Thank you for standing by, and welcome to the HealthCo Healthcare and Wellness REIT FY 2022 half year results briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Sam Morris, Senior Portfolio Manager. Please go ahead.
Good morning, everyone, and thanks for joining us today. I am Sam Morris, Senior Portfolio Manager of HealthCo Healthcare and Wellness REIT. Joining me on the call today is Christian Soberg, CFO of the Healthcare REIT, and Sid Sharma, Home Consortium COO. Before we commence, we acknowledge the traditional custodians of country throughout Australia. We celebrate their diverse culture and connections to land, sea, and community. We pay our respects to their elders past, present, and emerging, and extend that respect to all Aboriginal and Torres Strait Islander people today. Let's turn to slide four to begin our commentary for you this morning. We are very pleased to deliver our H1 year results since listing in September last year. It's been a very busy four months.
We are excited to update you on our Camden Health and Innovation Precinct development with progress made on stages II and stage III of the project. Of particular note is that we have received EOIs from leading national private hospital operators to partner with us. These developments will increase our active development pipeline to over AUD 500 million, providing unit holders with future earnings and valuation growth. We remain on track to meet our upgraded FY 2022 FFO guidance per unit of AUD 0.05. That is an increase of 16% over the PDS forecast. Our PDS forecast distribution per unit guidance of AUD 0.074 remains on track. Driving FFO growth are AUD 200 million in committed acquisitions in the period since IPO, including a pipeline of 13 new fit for purpose Melbourne Metro located childcare assets.
We have also increased HealthCo's exposure to our exciting developments at Proxima and Camden. Our acquisitions were secured at attractive valuations and improved our portfolio WALE from nine point four years-10 years. NTA per unit increased by 4.3% from IPO to AUD 1.94 per unit. From an operations perspective, we have achieved 100% cash collection and an improvement in portfolio occupancy from 96%-98%. This is a testament to the portfolio strategy, which is designed to provide strong downside protection through high-quality tenants and target subsectors. This manages risk through diversification across geography, subsector, and tenant. Lastly, we have maintained a strong and flexible balance sheet with a current net cash position to fund our accretive development pipeline and acquisitions. Turning to slide five, we provide an overview of our strategy driving these outcomes.
As part of our IPO, we outlined the objective to provide unit holders with exposure to a diversified portfolio of healthcare real estate assets underpinned by attractive megatrends. The portfolio is targeting stable and growing distributions, long-term capital growth, and positive environmental and social impact. Our strategy to achieve this objective remains unchanged. This covers four key actions. First, maintain a diversified exposure across geography, tenants, and target subsectors of healthcare and wellness. Second, target stable income characteristics, including long leases, contracted rental escalations at CPI or better, sustainable rents, and strong tenant covenants. Third, pursue accretive acquisition and development opportunities to scale the portfolio and enhance returns. Finally, maintain an appropriate capital structure with a target gearing range of 30%-40%. Delivering on these four key elements will position us to deliver attractive total returns. Now, moving to slide six.
We have significant growth opportunity embedded in the existing portfolio, as well as latent capacity to pursue further accretive acquisitions and developments. From the IPO FY 2022 net operating income forecast, the portfolio has over 90% NOI growth potential. This is based on the remaining lease up in the portfolio and completion of the committed acquisitions and developments outlined in this presentation. There is further growth upside in our pipeline of uncommitted developments and acquisitions, namely Camden stages II and stages III, which Christian will touch on more detail later in this presentation. Clearly, there is strong demand and competition for healthcare property from institutional investors. However, that demand needs to be seen in the context of the addressable Australian market across our targeted subsectors, which is in excess of AUD 200 billion. We have been and will continue to actively pursue future acquisition and development opportunities.
However, we remain highly selective. Turning to slide eight, portfolio overview and update. We have continued to grow a high-quality, diversified healthcare portfolio and enhance key portfolio metrics. There are four key highlights. One, a 6% increase in the value since IPO to AUD 700 million and an as-completed value of AUD 880 million. Two, an improvement in occupancy from 96%-98% with a clear line of sight to 100%. Three, an increase in the WALE from nine point four years-10 years. Four, 100% cash collection. Our current target subsector weightings are a function of where we have seen accretive acquisition opportunities. We will target a balanced exposure to these subsectors over the longer term. Importantly, our portfolio is predominantly located in Australia's major metropolitan centers.
On slide nine, we have provided a collection of key portfolio statistics. Long-term leases to high-quality operators with contracted rental growth as key mitigants against rising inflation and interest rates. The portfolio consists of a diverse range of quality tenants, with national tenants representing 70%. The tenants are spread across resilient health and wellness subsectors, which are underpinned by attractive megatrends. These include an aging population, growing government expenditure, and an increasing consumption of health services per capita. Importantly, our leases have contracted rental escalations across 100% of the portfolio, with a weighted average rent review of 3% per annum for leases with fixed escalations accounting for 70% of the portfolio. The 30% balance benefits from CPI or better escalations, which are attractive in the current environment. Now turning to slide 10, portfolio valuation summary.
At IPO, the value of the portfolio was AUD 555 million, and over the four months to 31 December, that portfolio has increased to AUD 700 million in value. That growth of AUD 145 million includes AUD 113 million of announced acquisitions, AUD 14 million of capitalized development costs, and AUD 18 million of gains from property revaluations. Pleasingly, these revaluation gains are driven by both cap rate compression and net operating income growth. The infrastructure-like nature of our health assets, having stable CPI or better-linked cash flows and long-term leases, will continue to underpin the value of our portfolio. In summary, we are delivering against or ahead of our projections at IPO and are confident about the strength and embedded growth opportunity in the current portfolio and the options for future growth.
I will now hand over to Christian to take us through our investments to date.
Many thanks, Sam. Let's move on to slide 12 to look in more detail at the investments we're making to enhance our returns and the quality of our portfolio. We announced AUD 200 million of investments in our trading update in October. These investments are consistent with three key aspects of our investment strategy. One, they substantially increase the scale of our portfolio. Two, they are earnings accretive and led to a 16% upgrade to FFO guidance for FY 2022. Third, they enhance key portfolio metrics, including our WALE. Proxima and Camden Stage I were acquired on de-risked and attractive terms from HomeCo, the external manager of HealthCo. This demonstrates the strong strategic alignment between HealthCo and HomeCo. As Sam mentioned earlier, we are continuing to review accretive acquisition opportunities on an ongoing basis.
I now want to provide more details about our exciting development pipeline on page 13. Our development pipeline is a valuable source of growth with strong incremental returns. We have AUD 140 million of committed development projects currently underway, including Camden Stage One, which is a 78-bed pediatric private hospital, and Proxima, a health hub in a new health precinct adjacent to the Gold Coast University Hospital and Gold Coast Private Hospital. As set out on the next slide, both these projects are on track, they're on budget and set to open next year. I now want to move on to page 15 to talk more broadly about the Camden Precinct and provide more details about Stage II, which represents an attractive opportunity for HealthCo. The Camden Precinct has an ideal location in Sydney's southwest growth corridor.
It's 20 km away from the new airport being built at Badgerys Creek, and Camden is the fastest growing LGA in Australia. From a demand perspective, there is significant undersupply of clinical services in the local catchment area, and it's also worth highlighting that the private health insurance coverage in the area is greater than the New South Wales average. Let's move on to slide 16 to provide more detail about the three stages we are developing at Camden. Stage I is The George Private Hospital. It's on track, and it will open in the H1 of calendar year 2023, and it's on budget. Stage II will be a significant new private hospital. As Sam mentioned earlier, we have received EOIs from national private hospital operators, and we are targeting the appointment of a preferred partner towards the middle of the year.
We expect that the hospital could be valued at more than AUD 250 million, and we will target an investment return in excess of 7%. For stage III, we are targeting a 10,000-sq m facility which will complement the service profiles of the two private hospitals. Overall, the three stages will provide an integrated healthcare hub for the local catchment area. We are very excited about this precinct. I will now move on to talk about sustainability on page 18. As you will know, HomeCo, the external manager of HealthCo, recently released its inaugural sustainability report. This report sets out six sustainability commitments towards creating healthy communities. Importantly, this also includes our commitment to achieving net zero emissions by 2028. HomeCo strongly believes that these commitments will help drive long-term value creation across all the assets managed by HomeCo.
On the next slide, we'll provide some more color on how we are creating healthy communities at HealthCo. Three points to note. First, our pathway to achieving our sustainability targets is focused on utilizing energy-efficient systems and technologies as well as renewable energy. Second, and importantly, healthy communities require a focus on social impact and providing access to healthcare services. Third, we have developed a social impact framework that we have incorporated into our investment processes. I will now move on to provide an overview of the financial results for the half year period on page 21. Starting with the earnings summary, three highlights are as follows. First, FFO of AUD 5.8 million. This was underpinned by strong operating performance and is consistent with the updated guidance that we gave in our trading update in October.
Second, statutory profit was AUD 10.8 million for the period. This was impacted by a positive fair value movement of AUD 6.8 million, which comprised a positive revaluation of AUD 23 million net of transaction costs in relation to property acquisitions. Third, we declared our first distribution of AUD 0.03 per unit for the half year period. Now turning to the balance sheet on the next page. HealthCo has a strong balance sheet, and I would like to highlight the following three points. One, NTA increased from AUD 1.86 per unit at the time of the IPO to AUD 1.94 per unit. This represents an increase of AUD 0.08 per unit in just under four months. Second, our investment property portfolio increased to AUD 568 million, inclusive of our stake in Camden.
Third, HealthCo had net cash of AUD 56 million as at the end of the half year period. Now on to capital management on the next slide. HealthCo has a strong capital and liquidity position. At the end of the half year, we had AUD 456 million of cash and undrawn debt facilities. In terms of our capital structure going forward, we will target gearing in the 30%-40% range in line with the strategy set out in the PDS. In summary, we have delivered a strong set of financial results for the H1 of FY 2022. I will now turn to page 25 to summarize our guidance for the full financial year. We are pleased to reaffirm the following guidance for FY 2022. FFO of AUD 0.05 per unit and DPU guidance of AUD 0.074 per unit.
The FFO guidance is consistent with our trading update, and the DPU guidance is consistent with the PDS. Going forward, we will target a distribution payout ratio of 90%-100% of FFO once our portfolio is fully stabilized and gearing is within the 30%-40% target range. I'll now hand you back to Sam for concluding remarks.
Thanks, Christian. We are excited to deliver a strong inaugural H1 result following the listing in September last year. HealthCo's high quality and diversified portfolio is delivering against our core objective to provide unitholders with consistent and growing distributions. We are making good progress unlocking the significant growth opportunity embedded in our current portfolio. Healthcare is well-positioned to take advantage of growth opportunities in the market with a strong balance sheet and gearing capacity. In closing, Christian and I would like to thank our entire team and our tenant partners for contributing to these results. I will now hand back to the operator to take questions.
Thank you. If you wish to ask a question, please press star one on the telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. And if you are on speakerphone, please pick up your handset to ask your question. Your first question comes from Simon Chan from Morgan Stanley. Please go ahead.
Hi. Good morning, guys. Hey, I just noticed on slide 25, you guys talked about the intention to kick off a DRP program going forward. Can you perhaps describe the reason for that given your balance sheet gearing's still net cash, and even if you spend the CapEx that you have committed to, it's still barely 20% gearing?
I'll answer that. It's Christian here. The DRP is being established primarily for the benefit of our retail shareholder base. It's not a capital management decision, and the DRP will not be underwritten, and there will be no discount.
Okay. It's retail focused. Is it? 'Cause, I mean, it's a little bit counterintuitive, isn't it? 'Cause you're paying a bit above FFO, and then you're raising equity on the other side, you know, via DRP, so it just sounds a little bit, yeah, confusing for me.
Yeah. Look, just to reiterate the point, it's established for our retailer shareholder base, and it's not a capital management decision.
Okay. Fair enough. My second question, since IPO, you guys have done some acquisitions. Obviously the biggest bucket was the childcare one, the Metro portfolio from memory back in October. Can you perhaps talk a bit more broadly about the transaction market, what you're seeing, outside of the childcare subsector?
Yeah, sure. Sam Morris here. There's no doubt that investor appetite for quality Australian healthcare property remains strong. Quality healthcare assets certainly do remain tightly held and highly sought after by an increasing pool of domestic and global buyers. Our focus has been on identifying operating and development partners in our target subsector, and we've certainly created a number of off-market opportunities this way to acquire quality assets. However, we have declined to proceed on a lot of them based on the prevailing pricing on offer. A key priority for the fund in this market is really to realize the embedded growth that exists in the current portfolio through developments and lease-up. Developments are certainly offering more attractive total returns. I think noticing that forecast value creation at Camden Precinct, we certainly do have a number of development opportunities in diligence.
Would you say future acquisitions are more likely to be development projects than rather than mature assets?
I might take that one, guys. It's Sid here. No, we're not saying that at all. We're assessing opportunities every day. We pretty much see everything that's transacting in the market. At any given moment as we're diligencing an acquisition versus a development, we'll just look at what the right decision is per asset. What we're steadfastly focused on is the model portfolio construction, and we're steadfastly focused on underlying cash flows that are growing.
That's very clear, Sid. Thanks, guys.
Thank you.
Thank you. Your next question comes from Jeff Pell from GoldenTree. Please go ahead.
Good morning, guys.
Morning.
Just come back to, I guess, you know, the recent acquisitions in childcare. I'm just wondering about just the health of the operators just across your childcare and aged care portfolios. Just, you know, we're hearing just obviously rising labor and staffing costs. Just any concerns in the portfolio just given we are, you know, going to a potentially much higher inflation environment?
I think the key thing to note here, Jeff, thanks for the question, is that we have 100% rent collection across our portfolio. In terms of our tenant base, over 30% of our tenant base across our portfolio are national tenants. We are feeling confident in terms of where we are at this moment in time.
I might just add to that. Sorry. Sid again.
That's okay.
In the childcare portfolio, what we've also seen post the Omicron wave is that occupancy levels across our network within the childcare portfolio is north of 70%-80%, so they're trading really well. Most of our tenants actually have a waiting list for people. But again, if we come back to the model portfolio, the diversification across the five subsectors allows us to deal with these waves in a particular subsector at any moment in time. 30% of our tenants already have rental escalations pegged to inflation, CPI. As we do more and more new transactions, a lot of our newer transactions are also pegged to CPI. We're protecting ourselves onto the inflation risk moving forward.
Thanks for that. My second question, just the Springfield, you know, you opened December 2021. Just curious how that asset's been performing and then, you know, how are discussions going for the remaining leasing on that asset?
Yeah. Sid again, thank you for that. No, Springfield's trading well, really exciting. We're very close to making an announcement on Springfield, but we're not quite there yet. We're close to completing the childcare, which will commence trading shortly. The practical completion has occurred. The medical center and the health and wellness spaces are also currently fitting out, so is the chemist, and then we'll be making an announcement on the balance of the facility in the very near future. We're in advanced discussions with a tier one hospital operator for part of that space.
Oh, thanks. Thanks for that. That's all my questions. Thank you.
Thanks, Jeff.
Thank you. Your next question comes from Stuart McLean from Macquarie. Please go ahead.
Good morning. Just following up some maybe Simon's questions. In regards to then the pace of acquisitions and the use of the balance sheet. When would you expect to reach full deployment of 30%-40% and have a stabilized portfolio that covers the divvy?
I think in terms of the dividend coverage, so we obviously, it's an objective of ours to do that. We're targeting, as you well know, a dividend payout ratio of 90%-100% of FFO. As to when that happens, it's really a function of when, as you identify, when we deploy that capital whether we have on our balance sheet. As Sid alluded to, we're continuing to evaluate acquisition opportunities. We are continuing to evaluate development opportunities. But I mean, the answer to your question, if we deployed spare capital today on projects that are above our cost of capital, that could be next year. But that's a theoretical forward-looking point. We're just continuing to evaluate how we can deploy our balance sheet.
Okay, thank you. My second question is just around the ownership structure of Camden Stage II, Stage III. Does HCW anticipate exercising first rights on HMC's interest in that asset? Or can you just talk to the potential structure of ownership on Stage II, Stage III?
Yeah, I think it's the intention for HealthCo to be the owner of those stages II and stages III and not Timeco. That will be a process that will develop over time.
Okay. Thank you. That's all the questions from me. Appreciate the time.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Sky Walker from Alder & Partners PWM. Please go ahead.
Hello. Thanks for taking my questions. I just wondered if you could expand on your comment about expressions of interest from hospital operators. Do you have expressions beyond your current projects and have a potential pipeline of new precincts that you're targeting?
Yes. The short answer is yes. Again, we're looking at opportunities not just within our current network but beyond that. At the right time, we'll make some further announcements in relation to it.
Just as by way of an update on Camden Stages II and Stage III. We're really pleased with the level of response in regard to that EOI process. We will look to appoint a preferred operator over the next couple of months and work with them on the service profile of the hospital, final design, and ancillary tenant mix required. We envisage Stage Three, the research facility, that'll be complementary to both those hospital facilities. Therefore, once we appoint a preferred operator for Stage II, we will work with both of those private hospital operators on the potential design and tenant mix. We will look to progress Stages II and Stages III concurrently.
Okay. This research facility sector, is that a more of a sale and leaseback opportunity or is it from existing property or is it a development sector too?
That's a development. Yes, that's right. It'll be done on a sale and leaseback basis, as in we'll develop it and lease it.
Oh, sorry. I'm talking about more broadly for, you know, further opportunities beyond this one.
Absolutely. We're diligencing a number of Camden style development opportunities that do include life sciences and research opportunities, as we see that as an emerging sector in Australia and very much following the U.S. and Europe experience.
Okay. Just one last question. Just the Camden Stage Two, you've indicated a return of 7%+ potentially. To be honest, that doesn't look that exciting given the size of the project and development risk. Is this reflective of the tightness in the market? Is that what we should kind of expect for these projects going forward?
Yeah. Hi, it's Christian. Yeah, we believe that's an attractive returns profile for our REIT, and it's over and above where we see other projects currently in market at this moment in time.
Okay. Is that an ungeared return or is it geared?
Ungeared. That's ungeared. That's an unlevered basis.
Okay. All right. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will pause for a moment while we wait for questions to register. There are no further questions at this time, and that does conclude our conference for today.