Bank interest rates are at record lows, giving savers meagre returns, but one NZX listed business today told its investors they had enjoyed a massive 12.7 per cent return in the last year.
Bernard Crotty, chairman of listed health real estate specialist Vital Healthcare Property Trust with assets here and in Australia, told today's annual general meeting in Auckland about the company's performance.
"Vital recorded a 12.7 per cent total return for the 12 months ended September 30, 2020,
despite COVID-19 impacting around half of this period," Crotty said.
That's a combination of the dividends as well as the share price lift which has seen the business trade around 30 per cent higher than a few months ago. Vital shares are around $3.02, a third up on its $1.95 towards the end of March this year before the first national pandemic lockdown.
Crotty did not specifically mention record low interest rates but did say the multi-billion dollar business also outperformed the S&P/NZX All Real Estate Index by 17.1 per cent.
Vital's performance highlighted the defensive nature of healthcare real estate compared to other real estate classes and the resilience of hospital operators in particular.
Aaron Hockly, Vital's fund manager, said: "On any measure, the FY20 results were outstanding. Our cash profit or AFFO increased by 5.6 per cent per unit. This was the result of both a 3.4 per cent increase in underlying earnings and a 7.2 per cent reduction in expenses."
Earnings increased due to rent rises, acquisitions, developments and leasing.
Vital got 99 per cent of all its due rent because its tenants are healthcare providers, now in high demand and able to afford the buildings the trust owns.
The trust now has $2.2b invested in 44 properties of which 77 per cent are in Australia and the rest here.
Of those 44 properties, 82 per cent are hospitals including the leading private hospitals in Auckland, Brisbane, Hawkes Bay, Melbourne, Newcastle, Sydney, Wellington and Whangarei.
Hospitals are rarely sold, making it hard for Vital to expand through new acquisitions of existing assets.
Vital's five-year plan is for hospitals to remain its core asset and income provider and will make up between half and 70 per cent of its portfolio.
Vital's weighted average lease expiry term is extremely unusually long for a listed business at 18.5 years, meaning its tenants don't plan to shift out of its buildings in nearly 20 years.
Vital's lease expiry is the longest of any Australian or New Zealand listed properties entities and nearly double the average in New Zealand, Hockly said.
That was one of the keys for long-term income security for unitholders, he stressed.
Hockly also updated the meeting on development work.
The trust is also focusing on growth via a portion of development. Its development pipeline is $347.1m of which it has $250.8m is yet to be completed.
Vital's Wakefield Hospital in Wellington is being upgraded.
"Work continues to rebuild and seismically strengthen Wakefield Hospital, Wellington's pre-eminent private hospital. The total cost of this project is over $130m of which Vital's contribution will be over $100m," Hockly said.
The first stage of the project is a new building to the rear of the existing hospital, due by the middle of next year when work will start upgrading and extending the existing hospital. The total project is scheduled to be done by mid-2023.
Wakefield will eventually have more than 74 in-patient beds, six operating theatres, a cardiac and angiography suite, an endoscopy suite, consulting rooms and a full range of specialist services, Hockly said.
He also mentioned the successful and over-subscribed $157.5m capital raise recently.
Not everything Vital does is popular with investors: for example, they did not approve its attempts to list on the ASX.
Vital's manager is owned by Canada-based NorthWest Healthcare Real Estate Investment Trust and questions have also been raised about that entity and how it has run the business over the years.