HM meets Martin Robb

HMUK Can you tell us a bit about your background and your role at NorthWest Healthcare Properties REIT?
Martin Robb (MR) I qualified as a chartered surveyor in the early-1990s and have specialised in the healthcare real estate industry since 1997.

I spent most of my time as an advisor, principally on the valuation side, growing the corporate advisory business at Christie and Co in the noughties and beyond. In 2016, I was asked to establish the healthcare advisory team at Cushman & Wakefield, where in the space of five years we went from one employee to over 25 in the UK and the team won two industry awards.

In the latter stages of my time at Cushman, I started to work with North West. The business had been looking at strategic UK opportunities for some time and acquired a portfolio of BMI assets in January 2020, quickly followed by the Aspen portfolio. That latter acquisition caught my attention in particular as, unusually for a REIT, North West bought the operating business as well as the real estate, before re-packaging the operations and selling it on in two distinct parts. It was an impressive piece of portfolio asset management.

With knowledge of all the assets in the portfolio, plus an understanding of the way that North West thinks and acts, I was delighted to be asked if I would set up the UK business. I took up the role in September 2020 and since then we have grown assets under management by around 20% and we would like to triple the size of the business in the ‘cure’ healthcare space over the medium term.

HMUK Can you tell us a bit about NorthWest, what’s been the company’s main focus in terms of assets and geographies? And what is its ethos?

MR The business started as a Canadian investor in the Medical Office Building market around 20 – 25 years ago, growing to around CAD 500 million. Ten years ago, the business was floated on the Toronto stock exchange and since then we have expanded into Brazil, Australia and New Zealand, plus Europe (Germany, The Netherlands and the UK currently). Gross assets have grown by a factor of 20 times in that decade, with a very strong global acquisition pipeline at present.

We continue to stay close to our roots as we still acquire medical office buildings internationally, but we have broadened our outlook to any real estate that supports operational businesses in the ‘cure’ space. Thus, private hospitals, cancer care, dialysis, behavioural disorder, clinics and so on.

In terms of our ethos, we are passionate about the healthcare industry and within that, we see our role as a partnership with our tenants to assist them as they help others in their day-to-day business. We recognise that while we are a global business, it is the local relationships within the industry that create and contribute to a successful business operation.

HMUK Why the move into the UK and what has attracted the company to the private hospital market in particular?

MR Strategically it was a good fit for us, having established our operations in continental Europe around ten years ago. Our overview is that as the operational business model for the ‘cure’ sector evolves (eg less invasive procedures, faster recovery times, changes in technology and in particular plant and equipment) the real estate needs to evolve with it. A new build hospital today, for example, would have more theatre capacity and fewer beds compared to one from the 1980s.

Therefore, we see opportunity to work with our operational partners to facilitate this evolution of the real estate and provide future proofed assets. At the same time, we can recognise the ESG agenda that has, quite rightly, accelerated in recent years.

HMUK OpCo Propco arrangements were popular in the private hospital market in the early 2000s but didn’t always work out well for operators. How has the model changed and what’s different about these arrangements now?

MR Conceptually, the basic principles have not changed a great deal. By separating real estate ownership from operations, it allows the respective parties to focus on their core strengths, while potentially freeing up some balance sheet capacity for the operators.

What has also evolved considerably in my time in the market is the understanding of the trading dynamics of these businesses. As our latest investor presentation states on the first page, we have a global business, but it is underpinned by local relationships. We talk to hospital directors, consultants and other operational experts on a daily basis to inform our understanding of the market. Also, we have a track record in the UK of having taken older leases and restructuring them to make them sustainable. It’s unusual to hear of an investor actively reducing rents, but it is what we have done.

HMUK How can property partners like NorthWest help operators develop and grow their businesses?

MR Putting it simply, we have access to capital in different ways to operators. If an operator wishes to partner with us as a result, it gives them greater flexibility and, as mentioned above, a way of freeing up a part of their balance sheet for use elsewhere. We can look at a wide range of real estate solutions; for example:

• We can fund a development (the largest development scheme we have under consideration globally is around $800m)
• We can forward commit to purchase a building being constructed by others (which assists with the development financing for that property)
• We can buy the real estate from an owner operator to provide a capital receipt for deployment elsewhere
• We can fund capital expenditure on the real estate (eg refurbishments and extensions)
• We can look at existing leases and how to make them sustainable.

HMUK You now have partnerships with a number of the major hospital providers, what do you look for in a partner and a hospital asset?

MR When we acquired and then re-packaged Aspen for onward sale, as an example, we invited offers from a wide range of parties. Ultimately, we made decisions based on the long-term partnership potential as well as the quality of the purchaser’s operational abilities as well as pricing. The fact is that we did not take the highest price offered, which demonstrates our commitment to that partnership approach.

That has already paid dividends to us as we have increased our portfolio through downstream transactions, the most recent being Spire Cheshire in December 2021.

Ultimately, we want assets that either are future proofed, or are capable of being future proofed over time, leased on a sustainable basis, with high quality operational partners who feel supported by our real estate investment thesis.

HMUK Can you tell HM a bit more about your UK JV initiative? NorthWest has said it wants to expand the UK portfolio into $1.7bn of capital commitments in the region. What progress are you making against that target?

MR As of now, quite a lot, although we are bound by commercial confidentiality in the UK at the time of drafting. Internationally, the JV approach has worked very well for us, specifically in Australia and New Zealand, with a growing level of success in continental Europe. It seems entirely logical that we would bring this experience to bear upon the UK market.

From our discussions so far in 2022, what is clear is that there is appetite from investors for the product. Many have said to us though that they do not understand the industry well enough and that a partnership arrangement with us gives them immediate access to that required knowledge.

I am very hopeful that we will make significant progress on the JV during the second quarter of 2022. In the meantime, we still have access to funds, as demonstrated by the purchase of Spire Cheshire.

HMUK There are relatively few private hospital assets coming to market in the UK and with competition from MPT and institutional investors, does NorthWest plan to expand into new areas such as primary care, mental health or care homes?

MR The ‘cure’ sector is our target, as opposed to ‘care’, which provides us a range of opportunities in various sub-sectors. We believe there is a clear driver for ambulatory facilities in the cure sector and we are very interested in this. Additionally, we see development and growth opportunities in specialist markets such as cancer care or dialysis, plus there is of course the government’s public announcements about a new wave of NHS development. All of this requires capital, which is where we see opportunity.

We may look at care homes and senior housing in due course (we do own some internationally) but it is not a focus for us in the UK at the moment. However, there are sub-sectors on the boundary of cure and care, such as rehabilitation and mental health, where we have interest in the UK that matches our existing investments on the continent.

HMUK NorthWest took the unusual step of buying the Aspen operating company last year and subsequently selling the businesses. What was the rationale behind the move?

MR We liked the real estate and we felt that Aspen had been caught up in the wider NMC issues to its detriment. By controlling both real estate and operations, we were able to restructure both over a relatively short period of time and help to put the assets back on a stable and sustainable footing. We are delighted with how that process was resolved and we strongly believe that our operating partners are equally pleased, having regard to some of their recent results.

HMUK Given the scale of the NHS backlog and pent-up demand for private healthcare, do you think there will be opportunities to increase physical hospital capacity in the UK, either through development of existing sites or new build?

MR Yes, but the development may not look quite the same as it has in the past. We see opportunity for the private sector to develop more ambulatory facilities that will assist the self-pay market in particular. All of our operating partners currently report very strong growth in that market with the NHS waiting lists being a factor in the decisions being taken by individuals needing treatment. We do have to recognise though that developing hospitals and cure facilities is not a quick process, so we will look to support extensions and repositioning of existing buildings where possible.

HMUK There is still a legacy of private hospitals in old, historic buildings in the UK. How do you think this will change as companies like NorthWest and MPT develop their presence in the market?

MR There is a legacy, but it is important to recognise that within our portfolio, where we have those historic buildings, it is unusual for them to house the main clinical space. For example, The Holly Hospital in north east London looks, from the main road, like a period property but the operating theatres are housed in an extension that is less than ten years old.

As another example, Spire Cheshire was originally designed to be a hotel but was comprehensively repositioned to its use as a hospital. As a CQC ‘outstanding’ hospital, that design and construction history has demonstrably not been an impediment to performance!

To digress slightly, it is an interesting debate to have at the moment as to how the ESG agenda will impact upon the demand for cleared site development relative to repositioning existing buildings. Perhaps that is another interview topic though!

HMUK What are your current plans for expansion in the UK and what are your priorities for the next 12 months?

MR The key word is ‘growth’. That applies to assets under management just as much as it does to the size of the team working in the business plus broadening its skill set. To achieve growth, we also have to have a supportive capital structure and a clear ability to execute its strategy.

The business has successfully completed on some highly complex transactions that extended well beyond the boundaries of traditional real estate investment. This gives us a great corporate CV to leverage in the wider market and drive progress towards the ambition of tripling the size of assets under management in the next three to five years.