Welcome to our latest Healthcare Property Update.
Tom Patrick, Head of Healthcare Property, is joined by Portfolio Manager, Sophie Bannerman to discuss the Fund’s performance over the previous quarter as well as the importance of portfolio valuation.
Tom: In 2023, we have seen softening in market capitalisation rates for commercial property as values adjust for higher interest rates and a subdued, more cautious investment market.
Healthcare property generally has a low correlation with other property sectors and is generally less volatile compared to other core property sectors. Notwithstanding, there has been moderate softening in market capitalisation rates for healthcare property which prompted us to undertake an out-of-cycle revaluation program for the Fund to ensure valuations are marked to market.
Sophie, can you tell us about the portfolio revaluation?
Sophie: Sure Tom. The portfolio revaluation concluded in May and saw every property in the fund revalued. In general, we saw capitalisation soften in the range of 25-75bps and overall, we saw a circa 57bps reduction in the Fund’s weighted average capitalisation rate, taking it to 5.72%. Going forward, we will reinstate our rolling valuation timetable and continue to monitor the market closely.
Tom: Given the market movements, are you seeing better value when it comes to acquisitions?
Sophie: Yes, in more recent times, we are seeing the spread between vendor and buyer expectations narrow and this has allowed us to pursue more opportunistic transactions, especially from capital constrained counterparts. A great example is an asset we have recently secured – it’s a newly developed community and allied health property leased for a 10-year term to a large not-for-profit. We have managed to secure this off-market at a cap rate of ~6% which compares favourably to similar assets which transacted at circa 5% cap rates in 2021.
We expect to continue to see improving value and opportunities in the market and in light of this, we have opened the fund for new investment.
Tom: Thanks Sophie for joining us today. If you’d like to find out more information on the Barwon Healthcare Property Fund or are interesting in investing, please don’t hesitate to reach out to myself or Barwon’s distribution team.