Vital Healthcare Property Trust interim profit up to $170m after revaluation surge

Vital's Epworth Eastern Hospital in Melbourne. Photo / supplied

Revaluations of $153.1 million on Australasian medical properties owned by listed Vital Healthcare Property Trust helped push net after-tax profit up 86 per cent for the latest half-year.

The trust made $91.5m profit in the half-year to December 31, 2020 but $170m in the latest half-year due partly due to those revaluations.

Revenue, or gross property income from rentals, rose only marginally from $56m to $60m between the two periods but operating profit actually fell from $28.2m to $27.8m when expenses rose.

However, the unrealised or paper revaluation gains on $3b of investment properties changed substantially from the previous $60m gain to the $153.1m boost in the latest period: 70 per cent of the gains came from Australia and 30 per cent from here.

Revaluation gains include around $50m from rental increases, leasing activity, development margins and other valuation adjustments, the trust said, citing $7m development margins.

But well-leased healthcare properties continue to get high revaluations.

The trust, run by Canada's NorthWest Healthcare Properties Management, said today it had a long-term development pipeline of more than $1b, including $300m of committed developments as well as potential developments being actively pursued.

Gearing is at 33.2 per cent.

Vital owns 43 properties valued at around $3b here and in Australia and regularly raises equity, usually from existing investors. It has raised $168m equity lately and extended debt by $315m.

Aaron Hockly of Vital Healthcare. Photo / supplied

In the latest half-year, it bought two properties: Adelaide's Tennyson Centre for A$92.75m and Wellington's Hutt Valley Health for $46.5m.

The business has $2.2b of its properties in Australia and only $800m in New Zealand, according to its results presentation today. Tenants are locked in for extremely lengthy periods: a weighted average lease expiry of 17 years, eight months.

Vital says it is the only NZX listed specialist healthcare landlord and despite an attempt by the trust to list on the ASX, it remains only listed in this country.

On its outlook, the trust said: "Despite the ongoing impacts of Covid-19, Vital's tenants have largely continued to provide a full gamut of acute and sub-acute services and have adapted to more varied cashflows. Increased pressure on public sector wait times is expected to result in an increased reliance on the private sector to unblock the backlogs.

"Vital continues to provide a stable earnings stream sourced from a defensive sector with 86 per cent of its leases linked to CPI growth in some way.

"Vital remains well-positioned to continue to grow earnings including our revised AFFO guidance, achieve our revised distribution guidance and continue to enhance Vital's high-quality portfolio," it said.

Trust units are trading around $3.07, giving a market cap of $1.7b, well below the value of properties.