The funds will be used to acquire a total of 23 properties, comprising aged care facilities located throughout New Zealand, all with new 30-year leases to Heritage Lifecare.
Centuria NZ managing director Mark Francis says the portfolio is of significant size and scale, with a total purchase price of $192.2 million and valuation of $194.9 million as at 22 December 2021, and is the largest offering the company, formerly Augusta Funds Management, has taken to the market since its establishment in 2003.
The properties will be owned by Centuria NZ Healthcare Property Fund Limited (Centuria NZ Healthcare), a limited liability company that is the issuer of the shares and is being established as an open-ended, unlisted and sector specific property fund. It intends to invest in strategically selected healthcare related real estate such as aged care facilities, private hospitals, medical centres, GP surgeries and other healthcare related facilities.
Francis says the fund’s initial acquisition is another example of the opportunities that are opening up for New Zealand investors as a result of the merger of Augusta with ASX200 listed Centuria Capital Group, one of Australia’s largest property fund managers, in 2020. The merger has created a leading Australasian property fund management platform, with approximately A$20.2 billion of Trans-Tasman assets under management.
New Zealand investors are being offered the opportunity to purchase shares in Centuria NZ Healthcare, with a $10,000 minimum investment. The fund is forecasting an initial pre-tax cash distribution of 5.00% per annum for the financial periods ending 31 March 2023 and 31 March 2024, paid to investors monthly, along with the potential for capital growth.
Mike Houlker, head of Bayleys’ Investment Products division, which is marketing the fund, says its initial offering will provide investors with exposure to the sought after healthcare real estate sector through the 30-year triple net leases from settlement to Heritage Lifecare, with rights of renewal totalling a further 60 years.
“This is a very long lease by New Zealand standards. A triple net lease means any costs of capital expenditure, repair, maintenance and other works, whether structural or otherwise, are not Centuria NZ Healthcare’s responsibility. Each lease stipulates the tenant has the same liabilities in regards to the premises as if the lessee was the ‘owner’. This is widely considered the most landlord friendly form of lease.”
Bayleys’ investment products manager Samara Phillips says another significant feature of the leases is annual rent reviews that reflect movements in the Consumer Price Index (CPI), subject to a minimum 1%pa increase and a 4%pa cap.
“This will provide built in rental growth, increasing rental income annually for the next 30 years and providing a degree of off-set against inflation pressures.”
Phillips says the Centuria NZ Healthcare share offering is fully underwritten which provides assurance for investors that it will proceed. It is also being structured as a PIE (Portfolio Investment Entity), so investors’ maximum tax rate will be 28%.
Mark Francis, who is also a director of Centuria NZ Healthcare, says the New Zealand aged care industry broadly comprises the provision of facilities and services for rest homes, hospital care and specialist care (such as dementia), with Heritage Lifecare providing options across each of these at occupancy rates that compare favourably to key competitors.
“The aged care industry in New Zealand is characterised by Government mandated care fees and high levels of recurring Government funding. Increased demand along with constrained supply is forecast in the industry, with a shortfall in care beds expected to emerge from 2026 onwards given current build rates.”
Francis says Heritage Lifecare has a proven track record in acquiring and improving the operational performance of facilities. “They are continually looking at new opportunities to expand the business and develop their real estate portfolio and there may be future opportunities for Centuria NZ Healthcare to partner with Heritage Lifecare on real estate development and/or investment opportunities.
“The intention of the Centuria NZ Healthcare fund is to grow over time and to increase investors’ exposure to a variety of healthcare real estate. All future investments will be strategically selected for their ability to continue to increase diversification within the healthcare real estate sector and contribute to the yield and capital growth of Centuria NZ Healthcare.”
For a copy of the Product Disclosure Statement for Centuria NZ Healthcare visit centuria.co.nz/healthcare-fund Details on how the forecast pre-tax cash returns are calculated and the risks associated with the investment can be found in the Product Disclosure Statement.