generation healthcare investment · 6/27/2016 · 1 $110m acquisition of strategic interest and...

GENERATION HEALTHCARE INVESTMENT

June 27, 2016

1

$110M acquisition of strategic interest and management rights to ASX-listed Generation Healthcare REIT (“GHC”)

o Option to acquire 27.1M GHC shares at A$2.20/unit which would bring NorthWest’s interest in GHC to approximately 19.9%

o A$58.5M (C$56.0M) acquisition of GHC’s external investment manager

Significant benefits arising from the Transaction include: o Enhanced Diversification : Proforma for the Transaction, NorthWest’s (the “REIT”) assets under

management will increase to $3.1BN ($1.5BN in Australasia) with approximately 26% of Adjusted NOI generated in Australasia on a proportionate basis

o Increased Exposure to Australian Private Healthcare: Australia is the world’s 5th largest private healthcare market with large, sophisticated healthcare operators seeking real estate capital

o Improved Portfolio Characteristics: Improves the REIT’s already market leading portfolio occupancy and weighted average lease expiry term to 96.3% and 10.3 years, respectively

o Core Healthcare Focus: The Transaction will increase the REIT’s Adjusted NOI generated from Hospitals to 42% and will strengthen and grow its relationships with leading Australian healthcare providers, including Healthscope, St John of God and the Epworth Foundation

o Enhanced Organic Growth Prospects: Consistent with the REIT’s existing international portfolio, GHC has a significant pipeline (~A$105M) of accretive expansion and development opportunities and almost all of its leases are indexed to inflation

o Access to Australian Capital Markets: With a market capitalisation of ~A$480M and a strong history of outperformance, GHC provides access to a wide unitholder base with significant retail and institutional support

o Accretive: Funded through existing resources and new stock loan financing, the Transaction is expected to be accretive

The REIT completed its acquisition of the GHC’s external investment manager on June 27, 2016 and expects to acquire its strategic interest in GHC during Q3-2016

NORTHWEST ANNOUCES THE ACQUISITION OF A STRATEGIC INTEREST AND MANAGEMENT RIGHTS TO GENERATION HEALTHCARE REIT

EXECUTIVE SUMMARY

2

NorthWest acquires 100% of GHM and the management rights to GHC’s real estate portfolio for ~C$56 million (A$58.5 million)

2

1

100%Stake

19.9%Stake1

ManagementServices

ManagementFees

ResponsibleEntity

1

NorthWest, through the execution of up to 29.4 million options, will align its investment in the manager with a strategic investment of up to 19.9%2

APNFM

Generation Healthcare Manager

(“GHM”)2

1 Comprised of ~7.1% of GHC units under contract with Hume, ~0.5% of on-market purchases and ~12.4% under contract with APN, Miles Wentworth and Chris Adams.2 Previously owned as a joint venture between APN Property Group, Miles Wentworth and Chris Adams.

Real Estate Portfolio of 17 Healthcare Assets

TRANSACTION OVERVIEW: Acquisition of Strategic Interest in GHC

APNFM will remain the responsible entity of GHC and any future change to the responsible entity would require the approval of GHC unitholders3

3

3

PORTFOLIO OVERVIEW: Generation Healthcare REIT

Epworth Freemasons Private Hospital Melbourne CBD, Victoria

Epworth Victoria Parade HospitalMelbourne CBD, Victoria

Australian Red Cross Blood ClinicBrisbane, Queensland Major Market Focus

− The portfolio is centered around Australia’s three largest cities: Sydney (pop: ~4.9m), Melbourne (pop: 4.5m), and Brisbane (pop: ~2.3m)

Stable, Growing & Accretive Cashflow− Long-term inflation indexed leases to some of the region’s

largest hospital operators − Track record of earnings growth through accretive

acquisitions, expansions, and developments

Core Healthcare Strategy− 10+ years of dedicated healthcare focus− Strong healthcare operator relationships Healthscope,

Epworth Foundation, and St. John of God

STRATEGIC FIT

WESTERN AUSTRALIA

NORTHERNTERRITORY

QUEENSLAND

SOUTH AUSTRALIA

NEW SOUTH WALES

VICTORIA

TASMANIA

9

3

53

3

4

11

6

1

PORTFOLIO OVERVIEW

Generation Healthcare REIT (ASX:GHC) is a leading Australian listed healthcare REIT with over A$400M in existing assets and a A$105M+ development pipeline

Portfolio of 17 Properties of ~1.1M Square Feet 7 hospitals, 5 medical centres, 3 residential aged care, and 2 land

development parcels currently under construction

Strong occupancy and long-term lease expiry profile 98.6% occupancy and ~12.3 year WALE

Casey Specialist CentreMelbourne Suburb, Victoria

Vital Healthcare Property Trust

Generation Healthcare REIT

4

NOI BY REGION ASSET COMPOSITION

PORTFOLIO METRICS NORTHWEST’S AUSTRALASIAN EXPOSURE

Proforma Adjusted Proportionate NOI by Region (including management fees) increases by ~6% in Australasia.1

Metrics improve to ~96.3% occupancy and ~10.3 year WALE

Proforma entity will increase by ~3% in Hospitals to 42% Hospitals and to 58% MOB’s/Clinic’s on a proportionate basis.

Adj. NOI (Q1-16) Proforma NOI (Q1-16) Adj. NOI (Q1-16) Proforma NOI (Q1-16)

Occupancy (Q1-16) WALE (Q1-16)

NORTHWEST PORTFOLIO: Proforma for the Transaction

Vital Trust GHC Proforma

InvestmentProperties ~A$862M ~A$413M ~A$1,275M

Development Pipeline 2 ~A$85M ~A$105M ~A$190M

Properties 34 17 51

Square Feet 1.8M 1.1M 2.9M

Occupancy 99.5% 98.4% 99.1%

WALE 17.3 12.3 15.5

% Ownership ~24.4% ~19.9% ~22.8%

1 Adjusted Proportionate NOI is based on property NOI plus management income.Development Pipeline for Vital is based on its June 1 2016 announcement of A$64M in the current pipeline plus A$20M of identified transactions. For GHC, the ~A$105M is its proportionate share of its currently identified A$221M development pipeline.

~A$1.5BN

5

KEY BENEFITS

Provides GHC Investors with access to NWH REIT’s global healthcare real estate management and investment platform with global operations comprising of 137 properties and $3.1BN of assets across 5 countries

Business as Usual – Management Retained Miles Wentworth (GHC CEO) and Chris Adams

(GHC Director) will continue in their existing roles and have agreed to extend their employment term for up to 2 years

All other GHM Staff have been made offers to continue in their current roles

GHC continues to be managed independently NorthWest to employ appropriate governance,

including policies and procedures to prevent conflicts

APNFM will remain the responsible entity of GHC and any future change to the responsible entity would require the approval of GHC unitholders

GHC’s strategy will not be altered as a result of the transaction GHC will continue to be a healthcare real estate

specialist fund with a focus on active portfolio management to maximize rental growth and occupancy supplemented by the pursuit of value-enhancing acquisitions / developments

Summary of key terms:

GHC – STRATEGIC INTEREST ~19.9% of GHC Units

Market Capitalisation ~A$480M at A$2.20 per share

Put/Call Option

Hume (Call) – May 1 to July 31, 2016Hume (Put) – July 15 to July 31, 2016APN (Call) – June 27 to Sep 30, 2016APN (Put) – Aug 22 to Sept 30, 2016

GHM – MANAGEMENT RIGHTS ~A58.5M (~C$56.0M)

Management Fee Streams

Base Management Up to 60 bps on gross asset value of the Fund

Property Management / Leasing Fees Market Rate

Development Fees Up to 3% of the project costs

Acquisition Fees / Other Up to 2% of the total acquisition cost

Performance Fee

5% of the dollar amount of outperformance versus the

S&P/ASX300 Property Accumulation Index (A-REIT), plus 15% of the outperformance above 2% p.a.

INVESTMENT OVERVIEW: Strategic Interest and Management Rights

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INVESTMENT PROPERTIES GROWTH (A$M) EXPIRY PROFILE (% NET INCOME)

$149 $162 $190 $225$303

$385 $413

FY10 FY11 FY12 FY13 FY14 FY15 1H16

2.0%8.5% 4.0% 3.0% 3.0% 7.5% 9.0% 5.0% 1.0%

57.0%

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25+

HY16 HY15

Net property income $14.6m $11.9m

Occupancy (by income) 98.4% 98.6%

Tenant retention (by expiring income) 100.0% 87.6%

Weighted average lease term 12.3 yrs 11.6 yrs

Like-for-like rental growth 2.1% 2.7%

Number of properties1 17 13

Number of tenancies 111 100

Portfolio demonstrates the defensive nature of the health sector with long lease terms, high occupancy rate and steady income growth

1. Includes debt investment in Waratah Private Hospital

GENERATION HEALTHCARE REIT: Portfolio Overview

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PIPELINE Project Overview Total Project Cost2 GHC Ownership Share Income Return1

Committed

Frankston Private Expansion 60 bed expansions with 2 OT’s and 90 carparks A$45.4m 65% 8.5%

Casey Private Hospital (Stage 2) 190 Beds, 6 OT+ 350 carparks A$114m 50% base build

90% car park 8.0%

Grey Street Centre (GSC) and Albert Street car park3

10 Levels with 309 below grade carparks c. A$62m 50% GSC: 8.5%

Car park: 8.25%

c. A$220.9m

Work in Progress

Waratah Private Hospital - - -

GHC has a strong development pipeline, providing shareholders with built-in accretive growth opportunities

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2

3

4

1 The income return is the contracted rental yield applied to the forecast total project cost.2 Includes tenant funded hard fitout for Casey (Stage 2). GHC’s proportionate investment is ~$A105M. 3 Subject to town planning approval and finance.

Frankston Private ExpansionCasey Private Hospital (Stage 2) Grey Street Centre

GENERATION HEALTHCARE REIT: Development Pipeline

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Backed by Income Tax Levies, Australia’s Healthcare Expenditure Per Capita Is Among

the Highest in the World…… and the Proportion of the Population that

is 65+ is Growing at a Steady Rate…

… Contributing to Significant Growth Opportunities, Especially for Hospital /

Medical Facility Operators

Nearly 70% of All Australian Healthcare is Publicly Funded and Backed by Taxes and Income Tax Levies

o Reduced Counter-Party Risk: Healthcare operators in Australia receive the majority of their income from a single, tax-payer backed entity (Medicare)

Healthcare Spending in Australia is Positioned to Grow Over the Long-Term Driven by Multiple Factors Including an Aging Population, Advances in Technology and a Growing Awareness of the Benefits of Proactively Accessing the Healthcare System

1 World Health Organization2 Australian Bureau of Statistics 3 EUI4 Includes Russia, Ukraine and East-Central European countries

9.3 %

6.6 %

4.8 %

3.1 %

1.4 %

MiddleEast &Africa

Asia &Australia

NorthAmerica

LatinAmerica

WesternEurope

Global: 4.3%

$ 9,146

$ 6,145 $ 5,827

$ 5,718 $ 5,006

$ 3,966 $ 3,598

$ 1,473 $ 1,083

$ 664 $ 367 $ 61

USA

Net

herla

nds

Aust

ralia

Cana

da

Ger

man

y

Japa

n

UK

Mid

dle

East

Braz

il

Mex

ico

Chin

a

Indi

a

Global Healthcare Expenditures Per Capita1 Global Healthcare Expenditure Growth3Percentage of the Population 65+2

3.6 %

4.9 %

0.0 %

2.0 %

4.0 %

6.0 %

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-19

2019

-20

2020

-21

2021

-22

2022

-23

2023

-24

2024

-25

AUSTRALIA: Healthcare Sector Outlook

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HEALTHCARE REAL ESTATE: A Highly Attractive Asset Class

+7%

(7%) Resiliency during the economic downturn Positive ~7% for healthcare assets Negative ~7% for the property index

~250bps~150bps

A well-performing asset class

On an absolute basis, cap rates in Australia have declined from 9.3% to 7.9% as of December 31, 2015, over the ten year period and continue to trend lower towards the ~7% range.

Relative risk premiums between the all property index and healthcare have declined, reflecting an increase in appetite for the healthcare asset class

STRONG PERFORMANCE

LOW RISK PROFILE / HIGH SECTOR OUTPERFORMANCE

+10% out-performance

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INVESTMENT HIGHLIGHTS

NorthWest acquired the Vital Manager and became a strategic shareholder of Vital Trust (NZX:VHP) in early 2012.

Vital Trust has grown by ~70% in gross assets, from ~NZ$567M in assets to ~NZ$956M, with a strong future development pipeline of ~NZ$90M, totaling over NZ$1.0BN

100% share appreciation during investment timeframe:~NZ$1.15 in 2012 to a recent high of ~NZ$2.30 in 2016

Vital is one of the top performing property trusts in Australasia with a 14.2% p.a. 10-year total return to investors

Delivered 62% Revenue Growth and 10.4% Dividend Growth over the 2011-2016 period

NorthWest is a cornerstone investor participating in the recently announced NZ$160M rights offering

~NZ$2.30

~NZ$1.15

Strong Fundamentals

NTA/Unit growth from 2012 –2016, underpinned by:

Strong accretive development pipeline since July 2012 of ~NZ$250M at yields in excess of current cap rates

Property total revaluations of ~NZ$200M, driven by ~200 bps in w.a. cap rate compression and significant NOI growth

NORTHWEST HISTORY IN AUSTRALIA: Investment in Vital Trust

1111

APPENDICES

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GENERATION HEALTHCARE REIT: Portfolio Overview (1)

EPWORTH FREEMASONS PRIVATE HOSPITAL AND

MEDICAL CENTRE

EPWORTH FREEMASONS PRIVATE HOSPITAL

(CLARENDON STREET)HARVESTER CENTRE

AUSTRALIAN RED CROSS BLOOD SERVICE FACILITY

(ARCBS)

Location Melbourne, VIC Melbourne, VIC Melbourne, VIC Brisbane, QLD

Description Maternity hospital, day surgery, consulting & ancillary services

Hospital with ancillary diagnostic and cancer services Medical office building

Blood testing, processing and distribution centre, part of University Medical School

Built 1980s1935, with extensions 1950s, 60s, 70s, 90s, 2007, 2014 and major upgrade in 2015

Complete building refurbishment and extension 2007 2008

Book value $64.1 million (50% Interest) $38.8 million $15.8 million $73.1 million

Major tenant(s) Epworth Foundation Epworth Foundation Melbourne Health (State Government), ISIS Primary Care ARCBS, RSL Care

WALTE 7.5 years 18.4 years 4.4 years 17.5 years

Site area 4,490 sqm 9,173 sqm 5,021 sqm 6,897 sqm

NLA 8,584 sqm 13,990 sqm 4,413 sqm 20,250 sqm

Occupancy 100% 100% 100% 100%

Rental reviews Combination of CPI, fixed and market reviews

Annual reviews to be the higher of CPI and 3%

Combination of CPI, fixed and market reviews

Higher of CPI or 3%, fixed reviews between 3.5% and 5%, CPI and market reviews

13


RSL CARE DARLINGTON RSL CARE BAYCREST RSL CARE TANTULA RISE PACIFIC PRIVATE CLINIC

Location Banora Point, NSW Pialba, QLD Alexandra Headland, QLD Gold Coast, QLD

Description Residential aged care facility Residential aged care facility Residential aged care facility Day surgery and medical office building

Built 2005 and 2007 Mid 1990s; 60 new beds were built in 2006 2005 and 2007 2000

Book value $13.5 million 1 $14.4 million 1 $17.9 million 1 $34.0 million

Major tenant(s) RSL Care RSL Care RSL Care Healthscope Limited


Site area 9,500 sqm (subject to sub-division1) 15,100 sqm (subject to sub-division1) 7,600 sqm (subject to sub-division1) 3,723 sqm


Occupancy 100% 100% 100% 92%

Rental reviewsLesser of 3.0% and CPI, market review mid term and upon exercise of option (+/- 5% cap and collar)

Lesser of 3.0% and CPI, market review mid term and upon exercise of option (+/- 5% cap and collar)

Lesser of 3.0% and CPI, market review mid term and upon exercise of option (+/- 5% cap and collar)

Combination of CPI, fixed and market reviews

14


LEADING HEALTHCARE BENDIGO

WESTMEADREHABILITATION SPRING HILL CASEY SPECIALIST CENTRE

Location Bendigo, VIC Westmead, NSW Brisbane, QLD Berwick, VIC

Description Primary Care Medical Centre Rehabilitation Hospital Day surgery and medical office building

Specialist centre with a focus on cancer treatment

Built 2012 2005 1988, with periodic upgrades since 2015

Book value $10.3 million $25.9 million $47.6 million $25.8 million

Major tenant(s) IPN Medical Centres (Sonic Healthcare Ltd), Pacific Smiles Pulse Health Ltd

Queensland Eye Hospital Queensland Fertility Group, Secure Parking

St. John of God, GenesisCare, MIA Radiology


Site area 2,034 sqm 5,305 sqm 5,771 sqm 4,440 sqm


Occupancy 88% 100% 99%1 94%

Rental reviews Combination of fixed reviews between 3%-4% Higher of CPI and 2.5%

Combination of fixed 3% to 4.5%, higher of CPI and 3.5% to 3.75% and market reviews

Combination of the greater of CPI and 3.5%, fixed 3% or 3.5%, CPI, CPI plus 0.5%.

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CASEY DEVELOPMENT (STAGE 2 AND 3) FRANKSTON PRIVATE

FRANKSTON PRIVATEEXPANSION

DEVELOPMENT

FRANKSTONSPECIALIST CENTRE

WARATAH PRIVATE HOSPITAL (DEBT INTEREST)

Location Berwick, VIC Frankston, VIC Frankston, VIC Frankston, VIC Hurstville, NSW

Description Currently under development

Day surgery, cancer services, diagnostic and medical office building

Currently under development1 Medical consulting suites

Hospital with ancillary diagnostic and cancer services

Built NA 2006 NA 1989 2010

Book value $5.4 million (50% Interest) $21.3 million (65% interest) $4.1 million (50% interest) $1.3 million $10.1 million (GHC Share)

Major tenant(s) St John of God Health Care Healthscope Ltd, GenesisCare, MIA Radiology Healthscope Ltd Healthscope Ltd NA

WALTE NA 11.4 years NA 8.9 years NA

Site area Circa 7,760 sqm for stages 2 & 3 3,916 sqm 2,775 sqm 2,021 sqm 2,696 sqm

NLA NA 4,528 sqm NA 600 sqm 13,497 sqm

Occupancy NA 100% NA 100% NA

Rental reviews NACombination of < 2 x CPI or 3%, CPI, CPI + 0.5% and fixed 4%

NA Lower of 2x CPI and 3% NA

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1. Based on market rent not passing rent2. GHC has a 50% interest in Epworth Freemasons Clarendon Street and Frankston Private while lettable area represents 100%3. Includes 8,231sqm of net exclusive area occupied by QUT under an 80 year lease where rent has been paid in advance

As at 31 December 2015 Book value ($m)

Last external valuation

Capitalisation rate1

Discount rate Major tenants WALTE

(yrs)Lettable

area Occupancy

Epworth Freemasons Victoria Parade 64.1 30 Jun 2015 7.50% 8.25% Epworth Foundation 7.5 8,584 100.0%

Epworth Freemasons Clarendon Street2 38.8 30 Jun 2015 6.75% 8.50% Epworth Foundation 18.4 13,990 100.0%

Frankston Private2 21.3 30 Jun 2015 7.25% 9.00% Healthscope Ltd, GenesisCare, MIA 11.4 4,528 100.0%

Harvester Centre 15.8 31 Dec 2015 7.75% 8.50% Melbourne Health 4.4 4,413 100.0%

ARCBS Headquarters3 73.1 31 Dec 2014 7.85% 9.00% Australian Red Cross Blood Service 17.5 20,250 100.0%

RSL Care Tantula Rise 17.9 24 Feb 2015 7.65% 9.25% RSL Care 20.0 7,768 100.0%

RSL Care Baycrest 14.4 25 Feb 2015 7.65% 9.25% RSL Care 20.0 6,676 100.0%

RSL Care Darlington 13.5 19 Feb 2015 7.65% 9.25% RSL Care 20.0 6,289 100.0%

Pacific Private Clinic 34.0 31 Dec 2015 8.25% 8.50% Healthscope Ltd 3.4 7,955 92.2%

Westmead Rehabilitation 25.9 31 Dec 2015 7.25% 8.75% Pulse Health 22.4 2,702 100.0%

Spring Hill 47.6 30 Jun 2015 8.25% 9.00% Cura Day Hospitals, Virtus Health, Secure Parking 6.1 8,293 98.7%

Casey Specialist Centre 25.8 31 Dec 2015 7.00% 8.00% St John of God, GenesisCare, MIA Radiology 9.1 3,585 93.9%

Leading Healthcare Bendigo 10.3 30 Jun 2015 7.50% 7.75% Sonic Healthcare Ltd, Pacific Smiles 6.4 2,378 87.9%

Frankston Specialist Centre 1.3 30 Jun 2015 7.25% 9.00% Healthscope Ltd 8.9 600 100.0%

Casey 2 Development 5.4 - - - St John of God Health Care - - -

Frankston Expansion Development 4.1 - - - Healthscope Ltd - - -

Total Portfolio 413.1 7.61% 8.69% 12.3 98,011 98.4%

GENERATION HEALTHCARE REIT: List of Assets

generation healthcare investment · 6/27/2016 · 1 $110m acquisition of strategic interest and...

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