Generation Healthcare REIT : GHC FY16 Financial Results Announcement

22 August 2016

The Manager

Company Announcements Office ASX Limited

Level 4, Exchange Centre 20 Bridge Street

Sydney NSW 2000

Generation Healthcare REIT ('GHC' or the 'Fund') is pleased to announce its financial result for the year ended 30 June 2016.

 Statutory profit of $51.4 million, up 64% from $31.3 million in the prior corresponding period (pcp);

 Underlying1 net operating income (UNOI) of $21.8 million, up 27% from $17.2 million in the pcp;

 Underlying1 net operating income per unit of 10.11 cents, up 5.6% from 9.57 cents in the pcp;

 Distributions per unit of 8.84 cents for the year, up 3% on the 8.58 cents in the pcp;

 Material property revaluation gains during the year of $48.6 million

 Commenced construction on two of the Funds' organic growth projects, totalling

$159 million (GHC share $74 million), being Casey Stage 2 and the Frankston Private Hospital expansion;

 Completed the acquisition of the freehold interest at Epworth Freemasons Victoria Parade and 6 ground floor suites at Waratah Private Hospital;

 S&P/ASX 300 Index inclusion effective 18 September 2015;

 Achieved a total return2 for the 12 months of 41.6%, materially outperforming the S&P/ASX 300 A-REIT Accumulation Index return by 17.0%.

Commenting on the full year result, GHC's Chief Executive Officer, Miles Wentworth said "The strong operating result, in conjunction with initiating construction at two of

1 UNOI excludes: property revaluations, movements in derivatives, net change in loans carried at amortised cost, lease surrender and new tenant incentive associated with change of a significant tenant at ARCBS and Manager's performance fees

2 Capital appreciation of GHC units during the year to 30 June 2016, assuming reinvestment of distributions paid

the Fund's key organic growth projects, being Casey Stage 2 and Frankston Private, and inclusion in the S&P/ASX300 Index, culminated in a strong total return performance of 41.6% for investors in the Fund. We believe this recognises our active property management and development, combined with the continued re-rating of healthcare property as an asset class. Investors are increasingly recognising the defensive characteristics and attractive, risk adjusted returns that high quality healthcare property provides".

Underlying net operating income was up 27% to $21.8 million for the 2016 financial year primarily due to a combination of:

 like-for-like property rental growth of 2.9%;

 a 12 month contribution following the acquisition of three aged care facilities from RSL Care in June 2015;

 a 12 month contribution following the February 2015 completion of the Casey Specialist Centre project;

 a reduction in ground rent expense following the purchase of the Epworth Freemasons Victoria Parade land freehold, and

 partially offset by higher management fees and general fund expenses given the increased funds under management.

Statutory profit of $51.4 million was 64% higher than the prior corresponding year's profit of $31.3 million, principally as a result of the 27% increase in underlying net operating income and a material revaluation gain for investment properties, partially offset by an increase in the performance fee to the Manager, increased loss on fair value of derivatives and a reduction in the carrying value of loans.

Net tangible asset (NTA) backing per unit increased 13% ($0.16) from $1.22 to $1.38 as at 30 June 2016. The increase is largely attributable to the revaluation gain of investment properties, partially reduced by an increase in the performance fee payable to the Manager and an increase in the derivative liability.

Net debt to total assets was 28.3%, up 1.7 percentage points from 26.6% at 30 June 2015. The increase was principally as a result of debt funding being used to settle the acquisition of the freehold interest at Epworth Freemasons Victoria Parade, acquisition of the Waratah ground floor suites, payment of a margin share to a lessee and expenditure on development projects partially reduced by a material increase in the value of the property portfolio. The balance sheet capacity created through equity raisings in prior periods is being utilised to deliver the Funds' organic growth projects while maintaining the Fund's capital structure and gearing at prudent levels.

The property portfolio as at 30 June 2016 (excluding minority interests) was $465 million having increased by $80 million over the year as a result of a combination of independent valuations, directors valuations, acquisitions and capital expenditure on the Fund's organic growth pipeline. The valuation increase in part reflects investors continued appetite for yield but also the markets greater understanding of

healthcare real estate and its associated re-rating. All properties (other than the two properties held as properties under construction and the recently acquired Waratah Private Hospital Ground Floor suites) have been independently valued in the 12 months to 30 June 2016.

Key portfolio metrics for the period include:

 Like-for-like rental growth of 2.9%;

 Continued high occupancy of 98.6%;

 A weighted average lease term to expiry (WALTE) of 12.2 years;

 84.5% of expiring tenants (by income) were either renewed or relet within the year;

 An active approach to leasing has delivered 11 new leases and 11 lease renewals representing $2.87 million of rent; and

 The Fund's property values increased by $48.6 million reflecting a firmer weighted average capitalisation rate of 7.01% (compared to 7.82% as at 30 June 2015).

GHC, via its joint venture entity, has a 50% interest in the existing Frankston Private Hospital, a high quality cancer focused facility tenanted by Healthscope Limited ("Healthscope"), GenesisCare and MIA Radiology. The Frankston Private expansion project, designed to meet the specific requirements of Healthscope, is now well underway. This circa $45 million project, in which GHC is to have a 65% interest (representing an additional investment of approximately $29 million) will see the expansion of the Frankston Private Hospital via the delivery of:

 60 inpatient beds;

 2 additional operating theatres;

 expansion of the stage 1 and 2 recovery areas;

 relocation of day oncology to a newly built area; and

 99 underground car parks.

National Australia Bank, the Fund's existing debt provider to the Frankston Private joint venture, will finance the project and Watpac is the project builder. Site works commenced in December 2015 and the project is forecast to complete late FY17 subject to delivery in stages.

Healthscope pre-committed to the project via an Agreement for Lease, to head lease the new facility. The initial lease term will be 20 years with the initial rent determined using the GHC return on total project cost model.

In partnership with Australia's largest not-for-profit private hospital operator, St John of God Health Care ("SJGHC"), the Casey Stage 2 project being a $114 million, 18,000 sqm state of the art private hospital located adjacent to the recently

completed Casey Specialist Medical Centre, which is 100% owned by GHC. This is the second stage (of three stages) of what will become one of Melbourne's leading integrated health campuses.

The private hospital will comprise:

 190 beds, six operating theatres, six birthing suites, a cardiac/vascular catheter laboratory, two endoscopy theatres;

 medical consulting suites; and

 12,000sqm of underground car parking (approximately 350 additional car parks).

On completion of the private hospital, the Fund will own a 50% interest in the base building and 90% of the car park (forecast at circa $45 million), with the balance of the project and the building fitout funded and owned by SJGHC.

Hansen Yuncken is the contracted project builder, with ANZ Banking Group providing project debt finance. Work on site commenced in January 2016, with completion forecast late in the first half of FY18. SJGHC has a head lease over the hospital premises and 188 of the 350 car parks, both for an initial term of 20 years, with the initial rent determined using the GHC return on total project cost model.

The Epworth Freemasons expansion project planning permit application was lodged with the Melbourne City Council in December 2015. The application was for a 10 level, 6,805 sqm building to be known as the Grey Street Centre and a 309 bay below ground car park on the Albert Street side of the site.

The estimated total project cost is $69 million and is to be in a 50/50 joint venture with Epworth Foundation. Both projects are to be head leased by Epworth for an initial 20 year term with the initial rent determined using the GHC return on total project cost model.

A Planning Permit was issued by Melbourne City Council in August 2016, the conditions of which are subject to review and appeal by GHC and Epworth. The project is subject to town planning, finance and governance.

On 27 June 2016, APN Funds Management Limited (APNFM), noted the sale of 100% of Generation Healthcare Management Pty Limited (GHM), the Investment Manager of GHC to Canadian listed NorthWest Healthcare Properties Real Estate Investment Trust (NorthWest).

NorthWest is a highly credentialed and experienced global healthcare real estate manager whose skills will complement those of the existing management team.

GHC is well placed to continue its strong growth and track record of performance. The transaction was supported by the Independent Directors of APNFM.