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Bay of Plenty healthcare asset with triple net lease

Properties within the aged care asset class, and particularly those under proven management, are proactively being scoped by investors who are taking note of population indicators and actively seeking out opportunities in this niche sector.

The age of entry into aged care beds in New Zealand is typically 85 years and above, and the growth of this age segment is expected to be rapid, with a forecast rise from 88,000 people in 2020 to 360,000 in 2063 (309 percent growth).

Bayleys agents marketing a strategic and income-producing institutional-grade aged care asset in Tauranga say that the property’s strong, proven tenant covenant and long lease is further underpinned by rising land values.

Located at 51 Botanical Road in Tauranga, Hodgson House Lifecare is a medium-scale aged care complex established circa-1970 and comprises a 65-bed facility providing full rest home care and medical services.

This aged care facility is currently co-located within a wider residential retirement village with the entire entity leased to Heritage Lifecare Villages Limited, one of New Zealand's leading and largest providers within the aged sector.

The land supporting the aged care component is currently going through a subdivision process allowing it to be separated off from the full site, with completion expected later this month, with Heritage Lifecare remaining the occupier.

This pending subdivision of the aged care facility from the adjoining retirement village will result in a land area of approximately 11,600sqm, and is estimated to include 2,196sqm of underutilised land held in two lots, situated to the south of the main care facility site.

This underutilised component will potentially benefit from a proposed rezoning of the area to high density residential, which is expected to be confirmed by the end of 2023.

Heritage Lifecare Villages Limited has a 30-year triple net lease over the property, which commenced 31 March 2022, with rights of renewal totalling a further 60 years and final expiry in 2112 and currently returning annual net income of $419,848 plus GST and OPEX.

The property is being marketed by Sunil Bhana and Mike Houlker, Bayleys Auckland along with Brendon Bradley, Bayleys Tauranga with the deadline private treaty campaign closing 4pm, Thursday 25th May.

Houlker said the triple net lease, whereby the landlord is insulated from all liability in relation to the property to the maximum extent permitted by law, is widely considered the most landlord friendly form of lease.

“Any capital expenditure for repairs, maintenance and other works, whether structural or otherwise, are the tenant’s responsibility, hence this offering is a quintessential passive investment given the 30-year lease with three additional 20-year renewals,” he explained.

“Also in its favour, the lease incorporates annual rental growth linked to CPI with a minimum uplift of 1-percent and capped at 4-percent, and significant depreciation benefits.

“The lease structure is vastly superior to the majority of commercial leases today, and allows for a completely hands-off investment in a defensive asset class that is bolstered by current and forecast ongoing demand in the aged care sector.”

Bhana said industry sources are forecasting a shortfall in care beds from 2026 onwards, and given the widespread shortage of appropriately-zoned land and current build rates, existing quality assets within the aged care sector are increasingly attractive to investors.

“Institutional assets of this calibre, underpinned by high levels of government funding, must appeal to astute investors seeking a premium investment positioned in the sought-after healthcare sector experiencing strong and increasing demand from New Zealand's rapidly ageing population.

“Constrained supply is forecast in the aged care industry with a shortfall in care beds expected to emerge from 2026 onwards given current build rates.”

Botanical Road is a centrally-located small cul de sac in the residential suburb of Tauranga South and the subject property is currently zoned Suburban Residential.

Bradley said Tauranga is New Zealand’s fifth largest and fastest-growing city, with predictions suggesting the city will exceed 200,000 residents by 2028.

“It’s an extremely desirable retirement location, and there will ongoing demand for aged care facilities which underpins the value of this investment opportunity,” he said.

“Additionally, under Plan Change 33, publicly notified in August 2022, the Tauranga City Council propose to rezone the subject property to High Density Residential, allowing greater development options for a new owner  in the future.”

The property is within close proximity to Tauranga Hospital, Fraser Cove Shopping Centre, and Gate Pa Shopping Centre.

It is easily accessible via Cameron Road, a core transport corridor running the length of Tauranga city providing direct access to the central business district of Tauranga and major arterial routes including the State Highway 2A Tauranga Expressway to Mount Maunganui/Papamoa, and State Highway 29A to the Eastern Arterial Link to Rotorua/Whakatane.

Heritage Lifecare is one of New Zealand’s largest providers of residential aged care services, with a presence across both North and South Islands.

Click here for more information on this listing.

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