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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

<h2>Vital Healthcare (VHP) Acquisition of Another Sydney Development Site</h2>
Vital Healthcare (VHP) has announced the acquisition of a development in Campbelltown, Western Sydney with a total development cost of A$76.6m. The 27,840 sqm leasehold site is adjacent to Campbelltown Private and Public hospitals as well as a number of other healthcare facilities. The development is expected to be completed in three stages: (1) an A$52m, four-storey cancer centre of excellence on a 4,473 sqm site. GenesisCare has pre-committed to leasing the whole building as well as 65 car spaces with an initial term of 15 years and net yield on cost of 4% (after ground rent costs) with annual fixed 3% increases. Stage (2) involves the development of a proposed day surgery and mental health facility on a c.10,000sqm land area. VHP’s manager Northwest is in advanced discussions with a potential tenant around the development. Stage (3) is 13,000sqm of land earmarked for future healthcare and ancillary development.
The acquisition is in line with VHP’s strategy to increase exposure in key population areas as well as its focus on a strong future development pipeline. We view developments as an attractive capital allocation option vs. buying assets on market given (1) less competition with strong demand for healthcare assets on both sides of the Tasman, (2) the higher yields on offer (although this partly reflects the risks involved), and (3) development of tenant relationship/commitment to the property. That said, the yield on cost of on the stage one development for GenesisCare is skinny and as such development profits will be limited. Development of stages 2 and 3 will likely yield better outcomes for investors.
The A$76.6m acquisition price includes stage 1 development fund through costs (we estimate A$47m) and the leasehold land (c.A$30m with a 85 years lease period being partially pre-paid). The acquisition is expected to increase committed gearing by c.1.7% on a stand-alone basis to 40.0%, however with the Healthe.care incentive repayment (although this may not occur) and dividend reinvestment plan partly offset by the recently acquired Hills Clinic development we estimate potential gearing is c.39.2%. 1H22 NTA is expected to be NZ$3.12 per unit after the acquisition (We had estimated NZ$2.09 per unit based on VHP’s NZ$140m 1H22 revaluation gain).
VHP will release its 1H22 results on Thursday, 24 February. A conference call is scheduled for 10am (NZ time) and pre-registration is recommended. (<a href="https://ccmediaframe.com/?id=QXpnfr0Q" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://ccmediaframe.com/?id%3DQXpnfr0Q&amp;source=gmail&amp;ust=1645065561395000&amp;usg=AOvVaw1nEwo30qvd4VU7mIr9kK6g" rel="noopener">Link)</a>
Gearing bridge
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/257/462/original/image_29671236321644980833238.png?1644980833" class="editor-image img-responsive" data-smartkarma-image-id="257462"></figure>
Source: VHP, Forsyth Barr analysis
Site map and indicative layout
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/257/463/original/image_87241442531644980986401.jpg?1644980986" class="editor-image img-responsive" data-smartkarma-image-id="257463"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/257/464/original/image_24107702441644981006545.jpg?1644981006" class="editor-image img-responsive" data-smartkarma-image-id="257464"></figure>
Source: VHP

Vital Healthcare (VHP) Acquisition of Another Sydney Development Site
Vital Healthcare (VHP) has announced the acquisition of a development in Campbelltown, Western Sydney with a total development cost of A$76.6m. The 27,840 sqm leasehold site is adjacent to Campbelltown Private and Public hospitals as well as a number of other healthcare facilities. The development is expected to be completed in three stages: (1) an A$52m, four-storey cancer centre of excellence on a 4,473 sqm site. GenesisCare has pre-committed to leasing the whole building as well as 65 car spaces with an initial term of 15 years and net yield on cost of 4% (after ground rent costs) with annual fixed 3% increases. Stage (2) involves the development of a proposed day surgery and mental health facility on a c.10,000sqm land area. VHP’s manager Northwest is in advanced discussions with a potential tenant around the development. Stage (3) is 13,000sqm of land earmarked for future healthcare and ancillary development.
The acquisition is in line with VHP’s strategy to increase exposure in key population areas as well as its focus on a strong future development pipeline. We view developments as an attractive capital allocation option vs. buying assets on market given (1) less competition with strong demand for healthcare assets on both sides of the Tasman, (2) the higher yields on offer (although this partly reflects the risks involved), and (3) development of tenant relationship/commitment to the property. That said, the yield on cost of on the stage one development for GenesisCare is skinny and as such development profits will be limited. Development of stages 2 and 3 will likely yield better outcomes for investors.
The A$76.6m acquisition price includes stage 1 development fund through costs (we estimate A$47m) and the leasehold land (c.A$30m with a 85 years lease period being partially pre-paid). The acquisition is expected to increase committed gearing by c.1.7% on a stand-alone basis to 40.0%, however with the Healthe.care incentive repayment (although this may not occur) and dividend reinvestment plan partly offset by the recently acquired Hills Clinic development we estimate potential gearing is c.39.2%. 1H22 NTA is expected to be NZ$3.12 per unit after the acquisition (We had estimated NZ$2.09 per unit based on VHP’s NZ$140m 1H22 revaluation gain).
VHP will release its 1H22 results on Thursday, 24 February. A conference call is scheduled for 10am (NZ time) and pre-registration is recommended. (Link)
Gearing bridge

Source: VHP, Forsyth Barr analysis
Site map and indicative layout


Source: VHP

Vital Healthcare (VHP): Acquisition of Another Sydney Development Site