Healthcare Property Trust Retail Units 30 June 2018

Transcription

1 Healthcare Property Trust Retail Units 30 June 2018 The Trust opened in 1999 to capitalise on Australia s ageing population and growing demands for healthcare services. Over the last 19 years the Trust has grown to become the largest healthcare property fund in Australia. Currently, the Trust owns a portfolio of 51 healthcare-related properties across Australia. Construction commenced on the new $340m public health facility at Herston Quarter, Herston, QLD Left to right: Mark Pratt Executive General Manager of Property Australian Unity, Rohan Mead Group Managing Director of Australian Unity, Geoff Hardy Board Member of Metro North Hospital & Health Service Fund Facts as at 30 June 2018 June Quarter Distribution Unit Price Gross Asset Value Gearing Ratio cents per unit (CPU) (2.374 CPU March 2018 quarter) $ exit price (cum distribution) $1,505.05m ($1,550.92m at 31 March 2018) 12.00% (13.66% at 31 March 2018) Portfolio Occupancy Weighted Average Lease Expiry (WALE) Number of Tenants 98.73% leased by income years by base rental income 154 Ratings/ Awards This document is dated 20 July The financial information in this Fund Update is extracted from the Fund s accounting and property management records at 30 June 2018 and is based upon unaudited financial records unless stated otherwise. Past performance is not a reliable indicator of future performance.

2 Performance as at 30 June 2018 (Retail Units) 3 mths % 1 yr % 3 yrs % p.a. 5 yrs % p.a. 10 yrs % p.a. Since inception % p.a. Distribution return Growth return (0.19) Total return Returns are calculated after fees and expenses and assume the reinvestment of distributions. Past performance is not a reliable indicator of future performance. Inception date is 30 June Attribution summary as at 30 June 2018 The relative contribution of major variables on growth returns over the last quarter and year is shown in the table below. Period to 30 June 2018 Last 3 mths % change Last 12 mths % change Property revaluations Interest rate swaps (realised and unrealised marked to market movements) (0.01) (0.09) Unrealised gains/losses on investments in listed/unlisted trusts (0.03) (0.36) Other (0.37) 0.17 Growth return (0.19) 6.42 Return calculations are based on actual distributions reinvested, which may vary slightly to the performance table illustrated above. Past performance is not a reliable indicator of future performance. Property revaluations are calculated in accordance with accounting standards and includes capital expenditure, lease incentives and/or commissions (both of which are amortised). Represents the increase/decrease from the property book value immediately prior to valuation. Other may include: retained earnings during the period, swap break costs, estimated gains distributed, realised gains/losses on property, distributions from prior period retained earnings, realised gains/losses from unlisted property trusts and non-material movements. Key direct property statistics as at 30 June 2018 Geographic allocation (by value) Sector allocation (by value) Top 5 tenants (by income) VIC 18 assets 46.68% Hospital 13 assets 49.14% Ramsay Health 24.26% NSW 17 assets 25.08% Medical Centre or Medical Office 18 assets 40.41% Healthe Care 19.32% QLD 10 assets 22.99% Development Site 16 assets 8.88% Queensland Government 11.01% SA 5 assets 2.09% Aged Care 1 asset 1.57% Sonic 9.38% WA 1 asset 3.16% Total 51 assets % Primary 6.99% Total 51 assets % Others (excl. vacancy) 29.04% Total % Property data Number of properties 51 Total number of tenants 154 WALE (by income) years Occupancy rate (by income) 98.73% Financials Gross assets Total debt Other liabilities* $1,505.05m $180.60m $14.95m Net assets Valuations $1,309.50m Valuations during the quarter 9 Change in total direct property book value # 3.75% Change in book value of the properties revalued # Debt 4.24% Gearing (RG 46 ASIC definition) 12.00% Loan-to-Value Ratio (LVR) (Financier s definition) Interest Cover Ratio (ICR) (RG ASIC definition) 16.02% 6.47 times Hedging (% of debt hedged) 83.06% * Other liabilities include a provision for the June 2018 distribution. # Change in book value over the quarter includes revaluation impacts along with capital expenditure, acquisitions and other minor variations. 310 Robina Primary Medical Centre, Robina, QLD 310 Australian Unity Healthcare Property Trust (Retail Units) 30 June

3 Market Commentary Over the cycle the Healthcare sector continues to deliver superior returns with a lower level of volatility when compared to the traditional property sectors. The healthcare property sector is unique as underlying demand drivers correlate with factors such as demographics, population growth, private health insurance, ageing and illness rather than economic output. Of late commentary has circulated with regard to revenue pressures impacting various hospital operators, an area we closely monitor. Operators are adjusting to a minor downgrading of health insurance cover, shorter public hospital waiting lists and the postponement of treatment due to fears of out-of-pocket costs. Ramsay (RHC) and Healthscope (HSO) are the two largest private hospital operators in Australia and both are listed on the Australian Securities Exchange (ASX). In the case of RHC s recent trading update, RHC management marginally reduced earnings guidance for the 2018 financial year from 8-10 percent growth down to 7 percent growth. In essence the business is still performing well with no impact on their capacity to pay their rent. Furthermore, recently instituted procurement cost savings initiatives are expected to positively impact RHC over the next few years as these savings are realised. High barriers to entry and substantial capital investment requirements provide hospital operators with a unique advantage when compared to new entrants. This is best evidenced by examining HSO in greater detail. HSO confirmed a challenging operating outlook for the financial year ending 30 June 2018, as a result of Victorian wage pressures and a few asset specific issues. Importantly HSO management is guiding to 10 percent growth in earnings before interest for the 2019 financial year, implying current weakness in their earnings is transitory in nature. Furthermore, HSO is currently being pursued by suitors and may be subject to take over as the business and hospital properties it owns are keenly sought, with suitors seeking to take advantage of recent stock price weakness. The suitors are well aware of the value inherent within the HSO business, providing them with an opportune moment to gain control of a business that is very difficult to replicate. HSO management is countering the suitors efforts by moving to extract value for shareholders by exploring the merits of selling its valuable hospital property assets via a sale and lease back transaction. According to the APRA March 2018 Quarterly Private Health Insurance Statistics, 11,316,775 people, or 45.5 percent of the population, were covered by hospital treatment cover. 1 Average hospital benefits per person increased from $1,277 for the year ending March 2017 to $1,318 for the year ending March The largest amount of benefits per person was spent on hospital accommodation and nursing, followed by medical and prostheses benefits. The age group for which most hospital benefits are paid is in the 60 and 79 age cohort. 2 For the year to 31 March 2018, hospital utilisation, measured in episodes, increased in all hospital settings with the exception of in day hospital facilities, compared with the previous 12 months (episode growth public hospitals +0.9 percent, private hospitals +2.0 percent, day hospital facilities -1.0 percent; and hospital substitutes +2.0 percent). 3 The healthcare sector in Australia is sizeable and growing, offering essential services to Australians while also contributing to significant job creation. The overall depth and Government commitment to the sector bodes well for the Trust. 1 APRA March 2018 Quarterly Private Health Insurance Statistics (released 17 May 2018) 2 APRA March 2018 Quarterly Private Health Insurance Statistics (released 17 May 2018) Portfolio activity Property acquisitions During the June 2018 quarter, the Trust, through its sub-trust, the Primary Health Care Property Trust (PHPT) acquired an existing, purpose built, medical centre in Pennington, South Australia for $8.0 million (plus transaction costs). The property is the seventh property acquired under the PHPT and is leased to Primary Healthcare for an initial 15 years. The Trust acquired four additional properties during the quarter. These included the settlement of the leasehold site for the proposed Herston Private Hospital for $6.6 million and the $1.2 million acquisition of a property in Kanwal, NSW adjoining the Tuggerah Lakes Private Hospital (under construction). In addition, the Trust successfully acquired two properties adjoining existing assets owned by the Trust which we plan to incorporate as part of future expansion and development projects. Property revaluations During the quarter, nine of the Trust s properties were independently revalued, resulting in a net increase of $2.46 million to the properties book value prior to valuation. Most significant were: Peninsula Private Hospital, Langwarrin, VIC, increased in value by $1.14 million from its book value immediately prior to valuation. The uplift was largely attributable to the indexation of the rental income. Brisbane Waters Private Hospital, Woy Woy, NSW, increased in value by $0.72 million from its book value immediately prior to valuation. The uplift was driven by development works undertaken at the property. Manningham Medical Centre, Templestowe Lower, VIC, increased in value by $0.31 million from its book value immediately prior to valuation. The uplift was primarily driven by the indexation of the rental income. Property development The Trust currently has a development pipeline of approximately $550 million. Some of its most significant developments include: Specialist Public Health Facility, Herston, QLD Construction on the new $340 million specialist public health facility commenced in June and is due for completion in This public hospital facility forms part of the proposed $1.1 billion development at Herston Quarter in Brisbane and is the result of a public-private partnership between the Trust and Metro North Hospital and Health Services who will lease the facility for an initial term of 20 years. This was the first public hospital in Australia to be funded by private investors in a real estate investment trust and is a tangible example of how public-private partnerships and innovative funding structures can deliver the facilities and services communities need. Robina Primary Medical Centre, Robina, QLD Successful completion of the new $9.8 million medical centre occurred in June, with the centre opening for business in July The property is leased to Primary Health Care for a 15 year term. The multi-disciplinary medical centre has a net lettable area of 1,553 square metres and its services will include General Practitioners, pathology collection, dental, pharmacy, physiotherapy and an emergency treatment room. Construction of the centre commenced in January 2017 and was completed on time before the end of June It has 75 underground parking spaces. Brisbane Waters Private Hospital, NSW the $11.6 million brownfield expansion of the hospital was completed during the quarter. The extension included reconfiguration and refurbishment for a mental health unit, a 24 bed rehabilitation ward, gymnasium, hydrotherapy pool, café and reception. 3 APRA March 2018 Quarterly Private Health Insurance Statistics (released 17 May 2018) Australian Unity Healthcare Property Trust (Retail Units) 30 June

4 Tuggerah Lakes Private Hospital, NSW works are well underway for the $20.5 million Tuggerah Lakes Private Hospital. Practical completion is expected in early Healthe Care Australia will lease the premises for 20 years from practical completion. In addition to these, works are progressing with future developments at Peninsula Private Hospital, Langwarrin, Beleura Private Hospital, Mornington, The Valley Private Hospital, Mulgrave and Sunshine Day Surgery and Clinic, Sunshine. Awards In May, Australian Unity s Healthcare Property Trust was named Direct Property Fund of the year in Money Management s fund manager of the year awards Outlook Looking ahead, we believe there are a number of opportunities presenting for the Trust. Increasing populations and rising metro densities mean that greenfield and brownfield development are a key focus, and we are pursuing a series of developments to improve healthcare services to multiple communities across Australia. In doing so, we are actively fostering new tenant relationships and further embedding existing ones. Importantly, all of our activities are designed to drive and improve investor returns. Accordingly, we maintain a positive view of the Australian healthcare property sector. We expect the strength in the underlying property market may provide support to valuations and potentially further compress property yields. In 2018, we expect healthcare property yields will soon moderate. Fund portfolio as at 30 June 2018 Property Details Tenancy Details Valuation Details 1 Address Note Lettable Area (sqm) Major Tenant Number of Tenants Occupancy Rate (% by income) WALE (years by income) 2 Current Valuation ($m) Valuation Date Capitalisation Rate (%) 10 Book Value ($m) Hospitals Peninsula Private Hospital, Langwarrin, VIC - 19,355 Ramsay Health May The Valley Private Hospital, Dandenong North, VIC - 15,738 Healthe Care Dec Beleura Private Hospital and Clinic, Mornington, VIC - 10,165 Ramsay Health Aug Brisbane Waters Private Hospital, Woy Woy, NSW - 5,845 Healthe Care May Brunswick Private Hospital, Brunswick, VIC - 8,000 Healthe Care Feb Robina Private Hospital, Robina, QLD - 5,854 Healthe Care Nov Sunshine Day Surgery and Clinic, St Albans, VIC 13 2,452 Fresenius Medical Care Feb North Shore Specialist Day Hospital, Greenwich, NSW - 2,190 IVF Australia Nov Berkeley Vale Private Hospital, Berkeley Vale, NSW - 4,132 Ramsay Health Nov Figtree Private Hospital, Figtree, NSW - 7,277 Ramsay Health Aug Hunters Hill Private Hospital, Hunters Hill, NSW - 2,678 Ramsay Health Aug Townsville Private Clinic, Townsville, QLD - 4,897 Healthe Care Feb Calvary Rehabilitation Hospital, Walkerville, SA - 3,799 Calvary Health Aug Sub total Under Development Herston Quarter - SRACC, Herston, QLD 11 N/A MNHHS Jun Tuggerah Lakes Private Hospital, Kanwal, NSW 9 - Healthe Care Feb-18 N/A Highfields Circuit, Port Macquarie, NSW 7 N/A Primary Health Care Feb-18 N/A 1.95 Sub total Medical Centres and Aged Care Facilities 15 Butterfield St, Herston, QLD - 11,254 Queensland Health Aug RPAH Medical Centre, Newtown, NSW - 7,212 S & K Car Park Feb Victoria Parade, Collingwood, VIC - 8,975 Sonic Healthcare Nov Herbert Street, St Leonards, NSW - 10,556 Stryker Australia May Selby Road North, Osborne Park, WA - 4,997 Clinipath Pathology Nov Manningham Medical Centre, Templestowe Lower, VIC - 4,925 MMC General Practice May Greensborough Primary Medical Centre, VIC - 3,528 Primary Health Feb Campus Alpha Building, 2 Investigator Drive, Robina QLD - 4,423 Qld State Government Nov HIS Diagnostic Imaging Centre, Richmond, VIC - 1,124 Primary Health Feb Constitution Hill Aged Care, Northmead, NSW - 8,668 Aust. Unity Care Services Nov Australian Unity Healthcare Property Trust (Retail Units) 30 June

5 46-50 Underwood Street, Corrimal, NSW - 1,496 Primary Health Aug Gosford Private Medical Centre, North Gosford, NSW - 1,830 Sonic Healthcare May Ipswich Medical Centre and Day Hospital, QLD - 2,783 Ipswich Day Surgery Nov Robina Primary Medical Centre,, Robina, QLD - 1,553 Primary Health Care Aug Mackay Medical Centre and Day Hospital, Mackay, 3 2,458 Qld Fertility Group Nov Fullarton Rd, Kent Town, SA 16 2,563 Sonic Healthcare Feb & 3 Addison Road, Pennington, SA 1,137 Primary Health Care Feb Eureka Medical Centre, Ballarat, VIC - 1,504 Primary Health May Bridge Road, Richmond, VIC 7, 12 - Primary Health Aug Figtree Consulting Suites, Figtree, NSW Shelley & Sumbut Namcharon Aug Sub total Assets Held Pending Development Herston Private Hospital, Herston, Qld 17 N/A N/A 0 - N/A 6.6 Dec-17 N/A Investigator Drive, Robina, QLD 8 N/A N/A Feb-18 N/A Ginifer Court, St Albans, VIC 6 N/A N/A 0 - N/A 0.8 Aug-17 N/A Ginifer Court, St Albans, VIC 6 N/A N/A 0 - N/A 0.7 Sep-17 N/A Pacific Highway, Kanwal, NSW 14 N/A N/A 0 - N/A 0.7 Jan-18 N/A Herbert Street, Mornington, VIC Private Tenant <1 1.1 Aug-17 N/A Gillon Court, St Albans, VIC 6 N/A N/A 0 - N/A 0.8 Jun-17 N/A View Road, Walkerville, SA 4 N/A Private Tenant <1 0.9 Aug-17 N/A Herbert Street, Mornington, VIC Ramsay Health Aug-17 N/A Dwyer Avenue, Woy Woy, NSW 15 N/A Vacant 0 - N/A 0.7 May-18 N/A Wiowera Road, Kanwal, NSW 14 N/A N/A 0 - N/A 0.5 Jan-18 N/A North East Road, Walkerville, SA 4 N/A Vacant 0 - N/A 0.7 Aug-17 N/A Herbert Street, Mornington, VIC 5 N/A Private Tenant <1 0.5 Aug-17 N/A Herbert Street, Mornington, VIC 5 N/A Private Tenant <1 0.5 Aug-17 N/A Wiowera Street, Kanwal, NSW 14 N/A N/A 0 - N/A 0.5 May-18 N/A 0.49 Sub total Total direct property 1, Listed Australian REITs Arena REIT Sub total Funding Unit Cash Pool Class A cash reserve Cash and other assets Other Cash and other assets Total (T) / Weighted Average (A) Notes 1. Regular valuation of underlying property assets is an important aspect of managing the Trust. Valuations are conducted by qualified independent valuers in accordance with industry standards. We have a policy of generally obtaining independent valuations on Fund direct properties each year. Additionally, as part of our active management approach, we may test asset values on market. At times we may enter arrangements at arm s length with third parties which may impact the value of assets within the portfolio including, but not limited to, put and call options in respect of all or part of an asset within the portfolio. If the value of an asset is impacted in this way, the value may replace the last independent valuation obtained. 2. Weighted Average Lease Expiry by base rental income. Vacancies are valued at market income. 3. Includes a parcel of vacant land, 1-3 Discovery Lane, North Mackay valued at $0.60 million as at November Properties adjoining Calvary Rehabilitation Hospital, Walkerville, SA. 5. Properties adjoining Beleura Private Hospital, Mornington, VIC. 6. Property adjoining Sunshine Day Surgery and Clinic, St Albans, VIC. This property is earmarked as future development space. 7. Development site subject to pre-commitment from Primary Health. 8. Development Site with no pre-commitment. 9. Development works underway. Subject to a 20 year lease to HealtheCare from practical completion. 10. Portfolio Capitalisation Rate is the weighted average of those properties valued using the capitalisation of income methodology. 11. Development site with pre-commitment from MNHHS, cap rate on completion. 154 (T) (A) (A) 1, (T) 6.54 (A) 1, (T) Australian Unity Healthcare Property Trust (Retail Units) 30 June

6 12. Capitalisation Rate 'on completion'. 13. Value includes three (3) adjacent residential properties that are earmarked as future development space. Valued on a project related site value basis 14. Land held for future expansion of Tuggerah Lakes Private Hospital 15. Property adjoining Brisbane Water Private Hospital car park. 16. Contracts exchanged to sell. Settlement 2 July Leasehold site for proposed Herston Private Hospital. Brunswick Private Hospital, Brunswick, VIC Peninsula Private Hospital, Langwarrin, VIC Brisbane Waters Private Hospital,, Woy Woy, NSW Brisbane Waters Private Hospital,, Woy Woy, NSW Important information The Australian Unity Healthcare Property Trust - Retail Units is issued by Australian Unity Funds Management Limited ABN , AFS Licence No Effective 16 May 2017, additional applications from existing investors were temporary suspended. Effective 30 June 2014, Retail Units were closed to new investors. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. Investors should consider the appropriateness of this information having regard to their own objectives, financial situation or needs before acting on it. Information from this product can be obtained from our website australianunity.com.au/wealth or by calling our Investor Services at Investment decisions should not be made upon the basis of its past performance or distribution rate, or any ratings given by a ratings agency, since each of these can vary. In addition, ratings need to be understood in the context of the full report issued by the ratings agency itself. The information in the document is current at the time of publication only. The Lonsec Rating (assigned May 2017) presented in this document is published by Lonsec Research Pty Ltd ABN AFSL The Rating is limited to General Advice (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Australian Unity product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec s Ratings methodology, please refer to our website at: *Outstanding Highly suitable for inclusion on APLs. The rating contained in this document is issued by SQM Research Pty Ltd. AFSL Please visit for a full definition of the ratings and access to the research reports. SQM Research is an investment research firm that undertakes due diligence on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time. Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme. Australian Unity Healthcare Property Trust (Retail Units) 30 June