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Healthcare Capital Markets Healthcare property transactions Overseas capital targets Stable returns in healthcare hit a record £2.7 billion the private hospital sector look increasingly attractive Healthcare Capital Markets Research 2021 HEALTHCARE CAPITAL MARKETS 2021 HEALTHCARE CAPITAL MARKETS 2021 face of an unprecedented challenge. The way healthcare operators The operational impact of Encouragingly, many investors continue have handled the crisis has helped to the pandemic 2020: A HISTORIC YEAR FOR to favour the long-term investment case maintain confidence in the sector, but Despite healthy investment flows, the for the sector – a view vindicated now there is a much broader investment THE HEALTHCARE SECTOR pandemic has posed an unprecedented that the vaccine has been deployed and case which is driving capital toward operational challenge to the sector. a recovery is expected. the sector. This is outlined below. Hospitals, care homes, GP practices and other specialist healthcare facilities have had to adopt stringent infection Fig 2: Percentage change in Fig 3: Healthcare property control measures, often at a cost, and property investment volumes investment, by asset type Healthcare real estate investment reaches a record £2.7 billion, despite the pandemic private sector workforces have been stretched in many of the same ways as Healthcare property Elderly Care Adult Care our NHS. All commerical property Primary Care Hospital Facilities The greatest concerns were focused Childcare Other medical Even in the midst of a global pandemic, The breadth of assets within 150% on the elderly care home sector, with its Fig 1: Recorded healthcare the healthcare sector has received a healthcare is matched by a growing Last 5 years 2020 only (£2.7 bn) population base of over 85s at greatest investment volumes, £ billions significant level of investment. As breadth of investor types. This includes 100% 1% risk of mortality. This had some impact 3.0 shown in Figure 1, recorded property an increasing weight of institutional on transactions in 2020 with the 18% 1% transactions across the healthcare capital, a strengthening selection of 50% 2.5 elderly care sector representing 18% arena reached £2.7 billion in 2020, real estate investment trusts (REITs), of all healthcare property investment, 2% 2.0 making it a record year. This end-year and intensifying demand from overseas 0% compared to 39% across the last five 32% figure owes much to some significant investors targeting UK healthcare. 39% 1.5 years (Figure 3). The data show that as of 9% portfolio deals within traditional With a growing pool of investors and -50% January 2021, UK care home occupancy 1.0 healthcare sectors like private asset types, healthcare transaction 12% 15% was just below 80%, reflecting a 9-10% hospitals and care homes, but there volumes have increased year-on-year -100% 0.5 Ageing fall since the onset of the pandemic. Ageing Ageing has also been growing activity in since 2016 and were up 55% in 2020. populations populations2017 populations 2015 2019 2016 2014 2018 69% Increasing mortality levels and a 2020 0.0 more specialised subsectors, including In contrast, deal volumes in the wider reduction in admissions have had 2017 2012 2013 2015 2019 2016 2014 2018 2020 assets supporting mental health, commercial real estate market have an effect but the independent care disability housing, childcare and stagnated and fallen in recent years Source: Property Data Source: Property Data Source: Property Data sector has been hugely resilient in the specialist schools. (Figure 2). THE INVESTMENT CASE FOR UK HEALTHCARE PROPERTY H uu sold With a growing pool of investors and a diverse range of different asset types, healthcare DEMOGRAPHIC SECURE LONG-TERM INVESTMENT DEMAND FOR STRUCTURAL SOCIAL transaction volumes have SHIFT INCOME INCOME PERFORMANCE SAFE-HAVENS CHANGE IN IMPACT increased year-on-year REAL ESTATE since 2016 and were up With the UK over 85 population Operator revenue and rental Weighted average unexpired Total returns are historically Broader UK real estate typically Real estate investors were Many investors now have ESG set to increase from 1.7 million income is reinforced by lease terms (WAULT) are around stable, giving investors offers security and liquidity already de-risking from requirements and are targeting 55% in 2020 to 3.7 million by 2050, there traditionally high occupancy 25-30 years in the residential protection and diversification. in a global downturn and traditional sectors such as retail, social infrastructure investments uu will be increasing demand for rates as well as a healthy mix care and hospital sectors. Returns measured 6.3% in healthcare’s long-dated income prior to Covid-19. The pandemic with healthcare very much a part residential care, primary care of self-funded care and public- Leases are commonly indexed- 2020, higher than many core offers further safety. is expected to accelerate of this agenda. and acute hospital services. funded care. linked to inflation. property sectors. this trend. 2 3 HEALTHCARE CAPITAL MARKETS 2021 HEALTHCARE CAPITAL MARKETS 2021 to see further investment interest in these niche sectors going forward. KEY DEALS AND Fig 5: Healthcare property investment – overseas share TRANSACTIONS Forward-funding in the elderly Overseas Domestic care home sector 41% 59% 72% 28% Overseas capital targets UK sector in 2021 as it looks to deal with Investors moving towards Belgian-listed Aedifica continued its healthcare sector a huge backlog of non-Covid patients, specialist healthcare assets expansion into the UK elderly sector, especially cancer patients. acquiring five trading care homes for £61 Across the healthcare sector, overseas The pandemic has fuelled greater Deals in the elderly care home sector million. The purpose-built homes are let capital was very active in 2020, investor interest in specialist healthcare were broadly subdued in 2020, but to two leading operators on 30-year leases, accounting for 72% of transaction sectors such as mental health, learning there have been some hugely significant at a gross yield of 6%. Very few assets volumes. As shown in Figure 5, this was disability, children’s nurseries and overseas entries into the UK and Ireland traded at the prime end of the market in well above the 41% share seen across the specialist schools. Not all that surprising, already in 2021. Korian, the giant French- 2020. While investors paused to digest last five years. The most significant deals given that these sectors tend to be based care operator, made its entry into the impact of Covid-19, the availability were focused on the private hospital focused on users below the age of 65, the UK by acquiring Berkley Care group in of prime quality stock is actually the market, capital supplied by specialist for whom Covid-19 is much less of a Q1 2021. While Belgian REIT, Cofinimmo, bigger barrier. The forward funding of North American REITs. In a mega deal threat1. There have been a number of purchased seven assets in the Irish market new care home developments is therefore valued at £1.5 billion, Medical Properties large specialist healthcare opco’s and real for a reported 100 million Euros. Both becoming increasingly common among Trust acquired 30 BMI operated hospital estate portfolios brought to market or transactions will do much to restore investors as a way to access prime stock facilities in early 2020. The real estate in the pipeline. This includes specialist confidence in this sector. and help the sector upgrade. Octopus deal followed the buy-out of BMI by adult healthcare provider Exemplar RE’s purchase of eight care homes from Circle Health, which has committed to Health Care, and mental health providers LNT Care Developments for £100 million a £250 million upgrade programme. uu Elysium Healthcare and Priory Group in December 2020 is one such example Canadian-based NorthWest Healthcare – the latter being sold to private equity With specialist healthcare of this – the specialist investor agreeing REIT also acquired six BMI hospitals group, Waterland, for £1.1 billion at the LAST YEARS services poised to see more users to buy five of the properties at practical and four Aspen Healthcare hospitals for start of 2021. With specialist healthcare in the aftermath of Covid-19, we completion and forward fund the Source: Property Data a total £358 million. These acquisitions services poised to see more users in the expect to see further investment remaining three. look well-timed, not just because the aftermath of Covid-19, infrastructure interest in these niche sectors dollar has since weakened against the funds becoming increasingly active, going forward pound, but because the NHS is expected and socially impactful or ESG investing Table 1: Major Deals 2020 to lean heavily on the private hospital uu becoming a growing priority, we expect PRICE (£ SECTOR ASSET/PORTFOLIO PURCHASER ASSETS SELLER OCCUPIER DATE MILLION) Fig 4: Healthcare property investment, by buyer type Hospitals 30 x BMI Healthcare Portfolio Medical Properties Trust 30 BMI (Circle Health) BMI (Circle Health) 1,500 Jan-20 2018 2019 2020 General Mixer Hospitals Magnolia Portfolio NorthWest Healthcare REIT 6 BMI (Circle Health) 98 Feb-20 Healthcare Partnership 80% Hospitals Aspen (London) portfolio NorthWest Healthcare REIT 4 Undisclosed Aspen Healthcare 260 Aug-20 70% LNT Care Ideal Care Homes/ 60% Elderly care 8 x New build portfolio Octopus RE 8 100 Dec-20 Developments Elmfield Care 50% Elderly care Southern England portfolio Aedifica SA/NV 5 Undisclosed Bondcare and MMCG 61 Jan-20 40% Elderly care Holmes Care (Scotland) Portfolio Impact Healthcare REIT 9 Holmes Care Holmes Care 48 Mar-20 30% 20% Primary care 20 x Medical Centres Primary Health Properties 20 Undisclosed GP & NHS 47 May-20 10% Primary care 7 x Medical Centres Assura Group Ltd 7 Undisclosed Undisclosed 35 Jun-20 0% Busy Bees, Bright Childcare 5 x London children’s nurseries Newcore Capital 5 Public sector vendors 23 Mar-20 REITS & LISTED INSTITUTIONAL PRIVATE OCCUPIER PRIVATE UNDISCLOSED OVERSEAS Horizons and others PROPERTY CO.
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