Calan Accounts For Non Cash Gains, & Loss On Sale
May 12, 2004
Calan Accounts For Non Cash Gains, And Loss On Sale
Statement made by Miles Wentworth, Chief Executive Officer, Calan Healthcare Properties Trust
treatment will see Calan Healthcare Properties Trust book an
unrealised return on construction ( UROC ) of approximately
$1.25 million in this financial year and
approximately $1.3 million in the 2005 year, and write off $1.5 million on the loss of sale of an investment property in the current financial year.
The net result will be a write down of some $250,000 in this financial year and a gain of approximately $1.3 million in 2005.
The gain in UROC and loss on sale will be cash neutral, and will not impact on Calan’s objective to maintain a gross distribution of 8 cents a unit, during the construction stage of Epworth Eastern, through careful asset and debt management.
The increase in UROC from that originally envisaged arises from the accounting requirement to amortise over 20 years to the Statement of Financial Performance the A$2.2 million rent holiday extended to Epworth Foundation, the anchor tenant of Epworth Eastern.
The $48.2 million surgical / medical hospital has an initial annual rental of approximately A$3.9 million a year. Originally, we had anticipated the rental holiday being a cost to the project spread across the construction phase.
The write off of $1.5 million is the difference between the original purchase price and sale price of the Artemis Medical Centre in Auckland.
We have reached agreement with privately owned Radius Health Group Ltd to purchase the Artemis Centre for $2.45 million plus GST. The property has a fully tenanted book value of $3.25 million, but it has been untenanted for some months. The sale is conditional upon the purchaser undertaking due diligence, completing a successful negotiation with a major tenant group and obtaining Board approval by 31 May 2004.
The sale of the Artemis Medical Centre represents a sensible move for Calan. We are converting an investment which is non revenue producing into one returning an immediate 6.5% return. On an annual basis it represents an additional income stream of about $160,000.
The Trust purchased this property in October 1997 at a cost of $3.9 million with the intention of incorporating it within an envisaged major development on Auckland’s North Shore, known as the Waitemata Private project. At the time it was fully tenanted. The subsequent decision not to proceed with the Waitemata project (now conditionally sold to Metlifecare) has changed the Board’s view on the need for the retention of this property.
The agreement requires Radius to pay a cash deposit of $250,000 on unconditionality, a further $600,000 in six months and the remaining $1.6 million in 12 months. Calan will have a first mortgage over the property, and we will receive interest at 6.5% per annum on all outstanding balances.
As proceeds are received from the sale, they will be used to reduce debt.
The sale of the Artemis Centre is in line with our stated strategy of exiting non revenue producing assets and tidying up our investment portfolio.