Vital Healthcare will raise $200mn to fund acquisitions and development

AUCKLAND: NorthWest Healthcare Properties Management Limited as manager of Vital Healthcare Property Trust announced its intention to raise approximately $200m of new equity capital, through a 1 for 8.54 underwritten pro rata accelerated entitlement offer to fund ~$225m of new acquisitions and developments.

Vital Healthcare’s Fund Manager, Aaron Hockly, said: “The acquisitions announced today will enhance Vital’s geographic diversification and mark our strategic entry into New Zealand’s South Island. They are an opportunity for us to build new relationships with quality tenants and are expected to support AFFO growth for Vital Healthcare’s unitholders. There will be immediate development upside available for both acquisitions.

In addition, we are delighted to announce two additional developments that have arisen from our long-standing relationships with New Zealand’s three largest private hospital operators. These developments will enable us to provide additional health infrastructure for Auckland whilst also providing AFFO and valuation growth for Vital’s unitholders.
The acquisitions and developments announced today include a range of sustainability features consistent with Vital and the Manager’s sustainability commitments.”

South Island acquisitions
Vital has entered agreements to acquire its first South Island properties.

• Kawarau Park, Queenstown: (Purchase price $95m). A newly developed health precinct with a weighted average lease expiry (WALE) of 8.7 years that includes Queenstown’s only private hospital, benefitting from Queenstown’s favourable demographics. The precinct has six individual high quality buildings and immediate additional development potential. The anchor tenant is a hospital operated as a joint venture between Southern Cross Hospitals and Central Lakes Trust, with other tenants including nationwide healthcare providers Pacific Radiology (subsidiary of NZX-listed Infratil) and NZX-listed Green Cross Health. The fully let blended yield is expected to be ~4.5% with 40% of leases (by income) subject to rental increases to the greater of CPI and market.

• 68 St Asaph Street, Christchurch: (Purchase price $50.7m). A large, modern ambulatory care (maternity) and life sciences site, part of one of New Zealand’s key health precincts and located 300 metres from Christchurch Hospital. The WALE is 8.5 years and the property provides an expected net operating income yield of ~5.1% . Existing tenants include the Canterbury District Health Board and life sciences corporate Syft Technologies. The balance, comprising ~30% of net lettable area, is available for lease and subject to a 24-month vendor rental underwrite.

Vital proposes to acquire and expand a hospital in Auckland and to expand another Auckland hospital it already owns.

• Endoscopy Auckland, Epsom: (Purchase price $22.2 million; estimated development costs ~$21.6 million). Vital has agreed terms to acquire land and buildings at 148 Gillies Avenue and 22-24 Kipling Avenue, Epsom. Currently, the properties comprise an existing endoscopy facility and residential units on ~4,000sqm of land. The hospital business is jointly owned by Healthcare Holdings and Evolution Healthcare. Terms have been agreed to utilise the vacant land at 22 Kipling Ave and develop a new day surgery and endoscopy facility, with the existing facility expanding surgery capacity. The initial yield on the purchase price is estimated to be ~4.75%, expected to increase to a ~5.1% yield as a result of development spend. The existing buildings will be tenanted for an initial term of 20 years from settlement and the new hospital will be pre-leased for 20 years from completion.

• Ormiston Hospital, Auckland: (estimated development costs ~$40 million ). Ormiston Hospital is an existing ~5,000sqm Vital owned asset leased to Ormiston Surgical Endoscopy Limited (~50% owned by Southern Cross Hospitals). Terms have been agreed with the tenant to develop a new ~4,500 sqm, 3 level building linked to the existing ~5,000 sqm, 3 level building by an air bridge. On completion, the new facility will be leased for 20 years with the lease of the existing facility also extended to 20 years (an ~18.5-year extension). The estimated net yield on development cost is 5.5%.

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