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IMP achieves 8.5cpu cash distribution for third consecutive year

Thursday, 19 August 2010

The Board of ING Medical Properties Limited (’IMPL‘), the Manager of ING Medical Properties Trust (the ’Trust‘), today announced an audited operating profit of $13.4m for the financial year ending 30 June 2010. The Manager also confirmed a fourth quarter cash distribution of 2.125 cents per unit, plus imputation credits of 0.51 cents per unit.

Bill Thurston, Chairman of IMPL, said that "the full year result has enabled the Board to deliver a total cash distribution for the year ending 30 June 2010 of 8.5 cents per unit, in line with the guidance set by the Board in August 2009. Importantly, we have now provided a cash distribution of 8.5 cents per unit for the third consecutive year. This is a significant feat considering the New Zealand recession and Global Financial Crisis through that period".

Mr Thurston put the result down to strong management and a clear strategic focus coupled with the low risk, high quality nature of the Trust’s cash flows supporting the Trust’s operating earnings in 2010.

Commenting on the results, David Carr, General Manager of IMPL, said, "It’s great to have had another strong year, with a highlight being Ascot Central now 97% leased. Overall the Trust’s occupancy levels are now at 99.6% and this has been a key factor in achieving the full year cash distribution. It is clear that the Trust and unitholders have benefitted from investment in a sector where properties are tightly held and tenant demand is less influenced by market and economic factors".

2010 Highlights

  • Full year cash distribution of 8.5cpu
  • Occupancy at 99.6%
  • Hawkes Bay District Health Board lease in Napier extended to 2019
  • 70 rent reviews resulting in an increase in rents reviewed of 4.2%
  • 8.6 year weighted average lease term
  • Bank facility renewed until September 2013
  • Operating profit increase of 14% to $13.4m
  • $10.5m (3.7%) portfolio revaluation gain

Financial performance1

The Trust’s operating profit before tax increased 14% to $13.4m due to enhanced portfolio occupancy and rental income, however this was partly offset by an increase in the Trust’s cost of debt over the period. In calculating the operating profit before tax, the unrealised items of property revaluation gains of $10.5m (2009: decline of $7.1m), foreign exchange gain $0.3m (2009: gain $0.4m) and interest rate swaps decline of $0.05m (2009: decline of $8.7m) are removed.

The Trust’s 2010 net profit after tax is $7.4m (2009: loss $2.2m) with the current years tax expense including an unrealised adjustment of $15.5m to deferred tax as a consequence of the recent government tax changes disallowing depreciation on buildings.

Carr said "It is important that unitholders recognise that these unrealised adjustments do not impact on the operating profit of the Trust or the net distributable profit of $11.7m available to unitholders, as evidenced by the 8.5 cents per unit cash distribution being paid".

As was signalled in the Trust’s 2009 Annual Report, during the 2010 financial year the Trust’s effective income tax rate reverted back to a more normalised level of 13.6% of gross distributable profits. This has resulted in imputation credits being attached to the distributions paid through the year amounting to a total of 0.98 cents per unit.

Capital management

As at 30 June 2010 the Trust has bank borrowings of $97.7m, with a facility limit of $135m. With the bank facility due to expire in March 2011 this became a current liability in the 2010 financial year. Recognising that one of the core principles of the Trust is to maintain a structured and low risk capital and treasury management strategy, the bank facility has now been renewed to September 2013, well ahead of the expiry of the current facility.

Whilst the Trust has had the benefit of an existing bank facility with terms agreed before the depths of the Global Financial Crisis, it is inevitable that in securing a renewed facility to September 2013, the Trust is now faced with a more expensive cost of funds, which is reflective of current market lending conditions.

The early renewal of the bank facility together with the sale of selective non-core, lower value assets, illustrates the strong management of the Trust’s capital base during the Global Financial Crisis and property cycle.

As at 30 June 2010 the Trust’s debt-to-total-assets ratio is at 32.6%, down from 35.9% from 12 months ago and broadly in line with the listed property sector average of 30.1%. Gearing sits well below the Trust’s bank and Trust Deed covenant ratios of 50%.

Portfolio performance

"Overall portfolio occupancy levels have improved 1.6% to 99.6%, with only two properties, comprising 250 square metres, currently available for lease. The 4 Green Star rated Ascot Central, is now 97% leased, an impressive 16% increase from June 2009. With just 155 square metres remaining at Ascot Central this is an outstanding result in what has been an exceptionally tough leasing market" said Carr.

The Trust gained a net total of 13 new tenants over the course of the year, further improving the overall tenancy diversification in the property portfolio. The 13 tenants have committed to 1,300 square metres of space at a net rental of $493,000 per annum with a combined weighted average lease term (WALT) of 5.6 years. Lease incentives on the above transactions equated to 7.6% of the net income over the WALT. This sits well below current market incentive levels which can be up to 25% in the Auckland CBD office market.

David Carr added, "We continue to recognise the importance of strong tenant relationships and have worked particularly hard over the last 12 months in mitigating future risk in the Trust’s property portfolio. We were pleased to announce in May that we had secured the Hawkes Bay District Health Board’s commitment to occupy 100% of the Napier Health Centre from 1 July 2010 until 2019. Whilst the lease was re-negotiated to reflect current market conditions, the Hawkes Bay District Health Board covenant provides exceptional certainty of income over the long term for unitholders".

The Manager also completed 70 rent reviews to 30 June 2010, with the average increase in rents reviewed of 4.2%.

The Manager has secured 19 lease renewals and lease extensions equating to a WALT of 7.3 years for those transactions, with the Trust’s total portfolio WALT at 8.6 years as at 30 June 2010. The Manager continues to focus on the proactive resolution of future lease expiries in order to provide a low risk, stabilised portfolio platform and income security for the Trust.

Property revaluations

Following the completion of the independent valuations the Trust’s portfolio value has increased by 3.7% or $10.5m over the 12 months to 30 June 2010 on a like for like basis.

Carr said "The overall asset values reflect the relatively stable period of underlying sector fundamentals and overall enhancement of many of the Trust’s core portfolio and property metrics. Additionally, it now appears that the softening of market capitalisation rates has slowed and in some instances stabilised for certain asset classes".

The valuations show the aggregate value of the Trust’s portfolio at $292.0m with the apportionment between the New Zealand and Australian properties at $184.8m and $107.2m respectively. This excludes the unconditional sale of the Waipukurau property which is yet to settle.

Carr said "The Trust’s portfolio now reflects a weighted average capitalisation rate of 8.7%, which is marginally firmer than 12 months ago with the portfolio approximately 2.0% under-rented".

For the 30 June 2009 financial results the net tangible asset (‘NTA’) of $1.17 was reported, which on a like for like basis would result in an NTA of $1.27 as at 30 June 2010. However due to recent changes announced in the May 2010 Budget and subsequent NZ IFRS requirements, the Balance Sheet now reflects the required deferred tax adjustment, which results in an NTA of $1.08 as at 30 June 2010 (2009: $1.12). This includes the deferred tax adjustment of $15.5m, which will not require payment pursuant to current New Zealand tax law.

As a result of the revaluation gains the Manager, in accordance with the terms of the Trust Deed will be entitled to an incentive fee of $120,161 payable in units in the Trust.

Final quarter 2010 Distribution

As noted above, the Board of ING Medical Properties Limited has confirmed a fourth quarter distribution of 2.125 cents per unit, plus imputation credits of 0.5072 cents per unit.

The record date for the distribution will be Tuesday 31 August 2010 and the payment date will be Tuesday 14 September 2010. A discount of 1% will be applied in the calculation of the strike price for those participating in the distribution reinvestment plan. Page 4/5 P

Branding update

In December 2009 ING (NZ) Limited (‘INGNZ’) became a wholly owned subsidiary of ANZ National Bank, part of the ANZ Group (‘ANZ’). As part of that acquisition, it was agreed there would be a 12-month transition to a new company name and brand for ING’s businesses in both New Zealand and Australia. On 5 August 2010, ANZ announced that the new specialist name for the ING wealth management businesses is to be OnePath. The new OnePath name and branding will be in operation by 30 November 2010.

It was also announced that the Manager and the Trust will be given their own unique brand and identity, separate from that of INGNZ/OnePath. This is an opportunity to create a brand and identity that reflects the vision and strategy of the Manager and the niche market position of the Trust. The Manager has been working to develop the new brand, including name, logo and visual identity, with a formal announcement imminent.

Outlook, tax changes and 2011 guidance

The Trust’s strategy of investing in specialist healthcare property assets in New Zealand remains a core focus. The Trust is also well positioned with its existing assets in Australia to leverage into opportunities in a strong and growing Australian economy supported by an ageing and expanding population. These opportunities will be essential in delivering the ongoing strategy of the Trust to protect and enhance unitholder returns.

Carr however cautioned that "there remains moderate pressure in both New Zealand and Australia relating to the provision of healthcare services, including private healthcare insurance coverage and medical inflation. However, offsetting this is the continued ageing demographic profile in both countries, which is expected to partly mitigate any downward pressure".

The property portfolio outlook is resilient, with around 90% of the Trust’s 2011 rent reviews subject to Consumer Price Index movements, less than 3% of leases expiring and portfolio occupancy levels starting the year at 99.6%.

Bill Thurston said that "the imposition of higher total funding costs commencing in the 2011 financial year will result in lower forecast cash distribution guidance for 2011. Additionally, the impact of any further tax reforms may also have negative consequences for future earnings and it is therefore difficult to forecast with any real certainty what the financial and economic landscape may look like 12 months from now. In recognition of the factors that may influence and contribute to future earnings the Board is conservatively forecasting a full year 2011 net cash distribution range of 8.00 to 8.20 cents per unit, subject to market and economic conditions remaining generally stable over the course of the year".

- ENDS -

For a copy of ING Medical Properties Trust’s 2010 audited Financial Statements please refer to either: http://www.nzx.com/markets/nzsx/IMP

 

Reconciliation of Operating ProfitFY2010
$000s
FY2009
$000s
 
Profit/(loss) before income tax24,069(3,614) 
Add back/(Deduct):   
Revaluation (gains)/losses on investment property(10,476)7,078 
Unrealised gain on construction-(20) 
Unrealised foreign exchange (gain)/loss(259)(403) 
Unrealised revaluation loss/(gain) on Interest rate swaps518,736 
Operating Profit13,38511,77713.65%
Incentive Fee120253 
Gross Distributable Income13,50512,03012.26%
Current tax1,8171,657 
Net Distributable Income11,68810,37312.68%

 

 1 For a reconciliation on the calculation of operating profit, gross distributable profit and net distributable profit, please refer to the table in Appendix One

 

 

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