Healthcare property delivering strongly for investors but finding value more challenging: PFA Conference

From

Chris Smith

Healthcare property may continue to provide strong returns and defensive characteristics for investors, but finding intrinsic value in the asset class has become more challenging, according to Chris Smith, Head of Healthcare Property at Australian Unity.

Mr Smith was speaking at the Property Funds Association 2019 Conference in Hobart this week. He said healthcare is proven as a strong alternative property asset class for investors including mums and dads superannuation funds and family offices. “Healthcare property provides exposure to favourable demographic drivers including a growing population and an increasing median age in the population.

“Australia continues to depend on a cohesive public and private health system, which provides many opportunities for investment, including hospitals, medical centres, aged care assets and ancillary assets such as pathology labs.

“Demand for all these services are set to increase as Australia’s population grows toward the 43 million mark by 2066 (ABS data).”

Healthcare property had shown strong defensive characteristics for investors, with healthcare continuing to provide positive returns during the GFC. Mr Smith said post-GFC, the ‘Healthcare Property Index’ has regularly outperformed the ‘All Property Index’.

But he said healthcare property was currently in a challenging part of the cycle where it had become harder to find quality assets with good intrinsic value relative to price. “Some recent transactions suggest a blurring of lines between A, B and C-grade properties, which is a concern.

“We are seeing tighter capitalisation rates with newer participants entering the sector and paying well above current market valuations for assets like hospitals and medical centres.”

He said Australian Unity has the luxury of size and can be more selective on deals. “We are happy to wait until the right deals present themselves. We are currently finding some better value in greenfield development, for example our investment in a new private hospital in Kanwal, NSW.”

Australian Unity’s Healthcare Property Trust has delivered 11.81% per annum to investors since inception in February 2002. The Trust has delivered 8.12% for the last year, and 13.76% per annum over three years (all returns to 31 December 2018).

The Property Funds Association 2019 Conference is themed Critical Change: Crisis, Challenge or Catalyst for Property Investment and concludes on 7 May 2019.

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