ING Medical Properties Trust full year results

ING Medical Properties Trust announces full year results and delivers on full year cash distribution target of 8.5 cents per unit

The Board of ING Medical Properties Limited (“IMPL”), the Manager of ING Medical Properties Trust (the “Trust”), today announced an audited operating profit of $11.8m for the financial year ending 30 June 2009. As the result is in line with the portfolio and Trust’s earlier projections, the Board has confirmed a fourth quarter distribution of 2.125 cents per unit, with this distribution comprising entirely of cash and having no imputation credits attached.

This results in a total cash distribution for the year of 8.5 cents per unit, equivalent to the distribution target set in August 2008. This achievement demonstrates the consistency of returns delivered by the Trust and the strength and defensive nature of the Trust’s overall property portfolio, despite the weaker economic conditions prevailing over the last year.

Bill Thurston, Chairman of IMPL, said, “The Trust has had another outstanding year, and, according to ABN AMRO Craigs research, was the top performing listed property entity in the NZX50 and S&P / ASX200 for the 12 months to 30 June 2009. It’s pleasing to see investors continue to support the clear strategic direction of the Trust and its relatively insulated investment profile. Twelve months ago I noted that the Trust was ‘well positioned to see through the negative sentiment around the medium term outlook’ and we have lived up to that expectation, delivering a stable and consistent result for investors.”

“The Board and Manager remain focused on ensuring the Trust’s balance sheet continues to be conservatively positioned in the current climate and for the medium term, with gearing levels at a conservative 35.7%, as at June 30 2009. It is however expected that gearing will reduce further, to an anticipated 33.6%, following settlement of the recent unconditional sale of two of the Trust’s lower value, non-core assets,” added Mr Thurston.

The Trust’s banking facility is locked in until 31 March 2011.

Performance

Key to delivering the full year 2009 cash distribution of 8.5 cents per unit has been the portfolio performance and remaining focused on the Trust’s overall strategy for the last 12 months. On a number of measures IMP has exceeded expectations and with a weighted average lease term of 9 years as at 30 June 2009, the Trust maintains the longest weighted average term of any property entity listed on the NZX. Gross rental income increased 9.7% to $23.8 million, partly as a result of increased rental income from rent reviews, with an average increase in rents reviewed of 4.1%.

Commenting on the results, David Carr, General Manager, IMPL, says, “We’re extremely pleased to maintain our leading position in the market and to deliver on our projected full year 2009 cash distribution.”

The Trust did not pay any income tax expense during the financial year, since it is entitled to a tax refund in respect of the 2008 tax year. This resulted in no imputation credits being attached to the Trust’s distribution for the 2009 financial year. In the 2010 financial year however, the Trust’s effective income tax rate is expected to normalise to around 11%.

The Trust’s operating profit decreased 2.3% to $11.8m, due to the continued leasing up of the recently completed Ascot Central building and increase in the Trust’s cost of debt. In calculating
operating profit, any unrealised items are removed from the Trust’s profit before tax. Following a slight market-driven decline in portfolio revaluations of $7.1m (2008: decline of $1.5m) and mark-to-market interest rate swaps revaluation decline of $8.7m (2008: increase of $2.0m), the 2009 net loss after tax is $2.2m (2008: profit $8.6m).

 Carr continued, “It’s important that unitholders recognise these unrealised adjustments do not impact on the operating profit of the Trust or the distributable profit available to unitholders, evidenced by the 8.5 cents per unit, full year 2009 cash distribution.”
 
Occupancy

Overall portfolio occupancy levels have improved 3.7% to 98%, while the 4 Green Star - Office Design rated, Ascot Central, is now 81% leased, a 33% increase from June 2008.

David Carr added, “We’ve always recognised the value of the relationships we have developed with our tenants and this is pivotal to the results we’ve achieved over the last couple of years. We’ll continue to build on these relationships and ensure that the Trust is regarded as the preferred specialist medical and healthcare property partner in its respective markets.”

Ten new tenants were introduced to the portfolio by year’s end, resulting in healthy overall portfolio diversification.

“We have also worked hard to ensure that our investors are kept fully informed about the Trust and its activities and earlier this year we hosted an investor roadshow, which was greatly received and attended by more than 400 investors in ten centres nationwide.” 

Property revaluations

In real terms, excluding the effect of currency movements, the portfolio on a ‘like for like’ basis declined 2.4%, or $7.1m. Carr added, “Compared to the recent, near 10% annual decline in values experienced by many other New Zealand listed property entities, the Trust’s small relative decline is representative of the Trust’s sound lease structures and generally resilient characteristics of the healthcare sector that the Trust invests in.”

 
Capital and portfolio management strategy

Following the sales of the Thames Street, Melbourne and Biomed, Point Chevalier properties, the Manager will continue to consider the disposal of other selective, lower value or non-core assets over the medium term as part of the Trust’s ongoing, prudent capital management strategy, while the further strengthening and diversification of the Trust’s portfolio will cement medium to long term stability.

The Trust’s strategy of owning and investing in lower risk, specialist medical and healthcare property assets in the New Zealand and Australian markets will continue and the Manager will closely monitor the market for signs of economic recovery and an appropriate re-entry point to consider additional portfolio value enhancing acquisitions. “This is vital in order to deliver on the ongoing objectives and performance of the Trust and to protect and enhance unitholder returns” continued Mr Thurston.

Outlook

“The Board and the Manager have worked hard to steer the Trust through one of the most difficult financial and economic periods the world has experienced in many decades. The Trust continues to benefit from its structured leases and the unique medical and healthcare characteristics that underpin and insulate it from current and potentially ongoing economic uncertainty. Continued pressure on both the public and private healthcare sector and an ageing population will provide a relatively defensive position into the future.

Carr added, “It’s reassuring to be able to say, as the Trust announces guidance for the next financial year, that we have excellent portfolio metrics with increased tenant diversification, high occupancy levels, CPI-linked rental growth, a conservative treasury management position and contracted rental income certainty thanks to the early mitigation of future lease expiries, with only 4.9% of total leases (by income) due to expire in the course of the next 24 months.”
2010 Guidance

The Trust’s portfolio is expected to perform well over the coming year with gross distributions projected to increase, reflecting the Trust’s stable asset and treasury management position.

Taking into consideration the normalisation of the Trust’s tax position in 2010, the Board forecasts a 2010 cash distribution range of between 8.4 and 8.6 cents per unit. Assuming market conditions remain generally stable and no material unforeseen portfolio events or tenancy defaults occur, the Board will target a cash distribution of 8.5 cents per unit for 2010, which equates to the cash distribution payable in each of the last two years and is above current market consensus forecasts.

ENDS

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