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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Vital Healthcare Property Trust / Equity Bottom-Up

Vital Healthcare Hospital and land acquisitions
Vital Healthcare (VHP) has acquired the Epworth Camberwell private hospital in Melbourne, and three development properties in Brisbane, the Gold Coast and Auckland. Epworth Camberwell, a 147 bed private mental health and specialist hospital, was purchased for A$74.0m (plus costs and excluding incentives) which represents an initial yield of 4.78%, reducing to 4.28% once an A$8.7m incentive is paid after 3 years. The 20 year triple-net lease has annual CPI increases and a market review at year 15. The two Australian development sites (A$20.8m plus costs) produce no income, but the NZ acquisition (NZ$7.3m) produces some holding income. The acquisitions will be funded from debt facilities, increasing gearing by ~3.2%, and are expected to be AFFO accretive in year 1 as a whole.
The acquisition lifts FY21E gearing to c.35.6% assuming NZ$100m of revaluation gains in 2H21 (60% of the portfolio to be revalued). We estimate fully committed gearing is c.40% after accounting for the NZ$200m of spend remaining on VHPs active developments and the payment of the Camberwell year-3 incentive. Actual gearing outcomes will likely be lower to due to reinvestment of dividends and medium term asset revaluations. VHP has identified NZ$560m of further developments that it could undertake, however any significant development commitments may require additional capital given elevated committed gearing. We view development as a positive given VHP’s solid track record, greater value creation vs. purchasing assets on market, and AFFO/DPS growth benefits. Our rating is NEUTRAL.
Details of the acquisitions:
<ul>
<li>Epworth Camberwell, Melbourne: a 147 bed private mental health and specialist hospital, was purchased for A$74.0m (plus costs and excluding incentives) which represents an initial yield of 4.78% reducing to 4.28% once an A$8.7m incentive is paid after 3 years.</li>
<li>7-17 Wosley Street, Brisbane: 3,036sqm site in the Princess Alexandra Hospital Precinct. Acquired in early June 2021 for A$11.4m (plus costs)</li>
<li>195 Foxwell Road, Gold Coast: 20,131sqm site, within the proposed Coomera Health Precinct area. Acquired in mid-June 2021 for A$9.4m (plus costs)</li>
<li>61-71 Park Road, Auckland: 749sqm property opposite Auckland City Hospital. Acquired for NZ$7.25m (plus costs) in mid-June 2021. The property is currently leased, and is AFFO neutral</li>
</ul>
Figure 1. VHP gearing bridge
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Source: Company data, Forsyth Barr estimates
Rohan Koreman-Smit Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1703850461701049677&amp;th=17a54af7b0138d4d&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ84i8UsjutONTNy0Tw83uflQux8CLjVBiwemyhR9rngpBOQyoeWqcNQn6Sjw92h17qa5b10x3KvTQNH_emU_mCVmGzLP_m7VJC4JBZN-qtyHcG6zELbESO6F_E&amp;disp=emb" class="editor-image img-responsive"></figure>
 P:&nbsp;<a href="tel:+6493680085" target="_blank" data-stringify-link="tel:+6493680085" data-sk="tooltip_parent" rel="noopener">+64 9 368 0085</a>&nbsp;| TF: 0800 367 227 Level 23, Shortland &amp; Fort, 88 Shortland Street, Auckland

Vital Healthcare Hospital and land acquisitions
Vital Healthcare (VHP) has acquired the Epworth Camberwell private hospital in Melbourne, and three development properties in Brisbane, the Gold Coast and Auckland. Epworth Camberwell, a 147 bed private mental health and specialist hospital, was purchased for A$74.0m (plus costs and excluding incentives) which represents an initial yield of 4.78%, reducing to 4.28% once an A$8.7m incentive is paid after 3 years. The 20 year triple-net lease has annual CPI increases and a market review at year 15. The two Australian development sites (A$20.8m plus costs) produce no income, but the NZ acquisition (NZ$7.3m) produces some holding income. The acquisitions will be funded from debt facilities, increasing gearing by ~3.2%, and are expected to be AFFO accretive in year 1 as a whole.
The acquisition lifts FY21E gearing to c.35.6% assuming NZ$100m of revaluation gains in 2H21 (60% of the portfolio to be revalued). We estimate fully committed gearing is c.40% after accounting for the NZ$200m of spend remaining on VHPs active developments and the payment of the Camberwell year-3 incentive. Actual gearing outcomes will likely be lower to due to reinvestment of dividends and medium term asset revaluations. VHP has identified NZ$560m of further developments that it could undertake, however any significant development commitments may require additional capital given elevated committed gearing. We view development as a positive given VHP’s solid track record, greater value creation vs. purchasing assets on market, and AFFO/DPS growth benefits. Our rating is NEUTRAL.
Details of the acquisitions:

Epworth Camberwell, Melbourne: a 147 bed private mental health and specialist hospital, was purchased for A$74.0m (plus costs and excluding incentives) which represents an initial yield of 4.78% reducing to 4.28% once an A$8.7m incentive is paid after 3 years.
7-17 Wosley Street, Brisbane: 3,036sqm site in the Princess Alexandra Hospital Precinct. Acquired in early June 2021 for A$11.4m (plus costs)
195 Foxwell Road, Gold Coast: 20,131sqm site, within the proposed Coomera Health Precinct area. Acquired in mid-June 2021 for A$9.4m (plus costs)
61-71 Park Road, Auckland: 749sqm property opposite Auckland City Hospital. Acquired for NZ$7.25m (plus costs) in mid-June 2021. The property is currently leased, and is AFFO neutral

Figure 1. VHP gearing bridge

Source: Company data, Forsyth Barr estimates
Rohan Koreman-Smit Senior Analyst, Equities

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

Vital Healthcare Property Trust (VHP): Hospital and Land Acquisitions