Chris Smith

The Australian Unity Healthcare Property Trust (HPT) has acquired the Brisbane Waters Private Hospital on the New South Wales Central Coast for $16.175 million.

The property is forecast to deliver a yield of 9.27 percent in its first year with the potential to add additional value through brownfield development, says Chris Smith, Australian Unity’s head of healthcare and retirement property funds.

HPT is an unlisted property trust that invests in healthcare-related property assets with a primary focus on delivering regular income, plus the opportunity for long-term capital growth.

The property purchase will be funded by capacity within the debt facility of HPT, which currently has a gearing level of 21 percent, and the property will have an initial 22.5 year lease term to Healthe Care.

The property at 21 Vidler Avenue Woy Woy is a two-level, 78-bed general hospital complex. It was originally constructed in 1978 and comprises a number of ancillary buildings and site improvements. HPT will refurbish and extend the hospital during the early years of ownership.

“The purchase of this property is another quality addition to HPT’s diverse property portfolio, and increases its allocation to New South Wales property to 37 percent,” Mr Smith says.

“Woy Woy is located at the southern end of NSW’s Central Coast region, 80 kilometres north of Sydney’s CBD, and is a popular retirement destination with a growing population.

“The Woy Woy area, including Ettalong, Umina, Ocean Beach and Koolewong, is also an important part of the Sydney commuter belt, with rail journey times of just over an hour to reach Sydney’s CBD and easy access via the F3 Motorway from Sydney to Newcastle.

“HPT will continue to look to invest in quality healthcare property that meets its stated aims of providing income and capital growth.

“The HPT now has significant capacity to acquire property that meets its strict acquisition criteria and is seeking opportunities to acquire new assets as well as looking at further developing existing assets within the trust. Both the pace and frequency of these developments have picked up substantially over the past few years, and we expect more expansions in the future will play an increasingly important role in the delivery of community healthcare services,” Mr Smith says.

In line with its active management strategy the Australian Unity Real Estate Investment team has recently re-financed HPT’s debt facility in two tranches, the longest of which expires in 2019. This has resulted in the cost of debt decreasing by 70 basis points and subject to HPT’s total level of gearing the reduction is expected to be accretive to the earnings and distribution yield of HPT.

Over the past 15 years HPT has grown to become one of the largest and highest-rated unlisted property funds in Australia. Today, it has a diversified tenant base and holds a quality direct portfolio of 25 healthcare properties across Australia, valued at over $550 million (as at 30 June 2014).

The Healthcare Property Trust – Wholesale Units returned 9.03 percent over one year, 7.71 percent per year over three years, 6.29 percent per year over five years and 11.36 percent per year since its inception on 16 May 2000[1].

HPT was named the winner of the 2013 Australian Property Institute NSW Excellence in Property Awards in the Property Trust Industry category, and the Australian Unity Real Estate Investment team was named the Professional Planner / Zenith Investment Partners Direct Property Fund Manager of the Year for 2013.

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The Australian Unity Healthcare acquires a medical technology facility in St Leonards, NSW.

The Australian Unity Healthcare Property Trust (HPT) will shoot through the $500 million in funds under management mark, with the acquisition of a medical technology facility at 8 Herbert Street, St Leonards, New South Wales for $38.5 million, says Chris Smith, Australian Unity’s head of healthcare and retirement property funds.

HPT is an unlisted property trust that invests in healthcare related property assets with a primary focus on delivering regular income, plus the opportunity for long-term capital growth.

“The purchase of this property will enhance the geographic, property type and tenant income diversification of HPT and will be funded by capacity within the existing debt facility. The property represents an initial yield of 9.8 per cent and as such is accretive to earnings,” Mr Smith says.

“HPT has an outstanding history of delivering stable income and capital growth to investors. We believe this property will contribute to the continued success of the trust. Since inception HPT has returned 11.44 per cent and its 10 year return stands at 11.56 per cent. Over three years it has returned 7.28 per cent and the one year return stands at 9.48 per cent,” Mr Smith says.

The Herbert Street property is a modern three storey medical technology facility, with a net lettable area of 10,556 m2 and basement security car park for 156 vehicles. It is located only seven kilometres from Sydney’s CBD and walking distance from the main hospital building of the Royal North Shore Hospital (RNSH) precinct.

The anchor tenant of the property is leading global prosthetics and medical equipment manufacturer and distributor, Stryker Australia. Other tenants include RCPA Quality Assurance Programs, an entity closely associated with the Royal College of Pathologists of Australia.

This is the second acquisition for HPT in St Leonards since the purchase of 176 Pacific Highway in 2008. This property is home to the North Shore Specialist Day Hospital and is the company headquarters of Virtus Health.

“Healthcare property continues to be attractive and highly sought after as an asset class. HPT has seenconsiderable investor support over the past year, with inflows comparable to pre-GFC levels,” Mr Smith says.

“The long-term outlook for healthcare is extremely positive. Australia’s ageing population, and the associated health and medical implications of this, mean demand for private healthcare and related services will continue to grow.

“There is already evidence of expanding demand in the sector and having built significant capacity for further acquisitions, HPT stands ready to capitalise on this demand for the benefit of its investors.

“Further to the St Leonards acquisition we are working on a number of other property acquisitions and brownfield developments that will result in further growth and accretive earnings for HPT by 30 June 2014.

“The acquisition focus is on hospitals, medical centres and other health related type assets in New South Wales and South-East Queensland valued at over $10 million,” Mr Smith says.

Australian Unity Investments (AUI) was named the winner of the 2013 Australian Property Institute NSW Excellence in Property Awards in the Property Trust Industry category, and it also was named theProfessional Planner / Zenith Investment Partners Direct Property Fund Manager of the Year for 2013.

Over the past 13 years, HPT has grown to become one of the largest and highest-rated unlisted property funds in Australia. Today, the Trust has a diversified tenant base and following the completion of this acquisition, will hold a quality direct portfolio of 25 healthcare properties across Australia, which together with its other assets, will be valued at over $520 million.

AUI manages a range of diversified property funds, covering healthcare, retail, industrial, commercial and office property and has over $1.7 billion in property assets under management (as at 31 October 2013).

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AUI wins the API Commonwealth Bank of Australia Property Trust Industry Award.

Australian Unity Healthcare Property Trust has been named the winner of the 2013 Australian Property Institute NSW Excellence in Property Awards in the Property Trust Industry category.

The Trust is an unlisted property trust that invests in healthcare related property assets with a primary focus on delivering regular income, plus the opportunity for long-term capital growth.

The API Commonwealth Bank of Australia Property Trust Industry Award is made to a listed or unlisted property trust or property syndicate that shows superior industry performance through such attributes as innovation, financial performance and public accountability.

This is the second award for Australian Unity Investments this month. It was also named the winner of the Professional Planner/Zenith Investment Partners Direct Property Fund Manager of the year award for 2013.

This Award is recognition of the Trust’s reputation for innovation and successful property development,” says Mark Pratt, AUI’s head of property, mortgages and capital markets.

“These respected and prestigious awards recognise outstanding achievement in the property profession and the built and natural environments. Being awarded winner in the Property Trust Industry category is a strong endorsement of our investment approach and our achievements on behalf of our investors.

“Over the past three years, the Trust has launched a series of innovative brownfield developments designed to boost investor returns and respond to increased tenant demands for more space and increased capacity.

“The Trust maintains a pipeline of development projects to grow and enhance the existing properties in its portfolio. In addition, given considerable investor support over the past year, the Trust has built significant capacity for further acquisitions.

“Fundamentally, we believe demand for private healthcare services will continue to grow. Already there is substantial evidence of expanding demand in the sector and the Trust stands ready to capitalise on this for the benefit of its investors.”

Over the past 13 years, the Trust has grown to become one of the largest and highest-rated unlisted property funds in Australia. Today, the Trust has a diversified tenant base and a quality direct portfolio of 24 healthcare properties across Australia, which together with its other assets, are valued $485.5 million (30 September 2013).

AUI has been managing property funds for 14 years, and is a leader in property management. It manages a range of diversified property funds, covering healthcare, retail, industrial, commercial and office property and has over $1.7 billion in property assets under management (as a 30 September 2013).

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Strategically placed to provide investors with a diversified exposure to healthcare related assets, the Trust has traditionally represented a solid investment with exposure to defensive assets on long-term leases and high calibre management. Zenith has issued an updated Product Assessment on the Australian Unity Healthcare Property Trust (Retail, Wholesale and Class A units) and confirms the retention of the Highly Recommended rating across all unit classes.

Zenith’s View
Zenith has retained their view of the Trust as a superior offering within the sector. Since our last review, management continues to pursue value-adding works within the HPT and monitor opportunities to potentially divest mature assets to recycle capital. Historical returns have traditionally performed well against performance benchmarks, generating solid risk adjusted returns with low volatility.

While outperformance has slowed in more recent years, Zenith maintains solid conviction in the Fund’s merit as a defensive play with stable income and growth potential.

Zenith is of the opinion that the HPT continues to represent one of the few ways for investors to access this specialist asset class directly. Fund distributions were given a boost in FY12 from reduced credit margins and while burdened with recent losses from out of the money interest rate swaps, portfolio metrics continue to be very strong and we expected to see solid rental growth going forward.

Zenith has retained our rating based on our continuing opinion that the portfolio of diversified quality healthcare assets which are strongly defensive by nature and with high barriers to entry continues to provide strong risk adjusted returns to investors in this sector over the long term. Zenith rates the Australian Unity Healthcare Property Trust Highly Recommended.

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Australian Unity Funds Management Ltd. is seeking to raise A$28.9 million for the trust, which is the shortfall from the A$50 million priority rights offer in October 2011. As originally intended, capital raised will be used for the redevelopment and expansion of three hospitals. 

Unlike the initial offer, new investors will be able to apply for discounted units in the event that existing investors do not take up their full entitlement. The second entitlement offer, again at a 7.5% discount to the fund’s unit (mid) price, closes on March 30, 2012. The subsequent allotment to new investors will be done after April 3, 2012 on a “first-in, first-served” basis, with the offer closing May 25, 2012. 

The potential for a subsequent discount offer was known to S&P and foreshadowed in our latest premium rated research report. The offer is again designed to reduce the amount required to be funded from borrowings. Importantly, it will maintain the fund’s conservative equity/debt structure. 

S&P will continue to monitor the success (or otherwise) of the discount offer, although we take comfort from the fund’s conservative capital structure and Australian Unity’s strong active-management experience.

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The three investment options (classes of unit) provide a conservatively managed exposure to the specialised health care property sector but with different fee and liquidity mechanisms. 

“We view the team responsible for the trust very highly, in particular, head of health care and retirement property funds Chris Smith. The team, led by Mr. Smith, has delivered strong risk-adjusted returns to investors over a long track record. We’re comfortable that this can continue through the cycle,” said Nathan Bode, analyst at S&P Fund Services. 

Since our last review, the trust has raised over A$20 million through a priority rights offer (PRO). Capital raised will be used for the redevelopment and expansion of three hospitals. The PRO reduces the amount required to be funded from borrowings. Importantly, it maintains the fund’s relatively conservative equity/debt structure. 

The planned works increase the weighted average lease expiry (WALE), and smooth out the fund’s lease expiry profile (lease extensions have been negotiated for the three hospitals). While expansion and redevelopment initiatives like these introduce risks, and make management of the fund slightly more complex, Australian Unity Investments has strong active-management experience. Importantly, we view the redevelopment and capital management initiatives as being consistent with the manager’s focus on delivering strong, and improving, risk-adjusted returns.

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Australian Unity Funds Management Limited is seeking to raise a maximum of A$50 million through a non-tradeable rights issue to existing investors, at a 7.5% discount to the funds’ unit (mid) price. The offer will close on Dec. 20, 2011. Proceeds will be applied to the expansion and refurbishment of three assets: Peninsula Private Hospital, The Valley Private Hospital and Beleura Private Hospital. 

There is no dilution impact for investors who take up their full entitlement. The dilution impact for investors who do not elect to take up their entitlement, or only partially take up their entitlement, is minimal. In the event that the offer is undersubscribed, capital expenditure shortfall may be funded via a combination of debt, asset sales and/or existing cash reserves. Importantly, this will not result in a significant deterioration in the fund’s gearing metrics which are conservatively based and managed. 

The aforementioned capital management/expansion initiatives are expected to help deliver enhanced distributions over the long term, and a significantly improved leasing profile. As such, we view them as being consistent with the manager’s focus on delivering strong, and improving, risk-adjusted returns for fund investors.

 S&P will monitor the success (or otherwise) of the discounted rights offer until our next scheduled review of the funds in early December 2011.

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