northwest international healthcare properties real estate investment

Transcription

NORTHWEST INTERNATIONAL HEALTHCARE
PROPERTIES REAL ESTATE INVESTMENT TRUST
BUSINESS ACQUISITION REPORT PURSUANT TO PART 8 of NATIONAL
INSTRUMENT 51-102
ACQUISITION DATE: November 16, 2012
NorthWest International Healthcare Properties Real Estate Investment Trust
Form 51-102F4
Business Acquisition Report
Item 1 – Identity of Company
1.1
Name and Address of Company
NorthWest International Healthcare Properties Real Estate Investment Trust (the “Trust”)
284 King Street East, Suite 200
Toronto, ON, Canada
M5A 1K4
1.2
Executive Officer
Brian Wilson
Interim Chief Financial Officer
(416) 366 8300 x1111
Item 2 – Details of Acquisition
2.1
Nature of Business Acquired
Pursuant to a definitive agreement dated October 23, 2012 (with an effective date of October 1, 2012), the
Trust directly and indirectly acquired interests in the following assets (hereby referred to as the
“International Portfolio”) from NorthWest Value Partners Inc. (“NWVP”):
a)
Sabará Children’s Hospital (“Sabará”), a 104,915 square foot private facility in São Paulo, Brazil;
b)
a portfolio of five medical office buildings located in Berlin and Northern Bavaria, Germany
(“German MOB Portfolio”), comprising an aggregate of 185,000 square feet of gross leasable
area;
c)
58,600,003 trust units of Vital Healthcare Property Trust (“Vital Trust”), a healthcare real estate
investment fund based in Auckland, New Zealand and listed on the New Zealand Stock Exchange,
(“Vital Interest”); and
d)
a management fee participation and certain other rights in respect of Vital Trust;
For further information regarding the International Portfolio, please see the Management Information
Circular of the Trust dated October 5, 2012.
2.2
Date of Acquisition
November 16, 2012 (with an effective date of October 1, 2012).
2.3
Consideration
The Trust acquired the International Portfolio for a purchase price of approximately $170.4 million,
excluding estimated acquisition costs of approximately $2.5 million. The purchase was financed by (a) the
issuance of 9,878,165 REIT units at a deemed price of $1.87 per unit (approximately $18.5 million), (b) the
issuance of 55,944,444 Class B LP Units of NWI Healthcare Properties LP, a subsidiary of the REIT, at a
deemed price of $1.87 per unit (approximately $104.5 million) and (c) the assumption of estimated existing
debt (approximately $47 million). The purchase price is subject to post-closing adjustments for actual debt
assumed on closing and working capital as of closing.
2.4
Effect on Financial Position
There are no plans or proposals for material changes to the affairs of the International Portfolio that may
have a material effect on the results of operations and financial position of the Trust. All current plans and
proposals for material changes regarding the affairs of the International Portfolio have otherwise been
publicly disclosed by the Trust.
2.5
Prior Valuations
NWVP retained Cushman & Wakefield and Colliers International to provide independent estimates of the
market value of the assets acquired as a part of the International Portfolio. No appraisal for the Vital
Interest was obtained as it represents interests in publicly-listed securities, or a contractual equity
arrangement whose value was based on the price of a publicly-listed security.
The appraisal of Sabará (the “Sabará Appraisal”) was prepared in conformity with the Brazilian Standards
Association (ABNT - Associação Brasileira de Normas Técnicas). The appraisal of the German MOB
Portfolio (the “German MOB Portfolio Appraisal”) was prepared in accordance with the RICS Valuation
– Professional Standards, incorporating the International Valuation Standard issued by the Royal Institution
of Chartered Surveyors.
In its Sabará Appraisal, Cushman & Wakefield estimated the market value of Sabará as at July 30, 2012 to
be R$75,714,000 (or $38,152,285 as at June 30, 2012). The estimated market value of Sabará was
determined by Cushman & Wakefield by utilizing, where appropriate, one or more of the discounted cash
flow approach, replacement cost approach and the income capitalization approach.
In its German MOB Portfolio Appraisal prepared for NWI Gesundheitsimmobilien GmbH & Co. KG,
Colliers International estimated the market value of the German MOB Portfolio as at July 17, 2012 to be
€30,883,240 (or $39,725,729 as at June 30, 2012). The estimated market value of the German MOB
Portfolio was determined by Colliers International by utilizing, where appropriate, one or more of the
income approach and direct comparison approach. These valuation methods are methods traditionally used
by investors when acquiring property of this nature.
2.6
Parties to Transaction
Paul Dalla Lana is the Chairman and Chief Executive Officer of the REIT and the sole shareholder of
NWVP. Brian Wilson is the Interim Chief Financial Officer of the REIT and an employee of NWVP. At
the time of the acquisition of the International Portfolio, NWVP held an indirect approximate 82% interest
in the REIT.
2.7 Date of Report
January 30, 2013
Item 3 – Financial Statements
The following financial statements and the related notes thereto included in this Business Acquisition Report
are:
a)
The unaudited pro forma consolidated financial statements of NorthWest International Healthcare
Properties REIT as at June 30, 2012 and for the six months ended June 30, 2012 and for the year ended
December 31, 2011, together with the notes thereto;
b) Audited financial statements of Sabará as at and for the years ended December 31, 2011, 2010 and 2009,
together with the notes thereto and the auditor’s report thereon;
c)
Unaudited interim financial statements of Sabará as at and for the six months ended June 30, 2012 and
2011, together with the notes thereto;
d) Audited combined financial statements of the German MOB Portfolio as at and for the 10 months ended
October 31, 2011 and the years ended December 31, 2010 and December 31, 2009, together with the notes
thereto and the auditor’s report thereon;
e)
Audited combined financial statements of the German MOB Portfolio as at and for the 2 months ended
December 31, 2011, together with the notes thereto and the auditor’s report thereon;
f)
Unaudited combined interim financial statements of the German MOB Portfolio as at and for the six
months ended June 30, 2012 and 2011, together with the notes thereto;
g) Audited consolidated financial statements of Vital Trust as at and for the years ended June 30, 3012 and
2011, together with the notes thereto and the auditor’s report thereon; and
h) Audited consolidated financial statements of Vital Trust as at and for the years ended June 30, 3011 and
2010, together with the notes thereto and the auditor’s report thereon.
The REIT has not requested or obtained the consent of the auditors of the above noted financial statements and
reports to include their audit reports in this business acquisition report.
Pro Forma Consolidated Financial Statements of
NORTHWEST INTERNATIONAL HEALTHCARE PROPERTIES REAL
ESTATE INVESTMENT TRUST
As at and for the six months ended June 30, 2012 and year ended December 31,
2011
(Unaudited)
NORTHWEST INTERNATIONAL HEALTHCARE PROPERTIES REAL ESTATE INVESTMENT TRUST
Unaudited Pro Forma Consolidated Statement of Financial Position
(in thoundsands of Canadian dollars unless otherwise stated)
As at June 30, 2012
GT Medical
Properties
REIT
Sale of Existing
Portfolio to NorthWest
Heathcare Properties
REIT
Sabará
Children’s
Hospital
German MOB
Portfolio
(note 3(a))
Vital Healthcare
Property Trust
Notes
Pro forma
adjustments
Total
(note 3(b))
Assets
Investment properties
83,995
347
112
3,300
425
339
88,517
(83,995)
30,000
(330)
(112)
(3,300)
(231)
9,020
(48,948)
38,152
15
38,167
39,726
153
112
(56)
39,934
84,466
84,466
Mortgages and loans payable
Promissory notes
Deferred revenue
Due to related party
Accounts payable and accrued liabilities
Distributions payable
47,572
787
986
108
49,453
(47,572)
(791)
(48,363)
18,841
111
18,952
28,259
475
271
29,006
28,852
28,852
Deferred income tax
Warrant liability
Class B exchangable units
Total Liabilities
2,761
52,213
(48,363)
4,287
14,929
38,167
10,928
39,934
55,614
84,466
Unitholder's Equity
36,304
(585)
-
-
-
Total Liabilities and Unitholders' Equity
88,517
(48,948)
38,167
39,934
84,466
Investment in associate
Instalment notes receivable
Promissory note receivable
Due from related party
Prepaid expenses and deposits
Accounts receivable
Transaction costs recoverable
Other assets
Cash
Total Assets
3(c)(i)
3(g)
3(c)(i)
3(g)
3(c)(ii)
3(c)(ii)
3(g)
3,174
793
6,826
1,707
1,445
31,081
(2,500)
42,526
81,845
92,999
1,445
30,000
31,081
17
153
305
6,818
244,663
Liabilities
3(j)
57,111
787
18,841
475
578
108
77,900
3(c)
910
23,145
24,054
-
5,196
2,761
104,616
190,472
3(c)
18,472
54,191
42,526
244,663
Unitholders' Equity
Unaudited Pro Forma Consolidated Statement of Comprehensive Income
For the six months ended June 30, 2012
GT Medical
Properties
REIT
Sale of Existing
Portfolio to
NorthWest
Heathcare
Properties REIT
Sabará
Children’s
Hospital
German
MOB
Portfolio
(note 3(a))
Net Operating Income
Revenue from investment properties
Property operating costs
Finance costs
Share of (profit) loss of associate
Operating income (loss)
Fair value gain (loss) on investment properties
Other fair value gains (losses)
Income (loss) before taxes
Current tax expense
Deferred tax expense
Net income (loss) and comprehensive income (loss)
Notes
Pro forma
adjustments
Total
(note 3 (b))
4,613
1,868
2,745
(4,613)
(1,868)
(2,745)
1,248
45
1,202
1,662
476
1,186
-
5
(5)
-
-
-
2,750
(2,750)
1,202
1,186
-
1,071
775
57
1,904
(1,071)
(775)
(57)
(1,904)
-
847
Other Income
Interest and other income
Expenses
Mortgage and loan interest expense
General and administrative expenses
Vital Healthcare
Property Trust
27
518
112
630
605
(2,335)
(1,730)
(847)
1,175
556
1,730
3,876
(636)
(3,876)
-
242
-
665
-
-
4,087
(4,723)
1,417
1,221
1,730
-
-
-
-
4,087
(4,723)
1,221
1,730
27
-
129
255
385
1,032
3(e)(i)
3(e)(ii)
3(d)
3(f)
3(h)
3(i)
-
2,910
522
2,388
475
552
1,027
1,027
3,415
437
250
1,751
2,438
826
1,751
(2,335)
1,365
(1,411)
2,050
(907)
(2,318)
3(j)
184
184
(2,501)
1,123
(636)
1,414
129
439
568
846
Unaudited Pro Forma Consolidated Statement of Comprehensive Income
For the year ended December 31, 2011
GT Medical
Properties
REIT
Sale of Existing
Portfolio to
NorthWest
Heathcare
Properties REIT
Sabará
Children’s
Hospital
German
MOB
Portfolio
(note 3(a))
Net Operating Income
Revenue from investment properties
Vital Healthcare
Property Trust
3,809
930
2,880
-
-
-
-
(3,506)
2,645
2,880
-
1,149
1,686
90
2,925
(1,149)
(1,686)
(90)
(2,925)
106
7
112
1,114
821
1,935
1,160
(3,232)
(2,072)
581
(581)
2,532
945
Fair value gain (loss) on investment properties
4,048
-
(4,048)
-
7,776
-
1,329
-
-
Other fair value gains
4,711
(452)
-
-
Income (loss) before taxes
9,340
(5,080)
10,308
Current tax expense
Deferred tax expense (recovery)
-
-
9,340
(5,080)
Expenses
Mortgage and loan interest expense
General and administrative expenses
Finance costs
Share of (profit) loss of associate
Operating income (loss)
Net income (loss) and comprehensive income (loss)
Pro forma
adjustments
Total
(note 3(b))
2,745
100
2,645
Other Income
Interest and other income
Notes
6,020
2,526
3,494
(6,020)
(2,526)
(3,494)
12
(12)
3,506
-
6,554
1,029
5,525
3(e)(i)
3(e)(ii)
1,045
1,049
2,094
2,094
7,618
3(d)
3(f)
3(h)
874
500
3,480
4,854
2,301
3,486
(3,232)
4,829
(2,760)
2,789
-
(9,105)
(3,174)
(793)
-
(3,967)
4,259
2,274
2,072
(15,832)
3,082
3,308
3,308
-
-
7,001
2,274
2,072
2,274
2,072
3(i)
3(c)(i)
3(g)
3(j)
404
404
(16,236)
3,711
3,711
(630)
NORTHWEST INTERNATIONAL HEALTHCARE PROPERTIES REAL ESTATE
INVESTMENT TRUST
Notes to Pro Forma Consolidated Financial Statements
As at and for the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
(in thousands of Canadian dollars, unless otherwise noted)
1. Basis of Presentation
On November 2, 2012, the REIT changed its name to NorthWest International Healthcare
Properties Real Estate Investment Trust from GT Canada Medical Properties Real Estate
Investment Trust (the “REIT”). The REIT is an unincorporated open-ended real estate investment
trust and trades under the symbol “MOB.UN” on the TSX Venture Exchange. The principal,
registered and head office of the REIT is located at 284 King Street East, Toronto, Ontario M5A
1K4.
The REIT was formed pursuant to a Declaration of Trust dated October 13, 2010, subsequently
amended on November 16, 2012. On December 24, 2010, GT Canada Medical Properties Inc.
completed its conversion to a trust structure under a Plan of Arrangement (the “Arrangement”).
After the Arrangement, GT Canada Medical Properties Inc. was a wholly owned subsidiary of the
REIT.
On June 11, 2012, approximately 91% of the total issued and outstanding units of the REIT were
acquired by NorthWest Value Partners (“NWVP”). The objective of this acquisition by NWVP
was to sell the REIT’s then current portfolio of twelve Canadian medical office buildings (the
“Existing Portfolio”) to NorthWest Healthcare Properties Real Estate Investment Trust (“NWHP
REIT”) and reconfigure the REIT to acquire NWVP’s international healthcare property portfolio
(the “International Portfolio”). As of June 30, 2012, NWVP indirectly owns 82% of the total
issued and outstanding units of the REIT.
In connection with the acquisition of the REIT by NWVP, the REIT agreed to sell its Existing
Portfolio to NWHP REIT in two separate transactions. The first transaction will result in the Port
Hope Property being conveyed to the NWHP REIT, with the second transaction resulting in the
conveyance of the balance of the Existing Portfolio (all of the existing properties of the REIT
other than the Port Hope Property) to NWHP REIT.
These unaudited pro forma financial statements give effect to the sale of the Existing Portfolio of
the REIT to NWHP REIT and the subsequent acquisition of the International Portfolio.
The sale of the International Portfolio from NWVP to the REIT has been determined to be a
common control transaction which the REIT has elected to account for on a continuity of interest
basis. As a result, the transaction has been recorded at book value.
2
INVESTMENT TRUST
(Unaudited)
1. Basis of Presentation (continued)
Details of the International Portfolio properties and investments that will be acquired, and have
been included in these unaudited pro forma financial statements, are as follows:



Sabará Children’s Hospital (Avenida Angélica Investimentos Imobiliários e
Participações S.A.) (“Sabará”) (São Paolo, Brazil) - a 104,915 square foot private
facility widely regarded as a leading children’s hospital in Brazil.
German MOB Portfolio (“German Portfolio”) (Berlin, Germany) - comprised of five
modern, recently constructed medical office buildings, with an aggregate gross leasable
area of 185,000 square feet, located in established healthcare hubs in Berlin and Northern
Bavaria.
Vital Healthcare Property Trust (“Vital Trust”) (Auckland, New Zealand) - a New
Zealand Stock Exchange (NSX)-listed investment fund that invests in high-quality, health
and medical-related properties in Australia and New Zealand. At June 30, 2012 NWVP’s
interest in Vital Trust consisted of a combination of units of Vital Trust and the right to
acquire units of Vital Trust via an equity swap agreement which totals approximately
19.66% of the issued and outstanding units of Vital Trust.
In connection with the acquisition of the International Portfolio, NWVP exercised its
rights under the equity swap agreement and acquired a direct interest in approximately
19.66% of the issued and outstanding units of Vital Trust (the “Vital Units”). The REIT
acquired the Vital Units and entered into a Securities Lending Arrangement (“SLA”), the
proceeds of which were used to pay amounts owing under the equity swap arrangement
that was previously in effect with respect to the Vital Units.
For purposes of these unaudited pro forma financial statements, the REIT’s direct and
indirect interest in Vital Trust has been accounted for using equity accounting, as
following the acquisition of the International Portfolio, the REIT will have significant
influence over Vital Trust. Further discussion of the REIT’s accounting policy selection
for the REIT’s interest in Vital Trust is included in note 2.
These unaudited pro forma consolidated financial statements have been prepared by management
of the REIT for inclusion in the Business Acquisition Report (the “BAR”), dated January 30,
2013, relating to the acquisition by the REIT of the International Portfolio. These unaudited pro
forma financial statements contemplate that the sale of the Existing Portfolio will be accounted
for as a disposition of assets and the proposed acquisition of the International Portfolio properties
(German Portfolio and Sabará) will be treated as asset purchases and the acquisition of the
investment in Vital Trust will be treated as an acquisition of an investment.
3
INVESTMENT TRUST
(Unaudited)
The unaudited pro forma consolidated statement of financial position gives effect to the
transactions in note 3 as if these transactions occurred on June 30, 2012. The unaudited pro
forma consolidated statement of income and comprehensive income for the six months ended
June 30, 2012 gives effect to the transactions in note 3 as if they had occurred on January 1, 2011
and the unaudited pro forma consolidated statement of income and comprehensive income for the
year ended December 31, 2011 gives effect to the transactions in note 3 as if they had occurred on
January 1, 2011.
These unaudited pro forma consolidated financial statements of the REIT have been prepared
from the following financial statements:

Unaudited condensed consolidated interim financial statements of GT Canada Medical
Properties Real Estate Investment Trust as at and for the three and six months ended June 30,
2012

Unaudited condensed interim financial statements of Avenida Angélica Investimentos
Imobiliários e Participações S.A as at and for the three and six months ended June 30, 2012

Unaudited combined condensed interim financial statements of the German Portfolio as at
and for the three and six months ended June 30, 2012

Audited consolidated financial statements of GT Canada Medical Properties Real Estate
Investment Trust (renamed to NorthWest International Healthcare Properties Real Estate
Investment Trust on November 2, 2012) for the years ended December 31, 2011 and 2010

Audited financial statements of Avenida Angélica Investimentos Imobiliários e Participações
S.A as at and for the years ended December 31, 2011, 2010 and 2009

Audited combined financial statements of the German Portfolio as at January 1, 2009 and as
at and for the 10 months ended October 31, 2011, and years ended December 31, 2010 and
December 31, 2009

Audited combined financial statements of the German Portfolio as at and for the two months
ended December 31, 2011
The German Portfolio column in the unaudited pro forma consolidated statement of income
and comprehensive income for the year ended December 31, 2011 was derived by adding
together the income from the ten months ended October 31, 2011 and the two months ended
December 31, 2011.
4
INVESTMENT TRUST
(Unaudited)
The below table summarizes the exchange rates used to translate the balance sheets and
statements of comprehensive income for the International Portfolio financial statements which are
denominated in foreign currencies:
Sabará
German Portfolio
Vital Trust
Average exchange
rate for the year
ended December
31, 2011
June 30, 2012 noon
closing exchange
rate
Average exchange
rate for the six
month period
ended June 30,
2012
C$0.50 = BRL$1
C$0.54 = BRL$1
C$0.59 = BRL$1
C$1.29 = €1
C$1.30 = €1
C$1.38 = €1
C$0.81 = NZD$1
C$0.81 = NZD$1
C$0.78 = NZD$1
The unaudited pro forma consolidated financial statements are not necessarily indicative of the
results that would have occurred had the transactions been consummated at the dates indicated,
nor are they necessarily indicative of future operating results or the financial position of the
REIT.
These unaudited pro forma consolidated financial statements have been updated from the version
contained in the REIT’s Management Information Circular dated October 5, 2012 to reflect the
final terms of sale of the Existing Portfolio and the acquisition of the International Portfolio.
2. Summary of Significant Accounting Policies
(a)
Basis of presentation
These unaudited pro forma financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and incorporate the principal
accounting policies used to prepare the audited financial statements of the REIT as at and
for the year ended December 31, 2011.
5
INVESTMENT TRUST
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
(b)
Associates are all entities over which the REIT has significant influence but not control.
The investment in associate, which represents the REIT’s approximate 19.66% direct and
indirect interest in Vital Trust, is accounted for using the equity method of accounting
and is initially recognized at cost on the date at which significant influence is obtained.
The REIT’s share of its associate’s post-acquisition net income (loss) is recognized in net
income (loss), and its share of post-acquisition movements in other comprehensive
income (loss) is recognized in other comprehensive income (loss). The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When
the REIT’s share of losses in an associate equals or exceeds its interest in the associate,
the REIT does not recognize further losses.
Unrealized gains and losses on transactions between the REIT and its associate are
eliminated to the extent of the REIT’s interest in the associate. Accounting policies of the
REIT’s associate are consistent with the policies adopted by the REIT.
The REIT assesses at each year-end whether there is any objective evidence that its
interest in the associate is impaired. If impaired, the carrying value of the REIT’s share of
the underlying assets in the associate is written down to its estimated recoverable amount.
(c)
Class B exchangeable units:
The Class B exchangeable units of a subsidiary of the REIT are exchangeable into REIT
units at the option of the holder. In accordance with International Accounting Standard
(“IAS”) 32, Financial Instruments: Presentation, the REIT units are puttable and
therefore, the Class B exchangeable units meet the definition of a financial liability.
Further, the Class B exchangeable units are classified as fair value through profit or loss
financial liabilities and are measured at fair value each reporting period with any changes
in fair value recognized in the consolidated statement of income and comprehensive
income as finance cost. The distributions paid on the Class B exchangeable units are
accounted for as finance costs.
6
INVESTMENT TRUST
(Unaudited)
(d)
Functional and presentation currency
The functional and presentation currency of the REIT is the Canadian dollar. The
historical financial statements of the International Portfolio are presented in their
respective foreign currencies, which are also their functional currency.
Assets and liabilities of subsidiaries having a functional currency other than the Canadian
dollar are translated at the rate of exchange at the balance sheet date. Revenues and
expenses are translated at average rates for the period.
Foreign currency transactions are translated into the functional currency using exchange
rates prevailing at the date of the transactions. At the end of each reporting period,
foreign currency denominated monetary assets and liabilities are translated to the
functional currency using the prevailing rate of exchange at the balance sheet date. Gains
and losses on translation of monetary items are recognized in the income statement,
except for those related to monetary liabilities qualifying as hedges of the REIT’s
investment in foreign operations or certain intercompany loans to or from a foreign
operation for which settlement is neither planned nor likely to occur in the foreseeable
future, which are included in other comprehensive income (loss).
(e)
Income taxes
On closing, the REIT will be a mutual fund trust and a real estate investment trust
pursuant to the Income Tax Act (Canada). Under current tax legislation, a real estate
investment trust is not liable to pay Canadian income tax provided that its taxable income
is fully distributed to unitholders each year. The REIT is a real estate investment trust if it
meets the prescribed conditions under the Income Tax Act (Canada) relating to the nature
of its assets and revenues (the “REIT Conditions”). The REIT has reviewed the REIT
Conditions and has assessed their interpretation and application to the REIT’s assets and
revenues. The REIT intends to ensure that it will meet the REIT Conditions for 2012 and
will make distributions not less than the amount necessary to ensure that the REIT will
not be liable to pay income taxes.
The REIT’s subsidiaries are subject to income taxes as imposed by the jurisdictions in
which they operate, in accordance with the relevant tax laws of such jurisdictions. The
provision for income taxes for the period comprises current and deferred income tax.
Current tax and deferred tax are recognized in profit or loss except to the extent that it
relates to a business combination, or items recognized directly in equity or in other
comprehensive income.
7
INVESTMENT TRUST
(Unaudited)
Current tax is the expected tax payable or receivable on the taxable income or loss for the
year, using tax rates and laws enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognized for:



temporary differences relating to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future;
temporary differences on the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting
nor taxable profits; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their
tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible
temporary differences, to the extent that it is probable that future taxable profits will be
available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
8
INVESTMENT TRUST
(Unaudited)
(f)
Critical accounting estimates and judgements
In addition to those critical accounting estimates disclosed in the audited consolidated
financial statements of the REIT for the year ended December 31, 2011, these unaudited
pro forma consolidated financial statements required the REIT to make the following
estimates and assumptions:
Interests in associates
If it is determined that objective evidence exists that indicate that the REIT’s interest in
its associate has been impaired, the investment must be written down it its estimated fair
value. Estimates used in determining the fair value of the associate include discount rates,
inflation rates, and net operating income.
3. Pro Forma Assumptions and Balance Sheet Adjustments
The pro forma adjustments to these unaudited pro forma financial statements have been prepared
to account for the closing of the sale of the Existing Portfolio of the REIT to NWHP REIT and
subsequent acquisition of the International Portfolio as described below:
(a) Sale of Existing Portfolio:
The sale of the Existing Portfolio to NWHP REIT will be completed pursuant to two separate
purchase and sale agreements dated May 31, 2012 and June 19, 2012, respectively. The
collective sale price, subject to post-closing adjustments, for the Existing Portfolio is $83,995
and is to be partially satisfied by the assumption of mortgages on the Existing Portfolio in the
amount of approximately $47,958. In addition, the REIT will receive $3,300 from NWHP
REIT to reimburse the REIT for its transaction costs incurred in the sale of the Existing
Portfolio.
The balance of the consideration and reimbursement of transaction costs will be settled in the
form of a promissory note in the amount of $30,000 from NWHP REIT and the remainder in
cash totalling $9,020.
9
INVESTMENT TRUST
(Unaudited)
3. Pro Forma Assumptions and Balance Sheet Adjustments (continued)
The sale of the Existing Portfolio is summarized as follows:
Proceeds received
Reimbursement for transaction costs
Total consideration
$
36,037
3,300
39,337
Investment property
Prepaid expenses and deposits
Accounts receivable
Transaction costs recoverable
Other assets
Cash
83,995
330
112
3,300
231
317
88,285
Net assets disposed of
$
(47,572)
(791)
39,922
Loss on sale
$
(585)
The actual calculation and allocation of the consideration received for the disposal outlined
above will be based on the assets sold and liabilities discharged at the effective date of the
disposal and other information available at that date. Accordingly, the actual amounts for
each of these assets and liabilities will vary from the pro forma amounts and the variation
may be material.
As the unaudited pro forma consolidated statements of income and comprehensive income
give effect to the sale of the Existing Portfolio as if it occurred on January 1, 2011, the
income (loss) attributable to the disposed assets and liabilities has been eliminated, leaving
only the income (loss) that arises from the mark-to-market adjustment on the warrant liability
of $(636) for the six months ended June 30, 2012 and $4,259, for the year ended December
31, 2011. The 6,718,750 outstanding warrants have an exercise price of $2.16 and expire on
December 24, 2012.
10
INVESTMENT TRUST
(Unaudited)
(b) Acquisition of Vital units:
The REIT will acquire the units of Vital Trust representing approximately 19.66% of the
outstanding units of Vital Trust. As at June 30, 2012 NWVP’s interest in Vital Trust was
made through an equity swap agreement; however, immediately prior to the sale of the
International Portfolio, NWVP will exercise its rights under the equity swap agreement and
will take physical settlement of the Vital Units, acquiring approximately 19.66% of the issued
and outstanding units of Vital Trust. The REIT will acquire the Vital Units and will enter into
a Global Master Securities Lending Agreement (the “Vital SLA”) with Macquarie Capital
Markets Canada Ltd (“Macquarie”). Pursuant to the Vital SLA, the REIT will loan all of the
Vital Units to Macquarie in return for Macquarie paying to the REIT cash collateral (the
“SLA Collateral”). The SLA Collateral received by the REIT will be indirectly used to pay
amounts owing under the equity swap agreement.
Under the Vital SLA, the SLA Collateral must represent not less than 50% of the market
value of the Vital Units, with the SLA Collateral being marked to the market price of the
Vital Units on a daily basis. The REIT must pay interest on the SLA Collateral it at a rate that
fluctuates with the New Zealand dollar LIBOR rate. The securities loan of the Vital Units
under the Vital SLA is due to terminate on November 15, 2013 (or any earlier date agreed by
the parties). Both the REIT and the Macquarie may, at their option, terminate the securities
loan at any time before that date (subject, in the case of Macquarie, to giving not less than 30
days prior notice to the REIT). The Vital SLA may also be terminated early in certain
situations, such as default by a party.
The impact of the Vital SLA on the Vital Units on the pro forma consolidated financial
statements is as follows:
As at
June 30,
2012
34,898
28,400
Uncollateralized portion of loan - NZD
Uncollateralized portion of loan - CAD
Interest for the period - NZD
Interest for the period - CAD
6 Months ended
June 30, 2012
34,898
28,400
Year-ended
December 31,
2011
34,898
28,400
748
605
1,482
1,160
As discussed in note 2, the REIT has deemed that this equity interest allows the REIT to exert
significant influence over Vital Trust and as a result accounts for its investment in Vital Trust
using the equity method.
11
INVESTMENT TRUST
(Unaudited)
The impact of equity accounting for the investment in Vital Trust on these unaudited pro
forma consolidated financial statements is as follows:
6 Months ended
June 30, 2012
84,167
Year-ended
December 31,
2011
84,466
14,689
19.66%
21,005
19.66%
Equity pick up for the period - NZD
Equity pick up for the period - CAD
2,888
2,335
4,130
3,232
Distributions for period - NZD
Distributions for period - CAD
2,256
1,824
4,512
3,531
84,678
84,167
Investment, beginning of period
Income for the period - NZD
% ownership
Investment - end of period
12
INVESTMENT TRUST
(Unaudited)
(c) Acquisition of International Portfolio:
The impact of acquiring the net assets of Sabará Children’s Hospital, the German Portfolio
(collectively, the “Initial Property”) and the investment in Vital Trust (“Equity Investment”)
is as follows:
Investment property
Due from related party
Instalment notes
Accounts receivable
Other assets
Cash
Deferred revenue
Deferred income tax
Due to related party
Net assets acquired
Initial
Equity
Pro forma
property investment Notes adjustments
77,878
(i)
3,174
84,466
(i)
6,826
(ii)
31,081
(iii)
1,445
153
112
(41)
78,102
84,466
42,526
(28,259)
(18,841)
(4,287)
(475)
(382)
25,858
REIT units issued as consideration:
Class B units issued as consideration:
Total Consideration
(i)
(28,852)
55,614
(iv)
(910)
41,617
Net assets
acquired
81,052
91,292
31,081
1,445
153
112
(41)
205,093
(57,111)
(18,841)
(5,197)
(475)
(382)
123,088
18,472
104,616
123,088
The cost of acquiring the German Portfolio, Sabarà, and the investment in Vital Trust as
an established portfolio from NWVP is $10,000. This cost has been allocated on a prorata basis based on net assets to the investment property of the German Portfolio and
Sabarà and the investment in Vital Trust.
Investment property is accounted for using the fair value model and it will be adjusted to
its fair value at each reporting period, with any fair value adjustments being included in
the statement of income (loss) and comprehensive income (loss). As the excess purchase
price allocated to the investment properties exceeds the individual property valuations of
the German Portfolio and Sabarà, it is assumed that this excess paid will result in a write
down of the investment properties in the amount of $3,174 for the year ended December
31, 2011.
13
INVESTMENT TRUST
(Unaudited)
(ii)
(iii)
(iv)
As a pro forma assumption of such fair value change is a prediction rather than an
objectively determinable pro forma adjustment, these pro forma financial statements
assume no further change in the fair value of the investment property during the six
months ended June 30, 2012. However, the actual REIT financial statements will include
fair value changes and such changes could be material.
At the time of the contemplated transaction the value assigned to the net assets of the
International Portfolio was approximately $123,000, however as at the closing date, the
value of the net assets acquired was approximately $92,000, resulting in an
approximately $31,000 difference. As the consideration for the transaction had been
fixed, the decrease in the net assets acquired has resulted in the REIT being owed the
difference from the vendor, NWVP.
See note 3 (e).
See note 3 i).
In consideration of NWVP agreeing to indirectly transfer the International Portfolio to the REIT,
NWVP and an affiliate, entered into a put/call agreement (the “Put/Call Agreement”) regarding
NWVP’s interest in NWHP.
Pursuant to the Put/Call Agreement, the REIT has granted NWVP and its affiliates the right (the
“Put Right”) to sell to the REIT any or all of up to 12,500,000 trust units and/or securities
exchangeable into trust units of NWHP (the “Option Units”) held by NWVP and its affiliates, at a
price per Option Unit equal to the 20-day volume-weighted average price of the NWHP REIT
units on the date the Put Right is exercised; provided that if the Put Right is exercised by May 16,
2013, the price per Option Unit will be $13.22.
Such purchase price will be payable, at the option of NWVP, in either (a) cash (provided such
cash is available to the REIT on commercially reasonable terms), and/or (b) Units or Class B LP
Units. If NWVP elects to receive Units or Class B LP Units upon exercise of the put, such
securities will be valued at the 20-day volume weighted average price of the Units on the date the
Put Right is exercised; provided that if the Put Right is exercised by May 16, 2013, such
securities will be valued at $1.87 per security. The maximum aggregate number of Units and/or
Class B LP Units that may be issued pursuant to this provision of the Put/Call Agreement will be
94,971,264.
The REIT has reciprocal economic call rights on the same terms with NWVP. No value has been
assigned to the put and reciprocal call option at June 30, 2012.
14
INVESTMENT TRUST
(Unaudited)
The actual calculation and allocation of the purchase price for the acquisition outlined above will
be based on the assets purchased and liabilities assumed at the effective date of the acquisition
and other information available at that date. Accordingly, the actual amounts for each of these
assets and liabilities will vary from the pro forma amounts and the variation may be material.
(d) Management fees
The REIT will be subject to an Asset Management Agreement with an affiliate of NWVP,
and as compensation for asset management services the REIT will pay asset management fees
of 0.5% of the sum of the historical purchase price of the direct or interest in real estate plus
the cost of any subsequent capital expenditures incurred by REIT in respect of its direct or
indirect interest in real estate. These fees have been calculated based on the pro forma assets
at the acquisition date and have been included as a portfolio adjustment in the pro forma
financial statements.
For the six months ended June 30, 2012, an adjustment to increase the general and
administrative expenses in the amount of $437 has been made to account for such asset
management fees (an increase of $874 for the year ended December 31, 2011).
Under the Asset Management Agreement, the REIT is also subject to an annual incentive fee
equal to 15% of excess gross all-in return (distributions – capital issuances + net tangible
asset growth) above 8%; and 20% of excess gross all-in return (distributions – capital
issuances + net tangible asset growth) above 12%. No adjustment has been made for the
annual incentive fee as the gross all-in return cannot be estimated at this time.
The REIT is also subject to a Property Management with an affiliate of NWVP for
compensation for its role as Property Manager. The external manager will be entitled to
receive a market management fee as appropriate for the specific assets and specific markets
the assets are located in. These fees may include compensation for building operations,
property administration, leasing, construction management and any other reasonable property
management service that is required in the context of managing the buildings. No adjustment
has been made for property management fees as it is estimated that the current property
management fees paid by the German Portfolio and Sabará are at market rates.
15
INVESTMENT TRUST
(Unaudited)
(e) Interest and other income
(i)
NWVP will make two instalment payments to the REIT (April 2013 and April 2014)
under instalment notes receivable to compensate the REIT for assuming the Sabará
securitization at above prevailing market interest rates. The instalment notes are noninterest bearing and mature on April 2, 2013 and April 2, 2014. The present value of
the instalment notes at June 30, 2012 is $1,445. For the six months ended June 30,
2012, interest income of $475, at an imputed interest rate equal to the difference
between the 9.25% plus IPCA currently charged on the Sabarà securitization and 8%,
has been included in these pro forma consolidated financial statements ($1,045 for
the year ended December 31, 2011). The receipt of the principal portion of the
instalment payments will be recorded as a reduction of the instalment notes
receivable and is, therefore, not recorded as revenue.
(ii)
As part of a separate Management Services Agreement between NWVP and the
REIT, an affiliate of NWVP will agree to pay the REIT a management fee
participation equal to the difference between asset management fees that would be
payable by Vital Trust to NWVP under their existing management arrangements and
those that would be payable by the REIT to NWVP under the proposed management
arrangements described in note 3(d) above. For the six months ended June 30, 2012,
other income in the amount of $552 was recorded to adjust for this arrangement
($1,049 for the year ended December 31, 2011).
(f) Additional general and administrative expenses
The unaudited pro forma financial statements reflect an estimate of the additional general and
administrative expenses such as legal and accounting fees related to the expanded operating
structure and international nature of the acquired assets.
For the six months ended June 30, 2012, an adjustment of $250 ($500 for the year ended
December 31, 2011) was made to increase general and administrative expenses, which is
management’s best estimate of the additional costs that will be incurred to operate the REIT.
16
INVESTMENT TRUST
(Unaudited)
(g) Transaction costs
Costs related to the acquisition of the International Portfolio include primarily legal and
accounting fees are estimated to be $2,500 and have been capitalized on a pro-rata basis
based on net assets to the investment property of the German Portfolio and Sabarà and the
investment in Vital Trust. As the transaction costs allocated to the investment properties
exceeds the individual property valuations of the German Portfolio and Sabarà, it is assumed
that the transaction costs allocated will result in a write down of the investment properties in
the amount of $600 for the year ended December 31, 2011.
As a pro forma assumption of such fair value change is a prediction rather than an objectively
determinable pro forma adjustment, these pro forma financial statements assume no further
change in the fair value of the investment property during the six months ended June 30,
2012. However, the actual REIT financial statements will include fair value changes and such
changes could be material.
(h) Distributions on Class B Units
As consideration to NWVP for the German Portfolio, Sabarà and the indirect investment in
Vital Trust, the REIT will issue 55,944,444Class B exchangeable units. For the six months
ended June 30, 2012, the REIT’s monthly distribution rate was $0.005217 per unit and was
$0.005183 per unit for the year ended December 31, 2011. The distributions paid on Class B
units are treated as finance costs under IFRS and therefore for the six months ended June 30,
2012 an expense of $1,751 has been made to increase finance costs to reflect the distributions
on the Class B units issued ($3,480 for the year ended December 31, 2011).
(i) Fair value adjustments
Subsequent to initial recognition, investment properties will be adjusted to their fair values at
each reporting period with changes in fair value recorded in net income. As a pro forma
assumption of such fair value change is a prediction, rather than an objectively determinable
pro forma adjustment, these unaudited pro forma financial statements assume no change in
fair value of the investment properties during the six months ended June 30, 2012 and the
year ended December 31, 2011.
17
INVESTMENT TRUST
(Unaudited)
As the Class B exchangeable units are financial liabilities designated as fair value through
profit and loss, they will be adjusted to their fair value on an ongoing basis with any fair
value adjustments being included in the statement of income and comprehensive income. As
a pro forma assumption of such fair value changes is a prediction rather than an objectively
determinable pro forma adjustment, these unaudited pro forma financial statements assume
no change in the fair value of the Class B exchangeable units during the six months ended
June 30, 2012 and the year ended December 31, 2011. However, the actual REIT financial
statements will include fair value changes and such changes could be material.
(j) Income taxes
The REIT assumes that on closing and beyond it will meet the REIT Conditions as described
in Note 2(e). The REIT also assumes that it will distribute all of its taxable income to
unitholders. Accordingly, no net current income tax expense or future income tax assets or
liabilities have been recorded in the pro forma financial statements in respect of the REIT.
Income tax related to taxable subsidiaries has been recorded based on the corresponding
assumptions and legislated rates as discussed in note 2(e).
As the German Portfolio will be subject to tax only at the Luxembourg SARL, the deferred
tax assets and liabilities relating to temporary differences arising between the tax basis of
assets and liabilities and their carrying amounts in the combined financial statements are only
recognized once consolidated into the structure.
The following assumptions were used in computing the current and deferred income taxes in
the unaudited pro forma consolidated financial statements:


The rate of corporate income tax payable on German taxable income would be
15.825%; and
Buildings can generally be depreciated on a straight-line rate of either 2% or 3%
depending on the age of the property.
18
INVESTMENT TRUST
(Unaudited)
The following table reconciles the total income tax provision for the six months ended June
30, 2012 and year ended December 31, 2011 at the German statutory corporate income tax
rate, all of which are deferred taxes:
As at
June 30,
2012
6 Months ended
June 30, 2012
Year-ended
December 31,
2011
176
390
Deferred tax liability relating to:
Tax depreciation on investment properties
(977)
Change in deferred tax liability
Deferred tax asset relating to:
Deferral of financing fees for tax purposes
68
Change in deferred tax asset
7
(910)
19
184
14
404
Avenida Angélica Investimentos Imobiliários e
Participações S.A.
CNPJ 08.932.853/0001-73
Financial statements
December 31, 2011, 2010 and 2009
1
Independent auditors' report
KPMG Auditores Independentes
September 2012
KPDS 41478
R. Dr. Renato Paes de Barros, 33
04530-904 - São Paulo, SP - Brasil
Caixa Postal 2467
Central Tel
Fax Nacional
Internacional
Internet
55 (11) 2183-3000
55 (11) 2183-3001
55 (11) 2183-3034
www.kpmg.com.br
To
The directors and shareholders of
São Paulo - SP
We have audited the accompanying financial statements of Avenida Angélica Investimentos
Imobiliários e Participações S.A. (“company”), which comprise the statement of financial
position as of December 31, 2011, 2010 and 2009 and the respective statements of
comprehensive income, changes in shareholders’ equity and cash flows for the years then
ended, as well as the summary of the significant accounting practices and other explanatory
notes.
Management´s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors´ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on our judgment,
including the assessment of the risks of material misstatement of the financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.
2
KPMG Auditores Independentes, uma sociedade simples brasileira e
firma-membro da rede KPMG de firmas-membro independentes e
afiliadas à KPMG International Cooperative (“KPMG International”),
uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member
firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a
Swiss entity.
Opinions
In our opinion, the financial statements present fairly, in all material respects, the financial
position of Avenida Angélica Investimentos Imobiliários e Participações S.A. as at December
31, 2011, 2010 and 2009, and of its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards.
São Paulo, September 04, 2012
CRC 2SP014428/O-6
Jubran Pereira Pinto Coelho
Accountant CRC 1MG077045/O-0 T-SP
3
Avenida Angélica Investimentos Imobiliários e Participações S.A.
Statements of Financial Position
(In thousands of Reais)
December 31, 2011, 2010 and 2009
2011
2010
2009
75,267
490
9
75,766
62,080
38
410
1
62,529
44,921
1,598
438
1
46,957
38,556
8,035
1,717
137
1
48,446
41,578
2,923
31
134
1
44,667
40,941
115
679
41,734
Shareholders' equity (note 7)
27,321
17,863
5,223
Total liabilities and shareholders' equity
75,766
62,529
46,957
Assets
Investment property (note 6)
Prepaid expenses
Rent receivable (note 5)
Cash and cash equivalents (note 4)
Total assets
Liabilities and Shareholders' Equity
Liabilities:
Deferred income
Deferred income taxes (note 10)
Dividends payable
Taxes payable
Total liabilities
See the accompanying notes to the financial statements.
Statements of Comprehensive Income
Years ended December 31, 2011, 2010 and 2009
2011
2010
2009
Income from rents (note 8)
4,642
169
4,582
167
1,137
42
Property operating income
4,473
4,415
1,096
Administrative expenses (note 9)
Finance costs
Other expenses
Income before undernoted items
175
11
4
4,283
325
2
4,088
188
(327)
1,234
(13,151)
17,434
(8,282)
12,370
1,234
5,594
3,428
243
11,840
8,943
991
Fair value adjustment of investment property (note 6)
Income before tax
Income taxes (note 10)
Net income and comprehensive income
2
Statements of Shareholders' Equity
Share Capital
Paid in
Subscribed
(To be paid in)
Balances at December 31, 2008
Retained earnings
(accumulated
losses)
Total
(25)
3,201
3,301
(75)
63,859
(8,627)
-
55,232
(54,301)
75
25
(54,201)
12,859
(8,627)
991
991
991
5,223
Capital payment
-
4,670
-
4,670
Net income for the year
-
-
8,943
8,943
Reversal of reserves
-
-
(942)
(942)
(31)
8,961
(31)
17,863
Capital payment
Reduction of capital
Distribution of dividends
12,859
(3,957)
Capital payment
-
710
-
710
-
-
11,840
11,840
(3,092)
17,709
(3,092)
27,321
12,859
(3,247)
3
Statements of Cash Flows
2011
2010
2009
17,434
12,370
1,234
(13,151)
-
(8,282)
(942)
-
(80)
(3,022)
38
3
(482)
740
28
637
(678)
1,560
19
(505)
4,207
(438)
(12,325)
(1,279)
(243)
(13,051)
(36)
710
674
(8,877)
4,670
(4,207)
(28,921)
1,031
(27,890)
Cash provided by (used in):
Operating activities:
Net income before income tax
Adjustments for:
Reversal of reserve
Changes in non-cash operating items:
(Increase) decrease in rents receivable
Increase (decrease) in deferred revenue
Increase (decrease) in accounts payable and accrued liabilities
(Increase) decrease in prepaid expenses
Increase (decrease) in taxes payable
Changes
Income tax
in non-cash
paid (noteoperating
10)
items:
Net cash from (used in) operating activities
Investing activities:
Additions to investment property (note 6)
Capital payment
Net cash from (used in) investing activities
Financing activities:
Receipt of securitzation proceeds
Net cash from (used in) financing activities
(1,406)
(1,406)
-
40,941
40,941
Increase in cash and cash equivalents
8
-
-
Cash and cash equivalents, beginning of year
1
1
1
Cash and cash equivalents, end of year
9
1
1
4
1. Operations
The Company was established on May 24, 2007 under the name of Sumarezinho Investimentos
Imobiliários e Participações S.A. and on January 28, 2008, the company name was changed to
Avenida Angélica Investimentos Imobiliários e Participações S.A. The Company’s corporate
purpose is to hold interests in other companies, to make investments in the real estate segment
and to manage its own and third party assets. The fund, Pátria Real Estate Fundo de Investimento
em Participações, is its main shareholder, holding 99.99% of the shares. The Company’s address
is 1987 Avenida Angelica – Higienópolis. São Paulo.
2. Basis of preparation
(a) Statement of compliance:
The financial statements of the Company have been prepared by management in
accordance with International Financial Reporting Standards (“IFRS”). Authorization
for the publication of these financial statements was given by the Company's Board on
September 4, 2012.
(b) Basis of measurement:
The financial statements have been prepared on the historical cost basis, except for
investment properties which are stated at fair value.
The financial statements are presented in Reais, which is the Company’s functional
currency.
(c) Significant judgments and key estimates:
In the preparation of the financial statements it is necessary to use estimates for the
accounting of certain assets, liabilities and other transactions. The following are
significant judgments and key estimated that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the period:
(i)
Leases (the Company as lessor):
The Company uses judgment in its assessment of the classification of its
lease with its sole tenant as an operating lease. The Company has
determined that the lease is an operating lease, since the risks and
rewards of ownership have not been transferred.
1
Notes to the Financial Statements (continued)
2. Basis of preparation (continued)
(ii)
Property valuations:
Investment property, which is carried on the balance sheets at fair value,
is valued by qualified external valuation professionals or management.
The valuations are based on a number of assumptions, such as
appropriate discount rates and estimates of future rental income,
operating expenses and capital expenditures. The valuation of investment
property is one of the principal estimates and uncertainties of the
Company. Refer to note 6 for further information on estimates and
assumptions made in the determination of the fair value of investment
property.
(iii)
Income taxes:
Significant judgment is required in determining the provision for income
taxes. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the tax
liabilities in the period in which such determination is made. Refer to
note 11 for the carrying value of current and deferred tax liabilities.
3.
Description of significant accounting policies
The accounting policies described in detail below have been applied consistently to all the
periods presented in these financial statements.
(a) Investment property:
Investment property includes the land and building of a pediatric hospital which are held to
earn rental income. The investment property are recognized initially at cost and subsequently
at fair value, with changes in fair value recognized in the statements of comprehensive
income in the period in which they arise.
Subsequent capital expenditures are added to the carrying value of investment property only
when it is probable that future economic benefits of the expenditure will flow to the
Company and the cost can be measured reliably.
2
3. Description of significant accounting policies (continued)
(b) Cash and cash equivalents:
Cash and cash equivalents include short term investments of high liquidity where the risk of a
change in value is considered immaterial.
(c) Revenue from investment property:
Revenue from investment properties includes base rent which is recognized over the lease
term. As the lessor, the Company has retained the risks and benefits of its investment
property and assessed its lease with its sole tenant as an operating lease.
Deferred revenue is the unamortized portion of the rents receivable that have been assigned
to Pátria Companhia Securitizadora de Créditos Imobiliários (“Pátria”) in exchange for cash
of R$ 40,491. On the assignment of rents to Pátria in 2009, a liability was set up for the full
amount of the value of the rents assigned and revenue is recognized on a straight line basis
over the lease term of 15 years.
(d) Income tax and social contribution:
The Company has been adopting the taxation system based on presumed income. Each
quarter, the rate determined by law, of 32% applicable to lease revenue and 100% for other
revenues, is applied to the gross revenue in order to determine the basis for calculating the
income tax and social contribution on net income. Income tax is calculated at the rate of 15%,
plus a 10% surcharge on taxable income exceeding R$ 240 per year. The social contribution
is calculated at the rate of 9% on taxable income. The Company opted for the Transition Tax
Regime (RTT) for fiscal years 2009, 2010 and 2011, pursuant to Provisional Measure 449/08.
Deferred income tax is recognized, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements. Deferred income tax is determined using tax rates and laws that have
been enacted or substantively enacted by the balance sheet date and are expected to apply
when the related deferred income tax asset is realized or the deferred income tax liability is
settled.
Deferred income tax assets are recognized only to the extent that it is probably that future
taxable profit will be available against which the temporary differences can be utilized.
3
(e) Financial instruments
Recognition, measurement and disclosure of the Company’s financial statements may be
classified in four categories: (i) financial assets or liabilities valued at fair value through
profit or loss; (ii) held to maturity; (iii) loans and receivables; and (iv) available for sale. The
classification depends on the purpose for which the financial assets were acquired.
Financial assets and liabilities stated at fair value through profit or loss
A financial instrument is classified at fair value through profit or loss if it is classified as held
for trading and is designated as such at the time of initial recognition. Financial assets are
designated at fair value through profit or loss if the Company manages these investments and
takes decisions for purchase and sale based on their fair values in accordance with the
Company’s documented risk management and investment strategy. After initial recognition,
the transaction costs are recognized in the income statement as incurred. Financial assets
recorded at fair value through profit or losses are stated at fair value and changes in the fair
value of these assets are recognized in the results for the year.
Loans and receivables
Loans and receivables are financial assets with fixed or calculable payments that are not
quoted on an active market. These assets are initially recognized at their fair value plus any
attributable transaction costs. After initial recognition, the loans and receivables are valued at
their amortized cost through the effective interest method, less any loss through impairment.
4
(f) Future accounting changes:
i.
IFRS 9, Financial Instruments (2010) (“IFRS 9 (2010)”), supersedes IFRS 9
(2009) and is effective for annual periods beginning on or after January 1, 2015,
with early adoption permitted, The Company intends to adopt IFRS 9 (2010) in
its financial statements for the annual period beginning on January 1, 2015. The
extent of the impact of adoption of IFRS 9 (2010) has not yet been determined.
ii.
The Company does not expect the amendments of IFRS 7, Disclosures –
Transfers of Financial Assets (“IFRS 7”), to have a material impact on the
financial statements because of the nature of the Company’s operations and the
types of financial assets that it holds.
iii.
The Company intends to adopt IFRS 13, Fair Value Measurements (“IFRS 13”)
prospectively in its financial statements for the annual period beginning on
January 1, 2013. The extent of the impact of adoption of IFRS 13 has not been
determined.
iv.
The Company intends to adopt the amendments to IAS 1, Presentation of
Financial Statements, in its financial statements for the annual period beginning
on January 1, 2013. The extent of the impact of adoption of the amendments has
not yet been determined.
v.
The Company intends to adopt the amendments to IAS 32, Financial Instruments
– Presentation (“IAS 32”), and IFRS 7 in its financial statements for the annual
period beginning on January 1, 2013, and the amendments to IAS 32 in its
financial statements for the annual period beginning January 1, 2014. The extent
of the impact of adoption of the amendments has not yet been determined.
4. Cash and cash equivalents
Cash and cash equivalents comprises a current account in Banco Itaú with a balance of R$ 9 at
December 31, 2011, R$ 1 at December 31, 2010 and R$ 1 at December 31, 2009.
5
5. Rent receivable
Rent receivable refers to the amount of rent accrued at the balance sheet date arising from the
rental of the property for the portion of rents not transferred (see note 11). As the tenant makes
one payment annually, in arrears, for the period of October to September in April of each year,
this represents the rent accrued from October 1 to December 31.
6. Investment Property
Balance, January 1, 2011
Additions
Fair value adjustment
Balance, December 31, 2011
62,080
36
13,151
75,267
Balance January 1, 2010
Additions
44,921
8,877
8,282
62,080
Balance January 1, 2009
Additions
16,000
28,921
44,921
The Company determined the fair value of the investment property using the direct capitalization
income method. The property was value using a capitalization rate of 10.5% in 2011, 10.5% in
2010 to a stabilized net operating income. In 2009, the property fair value was deemed to be
equal to the carrying value as the building was under development.
The fair value of investment property is most sensitive to changes in capitalization rates. As at
December 31, 2011, a 25-basis-pont movement in the capitalization rate would change the value
of investment property by R$1,836 (2010 – R$1,514).
6
7. Shareholders’ Equity
The Company is authorized to issue an unlimited number of shares without par value. Each
share represents a single vote at any meeting of shareholders and entities the shareholder to
receive a pro rata share of all dividends.
8. Property operations
The components of revenue are:
Rental income
Accrued rental revenue recognized on a straight line basis
2011
2010
2009
1,620
3,022
1,610
2,972
438
699
4,642
4,582
1,137
On October 10, 2009, the Company entered into a lease agreement with Hospital Sabará to lease
the entire premises of the Avenida Angélica property. Rental revenue for the years ended
December 31, 2011, 2010 and 2009 is attributable to this single tenant.
At the time the lease was signed, the Company securitized part of its rents receivable, therefore
the Company is entitled to only 20.25% of the total rent payment. Future minimum base rent
lease payments (before adjustments for indexation) on the non-cancellable lease with the tenant
of the building are:
2012
2013-2016
2017 and thereafter
6,585
26,339
59,262
92,185
7
9. Administrative and general expenses
Consulting and advisory
Publications
Legal
Accounting and audit
Other
Broker
Registry office
8
2011
2010
2009
93
43
21
13
2
2
1
67
33
189
22
2
3
9
132
25
10
13
2
3
3
175
325
188
10. Income taxes
2011
2010
2009
Current tax:
Net income from services
Presumed profit - 32%
4,642
1,485
4,582
1,466
1,137
364
Other operating and financial income
Calculation base for income tax and social contribution
2
1,487
89
1,555
386
749
Income tax (IRPJ) - 15%
Income tax (IRPJ) - surcharge of 10%
Social contribution on net income (CSLL) - 9%
223
126
133
233
132
140
112
63
67
Total current tax
482
505
243
Deferred tax:
Increase (decrease) in temporary differences
15,035
8,596
-
2,255
1,504
1,353
1,289
860
774
-
Total deferred tax
Income tax expense (recovery)
5,112
5,594
2,923
3,428
243
9
10. Income taxes (continued)
The tax on the Company’s profit before tax differs from the theoretical amount that would arise
using the applicable tax rate to the entity as follows:
Income before tax
Tax calculated at domestic tax rate
Tax effects of:
Income tax calculated using the presumed method
2011
2010
2009
17,434
12,370
1,234
5,904
4,182
396
(310)
5,594
(754)
3,428
(153)
243
Deferred income taxes
The deferred income tax liability arises as a result of the timing difference between the book
value and tax value of the Company’s investment properties. The deferred tax liability is
expected to be recovered after more than 12 months.
The Company does not have any tax loss carry-forwards available.
11. Transactions with related parties
The Company assigned part of its rents receivable to Pátria Companhia Securitizadora de
Créditos Imobiliários. In addition, the fund Pátria Real Estate Fundo de Investimento em
Participações is the Company’s major shareholder, holding 99.99% of the shares. The company
Pátria Investimentos Ltda. is the manager of Pátria Real Estate FIP.
10
12. Capital management
The Company’s primary objective when managing capital is to maximize shareholder value
through ongoing active management of the Company’s investment property.
The Company does not have to maintain any financial covenants or ratios as it does not
currently have a credit facility.
13. Risk management and fair values
(a) Risk Management
In the normal course of business, the Company is exposed to a number of risks that can affect
its operating performance. These risks and the actions taken to manage them are as follows:
i.
Interest rate risk
The interest rates on the financial investments are for the most part indexed to the
variation of the Interbank Deposit Certificate (CDI).
ii.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial
loss for the Company by failing to discharge its obligations. Financial instruments
that potentially subject the Company to credit risk comprise mainly cash and
banks, financial investments and accounts receivable. The Company holds current
bank accounts and financial investments in financial institutions approved by
Management, in accordance with objective criteria for diversification of credit
risks.
iii.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty meeting its
financial obligations when they come due. The Company’s exposure to liquidity
risk is minimal as the Company has entered into a long-term lease with a credit
worthy tenant which assists in maintaining a predictable cash flow.
(b) Fair values
The Company’s financial assets and liabilities comprise of cash and cash equivalents,
accounts receivable, and accounts payable and accrued liabilities. The fair value hierarchy
reflects the significance of the inputs used in determining the fair values.
11
13. Risk management and fair values (continued)

Leve1 1 – quoted prices in active markets;

Level 2 – inputs other than quoted prices in the active markets or valuation
techniques where significant inputs are based on observable market data; and

Level 3 – valuation technique for which significant inputs are not based on
observable market data.
The fair values of cash and cash equivalents, accounts receivable, and accounts payable and
accrued liabilities approximate their carrying values due to the short-term maturity of those
instruments.
14. Subsequent events
On April 4, 2012, the Company was acquired by NorthWest Value Partners (“NWVP”) when
by means of a Brazilian S.A., acquired 100% of the shares of the Company for proceeds of
R$ 30,758, which resulted in a change in control.
* * *
The Board of Directors
12
Condensed Interim Financial Statements
For the Three and Six Months Ended June 30, 2012
Independent Auditors’ Report on Review of
Interim Condensed Financial Statements
September 2012
KPDS 41479
R. Dr. Renato Paes de Barros, 33
Caixa Postal 2467
Central Tel
Fax Nacional
Internacional
Internet
55 (11) 2183-3000
55 (11) 2183-3001
55 (11) 2183-3034
www.kpmg.com.br
To
The directors and shareholders of
São Paulo - SP
Introduction
We have reviewed the accompanying statements of financial position of Avenida Angélica
Investimentos Imobiliários e Participações S.A. (“the Company”) as at June 30, 2012, the
statement of comprehensive income for the three- and six-month periods then ended, the
statements of changes in equity and cash flows for the six-month period then ended, and notes,
comprising a summary of significant accounting policies and other explanatory information
(“the interim condensed financial statements”). Management is responsible for the preparation
and fair presentation of these interim condensed financial statements in accordance with IAS 34,
‘Interim Financial Reporting’. Our responsibility is to express a conclusion on these interim
condensed financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements
2410, “Review of Interim Financial Information Performed by the Independent Auditor of the
Entity”. A review of interim condensed financial statements consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical
and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying interim condensed financial statements do not present fairly, in all material
respects, the financial position of the Company as at June 30, 2012, and of its financial
performance for the three- and six-months periods then ended and of its cash flows for the sixmonth period then ended in accordance with IAS 34, ‘Interim Financial Reporting’.
São Paulo, September 04, 2012
CRC 2SP014428/O-6
Jubran Pereira Pinto Coelho
Accountant CRC 1MG077045/O-0 T-SP
2
KPMG Auditores Independentes, uma sociedade simples brasileira e
firma-membro da rede KPMG de firmas-membro independentes e
afiliadas à KPMG International Cooperative (“KPMG International”),
uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member
firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a
Swiss entity.
Condensed Interim Statement of Financial Position
Unaudited, (In thousands of Reais)
June 30, 2012
December 31, 2011
75,714
30
75,744
75,267
490
9
75,766
37,390
8,507
135
85
46,117
38,556
8,035
1,717
137
1
48,446
Shareholders' equity (note 8)
29,627
27,321
Total liabilities and shareholders' equity
75,744
75,766
Assets
Investment property (note 7)
Rent receivable (note 6)
Cash and cash equivalents (note 5)
Total assets
Liabilities and Shareholders' Equity
Liabilities:
Deferred income
Deferred income taxes (note 11)
Dividends payable
Taxes payable
Total liabilities
See the accompanying notes to the condensed interim financial statements.
Condensed Interim Statements of Comprehensive Income
Three months
ended June
30, 2012
Three months
Six months
Six months
ended June 30, ended June 30, ended June 30,
2011
2012
2011
Income from rents (note 9)
1,159
42
1,144
42
2,307
84
2,298
84
1,117
1,103
2,223
2,214
Administrative expenses (note 10)
Finance costs
Other expenses
45
1,071
57
(2)
1,048
50
2,173
88
(2)
2,129
Income before tax
1,071
(670)
1,718
(447)
2,620
(1,816)
3,945
Income taxes (note 11)
120
669
711
1,176
951
1,049
1,908
2,769
2
Condensed Interim Statements of Shareholders' Equity
Share Capital
Paid in
Subscribed
(To be paid in)
12,859
(3,957)
Retained earnings
(accumulated
losses)
9,903
Total
17,863
Capital payment
-
276
-
276
Net income for the period
-
-
2,769
2,769
12,671
20,907
Balances at June 30, 2011
12,859
(3,681)
Capital payment
-
434
-
434
-
-
9,072
9,072
(3,092)
18,651
(3,092)
27,321
12,859
(3,247)
Capital payment
-
163
-
163
-
-
1,908
1,908
20,559
235
29,627
Formation of reserves
Balances at June 30, 2012
12,859
(3,084)
3
Condensed Interim Statements of Cash Flows
Six months
ended June
30, 2012
Six months
ended June
30, 2011
Net income before income tax
Adjustments for:
Formation of reserves
Changes in non-cash operating items:
(Increase) decrease in rents receivable
Increase (decrease) in deferred revenue
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in taxes payable
Income
Changes
taxinpaid
non-cash
(note 11)
operating items:
Net cash from operating activities
Capital payment
Net cash from investing activities
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
4
2,620
3,945
(447)
235
(1,816)
-
490
(1,166)
85
(2)
(239)
1,575
410
(1,167)
(1)
(240)
1,132
163
163
276
276
(1,717)
(1,717)
(1,407)
(1,407)
21
1
9
1
30
2
Notes to the Condensed Interim Financial Statements
1. Operations
The Company was established on May 24, 2007 under the name of Sumarezinho
Investimentos Imobiliários e Participações S.A. and on January 28, 2008, the company name
was changed to Avenida Angélica Investimentos Imobiliários e Participações S.A. The
Company’s corporate purpose is to hold interests in other companies, to make investments in
the real estate segment and to manage its own and third party assets. The Company’s address
is 1987 Avenida Angelica – Higienópolis. São Paulo.
2. Statement of compliance
The condensed interim financial statements of the Company have been prepared by
management in accordance with International Financial Reporting Standards (“IFRS”) under
IAS 34, Interim Financial Reporting.
These condensed interim financial statements do not include all the information and notes
required by IFRS for annual financial statements and therefore, should be read in conjunction
with the audited financial statements and notes for the Company’s year ended December 31,
2011.
Authorization for the publication of these condensed interim financial statements was given
by the Company's Directors on September 4, 2012.
All significant accounting policies have been applied on a basis consistent with those
followed in the most recent audited annual financial statements. The policies applied in these
condensed interim financial statements are based on IFRS issued and outstanding as at June
30, 2012.
Accounting Judgment and Use of Estimates
The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the condensed interim financial statements and
the reported amounts of revenue and expenses during the reporting periods. Actual results
could differ from estimates and such differences could be material. The significant estimates
and judgments made by management are the same as those discussed in the audited annual
financial statements for the year ended December 31, 2011.
1
Notes to the Condensed Interim Financial Statements (continued)
Accounting Standards Issued But Not Yet Applied
Certain new standards, interpretations, amendments and improvements to existing standards
were issued by the IASB or IFRS Interpretations Committee that are mandatory for fiscal
periods beginning July 1, 2012 or later. The standards are described in the Company’s annual
financial statements for the year ended December 31, 2011 and there have not been any
additional standards applicable to the Company issued since December 31, 2011.
4. Acquisition of Control
On April 4, 2012, the Company was acquired by NorthWest Value Partners (“NWVP”) when
by means of a Brazilian S.A., acquired 100% of the shares of the Company for proceeds of
R$ 30,758.
5. Cash and cash equivalents
Cash and cash equivalents comprises a current account in Banco Itaú with a balance of R$ 30
at June 30, 2012 and R$ 9 at December 31, 2011.
6. Rent receivable
Rent receivable refers to the amount of rent accrued at the balance sheet date arising from the
rental of the property for the portion of rents not transferred (see note 10). As the tenant
makes one payment annually, in arrears, for the period of October to September in April of
each year, this represents the rent accrued from October 1 to December 31.
2
7. Investment Property
Balance, June 30, 2012
75,267
447
75,714
Additions
Additions
62,080
1,816
63,896
36
11,335
75,267
The Company determined the fair value of the investment property using the discounted cash
flow method. The discounted cash flow method discounts the expected future cash flows
generally over a term of 10 years, including a terminal value based on the application of a
capitalization rate to estimated year 11 cash flows.
The property was valued using a discount rate of 11% and a terminal capitalization rate of
10% at June 30, 2012.
The fair value of investment property is most sensitive to changes in capitalization rates. As
at June 30, 2012, a 25-basis-pont movement in the capitalization rate would change the value
of investment property by R$1,847 (December 31, 2011 – R$1,836).
3
8. Shareholders’ Equity
The Company is authorized to issue an unlimited number of shares without par value. Each
share represents a single vote at any meeting of shareholders and entities the shareholder to
receive a pro rata share of all dividends.
9. Property operations
Three months Three months
ended June
ended June
30, 2012
30, 2011
Rental income
Accrued rental revenue recognized on a straight line basis
Six months
ended June
30, 2012
Six months
ended June
30, 2011
408
751
391
753
815
1,492
799
1,499
1,159
1,144
2,307
2,298
On October 10, 2009, the Company entered into a lease agreement with Hospital Sabará to
lease the entire premises of the Avenida Angélica property. Rental revenue for the three and
six months ended June 30, 2012 is attributable to this single tenant.
At the time the lease was signed, the Company securitized part of its rents receivable,
therefore the Company is entitled to only 20.25% of the total rent payment. Future minimum
base rent lease payments (before adjustments for indexation) on the non-cancellable lease
with the tenant of the building are:
Remainder of 2012
2013-2016
2017 and thereafter
3,292
26,339
59,262
88,893
4
10. Administrative and general expenses
ended June
ended June
30, 2012
30, 2011
Consulting and advisory
Legal
Six months
ended June
30, 2012
Six months
ended June
30, 2011
45
-
57
-
48
2
86
2
45
57
50
88
11. Income taxes
Six months
Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2012
2011
2012
2011
Current tax:
Net income from services
Presumed profit - 32%
1,159
371
1,144
366
2,307
738
371
2
366
738
2
735
56
31
33
55
31
33
111
62
66
110
63
66
120
119
239
239
Deferred tax:
Increase (decrease) in temporary differences
-
1,581
1,389
2,722
-
237
159
142
208
139
125
408
272
245
120
538
657
472
711
925
1,164
Other operating and financial income
Calculation base for income tax and social contribution
Total current tax
Total deferred tax
5
-
2,298
735
11. Income taxes (continued)
The tax on the Company’s profit before tax differs from the theoretical amount that would arise
using the applicable tax rate to the entity as follows:
Six months
Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2012
2011
2012
2011
Income before tax
Tax calculated at domestic tax rate
Tax effects of:
Income tax calculated using the presumed method
1,071
1,718
2,620
3,945
358
578
879
1,329
(238)
120
92
670
(167)
711
(152)
1,177
Deferred income taxes
The deferred income tax liability arises as a result of the timing difference between the book
value and tax value of the Company’s investment properties. The deferred tax liability is
expected to be recovered after more than 12 months.
The Company does not have any tax loss carry-forwards available.
12. Transactions with related parties
The Company assigned part of its rents receivable to Pátria Companhia Securitizadora de
Créditos Imobiliários, who was a subsidiary of Pátria Real Estate Fundo de Investimento em
Participações, Company’s 99.99% shareholder up until the change of control on April 4, 2012
(note 4).
As at June 30, 2012 included in accounts payable and accrued liabilities is a payable to
J.M.R.S.P.E Empreendimentos E Participacoes, the Company’s 99.99% shareholder, in the
amount of R$ 63. The advance bears interest at 2% per annum.
6
13. Capital management
The Company’s primary objective when managing capital is to maximize shareholder value
through ongoing active management of the Company’s investment property.
The Company does not have to maintain any financial covenants or ratios as it does not
currently have a credit facility.
14. Risk management and fair values
(a) Risk Management
In the normal course of business, the Company is exposed to a number of risks that can affect
its operating performance. These risks and the actions taken to manage them are as follows:
i.
Interest rate risk
The interest rates on the financial investments are for the most part indexed to the
variation of the Interbank Deposit Certificate (CDI).
ii.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial
loss for the Company by failing to discharge its obligations. Financial instruments
that potentially subject the Company to credit risk comprise mainly cash and
banks, financial investments and accounts receivable. The Company holds current
bank accounts and financial investments in financial institutions approved by
Management, in accordance with objective criteria for diversification of credit
risks.
iii.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty meeting its
financial obligations when they come due. The Company’s exposure to liquidity
risk is minimal as the Company has entered into a long-term lease with a credit
worthy tenant which assists in maintaining a predictable cash flow.
(b) Fair values
The Company’s financial assets and liabilities comprise of cash and cash equivalents,
accounts receivable, and accounts payable and accrued liabilities. The fair value hierarchy
reflects the significance of the inputs used in determining the fair values.
7
14. Risk management and fair values (continued)

Leve1 1 – quoted prices in active markets;

Level 2 – inputs other than quoted prices in the active markets or valuation
techniques where significant inputs are based on observable market data; and

Level 3 – valuation technique for which significant inputs are not based on
observable market data.
The fair values of cash and cash equivalents, accounts receivable, and accounts payable and
accrued liabilities approximate their carrying values due to the short-term maturity of those
instruments.
* * *
The Board of Directors
8
Combined Financial Statements
(Expressed in EUR)
German Portfolio
For the 10 months ended October 31, 2011, and years ended December 31, 2010
and December 31, 2009
GERMAN PORTFOLIO
Combined Statement of Financial Position as of October 31, 2011, December 31, 2010 and December 31, 2009
(expressed in EUR)
October 31,
2011
December
31, 2010
December 31,
2009
January 1,
2009
Assets
Investment properties (note 4)
Accounts receivable
Other assets (note 5)
Cash
€
30,367,085
19,994
37,423
-
€ 29,360,478
152,479
18,010
-
€ 29,157,722
101,556
3,567
-
€ 25,052,239
5,547
102,959
102,296
Total assets
€
30,424,502
€ 29,530,967
€ 29,262,845
€ 25,263,041
€
22,581,572
374,448
115,144
23,071,164
€ 23,457,698
574,461
585,541
103,768
24,721,468
€ 23,482,594
5,026,226
804,013
55,164
29,367,998
€ 19,690,415
4,192,446
1,345,935
25,228,796
7,353,339
4,809,500
(105,153)
34,245
30,424,502
€ 29,530,967
€ 29,262,845
€ 25,263,041
Liabilities and Partners' Equity
Liabilties:
Mortgages payable (note 7)
Due to related parties (note 8)
Accounts payable and accrued liabilties (note 9)
Bank indebtedness (note 6)
Total liabilities
Partners' equity
Commitments and contingencies (note 14)
Total liabilities and partners' equity
€
See accompanying notes to the combined financial statements.
GERMAN PORTFOLIO
Combined Statements of Income and Comprehensive Income
(expressed in EUR)
10 months ended Year ended
Year ended
October 31,
December 31, December 31,
2011
2010
2009
€
2,282,591 €
613,781
2,378,097 €
620,172
2,053,357
504,380
1,668,810
1,757,925
1,548,977
Finance cost (note 13)
676,680
999,715
927,740
General and administrative
511,921
330,999
334,444
Income before undernoted item
480,209
427,211
286,792
Fair value gain (loss) on revaluation of investment
properties (note 4)
965,982
(547,305)
(471,128)
(120,094) €
(184,336)
Revenue from operations (note 12)
Property operating expenses
See accompanying notes to combined financial statements.
€
1,446,191 €
GERMAN PORTFOLIO
Combined Statements of Changes in Equity
(expressed in EUR)
10 months ended Oct 31, 2011
Partners' equity, beginning of period
Share capital
€
6,300 €
Contributions
-
Income (Loss) for the period
-
Partner's equity, end of period
Partners'
Contributions
Retained earnings
(deficit)
5,714,684 €
1,097,648
-
Total
(911,484) €
4,809,500
-
1,097,648
1,446,191
1,446,191
€
6,300 €
6,812,332 €
534,707 €
7,353,339
€
6,300 €
679,937 €
(791,390) €
(105,153)
Year ended December 31, 2010
Contributions
-
-
5,034,747
-
-
120,094
5,034,747
(120,094)
€
6,300 €
5,714,684 €
(911,484) €
4,809,500
€
6,300 €
635,000 -€
607,055 €
34,245
Year ended December 31, 2009
Contributions
-
44,937
-
-
€
6,300 €
See accompanying notes to combined financial statements.
679,937 €
-
44,937
(184,336)
(184,336)
(791,390) €
(105,153)
GERMAN PORTFOLIO
Combined Statements of Cash Flows
(expressed in Eur)
Year ended
October 31,
2011
2010
2009
Net income
Adjustments for:
Fair value adjustment of investment properties (note 4)
Change in non-cash operating items (note 15)
Cash generated from operating activities
Interest paid
€
Additions for investment properties (note 4)
Net cash used in investing activities
Indebtedness, net
Mortgage advances (note 7)
Repayment of mortgages (note 7)
Equity contributions
Advances from related parties (note 8)
Net cash from financing activities
1,446,191 €
999,715
547,305
(283,840)
1,143,086
(999,715)
143,372
927,740
471,128
(538,539)
675,994
(927,740)
(251,746)
(40,626)
(40,626)
(750,062)
(750,062)
(4,576,609)
(4,576,609)
11,376
(876,126)
523,186
(341,564)
48,603
386,768
(411,664)
582,982
606,690
55,164
4,551,968
(759,789)
44,937
833,780
4,726,060
-
Cash, beginning of period
-
€
(184,336)
676,680
(965,982)
(98,019)
1,058,870
(676,680)
382,190
Increase (decrease) in cash
Cash, end of period
(120,094) €
-
(102,296)
€
-
102,296
€
-
GERMAN PORTFOLIO
Notes to Combined Financial Statements
(Expressed in EUR)
As of October 31, 2011
The German Portfolio is comprised of five modern, recently constructed medical office buildings, with an
aggregate gross leasable area of 185,000 square feet. The German Portfolio properties are located in
established healthcare hubs in and around Berlin’s city centre, with the exception of one of the properties
which is located approximately 400 kilometers south of Berlin. The portfolio is approximately 98%
occupied, primarily by medical tenancies with strong synergies between them, typically doctors (wide
range of disciplines), dentists, and pharmacies.
As at October 31, 2011, December 31, 2010 and December 31, 2009, the German Portfolio was not a
separately established legal entity and, therefore, these combined financial statements have been prepared
from the records of each of the five legal entities that own the respective properties which have been kept
locally.
The German Portfolio entities are:





Gesundheitszentrum Berlin-Neukölln GmbH & Co. KG, Berlin,
Gesundheitszentrum Königs Wusterhausen 1 GmbH & Co. KG, Berlin,
Gesundheitszentrum Adlershof 1 GmbH & Co. KG, Berlin
Gesundheitszentrum Adlershof 2 GmbH, Berlin,
Schütz Bau GmbH & Co. Projektgesellschaft Ärztehaus am Klinikum Fichtelgebirge KG, München.
Gesundheitszentrum Adlershof 2 GmbH is a subsidiary of Gesundheitszentrum Adlershof 1 GmbH & Co.
KG. The other legal entities are sister Companies in the legal form of a limited partnership
(Kommanditgesellschaft).
Throughout 2009 up until November 9, 2011, the German Portfolio entities were under common
ownership by the Care Capital Group, having its seat in London/United Kingdom, registered office at 6th
Floor 54 Baker Street London W1U 7BU. On November 9, 2011, with an effective date of November 1,
2011, NorthWest Value Partners Toronto/Canada, 284 King Street East, ON M5A 1K4 (“NWVP”), by
means of NWI Gesundheitsimmobilien GmbH & Co KG acquired 94.9% of the shares of the five entities
which own the respective properties. CareCapital Gesundheitsimmobilien GmbH retained a 5.1% interest
in four of the five German Portfolio entities, however NorthWest Value Partners plans to adjust the legal
set-up with the effect that this interest will not represent a right to future income or distributions.
Because of the change of control as at October 31, 2011, these combined financial statements have been
prepared as at that date. The comparative income statement figures are not entirely comparable, because
they cover full calendar years.
Financial statements for the period from 1 November to December 31, 2011 - under common control of
NorthWest Value Partners - will also be prepared.
As at September 21, 2012, the Director (Paul Dalla Lana) of the German Portfolio approved these
combined financial statements.
GERMAN PORTFOLIO
(Expressed in EUR)
1. Basis of Preparation
These combined financial statements of the German Portfolio have been prepared on the historical
costs basis, except for investment property and derivative financial instruments that have been
measured at fair value. The combined financial statements are presented in Euros, which is the
German Portfolio’s functional currency.
The combined financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the IASB.
These combined financial statements have been prepared by combining the five financial statements of
the entities which own the respective properties making up the German Portfolio. The financial
statements of each of the partnerships are prepared for the same reporting periods, using consistent
accounting policies. All intra-portfolio balances, transactions, unrealized gains and losses resulting
from intra-portfolio transactions and distributions are eliminated in full.
These financial statements present the financial position and results of operations of the five German
Portfolio entities and do not include the assets, liabilities, income or expenses of the partners.
No provision for salaries to partners, interest on invested capital or income taxes, which are the
responsibility of the individual partners, are included in these financial statements.
All figures are rounded to full Euro.
2. Significant Accounting Judgements, Estimates and Assumptions
The preparation of the combined financial statements of the German Portfolio requires Management to
make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the disclosure of contingent liabilities, at the reporting date.
These combined financial statements are not necessarily indicative of the financial position and the
results that would have been attained if the German Portfolio had been operated as a separate German
Portfolio or legal entity during the periods presented and therefore are not necessarily indicative of
future operating results.
GERMAN PORTFOLIO
(Expressed in EUR)
2. Significant Accounting Judgements, Estimates and Assumptions (continued)
The following are significant judgements and key estimates made by management, which have the
most significant effect on the amounts recognized in these combined financial statements:
(a) Leases:
Management uses judgement in assessing the classification of its leases with tenants as
operating leases. Management has determined that all its leases are operating leases since
based on the terms and conditions of the arrangement; it retains all the significant risks and
rewards of ownership of these property leases.
(b) Property valuations:
Investment properties, which are carried on the balance sheets at fair value, are valued by
qualified external valuation professionals or management. External valuations by qualified
external valuation professionals were performed in August 2009, September 2010 and July
2012. The fair values presented in the balance sheet were established by management on the
basis of the methodology and the assumptions used by the external valuator.
The valuations consider purchaser‘s costs of 1.5% only, as the properties are held in special
purpose vehicles (legal entities) and it is considered that they may be sold through these
SPV‘s and will not be liable to any stamp duty, which in Berlin is currently 5%.
The valuations are based on assumptions, including appropriate discount rates and estimates
of future rental income, operating expenses and capital expenditures. The valuation of
investment properties is one of the principal estimates and uncertainties of the German
Portfolio. Refer to note 4 for further information on estimates and assumptions made in the
determination of the fair value of investment properties.
GERMAN PORTFOLIO
(Expressed in EUR)
(c) Taxes:
The German Portfolio is comprised of four partnerships (with one subsidiary), which are not
subject to corporate income tax at the partnership level. Therefore, the German Portfolio itself
is currently not liable to any tax on profits of income, nor are distributions paid by the
partnerships subject to any withholding tax. Accordingly, no taxable temporary differences
are identified in relation to the German Portfolio’s operations.
The German Portfolio entities are liable to trade tax which is based on income, which in
Berlin is 14.35%, however rental income is exempt from trade tax in certain circumstances.
Management believes that the German Portfolio is exempt from trade tax as rental income is
the primary source of revenue, therefore a liability for trade tax has not been accrued on
rental revenue. However, management is aware there is a risk that upon sale of the properties
trade tax may be asserted by the tax authorities depending on the exact circumstances of the
sale, however, management does not have intention to sell the German Portfolio properties
and would apply appropriate tax strategies in case it would have the intention of a sale.
(a) Investment properties:
Investment properties include income producing properties that are held by the German
Portfolio to earn rentals, for capital appreciation, or both. Investment properties are initially
recorded at cost and are re-measured to fair value at each reporting date, determined based
either on internal valuation models incorporating available market evidence, or on valuations
performed by third party appraisers. Changes in the fair value of investment properties are
recorded in profit or loss. Investment properties are not depreciated.
Subsequent capital expenditures are added to the carrying value of investment properties only
when it is probable that future economic benefits of the expenditure will flow to the German
Portfolio and the cost can be measured reliably.
Leasing costs incurred by the German Portfolio that are incremental and directly attributable
to negotiating and arranging tenant leases are added to the carrying value of investment
property. Leasing costs that are not incremental are expensed in the period.
GERMAN PORTFOLIO
(Expressed in EUR)
(b) Revenue recognition:
Rental revenue from operating leases is recognized on a straight line basis whereby the total
amount of rental revenue to be received from the lease is accounted for on a straight line basis
over the term of the lease. The difference between rental revenue recognized and cash flows
is recorded as straight line rent receivable or payable on the balance sheet.
Rental revenue includes rents earned from tenants under lease agreements, parking income,
incidental income, and operating cost recoveries. Operating cost recoveries are recognized in
the period when the recoverable costs are incurred.
(c) Accounts receivable:
Accounts receivable are recognized initially at fair value and subsequently measured at
amortized costs using the effective interest rate method, less provision for impairment. A
provision for impairment of receivables using an allowance account for credit losses is
established when there is objective evidence that the German Portfolio will not be able to
collect all amounts due according to the original terms of the receivables. Subsequent
recoveries of amounts previously written off are credited to the statement of profit and loss.
Amounts charged to the allowance account are written off against the carrying amount of
impaired financial assets when it becomes unlikely that they could still be collected.
(d) Leasing costs:
Payments to tenants under lease contracts are characterized as either tenant improvements,
which enhance the value of the properties, or lease inducements. When the obligation is
determined to be a tenant improvement, the German Portfolio is considered to have acquired
an asset. Accordingly, the tenant improvements are capitalized as part of the investment
properties. When the obligation is determined to be a lease inducement, the amount is
recognized as an asset which forms a component of investment properties and is amortized
over the term of the lease as a reduction of revenue.
GERMAN PORTFOLIO
(Expressed in EUR)
(e) Financial instruments:
The German Portfolio recognizes financial assets and financial liabilities when the German
Portfolio becomes a party to a contract. Financial assets and financial liabilities, with the
exception of financial assets classified as at fair value through profit or loss, are measured at
fair value plus transaction costs on initial recognition. Financial assets at fair value through
profit or loss are measured at fair value on initial recognition and transaction costs are
expensed when incurred. Measurement in subsequent periods depends on the classification of
the financial instrument:
Financial assets and liabilities at fair value through profit or loss (FVTPL)
Financial assets are classified as FVTPL when acquired principally for the purpose of trading,
if so designated by management, or if they are derivative assets. Financial assets classified as
FVTPL are measured at fair value, with changes recognized in profit and loss.
The German Portfolio does not have any financial assets classified as FVTPL.
Financial liabilities are classified as FVTPL if they are designated as such by management, or
they are derivative liabilities. Financial liabilities classified as FVTPL are measured at fair
value, with changes recognized in profit and loss. The German Portfolio does not have any
financial liabilities classified as FVTPL.
Available for sale financial assets
Available for sale financial assets are non-derivative financial assets that are either designated
as such by management or not classified in any of the other categories. Available for sale
financial assets are measured at fair value with changes recognized in other comprehensive
income. Upon sale or impairment, the accumulated fair value adjustments recognized in other
comprehensive income are recorded in profit and loss. If there is objective evidence that an
asset is impaired, its recoverable amount is determined and any impairment loss is recognized
in profit and loss. Objective evidence would include a significant or prolonged decline in the
fair value of an asset below its original cost.
The German Portfolio does not have available-for-sale instruments.
GERMAN PORTFOLIO
(Expressed in EUR)
Loans and receivables are non-derivative financial assets that have fixed or determinable
payments and are not quoted in an active market. Subsequent to initial recognition, loans and
receivables are carried at amortized cost using the effective interest method. If there is
objective evidence that an asset is impaired, its recoverable amount is determined and any
impairment loss is recognized in profit and loss.
Loans and receivables include the following classes of financial instruments: accounts
receivable and cash.
Other financial liabilities
Other financial liabilities are financial liabilities that are not classified as FVTPL. Subsequent
to initial recognition, other financial liabilities are measured at amortized cost using the
effective interest method.
The German Portfolio’s other financial liabilities include the following classes of financial
instruments: mortgages payable, bank indebtedness, trade payables, accrued liabilities, tenant
deposits and balances due to related parties.
The effective interest method is a method of calculating the amortized cost of an instrument
and of allocating interest income or expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash receipts or disbursements
(including all transaction costs and other premiums or discounts) through the expected life of
the debt instrument to the net carrying amount on initial recognition.
Equity
Equity presented in the combined financial statements comprises share capital, partners’
contributions and retained earnings.
The balance of retained earnings resulting from the measurement of the properties at fair
value amounting to approximately €3,814,000 as at October 31, 2011 is not permitted in the
German statutory accounts. Consequently, this amount is not available for distributions to
partners. All remaining amounts of equity may be distributed to the partners if they so decide
and if necessary funds are available. Because the partners’ equity entitles the holders to a pro
rata share of the entities’ net assets in the event of the entities’ liquidation, and it is the most
subordinate class of financial instruments, it is presented as equity under IFRS.
GERMAN PORTFOLIO
(Expressed in EUR)
i.
IFRS 9, Financial Instruments (2010) (“IFRS 9 (2010)”), supersedes IFRS 9 (2009)
and is effective for annual periods beginning on or after January 1, 2015, with early
adoption permitted, The German Portfolio intends to adopt IFRS 9 (2010) in its
financial statements for the annual period beginning on January 1, 2015. The extent
of the impact of adoption of IFRS 9 (2010) has not yet been determined.
ii.
The German Portfolio does not expect the amendments of IFRS 7, Disclosures –
Transfers of Financial Assets (“IFRS 7”), to have a material impact on the financial
statements because of the nature of the German Portfolio’s operations and the types
of financial assets that it holds.
iii.
The German Portfolio intends to adopt IFRS 13, Fair Value Measurements (“IFRS
13”) prospectively in its financial statements for the annual period beginning on
determined.
iv.
The German Portfolio intends to adopt the amendments to IAS 1, Presentation of
Financial Statements, in its financial statements for the annual period beginning on
January 1, 2013. The extent of the impact of adoption of the amendments has not yet
been determined.
v.
The German Portfolio intends to adopt the amendments to IAS 32, Financial
Instruments – Offsetting (“IAS 32”), and IFRS 7 in its financial statements for the
annual period beginning on January 1, 2013, and the amendments to IAS 32 in its
financial statements for the annual period beginning January 1, 2014. The extent of
the impact of adoption of the amendments has not yet been determined.
GERMAN PORTFOLIO
(Expressed in EUR)
4. Investment Properties
Additions
€
29,360,478
40,626
965,982
Balance, October 31, 2011
€
30,367,085
Additions
€
29,157,722
750,061
(547,305)
€
29,360,478
Additions
€
25,052,239
4,576,609
(471,127)
€
29,157,722
As of October 31, 2011, all of the properties are pledged in favour of the mortgages payable with
Deutsche Apotheker- und Ärztebank eG (“APO Bank”) (note 7).
One of the German Portfolio properties was under development during 2009 and was
substantially completed in early 2010. As at October 31, 2011, this property’s parking garage
remains under development and requires approximately €350,000 of costs to complete. The
completion works will be paid by NWVP who can withhold the amounts from the purchase price
payable to Care Capital Group.
Management determined the fair value of the German Portfolio land and buildings using the
discounted cash flow method. The discounted cash flow method discounts the expected future
cash flows, generally over a term of 10 years, including a terminal value based on the application
rate to estimated year 11 cash flows.
The key valuation assumptions for the German Portfolio are:
Capitalization rates (range)
Capitalization rates (weighted average)
October 31,
2011
December
31, 2010
6.61 - 6.87%
6.69%
6.85 - 7.10%
6.92%
December 31,
2009
6.19 - 6.82%
6.48%
GERMAN PORTFOLIO
(Expressed in EUR)
4. Investment Properties (continued)
The fair value of investment properties is most sensitive to changes in capitalization rates. As at
October 31, 2011, a 25-basis-point movement in the terminal capitalization rate, would change
the value of investment property by approximately €1,100,000 (December 31, 2010 - €1,020,000
December 31, 2009 - €891,000).
On November 9, 2011, the legal entities holding the German Portfolio properties were purchased
by NWVP on the basis of property value of €26,600,000. Management of NWVP believes that
the purchase price does not represent the fair value of the properties as the vendor was highly
motivated to sell given their objectives to exit the German market and therefore was willing to
accept a discount to fair value to quickly execute the transaction.
5. Other Assets
October 31,
2011
Prepaid expenses
VAT receivable
December 31,
2010
December 31,
2009
€
13,611 €
23,813
2,735 €
15,275
3,567
-
€
37,423 €
18,010 €
3,567
6. Bank Indebtedness
At October 31, 2011, included in bank indebtedness is restricted cash of €28,545 (December 31,
2010 - €15,571, December 31, 2009 - nil), which relates to a mandatory reserve for maintenance
(1.75% of rental income) in separate accounts with APO Bank. The cash is available for use when
qualifying capital expenditures are made. The funds noted were used in 2012 for maintenance
works.
As at October 31, 2011, the German Portfolio entities had overdrawn their bank accounts
(without a formal line of credit) in the amount of €143,689 (December 31, 2010 - €119,338,
December 31, 2009 - €68,197). Interest is charged on overdraft positions at 14.625% per annum.
GERMAN PORTFOLIO
(Expressed in EUR)
7. Mortgages Payable
Scheduled
principal
payments
Remainder of 2011
2012
2013
2014
2015
2016
2017 and thereafter
€
€
Debt maturing Total mortgages
during the year
payable
178,266
1,091,678
1,130,506
1,170,715
922,754
955,573
12,243,660
€
4,857,621
30,799
178,266
1,091,678
1,130,506
6,028,336
922,754
955,573
12,274,459
17,693,152 €
4,888,420 €
22,581,572
Interest rate on mortgages
3.50%
The mortgages payable bear interest at floating rates based on EURIBOR. The mortgages payable
have interest rate collars in place which have a floor of 3.5% and caps ranging between 4.5% and
6.1%. The contracts with APO Bank fix the amounts of annuity. The schedule above is based on
the assumption that EURIBOR will remain below 3.5% in the next years.
The caps and floors (embedded derivatives) are not measured separately, because their economic
characteristics and risks are closely related to the economic characteristics and risks of the host
contracts, because the caps were at or above the market rate of interest and the floors were at or
below the market rate of interest when the contracts were issued.
In addition to the properties (note 4) of the German Portfolio being pledged as collateral for the
mortgages payable, the rental income and accounts receivable have also been pledged to APO
Bank.
Under its existing credit facility with APO Bank, the German Portfolio has available guarantee
credit in the amount of €70,000 as well as a construction line of credit in the amount of €106,000.
As of October 31, 2011 the German Portfolio had not used either source of credit (December 31,
2010 – nil, December 31, 2009 – nil).
GERMAN PORTFOLIO
(Expressed in EUR)
8. Due to/from Related Parties
The amounts due to/from related parties are as follows:
October 31,
2011
Amount Owed to Related Party:
CareCapital Limited
€
-
2010
2009
€
CareCapital Gesundheitsimmobilien GmbH
CareCapital Gesundheitsimmobilien
Verwaltungs GmbH
-
€
4,613,323
395,640
379,343
59,500
23,288
123,879
50,667
Schütz Baugesellschaft mbH
-
GZ Berlin-Pankow GmbH&Co KG
-
-
12,472
Amount Owed from Related Party:
Gesundheitszentrum Adlershof 2
Minderheitsbeteiligungs GmbH&Co KG
-
4,557
52,866
€






-
€
574,461 €
5,026,226
CareCapital Limited was the ultimate parent company of the German Portfolio entities
until October 31, 2011.
CareCapital Gesundheitsimmobilien GmbH was the Limited partner of the German
Portfolio entities until October 31, 2011.
CareCapital Gesundheitsimmobilien Verwaltungs GmbH was the General Partner of the
German Portfolio entities which provided asset management services to the German
Portfolio until October 31, 2011.
Schütz Baugesellschaft mbH was a related party that provided property management
services to three of the German Portfolio properties until October 31, 2011.
GZ Berlin-Pankow GmbH&Co KG is a related company which was also owned by
CareCapital Gesundheitsimmobilien GmbH until October 31, 2011, however is not part
of the German Portfolio as the property was sold to a third party in June 2012.
Gesundheitszentrum Adlershof 2 Minderheitsbeteiligungs GmbH&Co KG is the minority
shareholder of one of the German Portfolio properties.
Related party balances bore interest at 3.5% and had no specific terms of repayment.
GERMAN PORTFOLIO
(Expressed in EUR)
9. Accounts Payable and Accrued Liabilities
October 31,
2011
Trade payables
Accrued expenses
VAT payable
Tenant deposits
December 31,
2010
December 31,
2009
€
149,545 €
191,420
33,483
476,611 €
88,590
20,340
372,921
315,797
102,693
12,602
€
374,448 €
585,541 €
804,013
10. Segment Information
All of the German Portfolio’s assets and liabilities are in, and its revenue derived from, the
German real estate industry segment, therefore management believes that it is appropriate to
classify all operations of the German Portfolio under one operating segment.
GERMAN PORTFOLIO
(Expressed in EUR)
11. Transactions with Related Parties
The German Portfolio, in the normal course of business, carries out transactions with other
entities that fall within the definition of related parties. These transactions comprise services
received from related parties. These transactions have been carried out on the basis of agreed
terms. The significant transactions with related parties during the period were as follows:
10 months
Year ended
Year ended
ended October December 31, December 31,
31, 2011
2010
2009
Interest paid (received) on related party balances:
CareCapital Limited
€
-
€
155,889 €
156,926
CareCapital Gesundheitsimmobilien GmbH
-
20,303
(6,973)
Verwaltungs GmbH
-
932
788
Gesundheitszentrum Adlershof 2
Minderheitsbeteiligungs GmbH&Co KG
-
€
-
(1,820)
(1,661)
€
(1,255)
174,048 €
419
149,498
Management fees paid:
Verwaltungs GmbH
€
104,767 €
118,056 €
96,000
Technical facility management fees paid:
Schütz Baugesellschaft mbH
€
13,337 €
7,941 €
8,940
See note 8 for description of related parties.
GERMAN PORTFOLIO
(Expressed in EUR)
12. Property Operations
10 months ended
October 31,
2011
Year ended
December 31,
2010
Year ended
December 31,
2009
Rental revenue
Operating cost recoveries
Other
€
1,632,220
474,175
176,196
€
1,857,933
497,604
22,560
€
1,660,147
391,594
1,616
Revenue from operations
€
2,282,591
€
2,378,097
€
2,053,357
Included in Other revenue for the 10 months ended October 31, 2011 is €150,000 related to an
early termination penalty charged to a tenant to be excused from their lease prior to expiry.
Property operating expenses comprise recoverable operating costs, maintenance and property
management expenses. All operating expenses relate to properties that generate rental income.
General and administrative expenses comprise management services, legal and financial
statement costs, and bad debt expenses.
The majority of the tenant leases in the German Portfolio are subject to indexation adjustments.
Future minimum base rent lease payments (before indexation) on the non-cancellable leases with
the tenants of the properties are:
Remainder of 2011
2012
2013-2016
2017 and thereafter
€
330,125
1,939,020
5,999,150
2,358,178
€ 10,626,474
GERMAN PORTFOLIO
(Expressed in EUR)
13. Finance Costs
10 months ended
October 31,
2011
Year ended
December 31,
2010
Year ended
December 31,
2009
Interest paid on mortgages
Interest on related party balances
Other
€
672,926
3,753
€
826,760
174,048
(1,094)
€
776,978
149,498
1,263
Finance costs
€
676,680
€
999,714
€
927,740
14. Commitments and Contingencies
One of the properties in the German Portfolio has a heritable building right. As a result, this land
is being leased to the German Portfolio by the city of Marktredwitz and is subject to a ground
lease until December 31, 2057, at which point the city can elect to buy the building at fair market
value from the German Portfolio or can alternatively extend the lease. Annual payments under the
ground lease are €6,755 and are payable until December 31, 2057.
On various grounds, the city of Marktredwitz currently claims to have the right to purchase the
property at fair market value. Presently, management does not intend to sell the property and it is
in discussions to resolve the dispute with the city.
15. Changes in Non-Cash Operating Items:
Year ended
October 31,
2011
2010
2009
Decrease (Increase) in accounts receivable
Decrease (Increase) in other assets
(Decrease) increase in accounts payable and accrued liabilties
132,486
(19,413)
(211,092)
(98,019)
(50,923)
(14,443)
(218,473)
(283,840)
(96,009)
99,392
(541,922)
(538,539)
GERMAN PORTFOLIO
(Expressed in EUR)
16. Capital Management
In the management of its capital, management considers to be comprised of its partners’ equity
and mortgages payable.
In managing its capital, the management’s primary objectives are to safeguard its ability to
continue as a going concern so that the German Portfolio is able to meet its financial obligations
as they become due and provide an adequate return to partners through growth in net income.
17. Risk Management and Fair Values
(a)
Risk management:
In the normal course of business, the German Portfolio is exposed to a number of risks that
can affect its operating performance. These risks and the actions taken to manage them are as
follows:
(i)
Interest rate risk
Management’s objective of managing interest rate risk is to minimize the volatility of
earnings. Interest rate risk for the German Portfolio arises as a result of the variable
interest rates on mortgage debt. Interest rate risk has been minimized as management
entered into interest rate collars at the inception of the mortgages which reduces the
variability of changes in interest rates. As a result of these interest rate collars in
place, changes in prevailing interest rates would not be expected to have a material
impact on the German Portfolio. Refer to the information on mortgages in note 7.
GERMAN PORTFOLIO
(Expressed in EUR)
17. Risk Management and Fair Values (continued)
(ii)
Credit risk
The German Portfolio is exposed to credit risk on all financial assets and its exposure
is generally limited to the carrying amount on the balance sheets. The German
Portfolio actively manages to minimize its credit risk through the careful selection
and assessment of its credit parties on knowledge obtained through means such as
due diligence carried out in respect of leasing transactions to new tenants. The
maximum exposure to credit risk is limited to the carrying amount of the accounts
receivable.
Credit risk is also minimized for the German Portfolio as the leases with tenants
either require a security deposit or a guarantee. Currently, the German Portfolio
entities received security deposits of €33,483 and guarantees of €191,000. All
accounts receivable presented on the balance sheet are overdue, because rents are
payable in the month to which they relate. Most of the receivables are overdue for
less than one year.
Movement in the Company’s allowance for doubtful accounts is as follows:
October 31,
2011
Balance, beginning of
period
Charges during the
period
Receivables written off
as uncollectible
Balance, end of period
€
25,118
December 31,
2010
€
129,480
€
154,598
-
December
31, 2009
€
25,118
€
25,118
-
€
-
The charges made during the period are included in general and administrative
expenses.
Due to the change in control and management on October 31, 2011, management
could not determine whether any of the charges made on October 31, 2011 might
have been necessary in previous years. However, as any timing change of the bad
debt expenses to the prior year is considered immaterial to the financial statements,
all charges that were determined to be necessary as at October 31, 2011 were
recorded as at that date.
GERMAN PORTFOLIO
(Expressed in EUR)
(iii)
Liquidity risk
The German Portfolio’s exposure to refinancing risk arises from maturing mortgages
payable. Management’s objective is to have sufficient financial liquidity to meet all
financial obligations as they become due. Management monitors its cash flows
generated from operations and balances this with anticipated committed and
contemplated out-flows. Where possible, the German Portfolio tries to enter into
long-term leases with creditworthy tenants to further maintain a predictable cash
flow.
In order to improve liquidity, the mortgage debt with APO Bank was re-negotiated in
February 2012, and as a result the amortization period of the existing mortgages were
extended to result in lower debt repayments (€255,000 p.a. less).
Cash flows are planned to improve further through debt collection, rent indexations,
increased operating cost recoveries and lower management fees.
The contractual principal and interest payments on the German Portfolio’s mortgages
payable as at October 31, 2011 are as follows:
Remainder of 2011
2012
2013
2014
2015
2016
2017 and thereafter
€
309,733
1,858,398
1,858,398
6,716,019
1,403,398
1,403,398
14,823,745
€ 28,373,089
As the contracts with APO Bank fix the amounts of annuity (interest plus
repayment), there is no uncertainty in respect of future liquidity requirements on the
mortgages.
GERMAN PORTFOLIO
(Expressed in EUR)
The maturity of the accounts payable and accrued liabilities at October 31, 2011 is as
follows:
Less than 1
year
Over 1 year
Total
Accounts payable and accrued
liabilties
(iv)
€
340,967
€
33,483
€
374,449
Market risk
Market risk is the risk that changes in market prices, such as interest rates and equity
prices, will affect the German Portfolio’s financial instruments. All of the German
Portfolio’s investment properties are focused on the German medical office sector.
All of the German Portfolio’s operations are denominated in Euro, resulting in no
direct foreign exchange risk.
Furthermore, market risk is the risk that changes in market conditions, such as real
estate vacancies in Berlin and the funding of the German medical market, will affect
the German Portfolio’s real estate market value.
(b) Fair values:
The German Portfolio uses various methods in estimating the fair values recognized in the
financial statements. The fair value hierarchy reflects the significance of inputs used in
determining the fair values



Level 1 – quoted prices in active markets;
Level 2 – inputs other than quoted prices in the active markets or valuation techniques
where significant inputs are based on observable market data; and
Level 3 – valuation technique for which significant inputs are not based on observable
market data.
The fair value of the German Portfolio’s mortgages payable at October 31, 2011 is
€22,581,572 (December 31, 2010 - €23,577,036, December 31, 2009 - €23,550,791). The fair
values are equal to the carrying values because interest rates are variable (EURIBOR) and the
German Portfolio entities have the right to repay the mortgages at any time. The carrying
values of the German Portfolio’s financial assets, which include accounts receivable and cash
and restricted cash, as well as financial liabilities, which include accounts payable and
accrued liabilities and amounts due to related party approximate their recorded fair values due
to the short-term maturities of these instruments.
GERMAN PORTFOLIO
(Expressed in EUR)
18. Subsequent Events

On November 23, 2011, the German Portfolio signed transfer agreements to transfer the existing
Management Service Contracts with CareCapital Gesundheitsimmobilien Verwaltungs GmbH to
NWI Management GmbH.
Under the Management Services Agreement, NWI Management GmbH is responsible for
executing of all management procedures relating to the German Portfolio entities. As
compensation for its services, NWI Management GmbH is paid EUR 10,000 plus partially nonrecoverable VAT per month by the German Portfolio.

In February 2012, the mortgage debt with APO Bank was re-negotiated and as a result the
amortization period of the existing mortgages were extended to result in lower debt repayments
(€ 255,000 p.a. less) and maturities in the years between 2028 and 2033. The caps and floors
remained unchanged.
Combined Financial Statements
(Expressed in EUR)
German Portfolio
For the 2 months ended December 31, 2011
GERMAN PORTFOLIO
Combined Statement of Financial Position as of December 31, 2011 and November 1, 2011
(expressed in EUR)
December 31, 2011 November 1, 2011
Assets
Accounts receivable
€
30,373,673 €
46,012
47,960
30,367,085
19,994
37,423
Total assets
€
30,467,644 €
30,424,502
€
22,403,262 €
72,250
357,564
74,777
22,907,853
22,581,572
374,448
115,144
23,071,164
Liabilties:
Due to related party (note 8)
Total liabilities
Partners' equity
7,559,790
7,353,339
€
30,467,644 €
30,424,502
GERMAN PORTFOLIO
Combined Statements of Income and Comprehensive Income
(expressed in EUR)
2 months ended
December 31, 2011
€
486,010
61,754
424,256
133,169
84,636
€
206,451
GERMAN PORTFOLIO
Combined Statements of Changes in Equity
(expressed in EUR)
2 months ended December 31, 2011
Share capital
Partners' equity, November 1, 2011
€
Income (loss) for the period
Partners'
Contributions
6,300 €
-
€
6,300 €
6,831,042 €
6,831,042 €
Retained
earnings
(deficit)
515,996 €
206,451
722,447 €
Total
7,353,339
206,451
7,559,790
GERMAN PORTFOLIO
Combined Statements of Cash Flows
(expressed in EUR)
2 months ended
December 31, 2011
Net Income
Adjustments for:
Interest paid
€
206,451
133,169
(53,439)
286,180
(133,169)
153,012
Additions for investment properties (note 4)
(6,587)
(6,587)
Indebtedness, net
Advances from related party (note 8)
(40,367)
(178,310)
72,250
(146,426)
Cash, end of period
€
-
GERMAN PORTFOLIO
(Expressed in EUR)
As of December 31, 2011
As at December 31, 2011, the German Portfolio was not a separately established German Portfolio or
legal entity and, therefore, these combined financial statements have been prepared from the records of
each of the five legal entities that own the respective properties which have been kept locally.





Because of the change of control as at October 31, 2011, these combined financial statements have been
prepared from November 1, 2011 to December 31, 2011, the German Portfolio’s year end and no
comparative information has been included.
As at September 21, 2012, the Director (Paul Dalla Lana) of the German Portfolio approved these
combined financial statements.
GERMAN PORTFOLIO
(Expressed in EUR)
These combined financial statements of the German Portfolio have been prepared on the historical
costs basis, except for investment property and derivative financial instruments that have been
measured at fair value. The combined financial statements are presented in Euros, which is the
German Portfolio’s functional currency.
The combined financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the IASB.
These combined financial statements have been prepared by combining the five financial statements of
the entities which own the respective properties making up the German Portfolio. The financial
statements of each of the partnerships are prepared for the same reporting periods, using consistent
accounting policies. All intra-portfolio balances, transactions, unrealized gains and losses resulting
from intra-portfolio transactions and distributions are eliminated in full.
Portfolio entities and do not include the assets, liabilities, income or expenses of the partners.
No provision for salaries to partners, interest on invested capital or income taxes, which are the
responsibility of the individual partners, are included in these financial statements.
All figures are rounded to full Euro.
The preparation of the combined financial statements of the German Portfolio requires Management to
make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the disclosure of contingent liabilities, at the reporting date.
These combined financial statements are not necessarily indicative of the financial position and the
results that would have been attained if the German Portfolio had been operated as a separate German
Portfolio or legal entity during the periods presented and therefore are not necessarily indicative of
future operating results.
GERMAN PORTFOLIO
(Expressed in EUR)
The following are significant judgements and key estimates made by management, which have the
most significant effect on the amounts recognized in these combined financial statements:
(a) Leases:
Management uses judgement in assessing the classification of its leases with tenants as
operating leases. Management has determined that all its leases are operating leases since
based on the terms and conditions of the arrangement; it retains all the significant risks and
rewards of ownership of these property leases.
(b) Property valuations:
Investment properties, which are carried on the balance sheets at fair value, are valued by
qualified external valuation professionals or management. External valuations by qualified
external valuation professionals were performed in August 2009, September 2010 and July
2012. The fair values presented in the balance sheet were established by management on the
basis of the methodology and the assumptions used by the external valuator.
The valuations consider purchaser‘s costs of 1.5% only, as the properties are held in special
purpose vehicles (legal entities) and it is considered that they may be sold through these
SPV‘s and will not be liable to any stamp duty, which in Berlin is currently 5%.
The valuations are based on assumptions, including appropriate discount rates and estimates
of future rental income, operating expenses and capital expenditures. The valuation of
investment properties is one of the principal estimates and uncertainties of the German
Portfolio. Refer to note 4 for further information on estimates and assumptions made in the
determination of the fair value of investment properties.
GERMAN PORTFOLIO
(Expressed in EUR)
(c) Taxes:
The German Portfolio is comprised of four partnerships (with one subsidiary), which are not
subject to corporate income tax at the partnership level. Therefore, the German Portfolio itself
is currently not liable to any tax on profits of income, nor are distributions paid by the
partnerships subject to any withholding tax. Accordingly, no taxable temporary differences
are identified in relation to the German Portfolio’s operations.
The German Portfolio entities are liable to trade tax which is based on income, which in
Berlin is 14.35%, however rental income is exempt from trade tax in certain circumstances.
Management believes that the German Portfolio is exempt from trade tax as rental income is
the primary source of revenue, therefore a liability for trade tax has not been accrued on
rental revenue. However, management is aware there is a risk that upon sale of the properties
trade tax may be asserted by the tax authorities depending on the exact circumstances of the
sale, however, management does not have intention to sell the German Portfolio properties
and would apply appropriate tax strategies in case it would have the intention of a sale.
(a) Investment properties:
Investment properties include income producing properties that are held by the German
Portfolio to earn rentals, for capital appreciation, or both. Investment properties are initially
recorded at cost and are re-measured to fair value at each reporting date, determined based
either on internal valuation models incorporating available market evidence, or on valuations
performed by third party appraisers. Changes in the fair value of investment properties are
recorded in profit or loss. Investment properties are not depreciated.
Subsequent capital expenditures are added to the carrying value of investment properties only
when it is probable that future economic benefits of the expenditure will flow to the German
Portfolio and the cost can be measured reliably.
Leasing costs incurred by the German Portfolio that are incremental and directly attributable
to negotiating and arranging tenant leases are added to the carrying value of investment
property. Leasing costs that are not incremental are expensed in the period.
GERMAN PORTFOLIO
(Expressed in EUR)
(b) Revenue recognition:
Rental revenue from operating leases is recognized on a straight line basis whereby the total
amount of rental revenue to be received from the lease is accounted for on a straight line basis
over the term of the lease. The difference between rental revenue recognized and cash flows
is recorded as straight line rent receivable or payable on the balance sheet.
Rental revenue includes rents earned from tenants under lease agreements, parking income,
incidental income, and operating cost recoveries. Operating cost recoveries are recognized in
the period when the recoverable costs are incurred.
(c) Accounts Receivable:
Accounts receivable are recognized initially at fair value and subsequently measured at
amortized costs using the effective interest rate method, less provision for impairment. A
provision for impairment of receivables using an allowance account for credit losses is
established when there is objective evidence that the German Portfolio will not be able to
collect all amounts due according to the original terms of the receivables. Subsequent
recoveries of amounts previously written off are credited to the statement of profit and loss.
Amounts charged to the allowance account are written off against the carrying amount of
impaired financial assets when it becomes unlikely that they could still be collected.
(d) Leasing costs:
Payments to tenants under lease contracts are characterized as either tenant improvements,
which enhance the value of the properties, or lease inducements. When the obligation is
determined to be a tenant improvement, the German Portfolio is considered to have acquired
an asset. Accordingly, the tenant improvements are capitalized as part of the investment
properties. When the obligation is determined to be a lease inducement, the amount is
recognized as an asset which forms a component of investment properties and is amortized
over the term of the lease as a reduction of revenue.
GERMAN PORTFOLIO
(Expressed in EUR)
(e) Financial instruments:
The German Portfolio recognizes financial assets and financial liabilities when the German
Portfolio becomes a party to a contract. Financial assets and financial liabilities, with the
exception of financial assets classified as at fair value through profit or loss, are measured at
fair value plus transaction costs on initial recognition. Financial assets at fair value through
profit or loss are measured at fair value on initial recognition and transaction costs are
expensed when incurred. Measurement in subsequent periods depends on the classification of
the financial instrument:
Financial assets and liabilities at fair value through profit or loss (FVTPL)
Financial assets are classified as FVTPL when acquired principally for the purpose of trading,
if so designated by management, or if they are derivative assets. Financial assets classified as
FVTPL are measured at fair value, with changes recognized in profit and loss.
The German Portfolio does not have any financial assets classified as FVTPL.
Financial liabilities are classified as FVTPL if they are designated as such by management, or
they are derivative liabilities. Financial liabilities classified as FVTPL are measured at fair
value, with changes recognized in profit and loss. The German Portfolio does not have any
financial liabilities classified as FVTPL.
Available for sale financial assets
Available for sale financial assets are non-derivative financial assets that are either designated
as such by management or not classified in any of the other categories. Available for sale
financial assets are measured at fair value with changes recognized in other comprehensive
income. Upon sale or impairment, the accumulated fair value adjustments recognized in other
comprehensive income are recorded in profit and loss. If there is objective evidence that an
asset is impaired, its recoverable amount is determined and any impairment loss is recognized
in profit and loss. Objective evidence would include a significant or prolonged decline in the
fair value of an asset below its original cost.
The German Portfolio does not have available-for-sale instruments.
GERMAN PORTFOLIO
(Expressed in EUR)
Loans and receivables are non-derivative financial assets that have fixed or determinable
payments and are not quoted in an active market. Subsequent to initial recognition, loans and
receivables are carried at amortized cost using the effective interest method. If there is
objective evidence that an asset is impaired, its recoverable amount is determined and any
impairment loss is recognized in profit and loss.
Loans and receivables include the following classes of financial instruments: accounts
receivable and cash.
Other financial liabilities
Other financial liabilities are financial liabilities that are not classified as FVTPL. Subsequent
to initial recognition, other financial liabilities are measured at amortized cost using the
effective interest method.
The German Portfolio’s other financial liabilities include the following classes of financial
instruments: mortgages payable, bank indebtedness, trade payables, accrued liabilities, tenant
deposits and balances due to related parties.
The effective interest method is a method of calculating the amortized cost of an instrument
and of allocating interest income or expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash receipts or disbursements
(including all transaction costs and other premiums or discounts) through the expected life of
the debt instrument to the net carrying amount on initial recognition.
Equity
Equity presented in the combined financial statements comprises share capital, partners’
contributions and retained earnings.
The balance of retained earnings resulting from the measurement of the properties at fair
value amounting to approximately €3,814,000 as at December 31, 2011 is not permitted in
the German statutory accounts. Consequently, this amount is not available for distributions to
partners.All remaining amounts of equity may be distributed to the partners if they so decide
and if necessary funds are available. Because the partners’ equity entitles the holders to a pro
rata share of the entities’ net assets in the event of the entities’ liquidation, and it is the most
subordinate class of financial instruments, it is presented as equity under IFRS.
GERMAN PORTFOLIO
(Expressed in EUR)
i.
IFRS 9, Financial Instruments (2010) (“IFRS 9 (2010)”), supersedes IFRS 9 (2009)
and is effective for annual periods beginning on or after January 1, 2015, with early
adoption permitted, The German Portfolio intends to adopt IFRS 9 (2010) in its
financial statements for the annual period beginning on January 1, 2015. The extent
of the impact of adoption of IFRS 9 (2010) has not yet been determined.
ii.
The German Portfolio does not expect the amendments of IFRS 7, Disclosures –
Transfers of Financial Assets (“IFRS 7”), to have a material impact on the financial
statements because of the nature of the German Portfolio’s operations and the types
of financial assets that it holds.
iii.
The German Portfolio intends to adopt IFRS 13, Fair Value Measurements (“IFRS
13”) prospectively in its financial statements for the annual period beginning on
determined.
iv.
The German Portfolio intends to adopt the amendments to IAS 1, Presentation of
Financial Statements, in its financial statements for the annual period beginning on
January 1, 2013. The extent of the impact of adoption of the amendments has not yet
been determined.
v.
The German Portfolio intends to adopt the amendments to IAS 32, Financial
Instruments – Presentation (“IAS 32”), and IFRS 7 in its financial statements for the
annual period beginning on January 1, 2013, and the amendments to IAS 32 in its
financial statements for the annual period beginning January 1, 2014. The extent of
the impact of adoption of the amendments has not yet been determined.
GERMAN PORTFOLIO
(Expressed in EUR)
Balance, November 1, 2011
Additions
€
30,367,085
6,587
-
€
30,373,673
As of December 31, 2011, all of the properties are pledged in favour of the mortgages payable
with Deutsche Apotheker- und Ärztebank eG (“APO Bank”) (note 7).
substantially completed in early 2010. As at December 31, 2011, this property’s parking garage
6.61 - 6.87%
6.69%
There was not a change in the fair value of the investment properties from November 1 to
December 31, 2011 given the short time frame between reporting periods.
December 31, 2011, a 25-basis-point movement in the terminal capitalization rate would change
the value of investment property by approximately €1,109,000.
GERMAN PORTFOLIO
(Expressed in EUR)
5. Other Assets
December 31, 2011
Prepaid expenses
VAT receivable
November 1, 2011
€
18,631 €
29,329
13,611
23,813
€
47,960 €
37,423
Included in bank indebtedness is restricted cash of €31,140, which relates to a mandatory reserve
for maintenance (1.75% of rental income) in separate accounts with APO Bank. The cash is
available for use when qualifying capital expenditures are made. The cash is available for use
when qualifying capital expenditures are made. The funds noted were used in 2012 for
maintenance works.
As at December 31, 2011, the German Portfolio entities had overdrawn their bank accounts
(without a formal line of credit) in the amount of €105,917. Interest is charged on overdraft
positions at 14.625% per annum.
Scheduled
principal
payments
2012
2013
2014
2015
2016
2017 and thereafter
€
€
1,091,678
1,130,506
1,170,715
922,754
955,573
12,243,616
17,514,842 €
during the year
payable
€
30,799
1,091,678
1,130,506
6,028,336
922,754
955,573
12,274,415
4,888,420 €
22,403,262
4,857,621
3.50%
GERMAN PORTFOLIO
(Expressed in EUR)
7. Mortgages Payable (continued)
Bank.
As of December 31, 2011 the German Portfolio had not used either source of credit.
8. Due to Related Party
Advances from related party are advances from NWVP (the ultimate parent). The
advances are non-interest bearing and have no specific terms of repayment.
December 31, 2011
Trade payables
Accrued expenses
Tenant deposits
November 1, 2011
€
173,797 €
150,286
33,482
149,545
191,420
33,483
€
357,565 €
374,448
GERMAN PORTFOLIO
(Expressed in EUR)
entities that fall within the definition of related parties. For the 2 months ended December 31,
2011, the transactions with related parties are limited to management fees paid to NWI
Management GmbH. NWI Management GmbH is a related company owned by NWVP:
Services rendered:
NWI Management GmbH (i)
€
20,000
The arrangements and conditions of transactions with NWI Management GmbH are as follows:
(i)
On November 23, 2011, the German Portfolio signed transfer agreements to transfer the
existing Management Service Contracts with CareCapital Gesundheitsimmobilien
Verwaltungs GmbH to NWI Management GmbH.
compensation for its services, NWI Management GmbH is paid EUR 10,000 plus
partially non-recoverable VAT per month by the German Portfolio.
GERMAN PORTFOLIO
(Expressed in EUR)
2 months ended
December 31,
2011
Rental revenue
Other
€
345,342
95,167
45,501
€
486,010
Property operating expenses comprise recoverable operating costs, maintenance and property
management expenses. All operating expenses relate to properties that generate rental income.
2012
2013-2016
2017 and thereafter
€
1,939,020
5,999,150
2,358,178
€
10,296,348
GERMAN PORTFOLIO
(Expressed in EUR)
13. Finance Costs
2 months ended
December 31,
2011
Other
€
132,800
368
Finance costs
€
133,168
2 months ended
December 31, 2011
€
€
(26,018)
(10,537)
(16,884)
(53,439)
16. Capital Management:
GERMAN PORTFOLIO
(Expressed in EUR)
17. Risk Management and Fair Values:
(a)
Risk management:
In the normal course of business, the German Portfolio is exposed to a number of risks
that can affect its operating performance. These risks and the actions taken to manage
them are as follows:
(i)
Interest rate risk
(ii)
Credit risk
receivable.
entities received security deposits of € 33,482 and guarantees of € 191,000.
All accounts receivable presented on the balance sheet are overdue, because rents are
less than one year.
GERMAN PORTFOLIO
(Expressed in EUR)
The following table summarizes the allowance taken for doubtful accounts:
December
31, 2011
the period
Charges during the
period
during the year as
uncollectible
€
154,598
3,369
€
157,967
The charges made during the period are included in general and administrative
expenses.
(iii)
Liquidity risk
flow.
In order to improve liquidity, the mortgage debt with APO Bank was re-negotiated in
February 2012, and as a result the amortization period of the existing mortgages were
extended to result in lower debt repayments (€255,000 p.a. less). In addition, cash
flows are planned to improve further through debt collection, rent indexations,
payable as at December 31, 2011 are as follows:
2012
2013
2014
2015
2016
2017 and thereafter
1,858,398
1,858,398
6,716,019
1,403,398
1,403,398
14,823,534
€ 28,063,145
GERMAN PORTFOLIO
(Expressed in EUR)
17. Risk Management and Fair Values (continued):
The maturity of the accounts payable and accrued liabilities at December 31, 2011 is
as follows:
Less than 1
year
Over 1 year
Total
liabilties
(iv)
€
324,084
€
33,482
€
357,565
Market risk
(b) Fair values:



market data.
The fair value of the German Portfolio’s mortgages payable at December 31, 2011 is
€22,403,262. The fair values are equal to the carrying values because interest rates are
variable (EURIBOR) and the German Portfolio entities have the right to repay the mortgages
at any time. The carrying values of the German Portfolio’s financial assets, which include
accounts receivable and cash and restricted cash, as well as financial liabilities, which include
accounts payable and accrued liabilities and amounts due to related party approximate their
recorded fair values due to the short-term maturities of these instruments.
GERMAN PORTFOLIO
(Expressed in EUR)
18. Subsequent Events:

In February 2012, the mortgage debt with APO Bank was re-negotiated and as a result the
amortization period of the existing mortgages were extended to result in lower debt repayments
(€255,000 p.a. less) and maturities in the years between 2028 and 2033. The caps and floors
remained unchanged.
Condensed Interim Combined Financial Statements
Unaudited, (Expressed in EUR)
German Portfolio
For the three and six months ended June 30, 2012
GERMAN PORTFOLIO
Interim Combined Statement of Financial Position as of June 30, 2012 and December 31, 2011
Unaudited, (expressed in EUR)
December 31,
2011
June 30, 2012
Assets
Accounts receivable
€
30,883,240
118,606
86,780
€
30,373,673
46,012
47,960
Total assets
€
31,088,626
€
30,467,644
€
21,969,148
369,535
210,916
43,786
22,593,385
€
22,403,262
72,250
357,564
74,777
22,907,853
Liabilties:
Due to related party (note 8)
Total liabilities
Partners' equity
8,495,241
7,559,790
€
31,088,626
See accompanying notes to the condensed interim combined financial statements.
€
30,467,644
GERMAN PORTFOLIO
Interim Combined Statements of Income and Comprehensive Income
3 months
6 months
ended June 30, ended June 30,
2012
2012
€
635,710 €
1,273,688
209,905
365,112
425,806
908,576
200,336
397,132
28,859
85,560
196,610
425,883
Fair value gain on revaluation of investment properties (note 4)
509,567
509,567
706,178 €
935,451
€
GERMAN PORTFOLIO
Interim Combined Statements of Changes in Equity
Share
capital
6 months ended June 30, 2012
Partners' equity, January 1, 2012
€
Partners'
Contributions
6,300 €
-
€
6,300 €
Retained
earnings
(deficit)
6,831,042 €
722,447 €
6,831,042 €
935,451
1,657,897 €
Total
7,559,790
935,451
8,495,241
GERMAN PORTFOLIO
Interim Combined Statements of Cash Flows
6 months ended
June 30, 2012
Net income
Adjustments for:
Fair value adjustment of investment properties
Interest paid
€
935,451
397,132
(509,567)
(258,064)
564,952
(397,132)
167,819
Indebtedness, net
Advances from related party (note 8)
(30,991)
(434,114)
297,285
(167,819)
-
Cash, beginning of period
Cash, end of period
€
-
GERMAN PORTFOLIO
As of June 30, 2012
As at June 30, 2012, the German Portfolio was not a separately established German Portfolio or legal
entity and, therefore, these combined financial statements have been prepared from the records of each of
the five legal entities that own the respective properties which have been kept locally.





As at September 21, 2012, the Director of the German Portfolio (Paul Dalla Lana) approved these
condensed interim combined financial statements.
GERMAN PORTFOLIO
As of June 30, 2012
The condensed interim combined financial statements of the German Portfolio have been prepared by
management in accordance with International Financial Reporting Standards (“IFRS”) under IAS 34,
Interim Financial Reporting.
These condensed interim combined financial statements do not include all the information and notes
required by IFRS for annual financial statements and therefore, should be read in conjunction with the
audited combined financial statements and notes for the German Portfolio’s period ended December
31, 2011.
These condensed interim combined financial statements have been prepared by combining the five
financial statements of the entities which own the respective properties making up the German
Portfolio. The financial statements of each of the entities are prepared for the same reporting periods,
using consistent accounting policies. All intra-portfolio balances, transactions, unrealized gains and
losses resulting from intra-portfolio transactions and distributions are eliminated in full.
Portfolio partnerships and do not include all the assets, liabilities, income or expenses of the
partners. No provision for salaries to partners, interest on invested capital or income taxes, which are
the responsibility of the individual partners, are included in these financial statements.
The preparation of financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the condensed interim combined financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ from estimates and such
differences could be material. The significant estimates and judgments made by management are the
same as those discussed in the audited annual combined financial statements for the 2 months ended
December 31, 2011.
GERMAN PORTFOLIO
As of June 30, 2012
All significant accounting policies have been applied on a basis consistent with those followed in the
most recent audited annual combined financial statements. The policies applied in these condensed
interim combined financial statements are based on IFRS issued and outstanding as at June 30, 2012.
Accounting Standards Issued But Not Yet Applied
Certain new standards, interpretations, amendments and improvements to existing standards were
issued by the IASB or IFRS Interpretations Committee that are mandatory for fiscal periods beginning
July 1, 2012 or later. The standards are described in the German Portfolio’s combined financial
statements for the 2 months ended December 31, 2011 and there have not been any additional
standards applicable to the German Portfolio issued since December 31, 2011.
Additions
€
30,373,673
509,567
€
30,883,240
As of June 30, 2012, all of the properties are pledged in favour of the mortgages payable with
Deutsche Apotheker- und Ärztebank eG (“APO Bank”) (note 7).
substantially completed in early 2010. As at October 31, 2011, this property’s parking garage
GERMAN PORTFOLIO
As of June 30, 2012
4. Investment Properties (continued)
June 30, 2012
December 31,
2011
5.49 - 7.41%
6.58%
6.61 - 6.87%
6.69%
June 30, 2012, a 25-basis-point movement in the terminal capitalization rate, would change the
value of investment property by approximately €1,130,000 (December 31, 2011 - €1,109,000).
5. Other Assets
June 30, 2012
Prepaid expenses
VAT receivable
December 31,
2011
€
35,730 €
51,051
18,631
29,329
€
86,780 $
47,960
Included in cash is restricted cash of €43,444 (December 31, 2011 - €31,140), which relates to a
mandatory reserve for maintenance (1.75% of rental income) in separate accounts with APO
Bank. The cash is available for use when qualifying capital expenditures are made. The cash is
available for use when qualifying capital expenditures are made. The funds noted were used in
July and August 2012 for maintenance works.
As at June 30, 2012, the German Portfolio entities had overdrawn their bank accounts (without a
formal line of credit) in the amount of €87,230 (December 31, 2011 - €105,917). Interest is
charged on overdraft positions at 14.625% per annum.
GERMAN PORTFOLIO
As of June 30, 2012
Scheduled
principal
payments
remainder of 2012
2013
2014
2015
2016
2017
2018 and thereafter
€
€
during the year
payable
420,162
862,675
893,357
925,131
958,036
983,575
14,942,598
€
90,614
1,893,000
420,162
862,675
893,357
925,131
958,036
1,074,188
16,835,598
19,985,534 €
1,983,614 €
21,969,148
3.50%
Bank.
As of June 30, 2012 the German Portfolio had not used either source of credit (December 31,
2011 – nil).
GERMAN PORTFOLIO
As of June 30, 2012
8. Due to Related Party
The amounts due to/from related parties are as follows:
June 30, 2012
Amount Owed to Related Party:
NWVP
€
December 31, 2011
72,633 €
72,250
296,902
€
369,535 €
72,250
Advances from NWVP (the ultimate parent company of the German Portfolio) and GZ BerlinPankow GmbH&Co KG (a related company also ultimately owned by NWVP but is not part of
the German Portfolio as the property was sold to a third party in June 2012), are non-interest
bearing and have no specific terms of repayment.
June 30, 2012
Trade payables
Accrued expenses
Tenant deposits
December 31,
2011
€
84,152 €
95,455
31,310
173,797
150,286
33,481
€
210,916 €
357,564
GERMAN PORTFOLIO
As of June 30, 2012
entities that fall within the definition of related parties. For the six months ended June 30, 2012,
the transactions with related parties are limited to management fees paid to NWI Management
GmbH. NWI Management GmbH is a related company owned by NWVP:
3 months ended
June 30, 2012
Services rendered:
NWI Management GmbH (i)
€
6 months
ended June
30, 2012
30,000 €
60,000
The arrangements and conditions of transactions with related parties are as follows:
(i)
On November 23, 2011, the German Portfolio signed transfer agreements to transfer the
existing Management Service Contracts with CareCapital Gesundheitsimmobilien
Verwaltungs GmbH to NWI Management GmbH.
compensation for its services, NWI Management GmbH is paid EUR 10,000 plus nonrecoverable VAT per month by the German Portfolio.
GERMAN PORTFOLIO
As of June 30, 2012
3 months ended
June 30, 2012
6 months ended
June 30, 2012
Rental revenue
Other
€
505,100 €
130,628
(18)
1,003,219
261,416
9,054
€
635,710 €
1,273,688
Operating expenses comprise recoverable operating costs, maintenance and property management
expenses. All operating expenses relate to properties that generate rental income.
Remainder of 2012
2013
2014-2017
2018 and thereafter
€
959,686
1,818,190
5,055,360
1,483,778
€
9,317,014
GERMAN PORTFOLIO
As of June 30, 2012
13. Finance Costs
3 months ended
June 30, 2012
6 months ended
June 30, 2012
Other
€
196,144 €
4,193
388,747
8,385
Finance Costs
€
200,336 €
397,132
For the 3 months
ended June 30,
2012
€
€
For the 6 months
ended June 30,
2012
(41,279) €
(8,850)
(128,308)
(178,438) €
(72,595)
(38,820)
(146,648)
(258,064)
16. Capital Management:
GERMAN PORTFOLIO
As of June 30, 2012
17. Risk Management and Fair Values:
(a)
Risk management:
In the normal course of business, the German Portfolio is exposed to a number of risks that
can affect its operating performance. These risks and the actions taken to manage them are as
follows:
(i)
Interest rate risk
(ii)
Credit risk
receivable.
entities received security deposits of € 33,310 and guarantees of € 191,000. All
accounts receivable presented on the balance sheet are overdue, because rents are
less than one year.
GERMAN PORTFOLIO
As of June 30, 2012
The following table summarizes the allowance taken for doubtful accounts:
June 30, 2012
the period
Charges during the
period
during the year as
uncollectible
(iii)
€
€
157,967
December
31, 2011
€
154,598
-
3,369
157,967
157,967
€
Liquidity risk
flow.
Cash flows are planned to improve further through debt collection, rent indexations,
payable as at June 30, 2012 are as follows:
Remainder of 2012
2013
2014
2015
2016
2017
2018 and thereafter
794,203
1,603,138
1,603,138
1,603,138
1,603,138
1,593,834
21,158,970
€ 29,959,559
GERMAN PORTFOLIO
As of June 30, 2012
The maturity of the accounts payable and accrued liabilities at June 30, 2012 is as
follows:
liabilties
(iv)
Less than 1
year
Over 1 year
€
€
179,606
31,310
Total
€
210,916
Market risk
(b) Fair values:



market data.
The fair value of the German Portfolio’s mortgages payable at June 30, 2012 is €21,969,148.
The fair values are equal to the carrying values because interest rates are variable
(EURIBOR) and the German Portfolio entities have the right to repay the mortgages at any
time. The carrying values of the German Portfolio’s financial assets, which include accounts
receivable and cash and restricted cash, as well as financial liabilities, which include accounts
payable and accrued liabilities and amounts due to related party approximate their recorded
fair values due to their short term nature.
www.vitalhealthcareproperty.co.nz
vital healthcare property trust Annual report 2012
Annual report
2012
With a portfolio value of over $567m, Vital Healthcare Property Trust (NZSX: VHP)
is Australasia’s largest listed investor in medical and healthcare property infrastructure.
With an expert understanding of the needs of healthcare tenants, we actively select,
develop and manage quality properties to meet the growing demand for medical and
healthcare services. Our 124 tenants, in 25 properties, provide essential healthcare
services to thousands of patients while also undertaking research and providing
support services that will make a difference to many more lives in the future. 1
$567m
Portfolio value of over
Providing enhanced portfolio diversification benefits
CONTENTS
2012 Highlights and High-level Financial Summary
2
Independent Chairman’s Report
4
Property Portfolio
6
Board of Directors of the Manager
10
The Management Team
12
Corporate Governance
14
Financial Statements
18
Independent Auditor’s Report
61
Unitholder Statistics
62
Additional Disclosures
64
Directory65
2
2012 HIGHLIGHTS AND
HIGH-LEVEL FINANCIAL SUMMARY
Vital remains uniquely
positioned to benefit from
Australasia’s ageing
demographic, resilient
private healthcare
insurance levels and Vital’s
execution capability and
credibility in the sector.
Successful delivery
of 2012 full-year net
distributable income in
line with Prospectus
7.70
cents
per unit
Increase in gross
RENTAL INCOME
33.6
%
Seven-year COMPOUND
total return
10.5
%
per
annum
DEVELOPMENTS
7.70
7.90
to
cents
per unit
Net DISTRIBUTABLE
income up 27.9%
$23.3
million
Twelve-month
total return of
9.6
%
in
off-market
acquisitions
INVESTED
complete and
returning ~10%
$32
A
million
WALT remains over twice
New Zealand listed
property sector average
11.9
years
VITAL HEALTHCARE PROPERTY TRUST
ANNUAL Report 2012
year
net distributable
income guidance
2013
$25
A
million
Portfolio OCCUPANCY
highest in New Zealand
listed property sector
99.3
%
3
Financial Summary
Restated
2009
$000s
Restated
2010
$000s
Net property income
21,040 Profit before financial income/(expenses) and other gains/(losses) 13,036 Unrealised foreign exchange gain/(loss)
(4,225)
Revaluation gain/(loss)
(1,514)
Profit/(loss) for the year (after taxation)
8,632 Earnings per unit – cents per unit
6.17 Investment properties
297,801 Total assets
310,063 Bank loan drawn
108,157 22,719 19,401 403 (7,078)
(2,861)
(2.03)
286,227 295,287 105,376 24,287 21,156 259 10,476 18,199 12.77 291,990 299,545 97,675 36,614 33,922 1,855 (10,523)
7,380 3.34 513,945 533,433 196,690 47,962
40,908
40
(6,241)
8,977
3.08
567,226
580,790
245,769
Total equity
Debt-to-total-assets ratio
Cash distribution to unitholders – cents per unit
Net assets backing per unit – cents per unit
163,442 35.7%
8.50 1.12 171,088 32.6%
8.50 1.19 301,106 36.9%
8.10 1.04 287,430
42.3%
7.70
0.98
2010
$000s
2011
$000s
All figures are in New Zealand dollars (NZD) unless otherwise stated
2008
$000s
172,032 34.9%
8.50 1.15 2011
$000s
2012
$000s
Distributable Income
2008
$000s
2009
$000s
Profit/(loss) before income tax
10,453 (3,614)
24,069 11,476 Adjusted for:
Revaluation (gains)/losses on investment property
1,514 7,078 (10,476)
10,523 Unrealised gain on construction
(2,134)
(20)
–
–
Unrealised foreign exchange (gain)/loss
4,225 (403)
(259)
(1,855)
Internalisation costs
–
–
–
–
Fair value (gain)/loss on interest rate derivatives
(2,004)
8,736 51 (178)
Fair value (gain)/loss on foreign exchange rate derivatives
–
–
–
–
Manager’s incentive fee
878 253 120 –
Gross distributable income
12,932 12,030 13,505 19,966 Current taxation
147 1,657 1,817 3,051 Other tax adjustment
1,671 (1,657)
(428)
(1,271)
Net distributable income
11,114 12,030 12,116 18,186 2012
$000s
8,310
6,241
–
(40)
731
10,050
67
–
25,359
2,101
–
23,258
portfolio Metrics
2008
Investment properties ($m)
Number of properties
Number of tenants
Occupancy factor
Weighted average lease term (years)
12-month lease expiry
ANNUAL Report 2012
297.8 16 102 94.3%
9.3 9.3%
2009
286.2 16 98 98.0%
9.0 2.6%
2010
2011
292.0 14 106 99.5%
8.6 2.6%
513.9 25 128 99.2%
11.4 1.6%
2012
567.2
25
124
99.3%
11.9
2.5%
4
INDEPENDENT
CHAIRMAN’S
REPORT
Strong
operating
results
Vital’s pleasing performance over the
2012 financial year is the result of a
clear and well-considered growth and
diversification strategy which has been
carefully executed over a period of two
years and which is expected to deliver
earnings and distribution benefits into
the future.
I am pleased to present my first Annual Report as Independent
Chairman of Vital’s Manager, having been a Director for
approximately five years.
In late 2010, Vital had the opportunity to acquire an Australian
healthcare property portfolio comprising 12 properties, increasing
the overall portfolio value by more than 50%. The Prospectus1 for
the rights issue which part-funded the acquisition highlighted the
benefits of the transaction as being an increase in the portfolio
weighted average lease term, a pipeline of value-adding expansion
and redevelopment projects, a larger proportion of leases with CPI
or structured rent-review mechanisms, and an increased exposure
to the growing Australian private healthcare sector.
These benefits and other opportunities which have flowed from the
acquisition have been central to Vital’s financial results for the year
to 30 June 2012 and its future prospects.
Delivering on Distributions
For the Board, on behalf of unitholders, it is highly satisfying to
note that the net distributable income forecast of 7.7 cents per unit
contained within the Prospectus has been met, completing the
Prospectus forecast period. I am also pleased to report to you that
the forecast net distributable income range for the coming 2013
financial year is higher than it was in 2012, at 7.7 to 7.9 cents per unit.
Equally pleasing is the fact that Vital has outperformed the listed
property sector benchmarks in both New Zealand and Australia with
a compound total return of 10.5% per annum over the seven years to
30 June 2012, compared with the NZX Property Gross Index return
of 6.0% per annum.
Financial Overview
ANNUAL Report 2012
Additional rental, from acquisitions, rental reviews and completed
development projects, lifted Vital’s gross rental income for the 2012
financial year by 33.6% to $50.7 million.
Vital’s net distributable income for 2012 showed a 27.9% increase
to $23.3 million.
The annual independent revaluation of Vital’s property portfolio
resulted in a marginal 1.05% decline. This was principally due to two
properties with medium-term lease expiries; however, proactive
lease discussions have already been initiated with the tenants.
Excluding these two properties, the overall result would have been a
revaluation gain of 0.52% across the balance of the portfolio.
The combination of the portfolio revaluation and marked-to-market
adjustments on interest rate derivatives saw Vital’s net tangible
asset value (NTA) per unit, as at 30 June 2012, reduce to $0.98.
Portfolio
The key metrics of portfolio occupancy (99.3%) and weighted
average lease term (WALT) (11.9 years) both increased during the
year and continue to rate among the highest in the Australasian
listed property sector.
Two properties were acquired during the year for a total of
A$25.3 million – Mayo Private Hospital in Taree, New South Wales,
(which featured in Vital’s investor newsletter in March) and Hurstville
Private Hospital in Sydney (which is featured in the current
newsletter). The ability to secure such acquisitions on an off-market
basis (without competing with other prospective purchasers) is a
strength of Vital and evidence of the depth of the relationships we
have with some of Australia’s largest private hospital operators.
Vital also invested approximately A$32.0 million in building upgrades,
refurbishments and hospital expansions, generating attractive average
returns of approximately 10% on the capital expended. Two projects
were completed during the year and a further four, with a total cost of
approximately A$28.0 million, are in progress and will be completed in
the current 2013 financial year. More detail on these can be found in
the accompanying Vital Update investor newsletter.
The majority of Vital’s assets (73% by value) are now located in
Australia. Vital’s experienced and well-regarded management team
has built strong relationships with Vital’s tenants; this is reflected in
its ability to identify and execute opportunities to enhance portfolio
performance. The Manager’s proactive approach is also applied when
managing future lease expiries with a high degree of success.
Treasury and Capital Management
Another significant achievement of the year was the renewal of
Vital’s bank facility, thus securing longer-term debt at lower cost,
with more favourable covenants (notably the alignment of the bank
loan-to-value covenant with the Trust Deed at 50%).
1 Simplified Disclosure Prospectus, dated 3 November 2010.
5
Vital’s debt-to-total-assets ratio as at 30 June 2012 was well below
these covenants at 42.3%. Selected lower-value, or non-core assets
will continue to be sold as appropriate to help fund Vital’s future
value-add opportunities.
Governance
As unitholders will recall, discussions over the ownership of Vital’s
Manager culminated in the purchase by NorthWest Value Partners
Inc. (“NorthWest”) of the Manager and a 19.8% interest in the Trust.
The Board is pleased to see the owner of the Manager’s significant
investment, resulting in an alignment of their interest with those
of unitholders.
These events led to a number of changes at the Board, with a new
Board comprising a combination of existing and new Directors, both
independent and representatives of the Manager. We again extend
a welcome to Claire Higgins, Paul Dalla Lana and Bernard Crotty,
who bring to the Board considerable international knowledge and
experience in financial, governance and healthcare areas. While these
appointments were communicated to the market and investors
during the year, the profiles of all Directors can be found on page 11
of this Report. Furthermore, Vital’s upcoming Annual Meeting will
consider a proposed amendment to the Trust Deed which would
provide for unitholder nomination and election of two Independent
Directors and to cater for rotation of Independent Directors and
vacancies arising between Annual Meetings.
Vital’s growth and diversification strategy has delivered strong
results to date and this momentum is projected to continue into the
coming 2013 financial year and beyond. Investors can look forward
to ongoing improvement of the core portfolio, a continuation of
the targeted divestment of non-core, lower-value assets and
recycling of capital into opportunities that enhance the overall
position of the Trust.
The strength of the property portfolio together with a positive sector
outlook has led the Board to provide investors with a net distributable
income guidance range for the coming year of 7.7 to 7.9 cents per unit.
In closing, I would like to thank all unitholders for their continued
support through 2012. Looking ahead to the 2013 year, we expect
to see more opportunities materialise in the healthcare property
market and the Board and management team remain focused on
maximising the Trust’s performance to deliver secure and stable
returns to unitholders.
Strategic Review
The Board has carried out a review of the Trust’s strategy and has
resolved that there would be no change to Vital’s existing strategic
philosophy and direction, and the previous principles and objectives
will remain the foundation for the future.
Distribution Policy
The Board has also been considering the merits of a possible
transition to an AFFO2-based methodology for calculating unitholder
distributions. However, we have identified various interpretations
around AFFO and its calculation across the listed property sector.
This work is ongoing and, until a conclusion has been reached or a
sector-wide methodology developed, the current net distributable
income methodology will continue to be used for the 2013 financial
year. This remains consistent with the requirements under the
Trust Deed.
Outlook and Guidance
The Australasian healthcare property sector has delivered a stable
investment performance compared to other property categories
through the economic cycle, underpinned by favourable factors such
as an ageing demographic and resilient private health insurance
levels. Vital occupies an enviable position within this sector, with
portfolio fundamentals that are well above sector averages, solid
relationships with tenants and growing recognition for its execution
capability and credibility.
Graeme Horsley MNZM
Independent Chairman
Vital Healthcare Management Limited
ANNUAL Report 2012
2 AFFO (Adjusted Funds From Operations) is defined as net operating cash flow,
adjusted for lease incentives and maintenance capital expenditure.
6
PROPERTY
PORTFOLIO
AUSTRALIA
Allamanda Private Hospital
Southport | Queensland
Belmont Private Hospital
Carina Heights | Queensland
Dubbo Private Hospital
Dubbo | New South Wales
Market value NZ$64,413,000
Market value
Market value
Market capitalisation rate 9.8%
WALT
WALT
WALT
5.3 years
18.6 years
NZ$8,418,000
19.6 years
Occupancy 100%
Occupancy 100%
Occupancy 100%
Major tenant Queensland
Major tenant
Healthe Care
Belmont Pty Limited
Major tenant
Gold Coast Surgical Centre
Southport | Queensland
Hurstville Private Hospital
Sydney | New South Wales
Lingard Private Hospital
Newcastle | New South Wales
Market value
Market value
Market value
Surgicentre Allamanda
NZ$19,133,000
NZ$16,582,000
Healthe Care
Australia Pty Limited
NZ$45,773,000
WALT
WALT
WALT
7.3 years
19.8 years
18.7 years
Occupancy 98%
Occupancy 100%
Occupancy 100%
Major tenant Queensland
Major tenant
Major tenant
Surgicentre Southport
ANNUAL Report 2012
NZ$30,626,000
Healthe Care
Hurstville Pty Limited
Healthe Care
Lingard Pty Limited
7
Epworth Eastern Hospital
Melbourne | Victoria
Epworth Eastern Medical Centre
Epworth Rehabilitation
Market value
Market value
Market value
NZ$70,663,000
NZ$23,724,000
NZ$20,408,000
WALT
WALT
WALT
11.9 years
4.3 years
6.6 years
Occupancy 100%
Occupancy 100%
Occupancy 100%
Major tenant
Epworth Foundation
Major tenant
Epworth Foundation
Major tenant
Epworth Foundation
Maitland Private Hospital
Newcastle | New South Wales
Mayo Private Hospital
Taree | New South Wales
Melbourne Pathology Building
Market value
Market value
Market value
NZ$26,437,000
NZ$18,304,000
NZ$804,000
WALT
WALT
WALT
20.5 years
19.5 years
18.7 years
Occupancy 100%
Occupancy 100%
Occupancy 100%
Major tenant East Maitland
Major tenant
Major tenant
Private Hospital
ANNUAL Report 2012
Healthe Care
Mayo Pty Limited
Healthe Care
South Eastern Pty Limited
8
PROPERTY
PORTFOLIO
AUSTRALIA (continued)
NEW
ZEALAND
North West Private Hospital
Burnie | Tasmania
Palm Beach Currumbin Clinic
Currumbin | Queensland
Apollo Health and
Wellness Centre
Albany | Auckland
Market value
Market value
Market value
NZ$15,306,000
NZ$20,830,000
NZ$20,400,000
WALT
WALT
WALT
19.6 years
19.6 years
6.2 years
Occupancy 100%
Occupancy 100%
Occupancy 78%
Major tenant
Healthe Care
Australia Pty Limited
Major tenant
Healthe Care
Palm Beach Pty Limited
Major tenant Apollo Health
South Eastern Private Hospital
Toronto Private Hospital
Toronto | New South Wales
Eastmed St Heliers*
St Heliers | Auckland
Market value
Market value
Market value
NZ$15,472,000
NZ$13,833,000
Limited – GP Collective
–
Market capitalisation rate –
WALT
WALT
WALT –
18.7 years
20.5 years
Occupancy 100%
Occupancy 100%
Occupancy –
Major tenant
Major tenant Central Lakes
Major tenant Eastmed GPs
Healthe Care
South Eastern Pty Limited
ANNUAL Report 2012
Hospitals Pty Limited
* Held for sale
9
Ascot Central
Greenlane | Auckland
Ascot Central Car Park
(ground lease)
Ascot Hospital and Clinics
Ascot Hospital Car Park
(ground lease)
Market value
Market value
Market value
Market value
NZ$20,800,000
NZ$1,500,000
NZ$77,500,000
NZ$1,450,000
WALT
WALT
WALT
WALT
5.4 years
6.2 years
6.1 years
6.8 years
Occupancy 99%
Occupancy 97%
Occupancy 100%
Occupancy 100%
Major tenant
Fertility Associates Limited
Major tenant
Fertility Associates Limited
Major tenant
Ascot Hospital and Clinics Limited
Major tenant
Ascot Hospital and Clinics Limited
Hibiscus Coast Community
Health Centre
Whangaparaoa | Auckland
Kensington Hospital
Whangarei | Northland
Napier Health Centre
Napier | Hawke’s Bay
Pitman House
Pt Chevalier | Auckland
Market value
Market value
Market value
Market value NZ$5,200,000
NZ$4,000,000
NZ$15,400,000
NZ$10,250,000
WALT
WALT
WALT
WALT
2.0 years
8.7 years
7.5 years
3.2 years
Occupancy 100%
Occupancy 100%
Occupancy 100%
Occupancy 100%
Major tenant
Major tenant
Kensington Hospital
Major tenant
Hawke’s Bay District Health Board
Major tenant
Waitemata District Health Board
Waitemata District Health Board
ANNUAL Report 2012
10
BOARD OF DIRECTORS
OF THE MANAGER
leadership,
strategy AND
governance
Andrew Evans
Graeme Horsley
Bernard Crotty
Claire Higgins
Paul Dalla Lana
Independent Director
Chairman and
Director
Director
ANNUAL Report 2012
11
Our Board has overall
responsibility for
managing the Trust.
It is made up of three
Independent Directors
and two non-independent
Directors. Directors are chosen for their
complementary
skills and knowledge.
They are committed to
maintaining the highest
ethical standards and
accountability.
Andrew Evans
Andrew Evans is an accomplished executive
who is highly experienced across the fields
of commercial real estate and asset
management. He was Managing Director
of Vital Healthcare Management for four
years before stepping down in 2007. Before
this, he was General Manager, Property at
OnePath (NZ) where he was responsible for
the direct property mandates. Andrew is
a Director of Argosy Property and Holmes
Group. He is a past National President of
Property Council New Zealand and
a foundation member of the Property
Institute of New Zealand.
Andrew has been a Director of the Manager
for approximately five years.
Claire Higgins
Graeme Horsley MNZM
Chairman and Independent Director
Graeme Horsley has over 40 years’
property valuation and consultancy
experience, including 14 years with Ernst
& Young New Zealand where he was a
Partner and National Director of the Real
Estate Group.
A professional Director, Graeme is an
Independent Director of AMP New Zealand
Office, Willis Bond Capital Partners and
Trust Investments Management. He is a
Member of the New Zealand Order of Merit,
a Life Fellow of the Property Institute of
New Zealand, an Eminent Fellow of the Royal
Institution of Chartered Surveyors and an
Accredited Fellow of the Institute of Directors.
Graeme has extensive experience in valuing
specialised property and infrastructure
assets, and establishing and implementing
corporate real estate strategies. He has
written and presented extensively on public
and private real estate matters.
Graeme has been an Independent Director
of the Manager for approximately five years.
ANNUAL Report 2012
Claire Higgins is a professional Director
and consultant. She is Chair of the Victorian
State Emergency Service and is on the board
of the County Fire Authority and Ambulance
Victoria. Claire is the Chair of the Comcare
audit committee as well as serving on
several other audit committees. Formerly
Chair of Barwon Health, Claire has also had
extensive executive experience with BHP and
OneSteel. Claire’s areas of expertise are in
accounting, financial reporting, governance,
risk management, remuneration practice,
foreign exchange and interest rate hedging,
stakeholder communication and
management. Claire has a Bachelor of
Commerce (Accounting, Economics,
Commercial Law) from The University of
Melbourne and is a present fellow at the
Australian Institute of Company Directors,
the Australian Society of Certified Practising
Accountants and the Institute of Public
Administration Australia.
Paul Dalla Lana
Director
Paul Dalla Lana is the founder and President
of NorthWest Value Partners Inc. – the 100%
owner of Vital Healthcare Management
Limited, the Manager of Vital Healthcare
Property Trust. Over the past 20 years,
Paul has led NorthWest in the acquisition
and development of over $2.0 billion worth
of real estate transactions with a significant
focus on healthcare properties.
Before founding NorthWest, Paul was a
professional in the Real Estate Capital
Markets Group of Citibank, N.A. and an
economist with B.C. Central Credit Union.
Paul received his BA and MBA from The
University of British Columbia.
Paul serves as Chairman of the Board
of NorthWest subsidiaries NorthWest
Healthcare Properties REIT and GT Canada
Medical Properties REIT. He is an Advisory
Board member of the Dalla Lana School of
Public Health and on the President’s Advisory
Council at the University of Toronto.
Bernard Crotty
Director
Bernard Crotty has many years’ experience
as a corporate executive, board member,
private investor and lawyer. He is currently
a Principal of private investment firm, Silver
and White Management. He is a former
Chairman and Chief Executive Officer of
Certicom Corp, a provider of cryptographic
software and services, and Comnetix, a
provider of biometric identification and
authorisation solutions. In addition, Bernard
has served on a variety of public company
boards. He spent two years as counsel to the
law firm Gibson, Dunn & Crutcher LLP in
Los Angeles and is a former Partner at the
law firm McCarthy Tétrault, LLP in Toronto,
Canada, and London, England.
Bernard received his Bachelor of Arts from
the University of Alberta, LLB from the
University of Toronto, LLM from The London
School of Economics and his MBA from
Duke University.
12
THE
MANAGEMENT
TEAM
our
people
Stephen Freundlich
Stuart Harrison
David Carr
Jade Murphy
Drugh Woods
Mark Norman
Fund Analyst and Investor
Relations Manager
Chief Financial Officer
and Company Secretary
Chief Executive Officer
Financial Controller
Senior Property Manager
Australian Fund Manager
ANNUAL Report 2012
13
The members of our
small, successful
management team come
from a range of property
investment, development
and finance backgrounds.
They understand the
importance of partnering
with healthcare tenants
to deliver the best
outcomes and results
for investors.
David Carr
Chief Executive Officer
Mark Norman
Australian Fund Manager
David has been Chief Executive since
October 2006. His role includes overall
accountability for implementing and
delivering the Trust’s strategy and for
its overall performance. He manages all
investment activities for the Trust and
leads a team of passionate professionals
in New Zealand and Australia. David
has extensive experience in property
investment, management and development
across a range of asset classes. He has a
Bachelor of Business Studies in Property
Valuation and Management.
Mark is based in Melbourne and is
responsible for managing the financial
performance of our property assets
in Australia. He also oversees all our
development projects. Mark has more
than 16 years’ experience in the healthcare
property industry. Before setting up our
Australian office in 2011, he was an Asset
Manager and Development Manager in
New Zealand, involved in the delivery of
most of our major assets, including Ascot
Hospital, Epworth Eastern Campus and the
Napier and Hibiscus Coast Health Centres.
Stuart Harrison
Chief Financial Officer
and Company Secretary
Drugh Woods
Senior Property Manager
Stuart joined the team in September
2008 and is responsible for overseeing
the financial and corporate functions of
the Trust. He has nearly three decades
of financial reporting and management
experience within the Chartered
Accountancy, utilities and hospitality/
property industries. Most recently, he was
the Chief Financial Officer and Company
Secretary for NZX-listed Argosy Property
Trust and the Vice President – Finance for
NZX-listed Millennium and Copthorne Hotels
New Zealand. Stuart holds Bachelor of
Commerce and Chartered Accountant
qualifications.
Stephen Freundlich
Fund Analyst and
Investor Relations Manager
Stephen commenced with the team in
April 2012. He has extensive experience in
the listed property sector and is a former
Equities Analyst and Associate Director at
UBS New Zealand and Macquarie Equities.
More recently, he was an Associate Director
in Institutional Banking and Private Wealth at
ANZ. Stephen has a Bachelor of Commerce
(Accounting and Commercial Law) from
The University of Auckland and a Graduate
Diploma in Applied Finance from the
Securities Institute of Australia.
ANNUAL Report 2012
Drugh joined the team in September 2008
and is responsible for managing the New
Zealand portfolio. Drugh graduated from
The University of Auckland in 2003 with a
Bachelor of Property and was involved in
various retail and commercial property
management initiatives before joining Vital.
Jade Murphy
Financial Controller
After graduating in 2003, Jade worked in
New Zealand until 2008 and then spent
three years in the UK where he worked as a
Finance Analyst and Property Finance
Business Partner within the Corporate Real
Estate Services Group at Barclays Bank in
London. Jade is a Chartered Accountant.
14
CORPORATE
GOVERNANCE
The
trust
Vital Healthcare Property Trust is a unit
trust established under the Unit Trusts Act
1960 by a Trust Deed dated 11 February
1994, as amended by Deeds of Variation
and Restatement dated 1 September
1999, 10 November 2003, 12 November
2007, 12 December 2007, 5 August 2008
and 27 September 2010.
Vital Healthcare Property Trust units are
listed on the New Zealand Stock Exchange
(NZSX code: VHP).
A consolidated copy of the amended
Trust Deed is available from Vital
Healthcare Management Limited (the
“Manager”) on request or can be viewed
at the Manager’s registered office at
Level 16, AIG Building, 41 Shortland
Street, Auckland, during normal business
hours. A copy has also been filed with
the Companies Office of the Ministry
of Economic Development and may be
viewed on the Companies Office website:
www.business.govt.nz/companies
The Trustee
The Trustee of the Trust is Trustees Executors Limited
(“Trustees Executors”).
Trustees Executors is empowered as a statutory trust company
by its own Act of Parliament and has been re-registered under
the Companies Act 1993, and acts as Trustee for unit trusts under
the Unit Trusts Act 1960.
The role of the Trustee is to supervise the administration and
management of the Trust in accordance with the Trust Deed,
and to ensure that the Manager complies with its duties and
responsibilities under the Trust Deed. Where the approval of the
Trustee is required, the Trustee is to have regard to the interests
of unitholders and has the explicit obligation to veto any proposal
that it does not consider to be in the interests of unitholders.
The Trustee must also be satisfied that any proposal involves an
investment of a type authorised under the Trust Deed and within
the investment policies of the Trust.
The Trustee holds title to the assets of the Trust in trust for the
unitholders, upon and subject to the terms and conditions of the
Trust Deed. The Trustee also has certain discretions and powers
to approve investment and divestment proposals recommended
to it by the Manager and reviews and authorises all payments made
by the Trust.
The Trustee is entitled to receive fees in respect of its services
based on the average gross value of the assets of the Trust as
follows: 0.10% per annum on the first $100.0 million, then 0.08%
per annum on the next $25.0 million, then 0.05% per annum on the
next $25.0 million and 0.03% per annum on any amount over
$150.0 million. The Trustee is also entitled to reasonable
reimbursement for special attendances.
The Manager
The Manager of the Trust is Vital Healthcare Management Limited,
a wholly owned subsidiary of NorthWest Value Partners Inc. (up until
16 January 2012: ultimately ANZ National Bank Limited).
The Manager has responsibility for the management of the Trust
in accordance with the Trust Deed.
The Manager provides professional management expertise in
selecting assets and managing them on behalf of unitholders.
The Manager’s role and duties extend to the overall strategic
direction of the Trust, portfolio management, selection and review,
negotiation of acquisition and disposal of assets, treasury and
funding management, property management, ensuring adherence
to financial and reporting requirements, and liaison with unitholders.
ANNUAL Report 2012
15
Day-to-day management of the properties in the portfolio is carried
out by NWI NZ Management Company Limited (up until 16 January
2012: OnePath (NZ) Limited), which provides tenancy management,
account management, building management, risk management and
property management services in respect of the Trust’s properties.
Stipulated within the Trust Deed is the basis on which the Manager
is entitled to receive management fees and incentive fees.
Management fees comprise a base fee and an incentive fee. A base
fee is charged, in respect of each month, equal to 0.75% per annum
of the monthly average of the gross value of the assets of the Trust
for the quarter ended on the last day of that month. The incentive fee
is an amount equal to 10.00% per annum of the average annual
increase in the gross value of the Trust over the relevant financial
year and two preceding financial years. Should there be a distribution
of capital, that amount will be added back for the purposes of this
calculation. Where an asset is acquired at any time during a financial
year, it is deemed to have been purchased on the first day of that
financial year. Any increase in the gross value of the assets of the
Trust arising solely by subscriptions received for new units is ignored.
The Manager is required to apply the incentive fee in subscribing for
new units in the Trust issued at the weighted average price. The
remuneration of the Manager is subject to an overall limit of 1.75%
per annum of the gross value of the Trust and includes the
remuneration of the Chief Executive Officer and management team.
Corporate Governance Philosophy
Ultimate responsibility for corporate governance of the Trust resides
with the Board of Directors of the Manager. The Board sees strong
corporate governance and stewardship as fundamental to the strong
performance of the Trust and, accordingly, its commitment is to the
highest standards of business behaviour and accountability.
Outlined below are the main corporate governance practices in place
throughout the year, which, in the Board’s opinion, materially comply
with the NZX Corporate Governance Best Practice Code (NZX Code)
and the Securities Commission’s Principles of Corporate Governance
and Guidelines, unless otherwise stated.
Ethical Standards
The Board has adopted a Code of Ethics, which sets out the ethical
and behavioural standards expected of the Manager’s Directors,
officers and employees. The purpose of the Code of Ethics is to
uphold the highest ethical standards, acting in good faith and in the
best interests of unitholders at all times. The Code of Ethics outlines
the Manager’s policies in respect of conflicts of interest, fair dealing,
compliance with applicable laws and regulations, maintaining
confidentiality of information, dealing with Trust assets and use of
Trust information. Procedures for dealing with breaches of these
policies are contained in the Code of Ethics, which forms part of
every employee’s conditions of employment with the Manager.
ANNUAL Report 2012
Composition of the Board
The Manager is committed to having a Board whose members
have the capacity to act independently and have the composite skills
to optimise the financial performance of the Trust and returns to
unitholders. The Constitution of the Manager provides for there to
be not more than seven Directors nor less than three Directors.
All the members of the Board are non-executive Directors. The
members of the Board are listed in the table below. Each brings a
significant level of expertise to the Trust; their brief resumés are
included in the Board of Directors section on page 11.
Attendance of Directors
William (Bill) Thurston
(Chair)
resigned 16 January 2012
Graeme Horsley (Chair from
17 January 2012)
3 of 3
8 of 8
Andrew Evans
8 of 8
Peter Brook
3 of 3
Claire Higgins
appointed 17 January 2012
5 of 5
Paul Dalla Lana
5 of 5
Bernard Crotty
5 of 5
The Board does not impose a restriction on the tenure of any Director
as it considers that such a restriction may lead to the loss of
experience and expertise from the Board.
Independent Directors
The Manager recognises that Independent Directors are
important in assuring unitholders that the Board is properly fulfilling
its role and is diligent in holding management accountable for its
performance. The procedures in place for determining independence
relate to whether the Director is independent of management and
free of any business or other relationship that could materially
interfere with, or could reasonably be perceived to materially
interfere with, the exercise of their unfettered and independent
judgement. As required under Rule 3.3.2, the Board has determined
that Graeme Horsley (Chairman), Andrew Evans and Claire Higgins
are Independent Directors under the NZSX Listing Rules as none has
a Disqualifying Relationship with the Trust. Paul Dalla Lana and
Bernard Crotty are considered to be not independent for the
purposes of the NZSX Listing Rules.
In December 2007, the Manager announced a policy which provides
unitholders with the opportunity to nominate the two Independent
Directors of the Manager required by the NZSX Listing Rule 3.3.1.(c).
At present, unitholders are able to nominate and vote on one
Independent Director of the Manager each year. The nominee receiving
the most votes will be approved as a Director of the Manager by the
Manager’s shareholders and will hold the position for a two-year term.
16
CORPORATE
GOVERNANCE
Board and Director Performance
Assessment of individual Directors’ performances is a process
determined by the Chairman, taking into account attendance,
contribution and experience of each individual Director concerned.
Insider Trading and Restricted Person’s Trading
The Manager’s Directors, officers and employees, their families and
related parties must comply with the Insider Trading policy and the
Restricted Person’s Trading policy. Amongst other requirements, this
identifies two ‘black-out periods’ where trading in the Trust’s units
is prohibited, namely between 31 May until the day following the
full-year announcement date and from 1 December until the day
following the half-year announcement date each year. Ongoing fixed
trading by participation in the Dividend Reinvestment Plan (DRP) is
available throughout the year. At all other times, trading requires
that an application is made and approval obtained from any two
Directors or a Director and the Chief Financial Officer in order to buy
or sell units. The holdings of Directors of the Manager are disclosed
in the section headed Holdings of Directors of the Manager on
page 62.
Directors’ and Officers’ Indemnification and Insurance
The Trust has arranged Directors’ and Officers’ liability insurance
covering each of the Directors, senior executives and employees for
their personal liability arising out of duties as Directors and Officers
and reimburse the Trust where it has indemnified its Directors.
Board Committees
Board committees assist with the execution of the Board’s
responsibilities to unitholders. Each committee operates under a
charter agreed by the Board, setting out its role, responsibilities,
authority, relationship with the Board, reporting requirements,
composition, structure and membership.
Audit Committee
The Board has established an Audit Committee, which is responsible
for overseeing the financial and accounting responsibilities of the
Trust. The minimum number of members on the Audit Committee
is three. All members must be Directors, the majority must be
Independent Directors and at least one member must have an
accounting or financial background.
The members of the Audit Committee are Claire Higgins (Chairman),
Andrew Evans and Bernard Crotty.
ANNUAL Report 2012
17
The Audit Committee assists the Board in fulfilling its corporate
governance and disclosure responsibilities with particular reference
to financial matters, and internal and external audit, and is
specifically responsible for:
of financial statements such that they might be perceived as auditing
their own work. It is, however, appropriate for the external auditor to
provide services of due diligence on proposed transactions and
accounting policy advice.
• The appointment of the external auditor of the Trust;
External Audit for Vital Healthcare Property Trust – following careful
consideration and recommendation from the Audit Committee, the
Board appointed the firm Deloitte as the Trust’s statutory auditor.
• Supervising and monitoring external audit requirements;
• R
eviewing annual and interim financial statements prior to
submission for Board approvals;
External Audit for the Manager – the firm KPMG has been
appointed as the auditor of the Manager – Vital Healthcare
Management Limited.
• Reviewing and approving quarterly distributions with
recommendation of the same for Board approvals;
• Reviewing the performance and independence of the external
auditor; and
• Monitoring compliance with the Unit Trusts Act 1960, Financial
Reporting Act 1993, Companies Act 1993 and the NZSX
Listing Rules.
The Board aims to ensure that unitholders are informed of all
information necessary to assess the Trust’s performance. It does
so through a communication strategy which includes:
• Periodic and continuous disclosure to NZX;
• Information provided to analysts and media;
Attendance at Audit Committee
Peter Brook (Chair)
3 of 3
Claire Higgins (Chair)
2 of 2
Graeme Horsley
3 of 3
William (Bill) Thurston
3 of 3
Andrew Evans
appointed 14 November 2011
3 of 3
Bernard Crotty
2 of 2
External Audit Firm Guidelines
In addition to the formal charter under which the Audit Committee
operates, the Audit Committee has also developed a Charter of
Audit Independence, which sets out the procedures that need to be
followed to ensure the independence of the Trust’s external auditor.
The Audit Committee is responsible for recommending the
appointment of the external auditor and maintaining procedures
for the rotation of the external audit engagement partner. Under
the Audit Charter, the external audit engagement partner must be
rotated every five years.
The charter covers provision of non-audit services with the general
principle being applied that the external auditor should not have any
involvement in the production of financial information or preparation
ANNUAL Report 2012
Unitholder Communications
• Annual and Interim Reports distributed to all unitholders;
• The Annual Meeting for the unitholders and any other
meetings called to obtain approval for the Manager’s actions
as appropriate;
• Notices and explanatory memoranda for Annual and
Special Meetings;
• Trust newsletters and investor roadshows; and
• The Trust’s website: www.vitalhealthcareproperty.co.nz
Unitholders may raise matters for discussion at Annual and Special
Meetings and have the opportunity to question the Directors, the
Trustee and the external auditor at such meetings.
Our Environment
Conducting business responsibly is important to us, and that means
a commitment to sustainability and protecting the environment.
We manage our properties in a way that uses energy efficiently,
conserves water and reduces waste. We also have a range of
in-house recycling and printing initiatives in place. Refer to our
website for all the details on how we achieve this.
18
FINANCIAL STATEMENTS
ANNUAL Report 2012
19
FINANCIAL
STATEMENTS
CONTENTS
Statement of Financial Position
20
Statement of Comprehensive Income
21
Statement of Changes in Equity
22
23
Notes to the Financial Statements
24
Independent Auditor’s Report
61
20
As at 30 June 2012
Notes
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Non-current assets
5
567,226 Investments6–
Other non-current assets
8
804 Deferred tax
15
–
–
513,945 –
330,171 –
298,264
114,564 843 96,648
18 – –
Total non-current assets
568,030 444,753 514,788 394,912
Current assets
Cash and cash equivalents
Trade and other receivables
9
Other current assets
10
Derivative financial instruments
7
Taxation receivable
1,332 433 177 2,582 –
5
24 14 2,582 368 2,671 1,502 307 1,640 –
33
1
64
1,640
–
4,524 Non-current assets classified as held for sale
11
8,236 2,993 –
6,120 12,525 1,738
–
Total current assets 12,760 2,993 18,645 1,738
Total assets 580,790 447,746 533,433 396,650
Unitholders’ funds
Units on issue
12
301,159 301,159 Reserves
(5,680)–
Retained earnings/(accumulated losses)
13
(8,049)
(26,845)
297,404 (2,011)
5,713 297,404
–
(5,089)
Total unitholders’ funds 287,430 274,314 301,106 292,315
Non-current liabilities
Borrowings14
Derivative financial instruments 7
Deferred tax
15
169,514 2,423 –
195,513 5,087 24,590 101,763
–
67
Total non-current liabilities
283,119 171,937 225,190 101,830
244,468 15,324 23,327 Current liabilities
Borrowings14 ––––
Trade and other payables
16
8,520 1,482 4,285 1,515
Derivative financial instruments 7
62 13 241 –
Taxation payable
1,659 –
2,611 990
Total current liabilities
10,241 1,495 7,137 2,505
Total liabilities
293,360 173,432 232,327 104,335
Total unitholders’ funds and liabilities
580,790 447,746 533,433 396,650
For and on behalf of the Manager, Vital Healthcare Management Limited
G Horsley, Chairman
C Higgins, Director
23 August 2012
The notes on pages 24 to 60 form part of and are to be read in conjunction with these financial statements.
ANNUAL Report 2012
21
For the year ended 30 June 2012
Notes
Gross property income from rentals
Gross property income from expense recoveries
Property expenses
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
50,721 –
5,435 –
(8,194)–
37,964 4,102 (5,452)
–
–
–
Net property income
4
47,962 –
36,614 –
Distribution received from subsidiaries
Other income
17
17
–
81 10,605 1,548 –
2,633 24,532
795
Total income
48,043 12,153 39,247 25,327
19
17
4,903 2,232 1,799 1,173 3,884 1,441 2,093
815
Total expenses before finance income/(expense)
and other gains/(losses)
7,135 2,972 5,325 2,908
Profit before finance income/(expense) and other gains/(losses)
40,908 9,181 33,922 22,419
Finance income/(expense)
Finance income
18
Finance expense 18
Fair value gain/(loss) on interest rate derivatives
176 (16,244)
(10,050)
4
(8,832)
(738)
439 (13,761)
178 61
(736)
–
Administration expenses
Other expenses
(26,118)
(9,566)
(13,144)
(675)
Other gains/(losses)
Revaluation (losses)/gains on investment property
5
(6,241)–
(10,523)
–
Payments under transaction hedging foreign exchange contracts
(172)
(1,728)– –
Fair value gain/(loss) on foreign exchange derivatives
(67)
875 1,221 1,640
(6,480)
(853)
(9,302)
1,640
Profit/(Loss) before income tax
8,310 Taxation (expense)/credit
20
667 (1,238)
2,221 11,476 (4,096)
23,384
981
983 7,380 24,365
Profit/(Loss) for the year attributable to unitholders of the Trust
Other comprehensive income
Movement in foreign currency translation reserve
Realised foreign exchange loss on hedges
Unrealised foreign exchange (loss)/gain on hedges
Fair value gain on net investment hedges
Taxation (expense)/credit relating to other comprehensive income
– Current tax
– Deferred tax
8,977 –
(6,287)
–
–––
–
1,398 –
–
419 –
(4,911)
(2,884)
3,014 1,116 807 –––
(811)– (536)
–
Total other comprehensive (loss)/income after tax
(3,669)
–
(5,006)
–
5,308 983 2,374 24,365
Total comprehensive income after tax
All amounts are from continuing operations
Earnings per unit
Basic and diluted earnings per unit (cents)
22
3.08 The notes on pages 24 to 60 form part of and are to be read in conjunction with these financial statements.
ANNUAL Report 2012
3.34
22
Units on
issue
Retained
earnings/
(accumulated
losses)
Translation
of foreign
operations
Foreign
exchange
hedges
Total
unitholders’
funds
Group
For the year ended 30 June 2012:
Balance at the start of the year
297,404 5,713 (3,292)
1,281 301,106
Changes in unitholders’ funds
3,755 –
–
–
3,755
Profit for the period
–
8,977 –
–
8,977
Distributions to unitholders
–
(22,739)
–
–
(22,739)
Other comprehensive income for the year
Losses relating to translation of independent foreign operations
–
–
(4,911)
–
(4,911)
Realised foreign exchange loss relating to hedges
–––
(2,076)
(2,076)
Unrealised foreign exchange gain relating to hedges
–
–
–
1,148 1,148
Gain relating to hedges of net investment in foreign operations
–
–
–
2,170 2,170
Balance at the end of the year 301,159 For the year ended 30 June 2011:
152,148 Changes in unitholders’ funds
145,256 Profit for the period
–
–
Other comprehensive income for the year
Losses relating to translation of independent foreign operations
–
Realised foreign exchange loss relating to hedges
–
Unrealised foreign exchange gain relating to hedges
–
Gain relating to hedges of net investment in foreign operations
–
Balance at the end of the year
297,404 (8,049)
(8,203)
2,523 287,430
15,945 –
7,380 (17,612)
2,995 –
–
–
–
–
–
–
171,088
145,256
7,380
(17,612)
–
–
–
–
(6,287)
–
–
–
–
–
979 302 (6,287)
–
979
302
5,713 (3,292)
1,281 301,106
Trust
297,404 (5,089)
–
–
292,315
3,755 –
–
–
3,755
–
983 –
–
983
–
(22,739)––
(22,739)
301,159 (26,845)
–
–
274,314
152,148 145,256 –
–
(11,842)
–
24,365 (17,612)
–
–
–
–
–
–
–
–
140,306
145,256
24,365
(17,612)
297,404 (5,089)
–
–
292,315
ANNUAL Report 2012
23
Note
Cash flows from operating activities
Cash was provided from:
Property income
Recovery of property expenses
Interest received
Other income
Dividends received from subsidiary
Cash was applied to:
Property expenses
Management and trustee fees
Interest paid
Tax paid
Other trust expenses
Group
2012
$000s
Trust
2012
$000s
52,224 –
5,611 –
176 4
41–
–
10,605 Group
2011
$000s
Trust
2011
$000s
39,442 4,102 439 211 –
–
–
61
–
24,532
(10,193)
(4,664)
(17,389)
(549)
1,608 –
(1,265)
(8,929)
–
(3,307)
(5,966)
(3,113)
(12,114)
(808)
(1,771)
–
(1,629)
(736)
–
(870)
Net cash from operating activities21
23,649 (2,892) 20,422 21,358
4,000 –
Cash flows from investing activities
Sale of investment properties
14,436 –
Capital additions on investment properties
(36,425)–
(18,052)
–
Purchase of properties
(34,049)
–
(226,740)
–
Advances to tenants
––
(5,779)
–
Advances to subsidiaries
–
(47,453)
–(251,553)
Other
(2,297)
–
(1,614)
–
Net cash (used in)/from investing activities
(58,335)
(47,453)
(248,185)
(251,553)
Cash flows from financing activities
Debt drawdown
Loan repayments from tenants
Issue of units (net of issue costs)
69,965 –
–
204,885 5,816 145,256 102,558
–
145,256
(29,941)
–
(667)(667)
(18,981)
(18,981)
(107,302)
(1,596)
(17,625)
–
–
(17,625)
50,317 229,434 230,189
(1,366)
26 2,671 (28)
–
33 1,671 (24)
1,024 (6)
–
39
Cash and cash equivalents at the end of the year
1,331 5
2,671 33
Repayment of debt
Loan issue costs
Distributions paid to unitholders
82,806 103 –
Net cash from/(used in) financing activities
33,320 Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
ANNUAL Report 2012
24
1 GENERAL INFORMATION
Use of estimates and judgements
Vital Healthcare Property Trust (“VHP” or the “Trust”) is a unit
trust established under the Unit Trusts Act 1960 by a Trust
Deed dated 11 February 1994 which was amended and replaced
by a Deed of Trust dated 1 September 1999, which was
subsequently amended by Deeds of Amendments dated
10 November 2003, 12 November 2007, 12 December 2007,
5 August 2008 and 27 September 2010. The Trust is an issuer
under the Financial Reporting Act 1993. The Trust is incorporated
and domiciled in New Zealand.
The preparation of financial statements in conformity with
NZ IFRS requires the use of certain critical accounting estimates
that affect the application of policies and reported amount of
assets and liabilities, income and expenses. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are as follows:
The Trust’s principal activity is investment in high-quality
health-sector-related properties.
The Trust is managed by Vital Healthcare Management Limited
(the “Manager”). On 16 January 2012, NorthWest Value Partners
Inc. acquired all the shares in the Manager from its previous
owner, Medical Properties Holding Company No.1 Limited
(formerly Argosy Property Management Limited).
These financial statements include those of the Trust and its
controlled subsidiaries (the “Group”).
The consolidated financial statements are presented in
New Zealand dollars which is the Trust’s functional currency
and have been rounded to the nearest thousand dollars ($000).
These consolidated financial statements were approved by the
Board of Directors of the Manager on 23 August 2012.
Note 5 – valuation of investment property
Note 7 – valuation of derivative financial instruments
Note 15 – deferred tax (and taxation in note 20)
Amendments to NZ IFRS
NZ IAS 12 is mandatory for application for annual periods
beginning on or after 1 January 2012. The Trust has adopted
these amendments early. These financial statements have
been prepared under the revised reporting requirements. The
amendment has been retrospectively applied to the comparative
periods with adjustments initially being made to the opening
balances of Retained Earnings, Foreign Currency Translation
Reserve and Deferred Tax Liability. An exception is applied if the
investment property is intended to be held for the objective of
consuming substantially all of its useful life, rather than
recovering through sale.
3 SIGNIFICANT ACCOUNTING POLICIES
2 BASIS OF PREPARATION
Statement of compliance
These financial statements have been prepared in accordance
with Generally Accepted Accounting Practice in New Zealand
(NZ GAAP). The accounting policies applied in these financial
statements comply with New Zealand equivalents to International
Financial Reporting Standards (NZ IFRS) issued and other
applicable Financial Reporting Standards issued and effective
at the time of preparing these statements as applicable to the
Trust as a profit-oriented entity. The Trust and Group financial
statements also comply with International Financial Reporting
Standards (IFRS).
Basis of measurement
The financial statements have been prepared on the historical cost
basis except for derivative financial instruments and investment
properties which are measured at fair value.
Basis of consolidation
The Group’s financial statements incorporate the financial
statements of the Trust and its controlled subsidiaries accounted
for using the acquisition method. Control is achieved where the
Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
The results of the subsidiaries are included in the statement of
comprehensive income from the date of acquisition which is the
date the Trust became entitled to income from the subsidiaries
acquired. All significant intercompany transactions are
eliminated on consolidation.
The Trust’s subsidiaries are:
Vital Healthcare Property Limited
Colma Services Limited
Vital Healthcare Australian Property Trust*
Vital Healthcare Investment Trust**
* Vital Healthcare Australian Property Trust is a 100%-owned subsidiary of Vital
Healthcare Property Limited and 0% Colma Services Limited.
ANNUAL Report 2012
** Vital Healthcare Investment Trust is a 99.9%-owned subsidiary of Vital Healthcare
Property Limited and 0.1% owned by Colma Services Limited.
25
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment property is property held either to earn rental income
or for capital appreciation or for both. Investment property is
measured at fair value with any change therein recognised in the
statement of comprehensive income. Investment properties are
initially brought to account at cost, plus related costs of acquisition.
Subsequent expenditure is charged to the asset’s carrying amount
only when it is probable that future economic benefits associated
with the item will flow to the Trust and the cost of the item can be
measured reliably. Initial direct costs incurred in negotiating and
arranging operating leases and lease incentives granted are added
to the carrying amount of the leased asset.
After initial recognition, investment properties are stated at fair
value as determined by independent valuers. In accordance with
the valuation policy of the Trust, complete property valuations are
carried out at least annually by independent registered valuers
having appropriately recognised professional qualifications and
recent experience in the location and category of property being
valued. The valuation policy stipulates that the same valuer may
not value a building for more than two consecutive valuations.
The fair values are based on market values being the estimated
amount for which a property could be exchanged on the date of
the valuation between a willing buyer and a willing seller in an
arm’s-length transaction after proper marketing wherein the parties
had each acted knowledgeably, prudently and without compulsion.
In the absence of current prices in an active market, the valuations
are prepared using a discounted cash flow methodology based on
the estimated rental cash flows expected to be received from the
property adjusted by a discount rate that appropriately reflects
the risks inherent in the expected cash flows.
Any gains or losses from changes in the fair value of investment
properties are included in the statement of comprehensive income
in the reporting period in which they arise.
Investment properties are derecognised when they have been
disposed of and any gains or losses incurred on disposal, being
the difference between the carrying amount of the investment
property at the time of disposal and the proceeds on disposal,
are recognised in the statement of comprehensive income in the
year in which the disposal occurred.
Statements of cash flows
The statements of cash flows are prepared on a GST-exclusive
basis, which is consistent with the statement of comprehensive
income.
The following terms are used in the statements of cash flows:
Operating activities are the principal revenue-producing
activities of the Group and other activities that are not investing
or financing activities.
ANNUAL Report 2012
Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
Financing activities are activities that result in changes in the
size and composition of the contributed equity and borrowings
of the entity.
Investments
The Trust holds its investments in subsidiaries at cost, less
any impairment.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise investments, trade
and other receivables, cash and cash equivalents, borrowings and
trade and other payables.
Non-derivative financial instruments are recognised and
derecognised on trade date where the purchase or sale of
investment is under a contract whose terms require delivery
of the financial instrument within the time frame established by
the market concerned, and are initially measured at fair value
plus, for instruments not at fair value through the statement of
comprehensive income, any directly attributable transaction costs.
Cash and cash equivalents comprise cash balances and demand
deposits. Bank overdrafts that are repayable on demand and form
an integral part of the Group’s cash management are included as
a component of cash and cash equivalents for the purpose of the
statements of cash flows.
Trade and other receivables are recognised initially at fair value
and subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision for
impairment of trade receivables is established when there is
objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables.
The amount of the provision is the difference between the asset’s
carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate.
Trade and other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially measured
at fair value net of transaction costs. Subsequent to initial
recognition, borrowings are measured at amortised cost with
any difference being recognised in profit and loss over the period
of the borrowing using the effective interest rate method.
26
Financial instruments (continued)
Borrowing costs
Borrowing costs directly attributable to property under
development are capitalised as part of the cost of those assets.
The Group uses derivative financial instruments, such as interest
rate swaps and forward exchange contracts, to reduce its exposure
to interest rate risk and foreign exchange risk. Derivative financial
instruments are initially recognised, and subsequently measured,
at fair value. Gains and losses arising from changes in fair value
of a derivative are recognised as they arise in the statement of
comprehensive income unless the derivative is a hedging instrument
in a qualifying hedge relationship, in which case the gains and losses
are recognised in the statement of other comprehensive income.
Derivatives are recognised on the date the contract is entered into.
Hedge accounting
The Group has entered into hedge relationships for hedges of
net investments in foreign operations. Hedge relationships are
formally documented at the inception of the hedge and identify
the hedged item, hedging instrument, risks that are being hedged,
strategies for undertaking the hedge, and the way effectiveness
will be assessed.
In the hedge of a net investment in a foreign operation, the
portion of foreign exchange differences arising on the hedging
instrument determined to be an effective hedge is recognised
directly in equity. Any ineffective portion is recognised directly
in the statement of comprehensive income. The Group uses
derivative financial instruments and non-derivative financial
instruments as hedging instruments of a net investment in a
foreign operation. On disposal of the foreign operation, the
cumulative value of such gains or losses recognised in other
comprehensive income is reclassified to the statement of
comprehensive income.
Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying
amount will be recovered principally through a sale transaction
rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition.
Non-current assets classified as held for sale (principally
investment property) are measured at the lower of their
previous carrying amount and fair value less costs to sell.
Recognition of income
Rental income from investment property is recognised in the
statement of comprehensive income on a straight-line basis over
the term of the lease. Lease incentives granted are recognised as
an integral part of the total rental income, over the term of the
ANNUAL Report 2012
lease. Operating expenses borne by tenants are offset by
recoveries from tenants. Operating expenses not borne by
tenants are offset by rental income.
Dividend revenue from investments is recognised when the
Group’s right to receive the payment has been established.
Finance income and expense
Finance income comprises interest income using the effective
interest method. The effective interest method is a method of
calculating the amortised cost of a financial asset or financial
liability and of allocating interest income over the relevant period
(including all fees and points paid or received between the
parties to the contract that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts)
through the expected life of the financial instrument, or, where
appropriate, a shorter period to the net carrying amount of the
financial instrument.
Finance expense comprises interest expense on borrowings
and losses on hedging instruments that are recognised in the
statement of comprehensive income. All borrowing costs (other
than borrowing costs attributable to property under development)
are recognised in the statement of comprehensive income using
the effective interest method.
Taxation
Income tax expense
Income tax expense comprises current and deferred tax. Income
tax expense is recognised in profit or loss except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax
Deferred tax is recognised on differences between the carrying
amount of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit,
and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and
liabilities in a transaction that affect neither the taxable profit
nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset realised.
27
Operating lease commitments
The Trust has entered into commercial property leases on its
investment properties. The Trust has determined that it retains all
significant risks and rewards of ownership of these properties and
has thus classified the leases as operating leases.
Capital raising and listing costs
Capital raising and listing costs, such as legal fees for preparing
the Trust Deed, Listing Profile, Prospectus, underwriting fees and
brokerage are deducted from unitholders’ funds as permitted by
the Trust Deed.
Foreign currency translation
The functional and presentation currency of the Trust is
New Zealand dollars ($).
Transactions and balances
Transactions in foreign currencies are initially recorded in the
functional currency by applying the average exchange rate ruling
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the rate of
exchange ruling at the reporting date.
Exchange rate differences arising on the settlement of monetary
items or on translating monetary items at rates different from
those at which they were translated on initial recognition are
recognised in the statement of comprehensive income in the
period in which they arise.
Translation of foreign operations
The results of foreign operations that have a functional currency
different from the presentation currency are translated to
New Zealand dollars at the average exchange rate for the period.
Assets and liabilities are translated at exchange rates prevailing
at the reporting date.
On consolidation, exchange differences arising from the translation
of the net investment in foreign operations and of foreign currency
instruments designated as hedges of the net investment are
recognised in other comprehensive income and accumulated in
the foreign currency translation reserve.
Share-based payments
In accordance with the Trust Deed, a Manager’s incentive fee is
payable annually and satisfied by issue of units in the following
year. The per-unit pricing for the issue of the units is the weighted
average of the prices at which units were sold through the NZX
during the five business days immediately preceding the last day
of the financial year. Such units, when issued, shall rank pari passu
with all other units. The payment is recognised in administration
expenses in the statement of comprehensive income.
ANNUAL Report 2012
Goods and services tax
The statement of comprehensive income and statements of cash
flows have been prepared so that all components are stated
exclusive of goods and services tax (GST) to the extent that GST
is recoverable. All items in the statement of financial position are
stated net of GST with the exception of receivables and payables,
which include GST invoiced. Cash flows are included in the
statements of cash flows on a net basis. The GST component of
cash flows arising from investing and financing activities which is
recoverable from, or payable to, the taxation authority is classified
as operating cash flows.
Standards and interpretations in issue not yet effective
At the date of authorisation of these financial statements, the
following Standards and Interpretations were in issue but not
yet effective; they have not been analysed, but may affect
presentation and disclosure:
NZ IAS 1 Presentation of Financial Statements – Presentation of
Items of Other Comprehensive Income (effective for accounting
periods beginning on or after 1 July 2012).
NZ IFRS 9 Financial Instruments (effective for accounting periods
beginning on or after 1 January 2015).
NZ IAS 24 (Revised) Related Party Disclosures – minor changes
to definition of related parties (effective for accounting periods
IFRS 10 Consolidated Financial Statements (effective for
accounting periods beginning on or after 1 January 2013).
IFRS 12 Disclosures of Interest in Other Entities (effective for
accounting periods beginning on or after 1 January 2013).
IFRS 13 Fair Value Measurements (effective for accounting periods
Other new standards, amendments and interpretations issued
by the International Accounting Standards Board and the
New Zealand Accounting Standards Board that are not yet
effective and have not been early adopted by the Trust are not
expected to materially impact the Trust’s financial statements
in the period of initial application.
28
4 SEGMENT INFORMATION
The principal business activity of the Trust and its subsidiaries is to invest in health-sector-related properties. NZ IFRS 8 requires
operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by
the chief operating decision-maker in order to allocate resources to the segments and to assess their performances.
The information reported to the Group’s chief operating decision-maker is based on primarily one industry sector: investing in
health-sector-related properties. The Group operates in both Australia and New Zealand.
The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment:
Australia
$000s
New Zealand
$000s
Total
$000s
Segment profit/(loss) for the year ended 30 June 2012:
Net property income
33,202 Administration expenses
(2,778)
Other income/(expenses)
(863)
Finance income
73
Finance (expense)
(367)
14,760 (2,125)
(1,288)
103
(15,877)
47,962
(4,903)
(2,151)
176
(16,244)
29,267 Unrealised interest rate swaps gain/(loss)
(5,921)
Revaluation losses on investment properties
(962)
Fair value gain on derivatives
–
–
(4,427)
(4,129)
(5,279)
(67)
(172)
24,840
(10,050)
(6,241)
(67)
(172)
Total segment profit/(loss)
22,384 (14,074)
8,310
Profit before income tax
8,310
Taxation
667
Profit for the year
8,977
Segment profit/(loss) for the year ended 30 June 2011:
Net property income
Other income/(expenses)
Finance income
Finance (expense)
20,937 (1,793)
293 249
(2,566)
15,677 (2,091)
899 190
(11,195)
36,614
(3,884)
1,192
439
(13,761)
Unrealised interest rate swaps gain/(loss)
Revaluation losses on investment properties
Fair value gain on derivatives
17,120 178 (5,628)
–
3,480 –
(4,895)
1,221 20,600
178
(10,523)
1,221
Total segment profit
11,670 (194)
11,476
11,476
Taxation
(4,096)
Profit for the year
7,380
Net property income consists of revenue generated from external tenants less property operating expenditure. The Group has four
tenants with over 10% of gross property income from rentals totalling $26.4 million, one in New Zealand and three in Australia (2011:
four tenants totalling $24.1 million).
There were no inter-segment sales during the year (2011: nil).
Segment profit represents the profit earned by each segment including allocation of identifiable administration costs, finance costs,
revaluation gains/(losses) on investment properties, and gains/(losses) on disposal of investment properties. This is the measure
reported to the Board of Directors, which is the chief operating decision-maker for the purposes of resource allocation and assessment
of segment performance.
ANNUAL Report 2012
29
4 SEGMENT INFORMATION (continued)
Australia
$000s
New Zealand
$000s
Total
$000s
Segment assets for the year ended 30 June 2012
410,726 Other non-current assets
128 Cash and cash equivalents
460 Trade and other receivables
409 Other current assets
30 Derivative financial instruments
–
Non-current assets classified as held for sale
–
156,500 676 872 24 147 2,582 8,236 567,226
804
1,332
433
177
2,582
8,236
Consolidated assets
411,753 169,037 580,790
Segment assets for the year ended 30 June 2011
Other current assets
Non-current assets classified as held for sale
344,245 83 1,538 1,296 120 –
–
169,700 760 1,133 206 187 1,640 12,525 513,945
843
2,671
1,502
307
1,640
12,525
Consolidated assets
347,282 186,151 533,433
Segment liabilities for the year ended 30 June 2012
Borrowings
–
8,525 Deferred tax
19,647 Trade and other payables
5,273 Taxation payable
1,659 244,468 6,861 3,680 3,247 –
244,468
15,386
23,327
8,520
1,659
Consolidated liabilities
35,104 258,256 293,360
Segment liabilities for the year ended 30 June 2011
Borrowings
Deferred tax
Taxation payable
–
4,263 20,599 1,060 1,621 195,513 1,065 3,991 3,225 990 195,513
5,328
24,590
4,285
2,611
Consolidated liabilities
27,543 204,784 232,327
For the purposes of monitoring segment performance and allocating resources between segments:
– all assets are allocated to reportable segments;
– all liabilities are allocated to reportable segments other than foreign exchange movement on intercompany balance.
ANNUAL Report 2012
30
5 INVESTMENT PROPERTIES
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Balance at the beginning of the year 509,790 –
289,076 –
Acquisition of properties 34,380 –
233,784 –
Capitalised costs 39,630 –
13,182 –
Capitalised interest costs
843 –––
Disposals
(1,426)
–––
Classified as held for sale
(8,236)
–
(12,525)
–
Foreign exchange translation difference
(5,497)–
(3,204)
–
Change in fair value
(6,241)
–
(10,523)
–
Closing balance 563,243 –
509,790 –
Deferred initial direct costs/lease incentives
Opening balance
Change during the year
4,155 (172)
–
–
2,914 1,241 –
–
Closing balance 3,983 –
4,155 –
Fair value of investment property at the beginning of the year
513,945 –
291,990 –
Fair value of investment property at the end of the year
–
513,945 –
567,226 The Group owns the freehold to all properties except the car parks at the rear of Ascot Hospital and Ascot Central. The total value of
leasehold property at 30 June 2012 was $2,950,000 (2011: $3,050,000) representing 0.5% of the total investment property portfolio
(2011: 0.6%). The weighted average lease length of leasehold property at 30 June 2012 was 6.8 years (2011: 7.1 years). The Group has
an option to extend the ground lease for a further 20 years following expiry of the lease and expects to conclude an option for an
additional right of renewal of 20 years.
Deferred initial direct costs/lease incentives
This amount represents costs incurred with the negotiation of operating leases for the Group’s investment property portfolio and which
are being amortised over the terms of those leases.
Acquisition of properties
During the year, the Group acquired two healthcare properties located in New South Wales, Australia (2011: 12 healthcare properties
located in New South Wales, Tasmania, Queensland and Victoria – Australia). The purchase prices included stamp duty and other
transaction costs.
Development of investment properties
All costs directly associated with the construction of a property and subsequent capital expenditure for the development are capitalised.
Borrowing costs are capitalised if they are directly attributable to the development of a qualifying property. Capitalisation of borrowing
costs commences when the activities to prepare the property are in progress and expenditure and borrowing costs are being incurred.
The amount capitalised is the actual rate payable on borrowings for development purposes. Capitalisation of borrowing costs may
continue until the assets are substantially ready for their intended use.
ANNUAL Report 2012
31
5 INVESTMENT PROPERTIES (continued)
Valuation of investment properties
The Trust Deed requires that no individual property be valued by the same valuer (or any member of their company) for more that two
consecutive valuations. All investment properties were independently valued on 30 June 2012. The valuations were prepared by
independent registered valuers as detailed below:
Group
2012
$000s
Darroch Limited
Colliers International Consultancy and Valuation Pty Limited
Colliers International New Zealand Limited
CBRE Limited
Jones Lang LaSalle New Zealand
CBRE Valuations Pty Limited
M3 Property Strategists
Ernst & Young
Capital work in progress
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
47,950 83,546 20,400 84,150 4,000 134,694 114,577 77,909 –
–
–
–
–
–
–
–
–
–
16,200 –
56,300 231,955 –
–
19,834 182,532 7,124 –
–
–
–
–
–
–
–
–
567,226 –
513,945 –
Investment properties are stated at fair value by independent valuers supported by market evidence of property sale transactions
and leasing activity. The most common and accepted methods for assessing the current market value are the Direct Capitalisation,
Discounted Cash Flow, Capitalisation of Contract and Market Income approaches. The major inputs and assumptions that are used in
the valuation that require judgement include forecasts of the current and expected future market rentals and growth, maintenance and
capital expenditure requirements, vacancy and leasing costs.
ANNUAL Report 2012
32
5 INVESTMENT PROPERTIES (continued)
Valuation of investment properties (continued)
Principal assumptions, the methodology of which are unchanged from last year, in establishing the valuation include the capitalisation
rate, occupancy and the weighted average lease term (“WALT”) with the below table identifying the respective levels adopted by the
valuers within the Trust’s segment:
Properties
Location
30 June 2012
Valuer
Ascot Hospital and Clinics
Greenlane, Auckland
CBRE Limited
Ascot Hospital Car Park (ground lease)
Greenlane, Auckland
CBRE Limited
Epworth Rehabilitation
Brighton, Melbourne
Epworth Eastern Medical Centre
Box Hill, Melbourne
Epworth Eastern Hospital
Box Hill, Melbourne
Kensington Hospital
Whangarei, Northland
Darroch Limited
Eastmed St Heliers
St Heliers, Auckland
Hibiscus Coast Community Health Centre
Whangaparaoa, Auckland Jones Lang LaSalle New Zealand
Napier Health Centre
Napier, Hawke’s Bay
Darroch Limited
Apollo Health and Wellness Centre
Albany, Auckland
Colliers International New Zealand Limited
Pitman House
Pt Chevalier, Auckland
CBRE Limited
Ascot Central
Greenlane, Auckland
Darroch Limited
Ascot Central Car Park (ground lease)
Greenlane, Auckland
Darroch Limited
Allamanda Private Hospital
Southport, Queensland
Gold Coast Surgical Centre
Brockway House
South Eastern Private Hospital
Noble Park, Victoria
Belmont Private Hospital
Carina Heights, Queensland
Dubbo Private Hospital
Dubbo, NSW
North West Private Hospital
Burnie, Tasmania
Palm Beach Currumbin Clinic
Currumbin, Queensland
Melbourne Pathology Building
Noble Park, Victoria
Lingard Private Hospital
Merewether, NSW
Ernst & Young
Toronto Private Hospital
Toronto, NSW
Ernst & Young
Maitland Private Hospital
East Maitland, NSW
Mayo Private Hospital
Taree, NSW
Ernst & Young
Hurstville Private Hospital
Sydney, NSW
TOTAL PORTFOLIO
In deriving a market value under each approach, all assumptions are based, where possible, on market-based evidence and transactions
for properties with similar locations, conditions and quality of construction and fit-out. The market value adopted is a weighted combination
of the Capitalisation of Contract or Market Income and Discounted Cash Flow approaches.
ANNUAL Report 2012
33
Fair value
NZD$000s
2012
Market capitalisation rate
NZD$000s
2011
77,500 %
2012
Occupancy
%
2011
WALT
%
2012
%
2011
80,200 8.4 9.2 100.0 100.0 Years
2012
6.1 Years
2011
7.2
1,450 1,550 12.0 11.5 100.0 10.0.0 6.8 7.7
20,408 19,834 8.0 8.1 100.0 100.0 6.6 2.6
23,724 25,149 8.2 7.9 100.0 99.6 4.3 5.1
70,663 70,132 8.4 8.3 100.0 100.0 11.9 12.7
15,400 15,450 8.5 7.0 100.0 100.0 8.7 9.7
–
8,500 –
8.8 –
97.7 –
4.8
4,000 3,900 9.0 9.1 100.0 100.0 2.0 3.0
10,250 11,300 9.0 10.0 100.0 100.0 7.5 8.5
20,400 21,700 8.4 8.1 78.0 81.7 6.2 7.4
5,200 4,900 8.8 9.4 100.0 100.0 3.2 1.1
20,800 20,700 8.3 7.4 99.0 99.0 5.4 6.7
1,500 1,500 12.5 11.1 96.6 92.7 6.2 6.0
64,413 72,142 9.8 10.8 100.0 100.0 5.3 6.3
19,133 18,797 10.0 9.2 97.6 97.6 7.3 10.3
–
1,426 –
10.7 –
33.4 –
0.7
15,472 13,125 11.0 11.0 100.0 100.0 18.7 19.7
30,626 18,811 10.3 10.6 100.0 100.0 18.6 19.6
8,418 7,960 10.0 10.2 100.0 100.0 19.6 20.6
15,306 14,960 10.0 10.0 100.0 100.0 19.6 20.6
20,830 15,491 10.3 9.5 100.0 100.0 19.6 20.6
804 778 9.0 8.8 100.0 100.0 18.7 19.7
45,773 29,726 10.8 10.5 100.0 100.0 18.7 19.7
13,833 11,926 9.8 9.5 100.0 100.0 20.5 21.5
26,437 23,988 9.5 9.5 100.0 100.0 20.5 21.5
18,304 –
9.8 –
100.0
–
19.5 –
16,582 –
9.5 –
100.0
–
19.8 –
567,226 513,945 9.3 9.3 99.2 99.2 11.9 11.4
ANNUAL Report 2012
34
6 INVESTMENTS
Group
2012
$000s
Investment in Colma Services Limited
Investment in Vital Healthcare Property Limited
Investment in Vital Healthcare Investment Trust
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
––––
–
65,204 –
65,204
–
264,967 –
233,060
Total investments
–
330,171 –
298,264
During the year, distributions received from the investments amounted to $10,605,423 (2011: $24,531,761).
7 FINANCIAL INSTRUMENTS
The Group’s financial instruments are classified as:
Categories of financial instruments
Group
Financial assets
Loan advances
Loans and
receivables
$000s
Financial
liabilities at
amortised
cost
$000s
Fair value
through
profit
or loss
$000s
Total
$000s
1,332 433 667 –
–
–
–
–
–
–
–
2,582 1,332
433
667
2,582
2,432 –
2,582 5,014
Financial liabilities
Borrowings
–
–
–
(244,468)
(8,520)
–
–
–
(15,386)
(244,468)
(8,520)
(15,386)
–
(252,988)
(15,386)
(268,374)
Financial assets
Loan advances
2,671 1,502 771 –
–
–
–
–
–
–
–
1,640 2,671
1,502
771
1,640
4,944 –
1,640 6,584
Borrowings
–
–
–
(195,513)
(4,285)
–
–
–
(5,328)
(195,513)
(4,285)
(5,328)
–
(199,798)
(5,328)
(205,126)
ANNUAL Report 2012
35
7 FINANCIAL INSTRUMENTS (continued)
Categories of financial instruments
Trust
Financial assets
Loans and
receivables
$000s
Financial
liabilities at
amortised
cost
$000s
Fair value
through
profit
or loss
$000s
Total
$000s
5
24 114,564 –
–
–
–
–
–
–
–
2,582 5
24
114,564
2,582
114,593 –
2,582 117,175
Borrowings
–
(169,514)
–
(169,514)
–
(1,482)
–
(1,482)
–
– (2,436)(2,436)
–
(170,996)
Financial assets
33 1
96,648 –
–
–
–
–
–
–
–
1,640 33
1
96,648
1,640
96,682 –
1,640 98,322
Borrowings
–
–
(101,763)
(1,515)
–
–
(101,763)
(1,515)
–
(103,278)
–
(103,278)
ANNUAL Report 2012
(2,436) (173,432)
36
Fair value of financial instruments
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an
arm’s-length transaction.
NZ IFRS 7 requires financial assets and financial liabilities measured at fair value to be disclosed by the significant inputs used in making
the measurement. The disclosures are determined on the basis of the lowest level input that is significant to the fair value measurement
of the relevant financial asset or financial liability within the following hierarchy:
Level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 – fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
Level 1
$000s
Level 2
$000s
Level 3
$000s
Trust
$000s
Group
Year ended 30 June 2012
Financial assets
Current derivative financial assets
Current derivative financial liabilities
Non-current derivative financial liabilities
–
2,582 –
2,582
–
–
(62)
(15,324)
–
–
(62)
(15,324)
–
(12,804)
–
(12,804)
Financial assets
–
1,640 –
1,640
–
–
(241)
(5,087)
–
–
(241)
(5,087)
–
(3,688)
–
(3,688)
Trust
Financial assets
–
2,582 –
2,582
–
–
(13)
(2,423)
–
–
(13)
(2,423)
–
146 –
146
Financial assets
–
1,640 –
1,640
–
1,640 –
1,640
ANNUAL Report 2012
37
Interest rate swaps
Interest rate swaps are measured using a valuation model based on the present value of estimated future cash flows and discounted
based on the applicable yield curves derived from observable market interest rates. The Group has determined the interest rate swaps
are level 2 fair value measurements.
Forward exchange contracts
Forward exchange contracts are measured using a valuation model based on the applicable forward price curves derived from observable
forward prices. The Group has determined the forward exchange contracts are level 2 fair value measurements. The forward prices used
to determine the fair value of NZD versus the AUD is 0.7819 (2011: 0.7814).
Borrowings
The carrying values of these balances are approximately equivalent to their fair values because the loans have floating rates of interest
that reset every 90 days.
Cash, cash equivalents, trade and other receivables, trade and other payables
The carrying values of these balances are approximately equivalent to their fair values because of their short term to maturity.
Financial risk management
The Group’s activities expose it primarily to credit risk, market risk (interest rate risk and foreign exchange risk) and liquidity risk.
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the Group’s financial performance. The Group uses financial derivatives to manage market risks. The use of financial
derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles that are consistent
with the Group’s risk management strategy. The Group does not use derivative financial instruments for speculative purposes.
Credit risk
In the normal course of business, the Group incurs credit risk from trade receivables and transactions with financial institutions. The risk
associated with trade receivables is managed with a credit policy which includes performing credit evaluations on customers requiring
credit. Generally, collateral is not required. The risk from financial institutions is managed by entering into derivative transactions
and placing cash and deposits only with high-credit-quality financial institutions. The Group places its cash deposits with ANZ National
Bank Limited and Australia and New Zealand Banking Group Limited.
The following table indicates the carrying value of financial instruments held with financial institutions:
Group
2012
$000s
Australian financial institutions
New Zealand financial institutions
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
460 872 –
5
1,538 1,133 –
33
1,332 5
2,671 33
The carrying amount of financial assets best represents the maximum exposure to credit risk at year-end.
ANNUAL Report 2012
38
Interest rate risk
Interest rate risk arises from the variability in cash flows arising from floating rate bank loans. The Group’s policy is to convert a portion
of its floating rate debt to fixed rates using interest rate swaps to maintain 70.0% to 100.0% of its borrowings in fixed-rate instruments.
At 30 June 2012, 62.3% of borrowings were at fixed rates (2011: 74.5%). The Group does not apply hedge accounting to interest rate
swaps. Any gains or losses arising on revaluation is recognised immediately in the statement of comprehensive income.
Interest rate repricing analysis
The following table indicates the effective interest rates and the earliest period in which financial instruments reprice. Fixed-rate
balances are presented with the effect of hedging derivatives:
Weighted
effective
interest rate
%
Less than
1 year
$000s
1–2 years
$000s
2–3 years
$000s
3+ years
$000s
Total
$000s
Group
Floating rates:
Borrowings
2.50%
5.25%
1,332 (60,821)
–
–
–
–
–
–
1,332
(60,821)
Fixed rates:
Borrowings [at hedged rates]
6.30%
–
(57,398)
–
(127,550)
(184,948)
(59,489)
(57,398)
–
(127,550)
(244,437)
Floating rates:
Borrowings
2.50%
6.19%
2,671 (50,092)
–
–
–
–
–
–
2,671
(50,092)
Fixed rates:
7.42%
(16,964)
(8,426)
–
(121,208)
(146,598)
(64,385)
(8,426)
–
(121,208)
(194,019)
Trust
Floating rates:
Borrowings
2.50%
5.25%
5
(127,451)
–
–
–
–
–
–
5
(127,451)
Fixed rates:
5.35%
–
(25,510)
–
(17,220)
(42,730)
(127,446)
(25,510)
–
(17,220)
(170,176)
Floating rates:
Borrowings
2.50%
6.19%
33 (101,763)
–
–
–
–
–
–
33
(101,763)
(101,730)
–
–
–
(101,730)
ANNUAL Report 2012
39
Interest rate sensitivity
The Group’s sensitivity to interest rate risk can be expressed in two ways:
Fair value sensitivity
A change in interest rates impacts the fair value of the Group’s fixed-rate assets and liabilities, and its interest rate swaps. Fair value
changes impact profit or loss or equity only where the instruments are carried at fair value. Accordingly, the fair value sensitivity to a
100 bps movement in interest rates (based on the assets and liabilities held at year-end) is:
Impact on
profit/(loss)
2012
$000s
Group
If interest rates had been 100 bps higher:
If interest rates had been 100 bps lower:
1,095 (1,347)
Impact on
unitholders’
funds
2012
$000s
1,095 (1,347)
Impact on
profit/(loss)
2011
$000s
4,686 (4,859)
Impact on
unitholders’
funds
2011
$000s
4,686
(4,859)
There are no impacts on the profit/(loss) and unitholders’ funds for the Trust (2011: nil).
Cash flow sensitivity analysis
A change in interest rates would also impact on interest payments and receipts on the Group’s floating rate assets and liabilities.
Accordingly, the one-year cash flow sensitivity to a 100 bps movement in interest rates (based on assets and liabilities held at year-end) is:
Group
(2,458)
2,458 (2,458)
2,458 (1,967)
1,967 (1,967)
1,967
Trust
(1,275)
1,275 (1,275)
1,275 (1,018)
1,018 (1,018)
1,018
Foreign exchange risk
Foreign exchange risk arises due to the exposure of Australian-denominated assets and liabilities to movements in foreign exchange
rates. The Group minimises foreign exchange risk by matching, as far as possible, its foreign-denominated assets and associated
borrowings in the same currency and entering into forward exchange contracts where necessary.
ANNUAL Report 2012
40
Foreign exchange exposure
The exposure to Australian dollars arising from financial instruments is:
Group
2012
$000s
Non-financial instrument assets and liabilities
denominated in Australian dollars
Investments in subsidiaries*
Other assets
Deferred tax
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
410,726 –
158 (19,647)
–
264,967 –
–
344,245 –
120 (20,599)
–
233,060
–
–
Total non-financial instrument assets and liabilities 391,237 264,967 323,766 233,060
460 Trade and other receivables
409 Trade and other payables
(5,273)
Borrowings
(245,769)
–
–
–
(170,181)
1,538 1,296 (106)
(196,690)
–
–
–
(101,763)
Total exposure from non-derivative financial instruments
(250,173)
(170,181)
(193,962)
(101,763)
Interest rate swaps
2,520 (15,324)
2,569 (2,423)
1,640 (4,022)
1,640
–
Total exposure from derivative instruments
(12,804)
146 (2,382)
1,640
Net exposure to currency risk
128,260 94,932 127,422 132,937
* accounted for in NZ dollars at the acquisition date.
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit after tax for the year and equity in regard to the exchange rates for the
Australian dollar. It assumes a 10% change in exchange rate (2011: 10%):
If the Australian dollar were 10% higher for the year:
Profit and loss
Foreign currency translation reserve
3,789 (5,133)
22,103 –
1,382 (2,491)
19,556
–
(1,344)
22,103 (1,109)
19,556
If the Australian dollar were 10% lower for the year:
Profit and loss
Foreign currency translation reserve
(4,632)
6,273 (27,015)
–
(1,689)
3,042 (23,902)
–
1,641 (27,015)
1,353 (23,902)
ANNUAL Report 2012
41
Liquidity risk
Liquidity risk represents the Group’s ability to meet its contractual obligations as they fall due. The Group’s policy is to maintain
unutilised credit facilities to meet contractual obligations when they fall due. The Group monitors its liquidity requirements on an ongoing
basis.
The Group has a multi-currency facility with ANZ National Bank Limited (2011: ANZ National Bank Limited) of A$225,000,000
and NZ$20,000,000 (2011: A$200,000,000 and NZ$20,000,000). As at 30 June 2012, after translation to NZD $245,768,890
(2011: NZD $196,690,333) had been drawn down. The effective interest rate was 6.87% (2011: 8.23%).
Liquidity risk exposure
The following table details the Group’s exposure to liquidity risk based on the contractual undiscounted cash flows relating to
financial liabilities:
Carrying
value
Contractual
cash flows
$000s
1 year
$000s
1–2 years
$000s
2–3 years
$000s
3+ years
$000s
Group
Borrowings
(245,769)
(8,520)
(277,730)
(8,520)
(7,847)
(8,520)
(7,833)
–
(135,470)
–
(126,580)
–
(254,289)
(286,250)
(16,367)
(7,833)
(135,470)
(126,580)
Interest rate swaps
(15,324)
2,520 (16,698)
2,520 (3,561)
2,520 (3,561)
–
(3,786)
–
(5,790)
–
(12,804)
(14,178)
(1,041)
(3,561)
(3,786)
(5,790)
Borrowings
(196,690)
(4,285)
(214,175)
(4,285)
(7,432)
(4,285)
(8,004)
–
(198,739)
–
–
–
(200,975)
(218,460)
(11,717)
(8,004)
(198,739)
–
Interest rate swaps
(4,022)
1,640
(5,500)
1,640 (1,903)
1,640 (1,202)
–
(933)
–
(1,462)
–
(2,382)
(3,860)
(263)
(1,202)
(933)
(1,462)
ANNUAL Report 2012
42
Liquidity risk exposure (continued)
Carrying
value
Contractual
cash flows
$000s
1 year
$000s
1–2 years
$000s
2–3 years
$000s
3+ years
$000s
Trust
Borrowings
(170,181)
(1,482)
(189,339)
(1,482)
(5,433)
(1,482)
(5,424)
–
(132,837)
–
(45,645)
–
(171,663)
(190,821)
(6,915)
(5,424)
(132,837)
(45,645)
(2,423)
2,569 (2,609)
289 (545)
2,569 (475)
–
(323)
–
(1,266)
–
146 (40)
2,024 (475)
(323)
(1,266)
Borrowings
(101,763)
(1,515)
(110,809)
(1,515)
(3,845)
(1,515)
(4,141)
–
(102,823)
–
–
–
(103,278)
(112,324)
(5,360)
(4,141)
(102,823)
–
Interest rate swaps
Hedge accounting
The Group is exposed to foreign exchange risk on its net investment in its Australian functional currency subsidiaries and hedges this risk
using Australian-denominated borrowings and forward exchange contracts.
The Group has designated Australian-denominated borrowings and forward exchange contracts as hedges of a net investment in a
foreign operation (net investment hedge). The Group prospectively and retrospectively tests the hedges for effectiveness on a
semi-annual basis. The portion of the foreign exchange differences arising on the hedging instruments determined to be an effective
hedge is recognised directly in equity. Any ineffective portion is recognised in profit or loss.
There has been no ineffectiveness on the net investment hedges during the year ended 30 June 2012 (2011: nil). The face value of
hedging instruments designated in net investment hedges is:
Group
2012
$000s
Borrowings 204,082 Forward exchange contracts
113,202 VITAL HEALTHCARE PROPERTY TRUST
ANNUAL Report 2012
Trust
2012
$000s
–
–
Group
2011
$000s
181,488 115,051 Trust
2011
$000s
–
–
43
8 OTHER NON-CURRENT ASSETS
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Loan advances
554 Advances to subsidiaries
–
Other
250 –
114,564 –
668 –
175 –
96,648
–
Total other non-current assets
114,564 843 96,648
804 9 TRADE AND OTHER RECEIVABLES
Group
2012
$000s
Trade receivables
Allowance for doubtful debts
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
387 (134)
–
–
1,503 (26)
1
–
253 Amount receivable from unsettled sale of properties
–
GST receivable
180 –
–
24 1,477 25 –
1
–
–
Total trade and other receivables 24 1,502 1
433 The average credit period on receivables is two days (2011: five days). The Group is entitled to charge interest on trade receivables as
determined in each individual lease agreement. Interest is charged on a receivable over 90 days on a case-by-case basis at the Group’s
effective interest rate plus 5% per annum. The Group has provided for 50% of all receivables over 90 days that are considered doubtful.
This amount increases to 100% of any receivable that is determined as being not recoverable. There are no significant past due trade
debtors at balance date which have been outstanding for more than a year (2011: nil). Trade receivables less than 90 days are provided
for based on estimated irrecoverable amounts, determined by reference to past default experience.
Aged past due but not impaired trade receivables
30 – 60 days
60 – 90 days
Beyond 90 days
50 14 164 –
–
–
640 28 20 1
–
–
228 –
688 1
Movement in the allowance for doubtful debts
Balance at the beginning of the year
Increase in allowance recognised in profit or loss
26 108 –
–
17 9
–
–
134 –
26 –
ANNUAL Report 2012
44
10 OTHER CURRENT ASSETS
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Prepayments
–
Loan advances
64 –
–
14 113 103 91 53
–
11
Total other current assets
14 307 64
177 There are no loan advances aged past due but not impaired (2011: nil).
11 PROPERTY HELD FOR SALE
Eastmed St Heliers, Auckland, New Zealand, was subject to a sale and purchase agreement at balance date at the sale price of
$8,350,000 (2011: Hospital Laundry and Sterilisation Facility, Pt Chevalier, New Zealand, subsequently sold on 15 July 2011). The valuation
of this property was based on the agreed purchase price less disposal costs, which approximates its fair value at 30 June 2012.
12 UNITS ON ISSUE
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
297,404 297,404 152,148 152,148
Issue of units under the Distribution Reinvestment Plan
Issue of units under the Rights Issue
Issue of units to satisfy Manager’s incentive fee
Issue costs of units
3,770 –
–
(15)
3,770 –
–
(15)
3,257 150,870 –
(8,871)
3,257
150,870
–
(8,871)
3,755 3,755 145,256 145,256
301,159 297,404 297,404
301,159 Group
2012
000s
Trust
2012
000s
Trust
2011
$000s
Group
2011
000s
Trust
2011
000s
Reconciliation of number of units
Units issued under Rights Issue
Issue of units to satisfy Manager’s incentive fee
290,006 –
–
3,339 290,006 –
–
3,339 143,300 143,686 98 2,922 143,300
143,686
98
2,922
293,345 293,345 290,006 290,006
The number of units on issue at 30 June 2012 was 293,345,275 (2011: 290,006,517). The units have no par value and are fully paid.
Fully paid ordinary units carry one vote per unit and carry the right to distributions.
There was no incentive fee during the year (on 3 September 2010, 98,322 units were issued against the 2010 Manager’s incentive
fee of $120,161).
ANNUAL Report 2012
45
12 UNITS ON ISSUE (continued)
Capital risk management
The Group’s capital includes units, reserves and retained earnings with Total Unitholders’ Funds sitting at $287.4m (2011: $301.1m).
The Group maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain the Group’s future
ongoing activities and development of the business. The impact of the level of capital on unitholders’ returns is also recognised along
with the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and
security afforded by a sound capital position.
The Group is subject to imposed capital requirements arising from the Trust Deed, which requires the total borrowings to not exceed
50% of the gross value of the Trust Fund.
The Group’s banking covenants require that the aggregate principal amount of the loan outstanding does not exceed 50% (2011: 45%)
of the fair market value of property at all times calculated to the New Zealand dollar equivalent. All banking covenants have been met
during the year.
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The Group’s policies in respect of capital management and
allocation are reviewed regularly by the Board of Directors. There have been no material changes in the Group’s overall strategy during
the year.
ANNUAL Report 2012
46
13 RETAINED EARNINGS/(ACCUMULATED LOSSES)
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Profit for the year
5,713 8,977 (22,739)
(5,089)
983 (22,739)
15,945 7,380 (17,612)
(11,842)
24,365
(17,612)
(8,049)
(26,845)
5,713 (5,089)
Group and Trust
2012
CPU
Group and Trust
2011
CPU
Distribution to unitholders
Quarter ended 30 September 2011 paid 14 December 2011
(2011: paid 15 November 2010)
Cash
1.93 Imputation credits
0.14 2.02
0.18
Quarter ended 31 December 2011 paid 22 March 2012
(2011: paid 22 March 2011)
Cash
– 2.03
–
Quarter ended 31 March 2012 paid 15 June 2012
(2011: paid 15 June 2011)
Cash
– 2.02
–
Quarter ended 30 June 2012 payable 28 September 2012
(2011: paid 27 September 2011)
Cash
0.10 2.03
–
Total
Cash
0.24 8.10
0.18
7.94 8.28
After 30 June 2012, the final distribution was declared by the Directors. The distribution has not been provided for and there are no
income tax consequences.
ANNUAL Report 2012
47
14 BORROWINGS
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
AUD denominated loans
NZD denominated loans
Borrowing costs
245,769 –
(1,301)
170,181 –
(667)
196,690 –
(1,177)
101,763
–
–
Total borrowings
244,468 169,514 195,513 101,763
Shown as:
Current
–
–
–
Term
244,468 169,514 195,513 –
101,763
Trust
2011
$000s
The Group has borrowings from the ANZ National Bank Limited (2011: ANZ National Bank Limited). The A$225,000,000 and
NZ$20,000,000 (2011: A$200,000,000 and NZ$20,000,000) facility, a multi-currency facility, is split between Tranche A: A$125,000.000
which is due to expire on 31 March 2017 and Tranche B: A$100,000,000/NZ$20,000,000 which is due to expire on 31 March 2015 (2011:
due to expire 1 September 2013).
The effective interest rate on the borrowings as at 30 June 2012 was 6.87% per annum (2011: 8.23%).
Borrowings are secured by a Security Trust Deed dated 1 April 2003 and as amended and restated on 4 April 2012. The Security Provider
comprises T.E.A. Custodians Limited in its capacity as nominee of the VHP Trustee as Trustee of the Trust and the Trust’s subsidiaries.
Pursuant to the Deed, a security interest has been granted of first-ranking mortgages over the respective investment properties by a
General Security Deed over the assets and undertakings of Vital Healthcare Property Limited and fixed and floating charges over the
assets and undertakings of Vital Healthcare Australian Property Pty Limited as Trustee for Vital Healthcare Australian Property Trust
and Vital Healthcare Investment Trust.
15 DEFERRED TAX
Interest rate
swaps
$000s
Revaluation
of buildings
$000s
Other
$000s
Total
$000s
The following are the major deferred tax liabilities and assets recognised
by the Group, and the movements thereon during the current and prior
reporting years:
At 1 July 2011
Charge to profit and loss for the year
Change in exchange rate
Charge to foreign currency translation reserve for the year
(1,577)
(2,317)
21 –
26,063 202 (352)
–
104 (653)
1,836 –
24,590
(2,768)
1,505
–
At 30 June 2012
(3,873)
25,913 1,287 23,327
At 1 July 2010 (restated)
Change in exchange rate
Charge to foreign currency translation reserve for the year
(1,566)
76 (87)
–
24,246 719 1,098 –
(202)
250 (61)
117 22,478
1,045
950
117
At 30 June 2011
(1,577)
26,063 104 24,590
ANNUAL Report 2012
48
15 DEFERRED TAX (continued)
Interest rate
swaps
$000s
Revaluation
of buildings
$000s
Other
$000s
Total
$000s
The following are the major deferred tax liabilities and assets recognised
by the Trust, and the movements thereon during the current and prior
reporting years:
At 1 July 2011
–
678 Charge to foreign currency translated reserve for the year
–
–
–
–
67 (763)
–
67
(85)
–
At 30 June 2012
678 –
(696)
(18)
At 1 July 2010 (restated)
–
–
–
–
–
67 –
67
At 30 June 2011
–
–
67 67
Significant estimates and judgements in the determination of deferred tax (with an impact on current tax) include:
Deferred tax on depreciation – deferred tax is provided in respect of depreciation expected to be recovered on the sale of investment
property at fair value.
Deferred tax on changes in fair value of investment properties – deferred tax is provided on New Zealand-based properties for the
building components of the fair value change to investment properties, being the taxable temporary difference. Deferred tax for
Australian-based properties is provided for on the capital gains tax expected to be recovered on the land-and-building component from
the sale of investment properties at fair value. Investment properties are valued each year by independent valuers (as outlined in Note 5).
These values include an allocation of the valuation between the land-and-building components. The calculation of deferred tax on
depreciation recovered and capital gains tax is based on the split provided by the valuers.
Deferred tax on fixtures and fittings – it is assumed that all fixtures and fittings will be sold at their tax book values.
16 TRADE AND OTHER PAYABLES
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Interest accrued on borrowings
Manager’s fee accrued
GST payable
Amount received from unsettled sale of properties
Other creditors and accruals
1,370 –
–
373 6,777 1,133 –
–
–
349 1,671 384 330 –
1,900 736
–
77
–
702
Total trade and other payables
8,520 1,482 4,285 1,515
ANNUAL Report 2012
Trust
2011
$000s
49
17 OTHER INCOME/(EXPENSES)
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Income
Dividends received
Unrealised foreign exchange gain
Other income
–
40 41 10,605 1,548 –
–
1,855 778 24,532
795
–
Total other income
81 12,153 2,633 25,327
Expenses
Internalisation expenses
Other operating expenses
(731)
(1,501)
–
(1,173)
–
(1,441)
–
(815)
Total other expenses
(2,232)
(1,173)
(1,441)
(815)
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
18 FINANCE INCOME/(EXPENSE)
Trust
2011
$000s
Income
Interest income
176 4
439 61
Total finance income
176 4
439 61
Expense
Interest expense
Borrowing costs capitalised
(17,087)
843 (8,832)
–
(13,761)
–
(736)
–
Total finance expense
(16,244)
(8,832)
(13,761)
(736)
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
19 ADMINISTRATION EXPENSES
Trust
2011
$000s
Auditor’s remuneration:
Audit of financial statements Non audit-related services – current auditor*
133 –
133 –
123 6
123
6
Manager’s fees
Manager’s incentive fee
Property acquisition and investment evaluation costs
Registry fees
Trustee’s fees
Unitholder communication costs
4,100 –
40 199 230 201 996 –
40 199 230 201 3,218 –
6
208 198 125 1,432
–
–
208
198
126
4,903 1,799 3,884 2,093
* $6,000 was paid to Deloitte during the year for services rendered in relation to the acquisition of 12 healthcare properties in Australia on 22 December 2010.
ANNUAL Report 2012
50
20 TAXATION
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
Profit before tax for the year
8,310 (1,238)
11,476 23,384
Taxation (charge)/credit – 28% for 2012, 30% for 2011
(2,327)
347 (3,443)
(7,015)
Deferred tax on investment properties
(206)
Depreciation
2,040 Effect of different tax rates in foreign jurisdictions
3,952 Tax exempt income
(1,279)
Tax paid distributions from subsidiaries
–
Non-deductible expenses
(1,325)
(Over)/under-provided in prior periods
(887) Other adjustments
699
–
–
–
–
2,970 (208)
–
(887)
(766)
1,847 792 (1,534)
–
(454)
(1,429)
891 –
–
–
–
7,360
–
–
636
Taxation (expense)/credit
2,221 (4,096)
981
2,136 85 (3,051)
(1,045)
1,048
(67)
2,221 (4,096)
981
The taxation charge/(credit) is made up as follows:
Current taxation
Deferred taxation
Total taxation (expense)/credit
667
(2,101)
2,768 667
Key assumptions in calculating income tax
The key assumptions used in the preparation of the Group’s tax calculation are as follows:
Tax rate:
Vital Healthcare Property Limited – in May 2010, the New Zealand Government announced a reduction in the corporate tax rate from
30% to 28% with effect to the Group from 1 July 2011. The deferred tax assets and liabilities on temporary differences at 30 June 2011
were calculated at 28%.
VHIT – in December 2010, the Group established VHIT so that it qualifies as a Managed Investment Trust (MIT) for Australian tax
purposes and assessable income is taxed at the rate of 7.5%. In May 2012, the Australian Federal Government announced an increase
in the MIT tax rate to 15% with effect to the Group from 1 July 2012. The deferred tax assets and liabilities on temporary differences at
30 June 2012 were calculated at 15%.
VHAPT – the Australian Trust is subject to Australian tax on assessable income at the rate of 30%.
Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of
investments in foreign operations where the company is able to control the timing of the reversal of temporary differences and it is
probable that the differences will not reverse in the forseeable future.
At 30 June 2012, the Group has no tax losses (2011: nil) or deferred tax assets (2011: nil).
Imputation credits
Imputation credits at the beginning of the year
Prior period adjustment
New Zealand tax payments, net of refunds
Imputation credits attached to dividends paid
9
–
554 (404)
(2)
–
554 (404)
177 1
808 (977)
166
1
808
(977)
Imputation credits at the end of the year
159 148 9
(2)
ANNUAL Report 2012
51
21 RECONCILIATION OF PROFIT/(LOSS) AFTER TAXATION WITH CASH FLOWS FROM OPERATING ACTIVITIES
Group
2012
$000s
Profit after tax for the year
8,977 Adjustments for non-cash items
Change in fair value of investment properties
6,241 Fair value (gain)/loss on derivative financial instruments
10,117 Depreciation
1
Unrealised foreign exchange gain
(40)
Deferred taxation
(2,768)
Other
1,019 Effect of exchange rate changes on cash balances
26 Operating cash flow before changes in working capital
Change in trade and other payables
Change in taxation payable
Change in trade and other receivables
23,573 (591) (955)
1,622 23,649 Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
983 7,380 24,365
–
(138)
–
(1,548)
(85)
–
–
10,523 (1,399)
1
(1,855)
1,045 18 (24)
–
(1,640)
–
(795)
67
5
–
(788)
15,689 22,002
44 (2,184)
36 1,598 2,060 1,075 1,326
(1,967)
(3)
(2,892)
20,422 21,358
During the 2012 year, distributions of $3,769,774 (2011: $3,256,887) have been reinvested under the Distribution Reinvestment Plan
(“DRP”), which is excluded from investing and financing activities.
22 EARNINGS PER UNIT
Basic and diluted earnings/(loss) per unit is calculated by dividing the profit attributable to unitholders of the Trust by the weighted
average number of ordinary units on issue during the year.
Group
2012
$000s
Profit attributable to unitholders of the Trust ($000s)
8,977 Weighted average number of units on issue (000s of units)
291,637 Basic and diluted earnings per unit (cents) 3.08 Group
2011
$000s
7,380
220,776
3.34
On 24 August 2012, a final gross distribution of 1.925 cents per unit was announced by the Trust.
Any continuation of the DRP programme will increase the number of units on issue.
DISTRIBUTABLE INCOME
8,310 11,476
Revaluation losses/(gains)
6,241 10,523
Unrealised FX (gain)/loss
(40)(1,855)
Unrealised FX (gain)/loss derivatives
67 –
Internalisation costs
731 –
Derivative fair value adjustment loss/(gain)
10,050 (178)
Managers Incentive fee
–
–
25,359 19,966
Current tax charge/(credit)
2,101 Adjusted for imputation credits
–
3,051
(1,271)
Profit used in calculating gross distributable income
Profit used in calculating net distributable income
23,258 18,186
Gross distributable income (cpu)*
Net distributable income (cpu)*
8.70 7.98 9.04
8.24
* Based on weighted average number of units on issue.
ANNUAL Report 2012
52
23 INVESTMENT IN SUBSIDIARIES
The Trust has control over the following subsidiaries:
Holding
Name of subsidiary
Principal activity
Place of incorporation
and operation
Vital Healthcare Australian Property Trust*
Vital Healthcare Investment Trust**
Vital Healthcare Property Limited
Colma Services Limited
Property investment
Property investment
Property investment
Holding company
Australia Australia New Zealand New Zealand 2012
2011
100%100%
100%100%
100%100%
100%100%
* Vital Healthcare Australian Property Trust is a 100%-owned subsidiary of Vital Healthcare Property Limited; Colma Services Limited holds 0%.
** Vital Healthcare Investment Trust is a 99.9%-owned subsidiary of Vital Healthcare Property Limited and is 0.1% owned by Colma Services Limited.
The subsidiaries have the same reporting date as does the Trust.
24 COMMITMENTS
Group
2012
$000s
Capital commitments
The Group was party to contracts to purchase
or construct property for the following amounts
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
20,226 –
58,292 –
20,226 –
58,292 –
Lease commitments
Vital Healthcare Property Limited has non-cancellable operating lease rentals (these relate to a ground lease from the Auckland Racing
Club on the rear car park at Ascot Hospital and Ascot Central) which are payable as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
225 900 398 –
–
–
205 820 568 –
–
–
1,523 –
1,593 –
The Group has a variety of operating leases relating to the investment property it owns with lease terms of between one month and
20 years. Approximately 91.4% (2011: 90.4%) of the portfolio in terms of annual rent contains annual CPI increases clauses.
The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, is set
out in the table below:
Not later than one year
Later than one year and not later than five years
Later than five years
53,380 199,600 357,344 –
–
–
49,938 183,607 338,682 –
–
–
610,324 –
572,227 –
As a condition of listing on the New Zealand Stock Exchange (NZSX), NZSX requires all issuers to provide a bank bond to NZX under
NZSX/DX Listing Rule 2.6.2. The bank bond required to be provided by the Trust for listing on the NZSX is $50,000.
ANNUAL Report 2012
53
25 CONTINGENCIES
There were no contingencies as at 30 June 2012 (2011: nil).
26 SUBSEQUENT EVENTS
On 24 August 2012, a final gross distribution of 1.925 cents per unit was announced by the Trust. The record date for the final distribution
is 7 September 2012 and a payment is scheduled to be made to unitholders on 28 September 2012. There will be 0.0998 cents per unit of
imputation credits attached to the distribution (2011: nil).
27 ACQUISITION
On 22 December 2010, the Group acquired 12 healthcare properties in Australia and a loan by Essential Healthcare Trust to Healthe
Care Australia Pty Limited. The healthcare properties are located in New South Wales, Tasmania, Queensland and Victoria and the
purchase price included stamp duty and other transaction costs.
On 17 December 2010, 143,685,714 units were issued by way of a 1-for-1 Rights Issue. The acquisition was partly funded by means of
the 1-for-1 Rights Issue and the balance by bank borrowings.
Details of the acquisition as at acquisition date are as follows:
Group
2011
$000s
Assets acquired:
233,653
Other assets – non-current 4,464
Other assets – current
1,346
239,463
Funded by:
Units on issue
142,010
Borrowings
97,453
239,463
ANNUAL Report 2012
54
28 COMPARISON TO PROSPECTIVE INFORMATION
On 3 November 2010, the Trust issued a Simplified Disclosure Prospectus (“Simplified Disclosure Prospectus”) for a 1 for 1 renounceable
rights offer to existing unitholders at an issue price of $1.05 per unit.
The following provides an explanation of the variances between the prospective financial information contained within the Simplified
Disclosure Prospectus and the actual financial position at 30 June 2012.
Notes
Non-current assets
aa
ab
Deferred tax
n/m
Group
actual
$000s
Group offer
document
$000s
Variance
$000s
567,226 –
804 –
535,376 –
3,679
(229)
31,850
–
(2,875)
229
Total non-current assets
568,030 538,826 29,204
Current assets
ac
1,332 Trade and other receivables
ad
ab
177 Derivative financial instruments
ae
2,582 713 1,572
1,426
–
619
(1,139)
(1,249)
2,582
4,524 Non-current assets classified as held for sale
af
8,236 3,711 –
813
8,236
Total current assets
12,760 3,711 9,049
Total assets
580,790 542,537 38,253
Units on issue
ag
301,159 Reservesbi
(5,680)
(Accumulated losses)/Retained earnings
ah
(8,049)
294,913 4,142
(9,993)
6,246
(9,822)
1,944
Total unitholders’ funds
287,430 289,062
(1,632)
Non-current liabilities
Borrowings
Derivative financial instruments Deferred tax
ai 244,468 be
15,324 ah
23,327 205,802 3,250
38,874 (38,666)
(12,074)
15,547
Total non-current liabilities
283,119 247,926
(35,193)
8,520 62 1,659 –
3,908
–
858
783 (4,612)
(62)
(801)
783
Total current liabilities
10,241 5,549
(4,692)
Total liabilities
293,360 253,475
(39,885)
Total unitholders’ funds and liabilities
580,790 542,537 38,253
Current liabilities
Taxation payable
Other current liabilities
ANNUAL Report 2012
aj
be
ak
aj
55
28 COMPARISON TO PROSPECTIVE INFORMATION (continued)
aaThe Group sold the Central Hawke’s Bay Health Centre in December 2010 and the Hospital Laundry and Sterilisation Facility in
July 2011 plus Eastmed St Heliers is disclosed as Held for Sale (Note af) at the financial year-end. These sales and a write-down
in property revaluations (Note bf) were offset by the acquisition of Mayo and Hurstville Private Hospitals plus an increased level
of development work undertaken.
ab The Group received the full repayment of the tenant loan provided to Healthe Care Australia Pty Ltd in June 2011 with the loan
having been allocated a current and non-current term.
ac Cash funds held at year-end were higher due to the build up of balances held in bank accounts and funds received into Australian
property managers’ Trust Account prior to the year end.
ad A lower level of debtors outstanding than was anticipated at year-end.
ae As part of the Trusts Foreign Exchange Policy for hedging the translation of AUD assets and liabilities, the Trust entered into
foreign exchange contracts which at year-end had an unrealised marked-to-market gain in valuation.
af The Eastmed St Heliers property was subject to an unconditional sale and purchase agreement at the financial year-end.
ag A higher level of unitholders participated in the Distribution Reinvestment Plan that applied for the FY11 Quarter 2 and 3
distributions and lower transaction costs attributed to Units on Issue.
ah NZ IAS 12 (Amendment): Income Taxes requires deferred tax assets and liabilities to be measured based on tax consequences
of a sale at fair value. The early adoption of this amendment gives rise to retrospective application to comparative periods with
adjustments made to Retained Earnings, Foreign Currency Translation Reserve and Deferred Tax Liability. In addition, the changes
by the Australian Federal Government to the Managed Investment Trust tax rate from 7.5% to 15.0%, effective from 1 July 2012,
requires that the deferred tax relating to this Australian Trust reflect the increased tax rate.
ai
An increase in borrowings due to the acquisition of the Mayo and Hurstville Private Hospitals plus an increased level of development
work undertaken was offset in part by the sale of the Central Hawke’s Bay Health Centre in December 2010 and the Hospital
Laundry and Sterilisation Facility in July 2011, and the receipt of repayment of the Healthe Care loan.
aj
Progress claims received on property development work equated to $1.9 million plus interest accrued at year-end equated to
$1.7 million whilst the Simplified Disclosure Prospectus provided for $0.9 million (note the Simplified Disclosure Prospectus had
separated accrued interest expense into “Other current liabilities”).
ak Distribution of income earned by the Australian-based Trusts was initially forecast to be on a quarterly basis giving rise to
more-frequent payment of withholding tax on the distributions; however, the distribution has been made as at the year-end giving
rise to a deferring in the timing of when withholding tax is payable on that income.
n/mVariance is not material.
ANNUAL Report 2012
56
Gross property income from rentals
Property expenses
Notes
ba
bb
Group
actual
$000s
50,721
(2,759)
Net property income
47,962
Other Income
n/m
Group offer
document
$000s
Variance
$000s
50,464257
(1,272)(1,487)
49,192(1,230)
81
372(291)
Total income
48,043
49,564(1,521)
Other expenses
bc
bc
4,903
6,0191,116
2,232– (2,232)
Total expenses before finance income/(expense) and other gains/(losses)
7,1356,019(1,116)
Profit before finance income/(expense) and other gains/(losses) 40,90843,545(2,637)
Finance income/(expense)
Finance income
Finance expense Fair value gain/(loss) on interest rate derivatives
n/m
bd
be
17630146
(16,244)
(17,510)
1,266
(10,050)
1,386(11,436)
(26,118)
(16,094)(10,024)
Other gains/(losses)
Revaluation (losses)/gains on investment property
bf
(6,241)
–(6,241)
bg
(172)
–(172)
Fair value gain/(loss) on foreign exchange derivatives
bg
(67)
–(67)
(6,480)
–(6,480)
8,310
Taxation expense
bh
667
27,451(19,142)
(2,956)
3,623
Profit for the year attributable to unitholders of the Trust 8,977
24,495(15,519)
Other comprehensive income
Movement in foreign currency translation reserve
bi
(4,911)
–(4,911)
Realised foreign exchange loss on hedges
bg
(2,884)
–(2,884)
Unrealised foreign exchange gain on hedges
bg
3,014
–3,014
Fair value gain on net investment hedges
bg
1,116
–1,116
Income tax expense relating to other comprehensive income
bg
(4)
–(4)
Total other comprehensive (loss)/income after tax
(3,669)
Total comprehensive income after tax
5,308
–(3,669)
24,495(19,187)
All amounts are from continuing operations
Earnings per unit
Weighted average units on issue
291,637
288,382 Basic and diluted earnings per unit (cents)
3.08
8.49 VITAL HEALTHCARE PROPERTY TRUST
ANNUAL Report 2012
57
baIncreased level of income in AUD as a result of property acquisitions (Mayo and Hurstville Private Hospitals) and favourable
exchange rate, offset by a reduction in New Zealand from property sales (Central Hawkes Bay Health Centre and the Hospital
Laundry and Sterilisation Facility).
bbIncrease in property expenses associated with the New Zealand properties, primarily repairs and maintenance and Land Tax on
certain Australian properties which was not recoverable from tenants. Borrowing costs were capitalised where they were directly
attributable to the development of a qualifying property.
bcActual costs of $2,232k is disclosed under “Other expenses” which added to “Administration expenses” of $4,903k, gives rise to a
variance of $1,116k. This variance comprises $731k of costs incurred within the year in respect of the proposed internalisation of the
Trust and requests for meetings.
bdMovements of exchange rates against the AUD-denominated loan over the period gave rise to an initial higher level of debt and
higher interest expense. As discussed in the Simplified Disclosure Prospectus, it is difficult to predict future foreign exchange rates
with any degree of certainty.
beThe fair value adjustment is greater than that indicated in the Simplified Disclosure Prospectus by $11,436k. As discussed in the
Simplified Disclosure Prospectus, it is difficult to predict future foreign exchange and interest rates with any degree of certainty.
These unrealised marked to market variances also impact on the related balance sheet assets and liabilities.
bfA valuation write-down on property assets of $6.2m has been determined by independent valuers where the Simplified Disclosure
Prospectus indentified an assumption of not providing for any revaluation gains or loss. As discussed in the Prospectus, capitalisation
rates considered appropriate by independent valuers may change in response to market conditions.
bgThe Group entered into foreign exchange hedges to supplement the natural currency hedge and any marked-to-market movements
are reflected in the FCTR and a provision made for any tax that would be incurred.
bhMovements of exchange rates against the AUD gave rise to a current tax credit. As discussed in the Simplified Disclosure
Prospectus, it is difficult to predict future foreign exchange rates with any degree of certainty. In addition, the changes to the
Managed Investment Trust tax rate from 7.5% to 15% effective from 1 July 2012, require that the deferred tax relating to this Trust
reflects the increased tax rate.
biMovements of exchange rates against the AUD-denominated assets gave rise to a greater level of fluctuation in the reserve. As
discussed in the Simplified Disclosure Prospectus, it is difficult to predict future foreign exchange rates with any degree of certainty.
Unitholders’ funds at the beginning of the year
Notes
Group
actual
$000s
ca
301,106 Group offer
document
$000s
285,835 Variance
$000s
15,271
Profit for the year
Other comprehensive (loss)/income
bi
8,977 (3,669)
24,495 (15,518)
– (3,669)
Total comprehensive income for the year
5,308 24,495 (19,187)
ag
n/m
n/m
3,770 (15)
(22,739)
1,230 2,540
–
(15)
(22,498)(241)
Unitholders’ funds at the end of the year
287,430 289,062 (1,632)
Contributions by unitholders
Issue of units
caNZ IAS 12 (Amendment): Income Taxes requires deferred tax assets and liabilities to be measured based on tax consequences of a
sale at fair value. The early adoption of this amendment gives rise to retrospective application to comparative periods.
ANNUAL Report 2012
58
Notes
Group
actual
$000s
Cash flows from operating activities
Property income ba
52,224 Recovery of property expenses
da
5,611 Interest received
176 Other income
41 Cash was applied to:
Property expenses
Management and trustee fees
Interest paid
Tax paid
Other trust expenses
da
n/m
bd
n/m
db
(10,193)
(4,664)
(17,389)
(549)
(1,608)
23,649 Cash flows from investing activities
Sale of investment properties
dc
14,436 Group offer
document
$000s
51,311 –
30 –
Variance
$000s
913
5,611
146
41
(1,272)(8,921)
(4,081)(583)
(16,999)(390)
(3,748)
3,199
(1,938)
330
23,303 346
–
14,436
Capital additions on investment properties
dd
(36,425)
Purchase of properties
de
(34,049)
Otherdf
(2,297)
(6,992)(29,433)
– (34,049)
–
(2,297)
(58,335)
(6,992)(51,343)
Cash flows from financing activities
Debt drawdown
Loan repayments from tenants
Issue of units (net of issue costs)
dg
ab
n/m
82,806 103 –
15,208 67,598
780(677)
1,230(1,230)
Repayment of debt
dg
Loan issue costs
Distributions paid to unitholders
n/m
(29,941)
(667)
(18,981)
(11,032)(18,909)
– (667)
(22,498)
3,517
33,320 Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
n/m
Cash and cash equivalents at the beginning of the year
(1,366)
26 2,671 Cash and cash equivalents at the end of the year
1,331 VITAL HEALTHCARE PROPERTY TRUST
ANNUAL Report 2012
(16,312)
49,632
(1)(1,365)
–
26
713 1,958
712 619
59
da The Simplified Disclosure Prospectus provided a net position of the recovery and payment of property expenses.
dbThis variance comprises an increase in payment of creditors and costs incurred prior to year-end in respect of the proposed
internalisation of the Trust and requests for meetings.
dc The Group sold the Hospital Laundry and Sterilisation Facility in July 2011.
ddCapital expenditure projects commenced earlier than provided for within the Simplified Disclosure Prospectus and additional
development work was evaluated and approved to commence.
deThe acquisitions of Mayo and Hurstville Private Hospitals were completed during the financial year whilst the Simplified Disclosure
Prospectus was based on an assumption of no additions.
df Payment of capitalised tenant lease incentive.
dgThe Simplified Disclosure Prospectus provided a net position of drawdown and repayment of debt. In addition the acquisition of two
properties and the development work undertaken in the current financial year led to an increase in drawn-down funds.
29 RELATED PARTY TRANSACTIONS
Fees paid to the Manager
The Trust is managed by Vital Healthcare Management Limited (the “Manager”). From 17 January 2012, NorthWest Value Partners Inc.
purchased the management rights from OnePath (NZ) Limited (the “Former Manager”). The Manager is a wholly owned subsidiary of
NorthWest Value Partners Inc. The Manager is related to the Trust and its subsidiaries as the Manager of the Trust. Prior to 17 January
2012, the Trust was managed by the Former Manager.
Other related parties by virtue of common ownership and/or ownership and/or directorship to the Manager of the Trust
include OnePath (NZ) Ltd (until 16 January 2012), Australian Properties Limited and Vital Healthcare Australian Property Pty
Limited (“VHAPPL”).
Remuneration of the Manager
The Trust paid management fees to the Manager. The calculation of management fees and incentive fees is stipulated in the Trust Deed.
Management fees have been charged at 0.75% of the monthly average of the gross value of the assets of the Trust for the quarter ended
on the last day of that month. Incentive fees are payable when there is an average annual increase in the gross value of the assets of the
Trust Fund over the relevant financial year and the two preceding financial years. The incentive fee is 10% of the amount of the increase
with payment being made by way of subscribing for new units issued at the weighted average price. The management and incentive fees
shall not exceed an amount equal to 1.75% per annum of the gross value of the Trust.
The Trust also reimbursed the Manager for fees paid to the Manager’s Directors and shareholders. In 2011, these fees included payments to
Directors in respect of services as part of the due diligence on the Australian property acquisition and provision of consultancy services.
Transactions with related parties include:
Total fees incurred
Management fees
Manager’s incentive fees
Expenses charged by Vital Healthcare Management Limited
Expenses charged by OnePath (NZ) Limited – up to 16 January 2012
Expenses charged by Medical Property Holding Company No.1 Limited
– up to 16 January 2012
Group
2012
$000s
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
4,100 –
40 149 996 –
–
149 3,218 –
142 65 1,432
–
–
63
3
3
26 25
4,292 1,148 3,451 1,520
ANNUAL Report 2012
60
29 RELATED PARTY TRANSACTIONS (continued)
Remuneration of the Manager (continued)
Group
2012
$000s
Amounts outstanding
Management fees
Managers incentive fees
Expenses charged by Vital Healthcare Management Limited
Expenses charged by OnePath (NZ) Limited
Trust
2012
$000s
Group
2011
$000s
Trust
2011
$000s
–
–
–
–
–
–
–
–
384 –
50 14 –
–
50
–
–
–
448 50
Expenses charged by related parties include salary, computer equipment purchase recovery, property-related costs and other
operating expenses.
Expenses capitalised to projects
Vital Healthcare Management Limited – management fees
OnePath (NZ) Limited
–
–
–
–
2,729 16 2,729
16
–
–
2,745 2,745
Properties owned by the Trust have been managed, on normal commercial terms, by Vital Healthcare Management Limited, a subsidiary of
NorthWest Value Partners Inc. Property management fees charged are either included in property expenses or capitalised. The amount paid
to Vital Healthcare Management Limited was $40,549 (2011: $142,117). The amount not recovered from tenants was $nil (2011: $52,117).
Included in the expenses charged by Vital Healthcare Management Limited this year were amounts paid to the following:
Expenses
2012
$000s
Graeme Horsley
Andrew Evans
William Thurston
Peter Brook
–
–
–
–
Amounts outstanding
2011
$000s
2012
$000s
48 138 65 23 –
–
–
–
2011
$000s
–
–
25
–
Other related party transactions
The Trust has a wholly owned subsidiary, Vital Healthcare Property Limited. Vital Healthcare Property Limited holds title to all of the
Trust’s real estate either directly or indirectly by way of its subsidiary, Vital Healthcare Australian Property Trust. Transactions between
the Trust and Vital Healthcare Property Limited include:
Group
2012
$000s
Advances to subsidiaries*
Fees recharged to subsidiaries
Distributions from subsidiaries
–
–
–
Trust
2012
$000s
Group
2011
$000s
114,564 –
10,605 –
–
–
Trust
2011
$000s
96,648
–
24,532
* The loan is interest free and repayable on demand. The Directors of the Trust do not anticipate that the loan will be called upon within the next 12 months.
The Group has a revolving multi-currency facility with ANZ National Bank Limited (the ultimate shareholder of the parent company of the
Former Manager) in both New Zealand and Australia of A$225,000,000 and NZ$20,000,000 (2011: A$200,000,000 and NZ$20,000,000).
As at 16 January 2012, after translation to NZD, $215,722,647 (2011: NZD $196,690,333) had been drawn down. The Group paid
$8,508,387 in interest and fees to ANZ National Bank Limited up until 16 January 2012 (2011: $12,120,500).
ANNUAL Report 2012
61
INDEPENDENT AUDITOR’S REPORT
To the Unitholders of
Vital Healthcare Property Trust
Report on the financial statements
We have audited the financial statements of Vital Healthcare Property Trust (the ‘Trust’) and Group (the ‘Group’) on pages 20 to 60,
which comprise the consolidated and separate statements of financial position of Vital Healthcare Property Trust, as at 30 June 2012, the
consolidated and separate statements of comprehensive income, statements of changes in equity and statements of cash flows for the year
then ended, and a summary of significant accounting policies and other explanatory information.
This report is made solely to the Trust’s unitholders, as a body. Our audit has been undertaken so that we might state to the Trust’s
unitholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Trust’s unitholders as a body, for our audit work, for this report, or for
the opinions we have formed.
Manager’s responsibility for the financial statements
The Manager is responsible for the preparation of financial statements in accordance with generally accepted accounting practice in
New Zealand and that give a true and fair view of the matters to which they relate, and for such internal control as the Manager determines
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibilities
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing and International Standards on Auditing (New Zealand). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation of financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates, as
well as the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Other than in our capacity as auditor, we have no relationship with or interests in Vital Healthcare Property Trust or any of its subsidiaries.
Opinion
In our opinion, the financial statements on pages 20 to 60:
• comply with generally accepted accounting practice in New Zealand;
• comply with International Financial Reporting Standards; and
• give a true and fair view of the financial position of Vital Healthcare Property Trust and group as at 30 June 2012, and their financial
performance and cash flows for the year then ended.
Report on other legal and regulatory requirements
We also report in accordance with section 16 of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the
year ended 30 June 2012:
• we have obtained all the information and explanations we have required; and
• in our opinion proper accounting records have been kept by Vital Healthcare Property Trust as far as appears from our examination of
those records.
Chartered Accountants
23 August 2012
Auckland, New Zealand
This audit report relates to the financial statements of Vital Healthcare Property Trust and group for the year ended 30 June 2012 included on Vital Healthcare Property Trust’s
website. Vital Healthcare Property Trust is responsible for the maintenance and integrity of Vital Healthcare Property Trust’s website. We have not been engaged to report on the
integrity of Vital Healthcare Property Trust’s website. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially
presented on the website. The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been
hyperlinked to/from these financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the
published hard copy of the audited financial statements and related audit report to confirm the information included in the audited financial statements presented on this website.
Legislation in New Zealand governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
ANNUAL Report 2012
62
Analysis of shareholding as at 31 August 2012
Number of
% of total
Unitholder
unitholders
Total units
units issued
1 to 99
100 to 199
200 to 499
500 to 999
1,000 to 1,999
2,000 to 4,999
5,000 to 9,999
10,000 to 49,999
50,000 to 99,999
100,000 to 499,999
500,000 to 999,999
1,000,000+
24 24 51 32 114 564 1,114 2,465 291 125 6 17 1,043 3,469 14,894 22,135 152,378 2,000,579 8,149,224 52,751,480 18,872,336 22,078,978 4,121,596 185,177,163 0.00
0.00
0.01
0.01
0.05
0.68
2.78
17.98
6.43
7.53
1.41
63.12
Total
4,827 293,345,275 100.00
Substanial security holders as at 31 August 2012
The following security holders had filed substantial security-holder notices in accordance with the Securities Markets Act 1988:
UnitholderDate notice filedNumber of units
Macquarie Bank Limited13 January 2012
NorthWest Value Partners Inc.16 January 2012
% of total issued units
57,682,257
57,682,257
19.75%
19.8%
Holdings of Directors of the Manager as at 30 June 2012
Holdings (number of units)
Non-beneficial
beneficial
Graeme Horsley
– Andrew Evans
– Claire Higgins
– Paul Dalla Lana*
Bernard Crotty*
Associated person
164,538
– – –
–
–
* Paul Dalla Lana and Bernard Crotty are Officers, Directors and/or shareholders of NorthWest Value Partners Inc. (an Ontario, Canada, corporation). NorthWest Value Partners Inc.
directly or indirectly holds approximately 57.68 million units in Vital Healthcare Property Trust.
ANNUAL Report 2012
63
Twenty largest security holders as at 31 August 2012
UnitholderTotal
New Zealand Central Securities Depository Limited Investment Custodial Services Limited (A/C C)
Custodial Services Limited (A/C 3)
FNZ Custodians Limited Forsyth Barr Custodians Limited (1-33)
Forsyth Barr Custodians Limited (1-17.5)
Forsyth Barr Custodians Limited (1-30)
Superlife Trustee Nominees Limited (Sl Prop A/C)
Forsyth Barr Custodians Limited (1-28)
New Zealand Depository Nominee Limited (A/C 1) Cash Account
James Harvey Mansell & Christine Anne Mansell & Douglas Tony Brown (Harvan A/C)
Fnz Custodians Limited (DRP NZ A/C)
Investment Custodial Services Limted (R A/C (Imp Only))
Jarden Custodians Limited Forsyth Barr Custodians Limited (Account 1 E)
90,949,277
16,496,891
15,663,939
15,556,983
11,257,476
6,511,344
6,047,979
4,290,726
3,548,086
2,978,030
2,932,362
2,741,102
1,312,062
1,301,701
1,250,000
1,228,570
1,110,635
923,095
820,856
742,970
% total issued units
31.00
5.62
5.33
5.30
3.83
2.21
2.06
1.46
1.20
1.01
0.99
0.93
0.44
0.44
0.42
0.41
0.37
0.31
0.27
0.25
Total
187,664,084
63.85
Total units on issue
293,345,275
NZCSD is the New Zealand Central Securities Depositary which provides a custodial depositary service to its clients and does not have
a beneficial interest in the units held in its name.
UnitholderNumber of units
Citibank Nominees (New Zealand) Limited Bnp Paribas Nominees (Nz) Limited Accident Compensation Corporation Mint Nominees Limited Hsbc Nominees (New Zealand) Limited National Nominees New Zealand Limited Tea Custodians Limited Hsbc Nominees (New Zealand) Limited A/C State Street Mfl Mutual Fund Limited Nzgt Nominees Limited – Amp Capital Listed Securities Fund Jpmorgan Chase Bank Na New Zealand Superannuation Fund Nominees Limited Premier Nominees Limited – OnePath Wholesale Property Securities Sovereign Services Limited Nzgt Nominees Limited – Amp Capital Nz Shares Index Fund Private Nominees Limited Premier Nominees Ltd Bt Nz Unit Trust Nominees Limited 61,622,016
10,574,650
3,617,329
2,352,480
2,285,905
2,050,665
1,313,591
1,143,975
1,087,354
978,700
973,012
950,000
630,869
580,307
491,358
151,048
128,196
17,822
Total90,949,277
ANNUAL Report 2012
64
ADDITIONAL DISCLOSURES
A. TRUST DEED
The Manager and the Trustee are parties to a trust deed relating
to the Trust dated 11 February 1994 which was amended and
replaced by a trust deed dated 1 September 1999 and which deed
has subsequently been amended by deeds of amendment dated
10 November 2003, 12 November 2007, 12 December 2007,
5 August 2008 and 27 September 2010 (the “Trust Deed”).
The Trust Deed requires the Manager to give notice in the Annual
Report of all the amendments that have been made to the Trust
Deed since the date of the last such notification. A full copy of the
Trust Deed and the recent deeds of amendments can be obtained,
free of charge, from the Manager of the Trust.
The Trust Deed, together with all amendments thereto, is also
filed on a public register at the Companies Office of the Ministry of
Economic Development and is available there for public inspection.
Copies are also available from the Companies Office website
www.business.govt.nz/companies
B. TRUSTEE INFORMATION
The Trustee is Trustees Executors Limited. In accordance with the
Trust Deed, the Trustee will receive from the Trust in respect of each
year, a fee determined on the basis previously agreed between the
Trustee and the Manager. In addition to this agreed fee, the Trustee
is entitled to such fee for convening and attending meetings of
unitholders and in respect of any other non-routine or abnormal
matters as agreed with the Manager. The Trustee and the Manager
have currently agreed an annual fee based on the gross value of
the assets of the Trust as follows:
• 0.10% per annum on the first $100 million of the average gross
assets of the Trust in the preceding 12 months
• 0.08% per annum on the next $25 million of the average gross
• 0.05% per annum on the next $25 million of the average gross
• 0.03% per annum on the average gross assets of the Trust in the
preceding 12 months over $150 million.
C. NZX WAIVERS
The following waivers from the NZX Listing Rules (“Listing Rules”)
were applicable as at balance date:
Corporate governance
On 7 November 2007, NZX granted the Trust waivers in respect
of Listing Rules 3.1.1(a), 3.3.1B(a), 3.3.2 to 3.3.12, 3.4.3 and 3.5 in
relation to the application of those rules to the Trust’s corporate
governance structure. The waivers were granted in light of the fact
that those Listing Rules are not readily applicable to an issuer which
is a unit trust where the Directors, for the purposes of the Listing
Rules, are the Directors of the Manager. The waivers:
• Listing Rule 3.1.1(a): exempts the Trust from incorporating in the
Trust Deed those Listing Rules for which waivers outlined in the
decision were granted;
ANNUAL Report 2012
• Listing Rule 3.3.1B(a): exempts the Trust and the Manager from
identifying which Directors are independent no later than 10
business days following the Trust’s Annual Meeting (the waiver
being granted on the condition that when the shareholder of the
Manager appoints a Director, within 10 business days of such
appointment, the Manager must make a determination as to
whether that Director is an Independent Director and announce
to the market the names of those Directors determined to be
Independent Directors);
• Listing Rules 3.3.2 to 3.3.12: exempt the Trust from compliance
with those Listing Rules which relate to the process for the
appointment of an issuer’s Directors (the waiver being granted on
the basis that, since listing, neither the Trust nor any other listed
unit trust has been required to comply with these provisions);
• Listing Rule 3.4.3: permits Directors of the Manager who are
interested, solely due to being a Director of the Manager, to vote
on transactions into which the Manager is entering for the
purposes of the day-to-day management of the Trust (the waiver
being conditional upon the interested Director abstaining from
voting on any transaction entered into by the Manager, on behalf
of the Trust, with another entity in respect of which that Director
would otherwise be interested); and
• Listing Rule 3.5: exempts the Trust from compliance with the
Director remuneration-fixing requirements in the Listing Rules
(the waiver being granted on the conditions that the remuneration
of Directors of the Manager is paid directly from income of the
Manager, income of the Trust is not applied in satisfaction of
Directors’ remuneration and the Manager discloses in its Annual
Report the income it has earned in respect of its management of
the Trust for the prior financial year).
Distribution Reinvestment Plan
On 15 August 2008, the Trust obtained a waiver from Listing Rule
7.11.1 to allow units to be allotted under its Distribution
Reinvestment Plan (“DRP”) later than five business days after
applications to participate in the DRP are required to be submitted.
Applications to participate in the DRP are required to be submitted
by the record date (being 5.00pm on the date fixed by the Manager
to determine unitholder entitlements to a distribution). Under the
then current terms of the DRP, the price per unit was determined
with reference to the period of seven days immediately following the
record date for the relevant distribution or, if no sale occurs during
that period, the net asset value per unit on the day immediately
following the record date. On the strict application of Listing Rule
7.11.1, units to be allotted under the DRP would need to be allotted
within five business days of the record date, which would be before
the price for the units had been determined.
The waiver was granted subject to the following conditions:
• The Trust allots units pursuant to the DRP on the same day that
dividend distributions are paid to unitholders who do not elect to
participate in the DRP; and
• If the DRP does not proceed to allotment, and monies are
returned to subscribers, the Trust will refund any interest accrued
on such monies between the latest date on which applications for
units close and the date of refund.
65
DIRECTORY
Manager
Trustee
Vital Healthcare Management Limited
Level 16, AIG Building
41 Shortland Street
PO Box 6945, Wellesley Street
Auckland 1141
Telephone: 0800 225 264
Facsimile: (09) 377 2776
Trustees Executors Limited
Level 12, 45 Queen Street
PO Box 4197
Auckland 1140
Telephone: (09) 308 7100
Facsimile: (09) 308 7101
Legal advisers to the Trustee
Directors of the Manager
Graeme Horsley – Chairman
Andrew Evans
Claire Higgins
Paul Dalla Lana
Bernard Crotty
Auditor
With a portfolio value of over $567m, Vital Healthcare Property Trust (NZSX: VHP)
is Australasia’s largest listed investor in medical and healthcare property infrastructure.
With an expert understanding of the needs of healthcare tenants, we actively select,
develop and manage quality properties to meet the growing demand for medical and
healthcare services. Our 124 tenants, in 25 properties, provide essential healthcare
services to thousands of patients while also undertaking research and providing
support services that will make a difference to many more lives in the future. Buddle Findlay
Level 18, PricewaterhouseCoopers Tower
188 Quay Street
PO Box 1433, Shortland Street
Auckland 1140
Telephone: (09) 358 2555
Facsimile: (09) 358 2055
Deloitte
Deloitte Centre
80 Queen Street
Private Bag 115-003
Auckland 1140
Telephone: (09) 303 0700
Facsimile: (09) 303 0701
Bankers to the Trust
Legal advisers to the Trust and the Manager
Unit Registrar
Harmos Horton Lusk
Vero Centre
48 Shortland Street
PO Box 28
Auckland 1140
Telephone: (09) 921 4300
Facsimile: (09) 921 4319
Computershare Investor Services Limited
159 Hurstmere Road
Takapuna, Auckland 0622
Private Bag 92119
Auckland 1142
New Zealand
ANZ National Bank Limited
ANZ House
23 – 29 Albert Street
PO Box 6334
Auckland 1015
Telephone: 0800 103 123
Managing your unitholding online
Bell Gully
Vero Centre
48 Shortland Street
PO Box 4199
Auckland 1140
Telephone: (09) 916 8800
Facsimile: (09) 916 8801
Ashurst Australia
designedbyinsight.com VIT060
Level 26
181 William Street
GPO Box 4958
Melbourne, Victoria 3001
Australia
Telephone: (00613) 9679 3000
Facsimile: (00613) 9679 3111
ANNUAL Report 2012
To change your address, update your payment
instructions and view your investment
portfolio including transactions, please visit:
www.computershare.co.nz/investorcentre
General enquiries can be directed to:
[email protected]
Private Bag 92119, Auckland 1142
Telephone: (09) 488 8777
Facsimile: (09) 488 8787
Please assist our registrar by quoting your CSN
or shareholder number.
www.vitalhealthcareproperty.co.nz
vital healthcare property trust Annual report 2012
Annual report
2012

northwest international healthcare properties real estate investment

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