Welcome to our latest Institutional Healthcare Property update from Barwon Investment Partners.
Tom Patrick, Head of Healthcare Property is joined by Portfolio Manager Srimathi Iyengar to provide an update on the Barwon Institutional Healthcare Property Fund and discuss unlisted commercial property and valuations.
Transcript:
Tom: There has been a lot of coverage of unlisted commercial property and valuations particularly in light of the recent increases by the RBA to the cash rate. How are you ensuring the valuations are marked to market and how has BIHPF performed?
Sri: BIHPF follows a rigorous rolling valuation cycle of valuing some assets every month rather than a June/December cycle and we also value assets twice annually, alternating between internal and external valuations. In the current market, our internal valuations are now supported by a desktop valuation by third party external valuer.
So far, we have had 83% of the Fund revalued in the first 5 months of 2023 and we have seen cap rates softening in the order of 25-50 bps given inflation and interest rates.
Tom: Given the market softening, what opportunities are you seeing in the market in general and what’s your take on the healthcare sector?
Sri: We have been seeing more assets coming to the market and transacting at a discount of 5-10%, this compares to recent Sydney office transactions, where the discount is 15% and the cap rate expansion is in the order of 100bps.
We currently have 3 assets in due diligence that have been secured at c.5%- 15% discount to the current book values. These assets would probably have traded at a 15% premium to our negotiated purchase price had we purchased them in 2021 at the peak of the cycle.
We believe that healthcare will continue to fare better as institutional investors are becoming more aware of the sector’s resilience.
We also focus a lot of our efforts on being a long-term capital partner to our tenants as they look to expand their operations. A good example of this would be our partnership with Healthscope to develop La Trobe Private Hospital, located within La Trobe University and adjacent to the recently announced $5 billion University City of the Future Plan project at La Trobe’s Bundoora Campus.
The hospital represents an uncapped expansion opportunity with plans of up-to a $200 million investment to ensure this becomes the leading private hospital in the growing Northern corridor.
Tom: The team surely is busy. Given all these opportunities you just discussed, what is the Fund’s capacity at the moment
Sri: We have a capital headroom of about $500m available in the form of uncalled capital as well as debt headroom which gives us the capacity to selectively pursue opportunities we really like in this market. We have also opened up our fund for new capital and are seeing some strong ongoing interest from investors to continue to invest in the healthcare sector.
Tom: Thanks Sri for joining us today. If you’d like to find out more information on the Barwon Institutional Healthcare Property Fund and the upcoming Fund raise, please don’t hesitate to reach out to myself or Barwon’s distribution team.