HealthCo Upgrades Earnings by 16% with further $200m of acquisitions

HealthCo Healthcare & Wellness REIT has agreed to acquire approximately $200m of high- quality property acquisitions which are consistent with the REIT’s core strategy.

These acquisitions will increase HCW’s portfolio from $555m at IPO to $668m and approximately $850m on an as-complete basis.

The acquisitions include:

■   Metro Childcare portfolio

A high quality portfolio pipeline of 13 newly constructed metropolitan childcare centres leased to national tenants on long term double net leases. Refer to separate article.

■   Proxima Southport, (QLD)

Proxima is a fund-through integrated health hub development situated within the emerging Gold Coast Health and Knowledge precinct (known as Lumina). The property is currently 50% owned by HealthCo and 50% by HomeCo.

HealthCo’s has agreed to acquire Homeo’s interest for $5.0m purchase price, consistent with the book value of HCW’s existing 50% interest.

The property sits adjacent to The Gold Coast University Hospital, Gold Coast Private Hospital and the expanding Griffith University campus.

Settlement of the site is expected to occur in Oct-21 with construction to commence later this month with a 15-month construction timetable.

The forecast cost to complete is $70m with the developer to provide a 5.65% coupon during construction. The development is currently 61% pre-leased to Queensland Health, Griffith University and Sanctuary Early Learning and includes a 1-year rental guarantee (post completion) from the developer.

■   Camden (Stage 1), (NSW)

HMC has granted HCW an option to acquire HMC’s interest in Camden (Stage 1) ‘The George’ Private Hospital on completion of the development at a 5.0% discount to the future independent valuation

Proposed acquisition expected to increase HCW’s ownership interest in The George to approximately 82% (subject to the final capex contribution of the joint venture partners).

The George is 100% leased to Acurio Health Group on a 15-year triple net lease with strong inflation protection via CPI linked escalations.

The development of the 78 bed Private Hospital commenced in Sep-21 and is on target for completion in early 2023 with a total forecast spend of $80m.

The George forms part of a broader integrated health precinct development opportunity with a potential end value of $500m+

Home Consortium CEO and Managing Director, David Di Pilla said “Today’s announcement reinforces our high level of conviction and commitment to HCW’s long term growth prospects and scalability. As HCW’s largest investor and manager we have today demonstrated our support via the sale of Proxima Southport and Camden (Stage 1) on attractive terms for HCW.”

HomeCo had previously flagged the sale of the part interests in Camden and Proxima to a separately managed unlisted fund, however the sale now to HealthCo REIT is a change in strategy for the manager and reflects the strong demand for the HealthCo REIT units.

David Di Pilla said: “Notwithstanding the strong level of interest and engagement from potential unlisted investors, we have decided not to pursue the unlisted fund and determined that HCW is the optimal long-term owner of these assets.”

Ultimately the decision was based on a number of factors including the depth and quality of investor demand for the HCW IPO, and the potential impact to HCW’s growth trajectory during the initial two-year deployment phase of the proposed unlisted fund. The investor response to the HCW IPO enabled us to raise $650m compared to our original target of $500m and more importantly demonstrated the potential to execute our growth objectives through HCW.”

The decisions taken today will result in an exciting outlook for HCW which is now well positioned as our primary vehicle in the health & wellness, government and life sciences sectors.”

In other news, Health Co confirmed that construction had commenced on the Guardian Early Learning childcare centre, EMF Gym and Doctors and Co Medical Centre at Sprigfield with these tenancies due to open for trade in Q1 2022. The development is on track to deliver a target yield on cost of >6.0% (ungeared) on a fully stabilised basis.

Furthermore, the first phase of this redevelopment of St Marys assets includes an Aurrum Kids childcare centre which is expected to commence operations in early FY23.

Based on the acquisitions, HealthCo REIT increased its FY22 FFO guidance to 5.0 cpu which represents a 16% upgrade to PDS FY22 FFO guidance of 4.3 cpu. HCW reaffirms PDS FY22 distribution per unit guidance of 7.4 cents.

HealthCo continues to actively monitor the market for potential acquisition opportunities and is well positioned to execute with a strong capital position.

Premium Members can find all HealthCo Articles, trading Analysis, Annual Reports and Presentations here

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About Warwick Petschack

Warwick has over 25 years of property investment and management experience. Principally responsible as Managing Director for Capital Management Australia and Joint Managing Director for Chauvel Capital Partners and Editor of Australian Property Markets News.

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