Growthpoint’s pioneering healthcare property fund aims for R10bn portfolio

By Suren Naidoo

Growthpoint Properties – one of Africa’s largest listed property companies – has achieved another first in the SA property sector by launching an unlisted healthcare real estate investment trust (REIT).

The JSE-listed SA REIT has been talking about and planning the niche fund for some time, but yesterday officially announced the business as Growthpoint Healthcare Property Holdings.

In a statement, it said that the introduction of Growthpoint Healthcare had received strong market interest, with its first close attracting capital commitments of R285m from third parties. Growthpoint said the new company was expected to raise at least double this figure in the next year.

“Growthpoint Healthcare will be managed by Growthpoint Management Services, the management team whose entrepreneurial vision and skill have made Growthpoint a leading international property company. It aims to increase Growthpoint Healthcare’s scale towards R10bn in assets and a stock exchange listing,” Growthpoint Properties added.

The new property holding vehicle invests exclusively in healthcare assets in South Africa, which are occupied by licensed operators of hospitals, clinics, pharmacies, and laboratories. Growthpoint said the new business had a focused investment mandate, which differentiates it in the market. Growthpoint Healthcare already holds five assets in the healthcare property sector, valued at R2.4bn.

“The portfolio has a weighted average lease length of about nine years reflecting the defensive nature of investing in healthcare real estate. Two of its healthcare properties are operated by private healthcare provider Busamed, and one each by JSE-listed healthcare players MediClinic and Netcare. In addition, Netcare also rents 50% of the space in N1 City Medical Chambers, the medical suites adjacent to the N1 City Hospital,” it said.

Exterior view of the N1 City Medical Chambers in Cape Town, which is part of the Growthpoint Healthcare Portfolio.

Growthpoint Healthcare also has a R750m pipeline of hospital developments, which it said would benefit from Growthpoint’s well-established property development expertise. “The first is a new R450m specialist hospital that will break ground in June this year. Another R300m specialised facility is in advance discussions. Growthpoint also has several acquisition and development opportunities on the horizon, which are being evaluated,” it added.

Growthpoint Properties provided R2.1bn to acquire Growthpoint Healthcare’s starting portfolio. A portion of this has been converted into equity, leaving Growthpoint as the anchor investor with an equity investment to R650m on the first close date. Growthpoint said the remainder was part of a R1.4bn loan to Growthpoint Healthcare, which will be settled over time as the company raises further capital.

George Muchanya, Head of Corporate Finance at Growthpoint, confirmed that Growthpoint would remain a key strategic investor in Growthpoint Healthcare.

George Muchanya, Head of Corporate Finance at Growthpoint

“Growthpoint Healthcare is playing a leading role in promoting the growth of the healthcare sector by providing the capital that emerging operators and other new entrants to the sector require to establish themselves. It is estimated that up to 70% of the capital required to start a new healthcare facility is spent on the property. Growthpoint Healthcare takes this burden off the operators and this will certainly help more projects to come on stream,” he said.

Muchanya added: “In the medium to long term, the creation of this healthcare-focused property company gives established hospital operators a credible platform to which to sell and lease back some of their property assets as a means to more efficiently manage their balance sheet. This is consistent with models followed by other hospital groups globally.”

The launch of Growthpoint Healthcare coincides with a phase where many the incumbent players in the healthcare sector, particularly newer or smaller operators, are seeking to grow. This is expected to provide deal flow for the specialised investment vehicle.

“Investors, particularly pension funds have shown an initial keen interest in the investment opportunity as it provides them with the ability to match their long-term liabilities with long-dated assets. A further attraction to the investors is that Growthpoint Healthcare provides them an opportunity to invest in healthcare property assets exclusively,” explained Muchanya.

The specialised healthcare property holding company furthers Growthpoint’s strategy to introduce new low-risk revenue streams that leverage its management strength. Growthpoint’s management business is now actively managing two investment vehicles, the other being Growthpoint Investec African Properties (GIAP) via Growthpoint Investec African Property Management.

Norbert Sasse, Group CEO of Growthpoint.

Norbert Sasse, Group CEO of Growthpoint, said: “We’re pleased that Growthpoint’s funds management strategy is making real progress and successfully attracting third-party capital. We look forward to the positive contributions – both from management fees and property returns – that this will introduce for Growthpoint’s investors, as well as the additional new possibilities it represents for our property incomes streams.”

Growthpoint, which is eyeing becoming a bigger global property company, already has assets on three continents and is the largest South African primary REIT listed on the JSE. It owns and manages a diversified portfolio of 559 property assets, locally and internationally, with a value of R128 billion at 31 December 2017.