitions and larger development projects such as Box Hill and Brisbane (longer dated, FY23+) will likely require further capital.


Vital Healthcare: FY21 Result — A Clean Bill of Health