Centuria have opened their Healthcare Property Fund to raise capital from wholesale investors.
The Centuria Healthcare Property Fund is an open-ended unlisted property fund which seeks to provide investors with access to a diversified portfolio of healthcare and aged care properties.
The Fund was established in September 2020 and has an investment portfolio of $349.8M. The portfolio provides a diversified exposure to healthcare and aged care properties, with:
- 16 properties valued at $339.7M (as if complete value) as well as a $10.1M investment in the related Nexus Property Unit Trust (NPUT), which is a co-owner in four assets that are anchored by Nexus Hospitals,
- 99% occupancy with a long Weighted Average Lease Expiry (WALE) of 11.5 years,
- well diversified by location and tenant income, with a weighting to hospitals and surgery 44%, mental health 16%, specialists 14% and other 26%.
The portfolio is expected to grow over time as Centuria intends to acquire additional properties to provide further scale and diversification for the Fund.
The fund will provide monthly distributions forecast to deliver a 5.4% yield on the current issue price.
The Fund has debt facilities totalling $170M, with ~$40M of undrawn debt which may be used to fund further acquisitions. The portfolio has a Loan-To-Valuation Ratio (LVR) of 44.1%, which sits comfortably at the mid-point of the target range of 35% – 49%, and below the bank LVR covenant of 55%
Further Information
| Responsible Manager | Centuria Property Funds No.2 Limited |
| Fund Manager | Centuria Property Funds No.2 Limited |
| Distributions | Target 5.4% for FY22 based on current unit price |
| Target Return | 5.3% – 8.6% p.a (pre fees, pre tax)* |
| Liquidity | Limited Liquidity |
| Investor Type | Wholesale |
| Target Assets | Invest in a quality portfolio of strategically located healthcare properties |
Centuria’s Target Market Determination
This product is likely to be appropriate for a consumer seeking Capital Growth and Income Distribution to be used as a Satellite / small allocation or a core component not exceeding 50% allocation within a portfolio where the consumer has a Long investment timeframe, Medium risk/return profile and needs limited access to capital.
Investment Strategy
The Fund’s objective is to achieve stable income returns and the potential for capital growth through investing in properties in the healthcare and aged care sectors. Target properties will be underpinned by reputable healthcare operators.
To achieve its objective, the Fund’s strategy is to:
- Invest in a quality portfolio of strategically located healthcare properties;
- Diversify the portfolio by location, property type, tenant and type of healthcare;
- Own properties that have a strong earnings profile, with rental income underpinned by long-term leases with reputable healthcare operators;
- Adhere to a prudent capital structure and capital management strategy, with target look through gearing between 35% – 49%;
- Pursue acquisition, divestment and investment opportunities, utilising Centuria Healthcare sector relationships and expertise; and
- Continue to assess development opportunities, and where appropriate, undertake developments to increase the potential of the portfolio.
The Fund has a target allocation of 90% in Direct Property, 7.5% in A-REITs and 2.5% in cash or cash-like products. The allocation to REITs and cash are intended to provide liquidity for the Fund to support withdrawal requests.
Healthcare Market
The Healthcare property market has enjoyed strong returns over recent years, largely on the back of significant yield compression as investors continue to seek higher risk adjusted returns.
Local institutional interest has increased, but it has been the participation of offshore investors that
provided the initial impetus to yield re rating. Investor interest in is likely to increase further over the next few years due to:
- Still strong healthcare demand from an ageing and growing population ;
- Challenging conditions in core sectors, particularly office and retail;
- Increased occurrence of chronic diseases and improvements in medical detection and treatment,
- Preventative care focus driving further demand towards primary and secondary healthcare facilities
- A fragmented market with suitable assets across geographic and price spectrum
- Generally a stable and non cyclical income flow
In the short term, a lack of opportunities in core sectors and super low interest rates could see cap rate compression continue, despite short term operational performance challenges.
Property Overview
The Fund’s portfolio currently consists of $349.8M of property investments spread across 16 health and dementia care assets as well as an investment in a related healthcare trust.
- The Fund has $339.7M of direct property investments, including a 100% direct ownership of 12 properties and an 85% interest in four properties anchored by Nexus Hospitals.
- The Fund also owns $10.1M of units in the Nexus Property Unit Trust (NPUT), which owns the remaining 15% interest in the four Nexus properties.
The portfolio has grown strongly, with $219M of the properties being transacted in the 2021 calendar year to date. The acquisitions have significantly improved the portfolio’s diversification across the healthcare sector, by location and tenant.
The portfolio is 99% occupied, with a long Weighted Average Lease Expiry (WALE) of 11.5 years.
Liquidity
The Fund offers liquidity for investors to redeem their units, via two main facilities:
Quarterly Facility: Centuria offers a quarterly withdrawal facility, subject to available liquidity.
- The minimum amount available to meet withdrawal requests during a quarter is 0.5% of the Fund’s NAV. However, the actual amount available is expected to exceed this amount.
- The maximum amount available to meet withdrawal requests will be capped at 10% p.a. of the Fund’s NAV (when the NAV is less than $100M), or $10M p.a. (when the NAV is above $100M). The Fund currently applies the maximum withdrawal limit of $10M p.a., based on the current NAV of the Fund.
Every five years: At the end of each rolling five-year term, Centuria intends to provide full liquidity for investors wishing to redeem some or all of their investment. To provide this liquidity Centuria may sell one or more properties, raise new equity, take on additional debt, undertake an equity raising (including via an ASX listing) or a combination of these measures. The first full liquidity event is expected to occur in August 2025, and every five-years thereafter.
Investors should be aware that there are further terms and conditions of the Withdrawal Facility including that withdrawals are ultimately at the discretion of the RE.
Fund Fees
Aritfex are entitled to receive fees in consideration for establishment and management of the Fund including;
- Acquisition Fee equal to of 2% of the Acquisition Price
- Management Fees based on 0.80% of the Gross Asset Value (GAV) of the Fund
- Trust Expenses equal to 0.35% of the Gross Asset Value (GAV) of the Fund
- Development Management Fee equal to 1-5% of Development Costs
- A Disposal Fee equal to 0.5% of the sale proceeds (excluding external agents fees)
- A Performance Fee of 20% of the Fund’s performance above an 8% Equity IRR return after fees and costs. Paid on a quarterly basis (hurdle rate of 2.0% per quarter), with a high watermark for any underperformance.
Core Property Group has reviewed the Fees and estimate that Centuria is entitled to 7.3% of the total cash flow. Core Property considers the fees paid to the Manager to be low in comparison to similar products, which are typically around 7% – 9%.
Recommendation
The Fund is recommended for further consideration by investors seeking an above average distribution yield from a diversified portfolio of tenants exposed to growing sector. The prospects of capital growth from cap rate compression are less certain in the current cycle.
Refer to Fund Information for further information.
Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
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