HomeCo has set out the details of the proposed $555m HealthCo REIT offering investors a 4.5% yield and potential growth from exposure to a the healthcare megatrends.
The REIT will comprise an initial portfolio of 22 investment properties and 5 development assets. The investment properties are 96% occupied with a weighted average lease expiry of 9.4 years with a range of tenants from Government, Life Sciences, Aged & Health Care providers, Childcare operators and other primary care businesses. Approx 65% of the leases have fixed rental increases providing a degree of predictability to the investment cashflow over the lease term.
With a low distribution yield, the REIT will be seeking to grow the portfolio via its Development asset as well as further accretive acquisitions. The REIT will be capitalised with minimal debt providing significant balance sheet capacity to grow distributions and scale.
HomeCo believe that the healthcare megatrends will increase demand in the sector. With an ageing population and the 65+ year old cohort spending 3 to 5 times more on healthcare than those under 65 year old, expenditure in the sector is expected to grow well in excess of the average rate of economic growth. According to HomeCo, Healthcare real estate has displayed relatively low levels of correlation to traditional property sectors resulting in superior risk-adjusted returns and attractive yields in a low interest rate environment.
The new HealthCo REIT will be managed by HomeCo who will retain a 20% holding in the new REIT and will also manage a wholesale co-investment fund vehicle which will take a major slice in assets valued up to $250m. The stated intention of the wholesale fund is to access a larger pool of investment opportunities, however with pre-emptive rights in place, the wholesale fund will effectively lock in HomeCo’s rights to the underlying assets in the case of a proposed take over action.
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