Healthcare Property Funds Quarterly Update – September 2022

December 1, 2022 / Healthcare Property

Tom: Hello and welcome to another quarterly update from the Barwon Healthcare Real Estate Team.

My name is Tom Patrick, and I am head of Healthcare Property here at Barwon.

I am joined today by our two portfolio managers. From the Barwon Institutional Healthcare Property Fund, Srimathi Iyengar, and the Barwon Healthcare Property Fund, Sophie Monsour.

Let’s start with you Sri, if we can, Barwon Institutional Healthcare Property Fund – can you please tell our investor’s about any meaningful updates that have occurred over the last quarter?

Srimathi (Sri): Hey Tom, it’s great to be back here again for the quarterly update. We have had some exciting development news with our asset in Canberra, the Deakin Private Hospital and the adjacent Deakin Health Hub. The hospital is operated by Aurora Healthcare, and is expected to open in Jan-23.

This would be ACT’s first private mental health facility featuring young adults beds. The hospital will be a fully-integrated inpatient, day patient and outpatient mental health hospital; inclusive of state-of-the-art technology to support improved experience and care, for both patients and staff.

The co-located Deakin Health Hub will provide premium medical floor space to specialist practitioners with a focus on mental health.

Tom: Yes, that is terrific news. We’re indeed extremely proud to be involved in this project and pleased to be able to deliver that care, that much needed care and resource to the mental health community and the broader people of Canberra, southern NSW and the Riverina.

Sophie, let’s talk about the Barwon Healthcare Property Fund. We’ve recently settled on an asset in Granville, Western Sydney. Can you walk our viewers and our investors through this transaction please?

Sophie: Yeah, sure. It’s great to be here to discuss BHPF’s. As you mentioned, we just settled the off-market acquisition of Granville. Granville is a day hospital located in Western Sydney and it’s operated by Healthe Care, who, as you know, is a large national operator.

They’ve signed a 20-year lease at the property, which is great. It’s triple-net and it’s linked to CPI. So all great factors. So a really good acquisition for the Fund. Not only does it improve the Fund’s WALE, but also the Fund’s exposure to day hospital assets.

Tom: Maybe we shift the conversation and discuss the impact of inflation and rising interest rates and the impact this has on the portfolio. As we all know, the RBA has been raising interest rates to try and curb inflation. At the October  meeting, we had the Board of the RBA raised rates by a further 25 bps, taking the cash rate to 2.60%. Sri, can you talk us through how the Barwon Institutional Healthcare Portfolio is placed to face these oncoming inflation and potential interest rate headwinds?

Srimathi: Yeah, It’s no real surprise that rates have risen, given inflation in Australia is the highest it has been since the early 1990s. Our investors would be pleased to know that 68% of the BIHPF portfolio is linked to CPI with 50% being CPI or greater of CPI or 2%. Additionally, c.80% of the leases in the portfolio are net leases or triple net leases, which means that contractually increasing costs as a result of increased outgoings at the property level are passed through to the tenants. Over the long term however, they key is to maintain an open communication with our tenant partners around hospital revenues, rents and their sustainability.

Sophie: Can I add in here that we also hedge around 45 to 55% of the Fund’s debt at any point of time. So this makes the Fund a bit more resilient during times of rising interest rates. that being said, no portfolio is immune to rising interest rates and that’s why we love investing in healthcare property. the leases are generally linked to CPI for their rent reviews. the tenants are really sticky, which means they don’t move much and the leases are generally net or triple net. so all these factors we expect should position the portfolios to be more resilient in current and future markets.

Tom: Thanks Sri and Sophie for providing an update today. Obviously plenty going on in the Funds and the team being particularly busy, but i think importantly from today’s messages our investors should be able to take some comfort that the assets themselves and the portfolios indeed are positioned well to deal with some of the potential economic challenges ahead. If you are interested in hearing more about the Barwon Healthcare Property Funds, please feel free to reach out to myself, Sri or Sophie or indeed anyone from the Barwon distribution team.

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