Australian Unity has established a Childcare Property Fund for wholesale investors with a view to building a $250m Fund over the next 3 years.
The Fund adds to Australian Unity’s social infrastructure ethos and follows investments into Retirement Villages, Aged Care facilities, Disability Accommodation and Healthcare funds.
The childcare sector has remained resilient through the global pandemic. After initial challenges experienced in early 2020 the Department of Education has reported that child attendance at centre-based day care has returned to pre-pandemic levels. Considering the centres the Fund owns, child attendance numbers have remained strong between 75% and 100% occupancy.
The Australian childcare market has been a sought-after real estate investment class over the past five years, with favourable demographics and increasing utilisation rates helping to stimulate investor appetite. This attention has increased throughout the pandemic generally increasing prices for childcare centres and compressing yields. The average national yield as measured in mid-2021 was 5.33% (including regional and metropolitan assets). There has been evidence of yield compression of major portfolios, with some auction listings for newly completed assets in the low to mid 4% range.
Following the initial capital raising of $35.78 million the Fund has settled on an initial portfolio of 7 assets with a future pipeline of opportunities secured for the next phase of growth. The group is now seeking to raise a further $40m to fund the pipeline and have issued an Information Memorandum on 3 March 2022, offering investors a 4.6% – 6.5% income yield and a total return of 10% pa (post fees).
Australian Unity continue to see good value opportunities working to acquire operating centres, perform refurbishments, and participate in fund-through opportunities to build new centres.
There is a mixture of economic data at present suggesting that increasing inflation could lower childcare centre prices, however, increased investor appetite for social infrastructure assets and perceived headwinds for traditional real estate assets classes (office, industrial, retail), has continued the strong demand for childcare real estate which is yet to see any downward valuation pressure.
Recent announcements in the 2021/2022 Federal Budget are expected to support underlying demand for childcare services going forward. The government is expected to spend $11 billion on child care funding in 2022/23, up from $10.7 billion this current year and has improved affordability of childcare for low- and middle income families. Childcare subsidy increases were brought forward from 1st July , as part of the $1.7 billion provided in last year’s budget to remove of the annual cap on the child care subsidy and increased subsidies for second and subsequent children. This is expected to save around 250,000 families on average $2,260 per year, depending on their household income and the number of children in child care.
This along with other childcare funding increases highlights the continued Government support of the sector as core social infrastructure required to support labour force participation (in particular female workforce participation), generate tax revenue, reduce reliance on welfare, and significantly contribute to the educational goals of the country.
Further details on the Fund are available below to Premium Members and investors who Register via the enquiry form on the left.