VHP announces conditional Australian portfolio acquisition and $150.9 million capital raising

Transcription

1 2 November 2010 MARKET RELEASE VHP announces conditional Australian portfolio acquisition and $150.9 million capital raising Vital Healthcare Management Limited (the Manager), the manager of Vital Healthcare Property Trust (the Trust), today announced that it has conditionally agreed to acquire 12 hospital and medical properties in Australia from Essential Healthcare Trust (EHCT). The proposed transaction will be partly funded by way of a NZ$150.9 million capital raising and is subject to the approval of the unitholders of both EHCT and the Trust. The transaction includes the acquisition of 12 Australian healthcare properties (Acquisition Properties) and a loan to Healthe Care Australia Pty Limited for a total cash consideration of A$164.5 million plus certain approved value-adding capital expenditure on the Acquisition Properties (the Transaction). The Acquisition Properties include surgical and psychiatric private hospitals and medical centres in Queensland, New South Wales, Victoria and Tasmania. Bill Thurston, Chairman of the Manager said Over the past few years we have considered a number of opportunities for the Trust however in keeping with our portfolio management strategy we have been prudent and conservative in our approach. We are delighted that this transaction aligns with our long-term strategy, enhances portfolio metrics and is forecast to improve unitholder returns. The more significant benefits of the Transaction include: an increase in the Trust s forecast net distributable income per unit for the current financial year and the year ending 30 June 2012; an increase in the weighted average lease term of the Trust s property portfolio; an increase in the percentage of leases within the property portfolio with inflation-indexed rent review terms; a significant increase in the Trust s market capitalisation, resulting in an improved NZX 50 Index ranking; and an increased exposure to the growing Australian private healthcare sector. David Carr, General Manager of the Manager said This is a transformative acquisition for the Trust in terms of its scale, diversification and the benefits that come from an increased NZX 50 Index weighting. It is difficult to source opportunities of this nature that not only improve portfolio and financial metrics but align with the strategic direction of the Trust. To fund the Transaction, the Trust intends to raise NZ$150.9 million of new equity through a 1-for-1 pro-rata renounceable rights issue (the Offer). The issue price for new units will be $1.05 per unit and the Offer is fully underwritten by Forsyth Barr Group Limited. Forsyth Barr Limited is Lead Manager and Organising Participant to the Offer. It was of paramount importance to the Board that this capital raising be structured to allow existing unitholders of the Trust the opportunity to participate on an equitable basis and in priority to other prospective investors, said Mr Thurston. A pro-rata renounceable rights issue gives unitholders that right. Mr Thurston continued This will be the largest equity capital raising on the NZX year-to-date and importantly it is to fund growth rather than repay debt. The proposed transaction will further cement

2 the Trust s reputation as a specialist property investment vehicle that remains focused on delivering on its established and proven strategy, whilst maintaining a focus on enhancing unitholder returns. Conditional on the Transaction proceeding, the Manager is considering a change in the management fee payable by the Trust to better align unitholder and Manager interests, as set out in the presentation attached. ING (NZ) Limited, the parent company of the Manager, has stated that it will support that change. If the Manager proceeds with the change it will require the approval of the Trustee and unitholders. Further details on the Offer will be provided when a simplified disclosure prospectus for the Offer is registered. This is expected to be on 3 November. Both the Transaction and the Offer are subject to the approval of the Trust s unitholders, which will be sought at the annual meeting on 24 November. A Notice of Meeting and Explanatory Memorandum detailing the resolutions to be voted on, the Transaction, and the Offer will be sent to unitholders by 8 November. The Manager will be holding a series of unitholder briefings in Auckland, Tauranga, Wellington, Christchurch and Invercargill from 12 November to give unitholders the opportunity to learn more about the Transaction and the Offer. Further information in respect to the Transaction and the Offer is attached. ENDS Market enquiries David Carr General Manager Vital Healthcare Management Ltd Telephone: dcarr@vhpt.co.nz Other enquiries Andrew Park Corporate Affairs Manager ING (NZ) Ltd Telephone: andrew.park@ingnz.com Vital Healthcare Property Trust Vital Healthcare Property Trust is New Zealand s only NZSX listed specialist medical and healthcare property entity. The Trust has a total portfolio value of NZD$302.1m, with 14 properties and 105 tenants in New Zealand and Australia, including Ascot Hospital in Auckland and Epworth Eastern Hospital in Box Hill, Melbourne.

3 Conditional Australian portfolio acquisition and $150.9 million capital raising

4 The information contained herein has been prepared by Vital Healthcare Management Limited (the Manager ) as manager of the Vital Healthcare Property Trust ( VHP or the Trust ) to provide a brief overview of the terms of the acquisition of certain assets in Australia by VHP and VHP s proposed pro-rata renounceable rights issue. No member of the ANZ National Bank Limited Group ( ANZ ) or any other person guarantees (either partially or fully) the capital value or performance of any products issued or managed by the Manager, the Trust or Vital Healthcare Australian Propriety Limited. An investment into the Trust does not represent deposits or liabilities of ANZ. Units are subject to investment risk, including possible delays in repayment and loss of income and principal invested. Capitalised terms used herein have defined meanings, which appear in the glossary or in the relevant section in which the term is used. References to dollars are to New Zealand dollars unless specified otherwise. References to time are to time in New Zealand. The NZ$:A$ exchange rate used herein is 0.78 (or A$:NZ$ of 1.28).

5 Executive summary Vital Healthcare Property Trust ( VHP ) has conditionally agreed to acquire 12 healthcare properties (the Acquisition Properties ) and a loan to Healthe Care Australia Pty Limited (together the Acquisition Assets ) from the Essential Healthcare Trust ( EHCT ) (the Transaction ) Expected total cash consideration for the Acquisition Assets is A$164.5 million plus an amount for valueadding approved pre-settlement capital expenditure on the Acquisition Properties The Transaction is to be partly funded by way of a 1-for-1 pro-rata renounceable rights issue at an issue price of $1.05 raising $150.9 million (the Offer ), which is fully underwritten by Forsyth Barr Group Limited Both the Transaction and the Offer are subject to VHP Unitholder approval, which will be sought at VHP s annual meeting on 24 November The sale of the Acquisition Assets to VHP is also subject to EHCT unitholder approval, which will be sought on 25 November 2010 The Transaction is forecast to be accretive to VHP s FY11 and FY12 net distributable income ( NDI ) As a result of the Transaction, VHP s will be lengthened from 8.4 years to 11.5 years and its five year lease expiry will be reduced from 31% to 19% Following the Offer, VHP s market capitalisation is expected to increase to c.$335 million 1 and its NZX 50 Index ranking is expected to rise to 29 from 44 currently 2 The Acquisition Properties have associated portfolio development opportunities worth c.a$43 million with a projected yield of approximately 9.5% VHP s conservative financial position will be maintained following the Transaction, with forecast FY11 Gearing of 37.5%, which is below VHP s Trust Deed covenant level of 50% If the Transaction is completed, the Manager proposes to change the management fee payable by VHP to better align Unitholder and Manager interests. Any changes will be subject to the approval of the Trustee and Unitholders Notes: 1. Based on 287.4m Units on issue post the Offer and a TERP of $1.17; 2. VHP Existing NZX 50 Index ranking based on Indexed Shares and share prices at 19 October VHP Expanded NZX 50 Index ranking based on New Zealand Free Float Market Cap calculated using New Zealand Free Float Shares of 286.8m and TERP of $1.17. Other constituents Indexed Capitalisation based on Indexed Shares and share prices at 19 October

6 Portfolio profile VHP Existing 1 Acquisition Properties VHP Expanded Value of investment properties $302.1m $211.7m 2 $513.8m 3 Number of properties (years) Weighted average capitalisation rate 8.7% 10.1% 9.3% Occupancy 99.7% 99.9% 99.9% 5 year lease expiry 30.9% 4.7% 19.1% Notes: 1. At 30 September 2010; 2. Based on an acquisition price for the Acquisition Properties of A$160 million, approved pre-settlement capital expenditure of A$5.1 million, an NZ$:A$ of 0.78; 3. At settlement of the Transaction 3

7 Acquisition portfolio 12 properties; 15.4 year ; 99.9% occupancy; 10.1% WACR; A$162.1 million market value Asset Location (A$m) 1 Market cap rate (years) Occupancy Rent review structure Guarantor of key tenant Allamanda Private Qld % % CPI Healthscope Allamanda Surgicentre Qld % % Various n/a Brockway House Qld % % Various n/a Palm Beach Currumbin Clinic Qld % % CPI Healthe Care Belmont Private Hospital Qld % % CPI Healthe Care Maitland Private Hospital NSW % % CPI Healthe Care Lingard Private Hospital NSW % % CPI Healthe Care Dubbo Private Hospital NSW % % CPI Healthe Care Toronto Private Hospital NSW % % CPI Healthe Care South Eastern Private Hospital Vic % % CPI Healthe Care Melbourne Pathology Building Vic % % CPI Healthe Care North West Private Hospital Tas % % CPI Healthe Care Total / weighted average n/a % % 2 n/a n/a Notes: 1. Independent valuations have been carried out for each of the Acquisition Properties except for Melbourne Pathology Building. Ernst & Young has provided a reliance letter for its most recent valuation of Melbourne Pathology Building which it undertook in March 2009; 2. Weighted average 4

8 The Acquisition Properties Allamanda Private Hospital Lingard Private Hospital Beds 258 A$55.9m Cap rate 10.1% 7.1 years Occupancy 100% guarantor Healthscope Allamanda Private Hospital is located in Southport, Queensland A well established private hospital providing medical, surgical, emergency, rehabilitation and outpatient services to the Gold Coast community It is a purpose-built three level hospital with a medical centre and an associated carpark on a two hectare site Beds 101 A$19.4m Cap rate 10.5% 20.4 years Occupancy 100% guarantor Healthe Care Located 4 kilometres south of the Newcastle CBD, Lingard offers a comprehensive range of specialties and on-site medical, surgical, mental health and allied health services The property is a conventional single-storey hospital 5

9 The Acquisition Properties (cont d) Allamanda Surgicentre Maitland Private Hospital Beds n/a A$14.7m Cap rate 9.0% 11.7 years Occupancy 98% guarantor n/a Allamanda Surgicentre is located in Southport, Queensland It is a day surgery that has various practitioners operating in radiology, breast cancer and gynaecology (under multiple separate leases) The building comprises a three level medical centre with podium and basement carparking on a 2,884m² site Beds 60 A$13.1m Cap rate 9.1% 22.3 years Occupancy 100% guarantor Healthe Care Maitland Private Hospital is the only private hospital between Newcastle and Taree. It provides acute medical, surgical, postnatal and rehabilitation services Situated 28 kilometres north west of Newcastle, the property is a two-storey hospital constructed in 2000 A new 24 bed rehabilitation unit and fourth operating theatre are currently under construction 6

10 The Acquisition Properties (cont d) Palm Beach Currumbin Clinic North West Private Hospital Beds 78 A$11.6m Cap rate 9.5% 21.4 years Occupancy 100% guarantor Healthe Care Palm Beach Currumbin Clinic, located approximately six kilometres from Burleigh Heads on Queensland s Gold Coast, is a private psychiatric hospital built over two levels Originally constructed as a medical surgical hospital in 1980 the clinic was converted to its present state and was fully renovated in 1995 Recent refurbishment has improved the ward accommodation and design and layout Beds 48 A$11.2m Cap rate 10.0% 21.3 years Occupancy 100% guarantor Healthe Care North West Private Hospital is located two kilometres from Burnie, Tasmania It comprises a conventional, single storey hospital specialising in general, surgical, maternity and psychiatric classes of care The property has recently been redeveloped and refurbished involving extending and reconfiguring the facility 7

11 The Acquisition Properties (cont d) Belmont Private Hospital South Eastern Private Hospital Beds 49 A$10.0m Cap rate 11.7% 20.4 years Occupancy 100% guarantor Healthe Care Belmont Private Hospital is a general psychiatric, single storey hospital It is located at Carina approximately 12 kilometres east of the Brisbane CBD A redevelopment and expansion of the existing facility which involves modernising the entire hospital is currently underway Beds 116 A$9.6m Cap rate 11.0% 20.4 years Occupancy 100% guarantor Healthe Care South Eastern Private Hospital is located approximately 26 kilometres southwest of the Melbourne CBD It is a two storey hospital with several wings The hospital provides general medicine and surgery services in addition to day surgery, early parenting, maternity, obstetrics/gynaecology, oncology/haematology, orthopaedics, urology, radiology, and pathology services 8

12 The Acquisition Properties (cont d) Toronto Private Hospital Dubbo Private Hospital Beds 72 A$8.8m Cap rate 9.8% 22.3 years Occupancy 100% guarantor Healthe Care Toronto Private Hospital is located 25 kilometres south west of Newcastle and 132 kilometres north of the Sydney CBD The three level hospital has 72 beds and specialises in general surgical and medical, rehabilitation and child patients Beds 52 A$6.0m Cap rate 10.2% 21.4 years Occupancy 100% guarantor Healthe Care Constructed in 1994, Dubbo Private Hospital has 52 beds and provides general surgical, obstetric, rehabilitation and neonatal intensive care The facility is located on a site area of approximately 1.2 hectares 9

13 The Acquisition Properties (cont d) Brockway House Melbourne Pathology Building Beds n/a A$1.3m Cap rate 10.2% 0.1 years Occupancy 100% Various Brockway House is located in Southport on the Gold Coast, Queensland It comprises four strata commercial units within a two level building The property has a net lettable area of 392m² Beds n/a A$0.6m Cap rate 8.5% 20.4 years Occupancy 100% guarantor Healthe Care Melbourne Pathology is co-located with South Eastern Private Hospital The property is a residential dwelling adjoining the hospital but on a separate title that has been converted to accommodate Melbourne Pathology and various medical consultants 10

14 Transaction consideration and funding VHP is conditionally acquiring: The Acquisition Properties on an unencumbered freehold basis for A$160.0 million, a small discount to independent valuations Additional payment for approved presettlement (income yielding) capital expenditure, which is projected to be A$5.1 million Loan to Healthe Care Australia Pty Limited ( Healthe Care loan ), which is projected to be A$4.5 million at settlement Which is to be funded by way of: 1-for-1 pro-rata renounceable rights issue at $1.05 per Unit raising $150.9 million A$100 million extension of VHP s existing debt facility to fund the Transaction and further property capital expenditure Sources 1 A$m NZ$m Rights issue Acquisition debt Total Uses 1 A$m NZ$m Acquisition Properties Approved pre-settlement capital expenditure Stamp duty Healthe Care loan Other transaction costs Total Notes: 1. Based on a NZ$:A$ of

15 Expected benefits of the Transaction 1 2 Accretive to distributable profit A simplified disclosure prospectus, which will contain prospective financial information for FY11 and FY12, is expected to be registered on 3 November 2010 Attractive return on capital expenditure Approved development in respect of two properties totalling A$12.4 million during FY11 Projected rental return of c.9.5% Potential development opportunities of c.a$31 million identified in FY11 and FY12 Approved and potential developments FY11 FY12 Property Description Approved Potential Potential Belmont Lingard Maitland South Eastern Palm Beach Currumbin Major redevelopment Major redevelopment, +2 theatres 24 bed rehabilitation unit, Fourth theatre Façade works, IVF Clinic A$8.5m A$3.9m A$7.0m A$1.9m A$13.3m A$2.0m 30 additional beds A$6.5m Total A$12.4m A$8.9m A$21.8m 12

16 Expected benefits of the Transaction (cont d) 3 4 Covenant headroom maintained Forecast post-transaction FY11 Gearing of 37.5% Comfortably below Trust Deed covenant (50%) Will continue to consider the future sale of non-core assets to manage VHP s capital position and optimal portfolio mix Increase in scale and liquidity Market capitalisation projected to increase from $184 million to $335 million NZX 50 Index ranking projected to improve from 44 to 29 and NZX 50 Index weight projected to increase from 0.4% to 0.9% 2 NZX Property Index weight projected to increase from 5.2% to 9.0% 3 Gearing 1 NZX 50 Index weight 50% 40% 30% 20% 10% 0% 1.1% 0.8% 0.6% 0.4% 0.2% 0.0% 45% VHP Trust Deed covenant 40% 40% 37% 36% 34% 32% 29% 22% 20% DNZ ARG KPF 44 VHP* VHP Existing +15 GMT VHP PFI KIP 29 NAP VHP Expanded ANO Notes: 1. Peer Gearing sourced from company reports and announcements. VHP* refers to VHP Expanded FY11 Gearing, VHP refers to VHP Existing FY11 Gearing; 2. Calculation provided on p.2; 3. VHP Existing NZX Property Index weight based on Indexed Shares and share prices at 19 October VHP Expanded NZX Property Index Weight based on New Zealand Free Float Market Cap. calculated using New Zealand Free Float Shares of 286.8m and TERP of $1.17. Other constituents Indexed Capitalisation based on Indexed Shares and share prices at 19 October

17 Expected benefits of the Transaction (cont d) 5 Improved defensive positioning Portfolio expected to increase from 8.4 years to 11.5 years as at 30 September 2010 (c.2.5 times the sector average of 4.5 years) Five year lease expiry expected to reduce from 31% to 19% Proportion of inflation-linked leases expected to increase from 86% to 90% (by rent) (years) VHP* 8.4 VHP 5.5 GMT 5.4 KPF 5.0 ARG 4.5 DNZ 4.4 ANO 4.3 KIP 4.1 PFI NAP VHP Existing VHP Expanded 6 Enhanced diversification Broader geographic exposure; establish footprint in Queensland, NSW, Tasmania 37% 13% 3% 37% Balances portfolio exposure to legislative/policy changes in New Zealand 23% 63% NZ Vic 24% NZ Vic Qld NSW Tas Notes: 1. Peer sourced from company reports and announcements. VHP* refers to VHP Expanded at 30 September 2010, VHP refers to VHP Existing at 30 September

18 Taxation and currency Taxation The entity acquiring the Acquisition Assets will be structured such that it qualifies as a Managed Investment Trust ( MIT ) for Australian tax purposes 1 Under the MIT regime, distributions of rent and capital gains made to VHP will be subject to a concessional 7.5% final withholding rate. There is no further Australian tax payable on the net income earned in Australia Currency Acquisition debt facility to be New Zealand domiciled but Australian dollar denominated allowing VHP to benefit from a partial natural hedge Consistent with its prevailing foreign currency hedging policy, VHP does not intend to utilise currency derivatives to hedge its exposure to movements in the NZ$:A$ VHP will treat its investment in MIT as a foreign investment fund and will return taxable income of 5% of the value of its investment in MIT VHP intends to maintain its status as a Portfolio Listed Company under the Portfolio Investment Entity regime Notes: 1. Qualification requirements include being an Australian resident, a Managed Investment Scheme under the Corporations Act, carrying on a substantial proportion of its management activities in Australia, and its investor base is widely held 15

19 Transaction conditions Key conditions to completion of the Transaction include: FIRB approval VHP approvals EHCT unitholder approval Debt funding Rights issue FIRB application submitted on 23 September 2010 and response expected shortly Transaction is a material transaction, and has a related party aspect 1, therefore Unitholder approval by way of an ordinary resolution is required under the Trust Deed and the NZSX Listing Rules Neither ING (NZ) Limited nor any associated person (as defined in the NZSX Listing Rules) of ING (NZ) Limited is entitled to vote in favour of the resolution to approve the Transaction Unitholder vote scheduled to take place at VHP s annual meeting on 24 November 2010 Transaction must be approved by EHCT unitholders by way of an ordinary resolution Unitholder meeting scheduled to take place on 25 November 2010 Credit approved Committed Terms Sheet has been received in respect of the extension of VHP s existing debt facility to fund the Transaction The Offer is fully underwritten by Forsyth Barr Group Limited All components are inter-conditional Transaction / financing will not proceed without the relevant unitholder votes Notes: 1. As part of the Transaction, Vital Healthcare Australian Property Proprietary Limited (a related company of the Manager which is ultimately owned in New Zealand by ANZ National Bank Limited), or its nominee, will make a payment of A$2.3 million to Orchard Capital Investments Limited, which is the responsible entity under Australian law of the Essential Healthcare Trust 16

20 Management fee review Current management fee structure: Base fee of 0.75% p.a. of the Gross Value of the Trust (as defined in VHP s Trust Deed) and a performance fee of 10% p.a. of the average annual increase in Gross Value of the Trust, adjusted where there is a distribution of capital or an investment acquired, and measured over the relevant financial year and the two preceding financial years Performance fee will not increase simply by virtue of the increase in total assets on settlement of the Transaction The Manager recognises that the listed real estate trust sector in New Zealand and Australia has seen, and is continuing to see, changes to established management fee models Conditional on the Transaction proceeding, the Manager is considering changes in the management fee payable by VHP to better align Unitholder and Manager interests, generally as follows: A reduction in the base fee of VHP from 0.75% p.a. to 0.60% p.a. of the Gross Value of the Trust A performance fee based on total unitholder return rather than asset revaluations. Under the proposed structure, to achieve a performance fee the Manager will need to deliver a total unitholder return in excess of 10% p.a. The performance fee will be 10% of any outperformance (subject to a cap of 15% p.a.) and will have a 24 month carry forward A property management fee which is based on comparable, market rates for arms length transactions for the provision of similar services. The property management fee may be charged up to a maximum of 4% of the gross income of each property, and where possible recoverable ING (NZ) Limited, the parent company of the Manager, supports these changes. If the Manager proceeds with these changes it will require the approval of the Trustee and Unitholders 17

21 Terms of the rights issue Entitlement ratio 1 for 1 Units issued 143,685,714 Issue price $1.05 Total gross proceeds $150.9m Discount to TERP 1 9.9% Ranking Oversubscription facility Underwriter Broker handling fee Equally with existing Units New Units will be entitled to the December quarter distribution payable in March 2011 Unitholders at the record date are entitled to apply for additional new Units, to the extent available from any shortfall, subject to a maximum per beneficial holder of 100,000 additional new Units Forsyth Barr Group Limited has fully underwritten the Offer 0.50% (maximum of $250 per application) on the value of new Units allotted Notes: 1. TERP of $1.17 being the average price of 1 Unit at the issue price of $1.05 and 1 Unit at $1.28 (as at 19 October 2010) 18

22 Indicative Offer timetable 1 Announcement of Transaction and Offer Simplified disclosure prospectus expected to be registered Notice of meeting to be posted by Rights trading commences on NZSX Record date for determining entitlements VHP Unitholder votes and annual meeting EHCT unitholder meeting Letter of entitlement and simplified disclosure prospectus sent to Unitholders Monday 1 November Wednesday 3 November Monday 8 November Monday 22 November Wednesday 24 November Wednesday 24 November Thursday 25 November Thursday 25 November Rights trading ceases on NZSX Offer closing date Expected date of allotment of new Units Expected date of settlement of the Transaction Tuesday 7 December Monday 13 December Friday 17 December Wednesday 22 December The rights will trade on a conditional basis from commencement of the rights trading period until the proposed Transaction, and the Offer, have been approved by VHP Unitholders and the sale of the Acquisition Assets to VHP has been approved by the unitholders of EHCT Notes: 1. The Manager reserves the right to amend this timetable 19

23 Glossary Acquisition Assets The Acquisition Properties and the loan to Healthe Care Australia Pty Limited Acquisition Properties The 12 healthcare properties to be acquired from EHCT A$ Australian Dollar CPI Consumers Price Index EHCT Essential Healthcare Trust FIRB The Australian Foreign Investment Review Board Gearing Calculated as: total debt divided by total assets Manager Vital Healthcare Management Limited, the manager of Vital Healthcare Property Trust NDI Net distributable income calculated as: profit before tax adjusted for non-cash items including revaluation gains/losses on investment properties and construction, foreign exchange and interest rate swaps, the Manager s Incentive Fee and current tax Offer TERP Transaction Trustee Unitholder Unit VHP VHP Existing VHP Expanded WACR The $150.9 million pro-rata renounceable rights issue Theoretical ex-rights price The acquisition of the Acquisition Assets The trustee of VHP A registered holder of Units in VHP An undivided part or share in VHP Vital Healthcare Property Trust The scenario that assumes that the Transaction does not proceed The scenario that assumes that the Transaction does proceed Weighted average capitalisation rate Weighted average lease term 20