Growthpoint Properties, SA’s largest real estate group, says it is on track to grow its health-care fund nearly fourfold to R10bn in the next five to seven years, through acquisitions and management contracts.
The company’s SA CEO, Estienne de Klerk, said the health-care fund had been more successful than expected and it may consider listing it when there is a recovery in the economy.
His team would also be prepared to work with the state to upgrade and expand government hospitals and medical facilities, he said.
Growthpoint Healthcare Property Holdings, which includes five assets and is worth about R2.6bn, was outperforming a number of the group’s other asset types, according to De Klerk.
The fund is designed to co-own hospitals and also to provide property management to hospitals owned by other companies, for fees.
The fund has secured long-term leases of an average of six years compared with its group portfolio average of three and a half years, highlighting the defensive nature of the assets.
This was attractive in a slow-growth economy that was facing risks of credit ratings downgrades and volatility because of unreliable infrastructure, said De Klerk.
“The interest from investors and hospital groups who want to partner with us has been greater than we anticipated. It’s an interesting asset as it operates like a mix of hotels and offices and can have industrial aspects too,” he said.
Two of the fund’s health-care properties are operated by private health-care provider Busamed, and one each by JSE-listed Mediclinic and Netcare. Netcare rents 50% of the space in N1 City Medical Chambers, the medical suites adjacent to the N1 City Hospital that act as the fund’s fifth asset.
De Klerk said Growthpoint had a transactional pipeline worth more than R1bn for the health-care fund.
“These are with private partners. We would consider also working with government hospitals if we found a way in which we could improve the services of these large facilities which play an important role in providing medical services to South Africans,” he said.
The health-care fund operates within Growthpoint’s funds management business, which De Klerk said was “a capital-light strategy for Growthpoint”.
He said its business model was prevalent in Australia where many listed funds have separate unlisted funds into which third parties invest.
The first two funds are Growthpoint Healthcare Property Holdings and Growthpoint Investec African Properties.
De Klerk said Growthpoint was taking advantage of opportunities to develop assets for third parties while also taking a short-term view on certain investments with the intention to trade out of them and earn trading profits.
Evan Robins, the listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, said while time would tell how successful Growthpoint would be with its health-care business, the company needed to be commended for bringing something new to the commercial property market in SA.
“Things are very tough and the hunt is on for more sources of income,” he said.
But Robins said JSE investors in property wanted the income earned by listed real estate investment trusts to be as sustainable as possible.
“In this challenging economy, managing risk becomes incredibly important. So while a few years ago, fund managers could back property groups which made income from one-offs like offshore takeovers and developments, there now needs to be a focus on earning non-lumpy (regular) rent,” he said.
This development income would contribute between 1% and 2% of Growthpoint’s distributable income going forward.
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