Healthcare Property holds benefits for Africa

Property groups in Africa should study how well healthcare Reits have performed in the US and UK and then replicate the most effective structuring, advises Ortneil Kutama.

As Africa tries to build up a listed real estate industry, healthcare real estate investment trust (REITs) become more attractive on the continent.

They would formalise an industry with much potential, advises Ortneil Kutama, Africa Property News Media Director.

“REITs are well structured and provide investors with tax benefits and regular income in theory as long as they make consistent profits,” Kutama said.

Countries like South Africa, Kenya, Ghana, Morocco and Nigeria, which have growing populations, improving hospitals and healthcare industries, could gain capital boost. If the hospitals in these countries were listed, investors could bring that major capital boost.

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Property groups in Africa should study how well healthcare Reits have performed in the US and UK and then replicate the most effective structuring and management methods.

Healthcare REITs own and operate properties including hospitals, senior housing facilities, skilled nursing facilities, and other medical office buildings.

“The argument for healthcare Reits continues to grow. There is a gap for hospital services in Africa and property investors can benefit from this,” he said.

In more mature Reit markets, specialised funds are far more abundant. In the US and Netherlands, healthcare Reits are often popular investments.

In SA more hospitals need to be built and current hospitals need to be upgraded. There is a shortage of doctors in the country too.

“There are also benefits in investing in these healthcare assets designed to prolong life,” Kutama added. 

Some fund managers have in the past tried to list a healthcare Reit in SA but struggled to find the scale of assets required to do so. Yet many small funds have listed on the JSE and NSE in the recent past with market capitalisations of around R1bn to R3bn.

Reits have to pay out the majority of their income as dividends and this would have to be the same with healthcare groups.

Healthcare Reits could include retirement or wellness centre assets. Africa’s retirement industry needs to professionalised. This can become easier to achieve if the retirement homes and villages are brought into a listed vehicle.

Reits attract investment funds because of the tax benefits attached. Reits Investors like them because they guarantee dividend payments. Specialised funds can be attractive because they are focused in their niches but they need scale.

Investors often promote specialised funds because they like it when management of these funds understand their markets well. There could be the possibility that a large hospital owner like Netcare or Life Healthcare in SA could sell hospitals to a property manager which ran a healthcare Reit. The Reit would then lease them back. The sale of the assets would be in order to get cash in a difficult and weak economy.

Fund managers would want specialised property companies to be worth a few billion when they listed. There are probably too many funds with market capitalisations under the R3bn mark on the JSE, says Evan Robins the head of Old Mutual Investment Group’s boutique portfolio.

Hospitals also require much operational attention. Beyond having enough beds for patients and the moving around of patients for operations, there is often a shortage of doctors. Hospitals also need to be cleaner than they currently are in SA and that requires lots of staff being available regularly.

Reit managers would outsource hospital management but some investors may feel that Reit managers could put money into hospital assets to make them function more efficiently.

But in the US, the scale is clearly there. Various healthcare Reits have been very successful this year in what is the largest Reit market in the world. They argue that people should invest in assets related to promoting and prolonging everyday life. To invest in a Reit which has assets that have to be well kept in order to keep people healthy is an even more attractive endeavour.

One such fund is Ventas Inc (NYSE: VTR) which operates in the US, Canada and even the UK.