Vital Healthcare Property Trust : HY22 Interim Report

Investing in healthcare infrastructure in New Zealand and Australia

Overview of Vital

as at 31 December 2021

Vital is the only specialist healthcare landlord on the NZX.

Vital Portfolio by Geography

SOUTH

4AUSTRALIA

NEW SOUTH

3WALES

12

VICTORIA

6

TASMANIA

~$2.2bn~$0.8bn

~$3bn

4 3‡† PROPERTIES (AUS & NZ)

Tenant Diversification

(% of Rent)

Sub-sector Diversity

(% of Value)

5%

13%

56%

NZ $113m

NET ANNUAL PROPERT Y

INCOME (CY21)

4.67%

WEIGHTED AVERAGE CAP RATE (IPP)‡ (AUS 4.63%, NZ 4.78%)

17.8 years

WEIGHTED AVERAGE

LEASE EXPIRY (WALE)

10.7 years

AVERAGE

BUILDING AGE*

99.0%

PORTFOLIO

OCCUPANCY

• Income Producing Property (excludes strategic assets) *Average building age = the later of the date of
  construction or last significant capital works.
  † Figures may not sum due to rounding.

Vital's 2-year progression despite COVID-19

Two years ended 31 December 2021

Manager's report

Vital recorded growth in earnings, distributions to unitholders and assets during HY22 as NorthWest's management continues to demonstrably benefit unitholders.

52.6%

growth

NET PROPERTY INCOME (ANNUAL)

$98.8m $113.4m

20192021

14.8%

increase

LARGEST SINGLE TENANT EXPOSURE

46%20%

20192021

Concentration risk reduced

Maintenance of market leading WALE

Portfolio enhancements

support target of

growing AFFO and

distributions by 2-3%

per unit per annum.

SECTOR SPLIT

Diversity of assets reduces risk and enhances earnings

Younger buildings reduce maintenance capex requirements

DEVELOPMENT PIPELINE

~$200m >$1bn1

20192021

Enhance earnings and valuation growth and support portfolio development

WEIGHTED AVERAGE CAP RATE

5.52%4.67%

20192021

Reduction demonstrates: (1) quality of assets and tenants; and (2) value added by leasing and development undertaken

Tēnā koutou,

NorthWest Healthcare Properties Management Limited, the Manager of Vital Healthcare Property Trust (Vital), is pleased to report Vital's results for the six months ended 31 December 2021 (the Half Year).

Vital has continued to deliver for unitholders through increased earnings with FY22 AFFO now expected to be at least 11.9cpu or 3.2% above FY21, following revised earnings guidance issued on the date of this report, allowing for an increase in distribution guidance to 9.75cpu (annualised).

Other key achievements over the Half Year include:

• 8.0% increase in net tangible assets (NTA) per unit from $2.89 to $3.12.

• $314 million of acquisitions (includes acquisitions committed post 31 December 2021).
• Over 3,300 square metres of leasing to maintain a high occupancy of 99.0% and long WALE of 17.8 years as well as improve income security.
• $155 million of new equity issued via placement, unit purchase plan and distribution reinvestment plan helping to reduce balance sheet gearing to 33.2%.
• Extension of debt facility duration (both pre and post balance date).

BALANCE SHEET GEARING

35.1%33.2%

20192021

Conservative gearing maintained

Balance sheet strengthened

through $351m of new equity and extending debt whilst supporting portfolio growth to grow AFFO and distributions.

AVERAGE DEBT MATURITY

Significantly expanded

91.3%

INCREASE IN PROFIT FROM HY21

8.0%

NTA PER UNITAFFO PER UNIT (CPU)DISTRIBUTIONS PER UNIT (CPU)

and actual spend of this potential development pipeline will be confirmed if, and when, potential developments convert to committed developments. These developments are likely to be staged over multiple years.

INCREASE IN NTA PER UNIT

$314m

ACQUISITIONS COMPLETED/AGREED

1. FY20 actual
2. FY22 upgraded guidance

AFFO

AFFO (a proxy for cash profit for unitholders) increased by 13.9% from the prior corresponding period ($28.1 million to $32.0 million). This equates to a 0.7% increase in cents per unit (5.87cpu to 5.91cpu). Our average across longer periods, including the last one and two years, remains above our target of 2-3% growth per unit per annum.

Our revised FY22 AFFO guidance is at least 3.2% above AFFO recorded for FY21.

Distributions

Distributions paid / payable for the Half Year were 8.6% above the prior corresponding period at 4.75 cpu (2.375 cpu per quarter) on a conservative pay-out ratio of 80%.

Due to the higher AFFO guidance noted above, on the date of this report, the Board increased distribution guidance for the next two quarters to 2.438 cpu per quarter or 9.75 cpu annualised. This equates to an 8.5% increase in distributions per unit over FY22 from FY21.

"Distribution guidance has been upgraded from 9.5cpu to 9.75cpu (annualised). This is expected to result in an 8.5% increase in distributions for FY22 from FY21."

Net tangible assets

Net tangible assets rose 8% per unit from $2.89 to $3.12 primarily attributable to property revaluation gains.

Capital management

A placement and follow-on UPP were undertaken in October and November 2021 raising $142.8 million primarily from existing unitholders. This reduced balance sheet gearing to 33.2% and supported the acquisition of Tennyson Centre in Adelaide (refer below for more details). Equity was raised at $2.90 per unit, approximately equal to NTA per unit at 30 June 2021 and a 3.7% discount to VHP's closing price on the day before launch of the placement.

At 31 December 2021, balance sheet gearing was 33.2%, all-in weighted cost of debt was 3.14% (based on drawn debt only and includes the cost of hedging) and Vital had debt headroom in its existing facilities of A$141 million. Post 31 December 2021, terms were agreed to extend Vital's average debt duration from 3.3 years to 4.4 years (pro-forma at 31 December 2021).

Portfolio overview

Vital owns a high-quality ~$3 billion portfolio of 43 healthcare investment properties, diversified across all mainland Australian States and New Zealand. The portfolio comprises 26 private hospitals (representing 82% of the portfolio value), nine ambulatory care facilities (13%) and eight aged care facilities (5%).

At 17.8 years, Vital's WALE remains the longest of any NZX or ASX listed REIT providing a high level of income security for unitholders.

Leasing

Over 3,300 square metres of new or extended leasing was undertaken across Vital 's portfolio during the Half Year. Leasing helped to maintain occupancy above 99%, maintain the long WALE and contribute to the earnings growth noted above.

Net property income

Net property income increased by 6.9% over the Half Year from $54.2 million to $57.9 million compared to the prior corresponding period.

"Over the 10 years ended 31 December 2021, Vital has provided a total return of 16.3% per annum, 4.0% per annum above the S&P/NZX All Real Estate Index and 1.5% per annum above the broader S&P/NZX50 index."

Acquisitions and divestments

Vital acquired two income producing properties during the Half Year:

1. Tennyson Centre, Adelaide for ~A$92.75 million. This Cancer Centre of Excellence is located between Adelaide's Airport and CBD and 500 metres from Ashford Hospital. Tenants include Nexus, Icon, Sonic, Genesis and Dr Jones & Partners. The acquisition includes land suitable for future development. Since acquisition, several key leases have been renewed.
2. Hutt Valley Health Hub, Wellington for $46.5 million. This is a purpose-built, seismically resilient ambulatory care facility adjoining Boulcott Hospital (an existing Vital asset) and Hutt Hospital. Key tenants include Capital & Coast DHB, Ropata Health and Boulcott Pharmacy. Settlement occurred post 31 December

2021 with additional development land expected to be settled later in 2022. The acquisitions will enable Vital to enhance this existing medical precinct including a proposed upgrade and expansion of Boulcott Hospital.

Vital sold Gold Coast Surgical Centre for ~A$13 million (before costs) during the Half Year, ~5% above book value. The sale removed a persistent vacancy within the portfolio. The sales proceeds will be used to support Vital's development pipeline.

Developments

Developments are a key component of Vital's strategy to continue to deliver earnings growth and improve the quality of the portfolio.

As at 31 December 2021, Vital had a committed development pipeline of $303.8 million across ten projects of which $161.4 million was left to complete.

During the Half Year $42 million was spent on developments, ~$6 million spent on value-add capital works and

~$2 million on maintenance and tenant incentives.

Significant development milestones during the Half Year were as follows:

1. Terms agreed for $74 million of expansions and upgrades to NZ Hospitals. Vital has agreed terms with Evolution Healthcare and Southern Cross to upgrade

and expand five facilities in New Zealand. Nearly half of this money will be used to expand Grace Hospital in Tauranga which Vital acquired in late 2020.

1. Epworth Eastern development partially completed. This A$96.5 million expansion of the existing hospital is nearing completion with clinical floors (1-10) handed over to the hospital in November 2021 and the balance expected to be handed over in early 2022. Rent commenced from 1 February 2022.
2. Completion of Stage 1 of Playford Health Hub. This ~A$24 million development comprises a 450 bay multi-deck carpark majority leased to SA Health (South Australia's public health authority who operate the adjoining Lyell McEwin Hospital) and 1,700 sqm of ground floor retail. The development is 70% leased (by income) providing a yield on cost of 6.8%1 and also provides ~200 car bays for stage 2 of this development.
3. Commencement of design for Stage 2 of Playford Health Hub. This A$49 million specialist medical centre is 55%2 pre-leased. Construction is targeted to commence mid-2022 and to complete in late 2023.
4. Memorandum of Understanding signed with Calvary Health Care for Stage 3 of Playford Health Hub. Construction of this ~A$93 million private hospital is expected to commence in 2024.
5. Commencement of construction for Stage 2 of Wakefield Hospital redevelopment. Stage 2 is expected to cost ~$91.5 million and complete in late-2024.
   Stage 1 was completed in mid-2021 for $49.9 million.

Post 31 December 2021, Vital announced two acquisitions to support future developments. Refer to pages10-11 for more details.

In addition, Vital's potential development opportunities increased to ~$1 billion3. These are opportunities which are being actively considered but are not yet committed or approved.

"Vital recorded growth in earnings,

distributions to unitholders and assets during HY22 as NorthWest's management continues to demonstrably benefit unitholders."

COVID-19

Despite the on-going 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 back-logs.

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

Outlook

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

On behalf of your Board and Management, thank you for your on-going support.

Nā māua noa, nā

24 February 2022

NorthWest Healthcare Properties Management Limited,

the Manager of Vital Healthcare Property Trust