The 117 Kooyong Road childcare centre was divested for over twenty million dollars. Image: Supplied.
  • Victorian childcare centre divested for $20.5 million, representing a passing yield of 4.6%
  • CBRE notes it to be the largest-ever transaction of a Victorian childcare centre
  • The sale is part of HCW's capital recycling

HealthCo Health and Wellness REIT (ASX: HCW) has settled on two tranches of the Healthscope hospital portfolio and is successfully executing its asset recycling program.

Tranches one and two were settled in May 2023 for $730 million, with the unlisted Healthcare & Life Sciences fund (UHF) to settle the remaining $470 million of Healthscope hospitals (Tranche three) by September this year with third party institutional capital.

HMC Capital’s institutional fund raising for UHF is well progressed with strong indicative interest from multiple domestic and global institutional investors and is on track to reach first close by September this year with circa $325 million of third party equity raised.

“The settlement of Tranches 1 & 2 represents the beginning of our long-term strategic partnership with Healthscope, Australia’s second largest private hospital operator,” said HCW senior portfolio manager Sam Morris.

“HealthCo has also made meaningful progress on our key strategic objectives, including the asset recycling program, as we reduce gearing to the midpoint of our target range. Pricing and indicative interest received to date highlight the quality of the HealthCo portfolio.

“HMC Capital has also received a strong response from institutional investors for the remaining ~50% interest in the unlisted fund, which demonstrates the level of demand for critical social infrastructure assets of this scale and quality.HMC Capital’s fund raising remains on-track to reach first close by September 2023 with a target initial raising of ~$325m”, Morris said.

Record breaking transaction

HealthCo has progressed its asset recycling program, announced at the time of acquiring the Healthscope Hospital portfolio.

The $82.3 million of assets have been contracted for sale, comprising $45.3 million of childcare assets transacting at a 2% discount to December 2022 book values, and the Cairns Health Hub, a repurposed former Masters site in far north Queensland, which sold at a 5% discount to December 2022 book value.

An additional circa $45 million of asset sales are currently under advanced due diligence.

One of the assets divested includes a Victorian childcare centre, sold for $20.5 million, representing a passing yield of 4.6%, according to CBRE, who also noted the sale is the largest ever childcare centre transaction in Victorian history.

Located at 117 Kooyong Road, Armadale, the childcare centre is tenanted by a leading Victorian operator, Explorers Early Learning.

CBRE’s Australian Healthcare and Social Infrastructure team of Sandro Peluso, Jimmy Tat and Marcello Caspani-Muto brokered the deal.

“This is the sharpest yield witnessed for a Victorian childcare centre since 2020 when our CBRE team sold 1 Capra Court, Narre Warren at a record low of 4.25%,” Peluso said.

“With interest rates having risen 3.85% since, the Armadale transaction is a testament to the strong and unwavering investor sentiment toward the early learning sector, in combination with an appreciation for the value of existing centres in a rapidly rising construction cost environment.”

The influx of overseas capital during the past six months is said to be driven by strong buyer interest from both domestic and international high-net-worth private groups along with multiple REITs looking to increase their exposure into social infrastructure real estate.

“While domestic interest has remained strong our teams’ last six months of childcare and social infrastructure-related investments has seen circa 70% of properties sold to international capital. This is not a trend we expect to slow in the short term,” said Tat.

“Australia’s immigration numbers are also acting as a fundamental driver for investors. The substantial influx forecast is expected to positively influence the property market more significantly than interest rates.”

“With increasing immigration rates and forecast interest rates reductions in 2024 there will be a major uplift in demand with limited supply already choking the markets.”

“The Armadale property and all other assets currently under negotiation are located within established suburbs of Melbourne meaning underlying land values are high. When you couple this with rising construction costs at yields between 4.5%-5% and factor in leasing risk allowances, transactions are not occurring a far stretch from replacement cost. There is a reason many large-scale investment funds have stopped development in the short term because they are acutely aware of the risk associated,” added Peluso.

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