Investors should take advantage of Healthcare Reits
With growing interest in real estate investment trusts (Reits) and a desire for strong returns, it is time to consider listing a healthcare Reit, advises Ortneil Kutama, SA Commercial Prop News Media Director.
Healthcare REITs own and operate properties including hospitals, senior housing facilities, skilled nursing facilities, and other medical office buildings.
“The argument for healthcare Reits continues to grow. There is a gap for hospital services in SA and property investors can benefit from this,” says Kutama.
In more mature Reit markets, specialised funds are far more abundant. In the US and Netherlands, healthcare Reits are often popular investments.
In SA more hospitals need to be built and current hospitals need to be upgraded. There is a shortage of doctors in the country too.
“There are also benefits in investing in these healthcare assets designed to prolong life,” Kutama added.
One of the country’s foremost black owned healthcare groups Busamed, this week announced the opening of the world class Modderfontein Private Hospital & Oncology Centre on the footprint of Zendai Development’s Modderfontein New City.
The 170 bed hospital boasts of impressive facilities including the most modern medical equipment.
Some fund managers have in the past tried to list a healthcare Reit in SA but struggled to find the scale of assets required to do so. Yet many small funds have listed on the JSE and NSE in the recent past with market capitalisations of around R1bn to R3bn.
Reits have to pay out the majority of their income as dividends and this would have to be the same with healthcare groups.
Healthcare Reits could include retirement or wellness centre assets. South Africa’s retirement industry needs to professionalised. This can become easier to achieve if the retirement homes and villages are brought into a listed vehicle.
Reits attract investment funds because of the tax benefits attached. Investors in Reits like them because they guarantee dividend payments. Specialised funds can be attractive because they are focused in their niches but they need scale.
Already residential specialised Reits such as Indluplace Properties and self storage property fund, Stor-Age Property REIT Limited have come to the market. Spear Reit, a fund whose specialisation is owning property in the Western Cape also listed recently.
Investors often promote specialised funds because they like it when management of these funds understand their markets well. There could be the possibility that a large hospital owner like Netcare or Life Healthcare could sell hospitals to a property manager which ran a healthcare Reit. The Reit would then lease them back. The sale of the assets would be in order to get cash in a difficult and weak economy.
Fund managers would want specialised property companies to be worth a few billion when they listed. There are probably too many funds with market capitalisations under the R3bn mark on the JSE, says Evan Robins the head of Old Mutual Investment Group’s boutique portfolio.
Hospitals also require much operational attention. Beyond having enough beds for patients and the moving around of patients for operations, there is often a shortage of doctors. Hospitals also need to be cleaner than they currently are in SA and that requires lots of staff being available regularly.
Reit managers would outsource hospital management but some investors may feel that Reit managers could put money into hospital assets to make them function more efficiently.
But in the US, the scale is clearly there. Various healthcare Reits have been very successful this year in what is the largest Reit market in the world. They argue that people should invest in assets related to promoting and prolonging everyday life. To invest in a Reit which has assets that have to be well kept in order to keep people healthy is an even more attractive endeavour.
One such fund is Ventas Inc (NYSE: VTR) which operates in the US, Canada and even the UK.
Tabling the South African National Budget Speech 2017 on Wednesday, Finance minister Pravin Gordhan revealed that properties under R900 000 (previously R750 000) wll not attract transfer duty tax. ... Full story