A lack of prime stock was a barrier for investors last year despite many remaining keen on investing in the care sector, Knight Frank’s Healthcare Capital Markets 2020 report has said.
Despite a backdrop of political and economic uncertainty healthcare property transactions hit a record high of £1.76bn in 2019, up 17% from £1.49bn, the year previous. This compared to a decline of 17% across all commercial property, with office, industrial and retail sectors experiencing falls in transaction activity.
With 95% of care home stock privately owned, older people’s care was the largest investable market and has accounted for 51% of recorded healthcare transactions since 2015, the document said.
Major deals in the care home sector included a joint venture between Chinese private equity group Cindat Capital and US healthcare REIT Omega Capital, which purchased a 49% stake in a 67 care home portfolio. The homes are let to operators HC-One and Maria Mallaband Care Group.
In its fourth quarter results for 2019, released last month, Omega Healthcare’s chief executive officer Taylor Pickett, said: ‘The fourth quarter represented a strong conclusion to a very productive year. In December, we completed our acquisition of a 49% interest in a UK senior housing joint venture for approximately $90m [£69m]. In addition, we continue to source smaller, attractively priced acquisitions and new development projects with our existing tenants, while opportunistically divesting of certain non-core holdings.’
Other deals highlighted in the report were Barchester Healthcare’s acquisition of 24 Brighterkind care homes from private equity firm Terra Firma for £165m and Aviva (Lime Fund)’s purchase of five properties from developer Hadrian Healthcare for more than £100m.
Elsewhere in the eight-page report, healthcare REITs benefited from increasing preference for opco-propco business models among operators, whereby the property assets of the business are separated from the operating side.
‘This allows operators to focus on delivering care and protect the interests of residents, with the option to sell off their property assets and raise capital if required,’ the report said. ‘This has created a growing opportunity for investors (particularly REITs) targeting fixed income assets, with sale and leaseback deals common to the market.’
The report found care home yields in the UK were lower than those in other developed and mature markets globally.
Total returns fell across all UK commercial property sectors in 2019 due to uncertainty.
‘Healthcare returns in the MSCI index fell to 7.4%, but currently rank higher than all core property sectors, overtaking industrial returns for the first time,’ the document said. ‘Declines were most severe in the retail and industrial sectors, with the investment cycle beginning to cool off for the latter.’