CBRE HEALTHCARE JEFFERIES HEALTHCARE REIT CONFERENCE

Transcription

1 CBRE HEALTHCARE JEFFERIES HEALTHCARE REIT CONFERENCE TOM MORGAN & DAVID BATCHELOR 8 APRIL CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

2 1. EUROPEAN HEALTHCARE MARKETS 2. EUROPEAN REAL ESTATE 3. MARKET TRENDS 4. OPPORTUNITIES 8 APRIL CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

3 DISCLAIMER Important Information The material provided by us is intended for the sole use of the person or firm to whom it is provided. Any reproduction or distribution of this overview, in whole or in part, or the disclosure of its contents, without our prior written consent is prohibited. Nothing in this document constitutes valuation, accounting, legal, regulatory, planning, tax or other advice. CBRE does not accept any responsibility to any person for the consequences of any person placing reliance on the content of this information for any purpose. The information contained in this document, including any data, projections, and underlying assumptions has not been independently verified and are based upon certain assumptions, and analysis of information available as at the date of this document, and reflects prevailing conditions, and our views as of the date of the document, all of which are accordingly subject to change at any time without notice, and we are not under any obligation to notify you of any of these changes. 3 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

4 EUROPEAN HEALTHCARE MARKETS Healthcare Economics and Funding

5 EUROPEAN MARKET Overview London Berlin 44 Countries 28 in EU 738 Million People Aggregate GDP - 17,589 Billion Paris Madrid Rome 5 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

6 EUROPEAN GDP Top 10 Economies v World & EU Rank Country World 55,827 61,364 57,983 63,468 70,221 71,707 EU 17,001 18,348 16,368 16,288 17,589 16,584 1 Germany 3,329 3,641 3,307 3,312 3,607 3,401 2 France 2,586 2,845 2,627 2,571 2,778 2,609 3 UK 2,827 2,670 2,193 2,267 2,432 2,441 4 Russia 1,300 1,661 1,223 1,525 1,899 2,022 5 Italy 2,130 2,318 2,117 2,059 2,196 2,014 6 Spain 1,444 1,601 1,460 1,392 1,480 1,352 7 Netherlands Switzerland Sweden Norway GDP Billions Source: International Monetary Fund data to April Some 2012 figures are IMF estimates. 6 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

7 EUROPEAN MARKETS Variation of Healthcare Systems London Berlin Core Europe - 3 Countries 210 Million People Aggregate GDP - 8,400 Billion Total Health Spend Billion Paris Madrid Rome Social care in southern European economies tends to be much more focused on the family network and care at home 7 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

8 EUROPEAN RECOVERY Regional Variations in Economic Performance Eurostat Economic Sentiment Indicator Q3 13 relative to the Long-Run Average Source: EuroStat UK Germany Hungary Sweden Denmark EU Average Austria Roumania Belgium Spain Poland Netherlands Italy Czech Republic France Finland Portugal CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

9 KEY ECONOMIES Relative Dynamics France Germany United Kingdom Government % of total healthcare spending; 76.7% Government % of total healthcare spending; 75.9% Government % of total healthcare spending; 82.7% Two social insurance policies: NHI (compulsory) c 75% VHI (voluntary) c 25% Over 65s; % % Population covered by Statutory Healthcare Insurance (SHI); 87% & compulsory for earners < 49,500 Over 65s; % % Majority of healthcare is FREE and provided for by the NHS. 11% also purchase private insurance. Over 65s; % % Govt spend as % total healthcare spend (2011) US CHINA RUSSIA GERMANY FRANCE UK 45.9% 55.9% 59.7% 75.9% 76.7% 82.7% Source: The World Bank 9 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

10 KEY ECONOMIES Relative Healthcare Dynamics Despite spending roughly 50% less (by GDP) on healthcare, the UK has as many physicians and hospital beds per 1,000 population as the US. The core European countries have far more. Expenditure on health Growth rate - health spend per capita Healthcare spend per capita Physicians Hospital beds (% GDP) ($) 2011 (per 1,000) (per 1,000) Belgium 10.6% 5.6% 4, France 11.6% 5.2% 4, Germany 11.1% 4.5% 4, Netherlands 12.0% 6.6% 5, UK 9.3% 6.6% 3, US 17.9% N / A 8, Source: The World Bank 10 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

11 EUROPEAN MARKETS Growing Demand & Expenditure Europe is ageing quickly. There are more elderly people and they are living longer. 20% of Germans are already aged over 65 and a German retiring at the age of 65 can expect to live on average for another 17 years Healthcare expenditure as % GDP % 20% 15% 10% % of population over 65/average life expectancy at % Belgium France Germany Netherlands UK EU-27 0% Average life expectancy at 65 (5 countries) Belgium France Germany Netherlands UK 0 11 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

12 EUROPEAN MARKETS Importance of Government Funding 38% 3% 13% 4% 9% 2% 2% Defence General Public Services Public Order & Safety Economic Affairs Environment Protection Housing & Community Health Recreation, Culture & Religion 11% 3% 15% Education Social Protection The European Healthcare Economy is under-pinned by central Government funding, accounting for over 75% of total healthcare expenditure in the major EU nations CBRE research 12 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

13 EUROPEAN HEALTHCARE REAL ESTATE REAL ESTATE MARKET IN CONTEXT

14 REAL ESTATE MARKET CONTEXT European Commercial Property Investment Turnover ( m) 2013 European CRE investment activity billion 21% improvement on 2012, but lower than the billion total in Improvement due to exceptional investment levels in the UK AND increase in investor sentiment in Southern Europe. European real estate investment market heavily-focused on core, prime, income producing opportunities. The flight to quality has polarised the market, with this type of product now in short supply, high demand and valued accordingly. 14 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

15 EUROPEAN RENTAL RECOVERY Prime offices rental growth end-2013 to end-2018 Dublin Madrid London WE Barcelona London City Budapest Berlin Frankfurt Helsinki Brussels Munich Paris Lyon Amsterdam Warsaw Milan Prague per cent per annum 15 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

16 EUROPEAN REAL ESTATE RETURNS Gross Total Returns on Prime Offices end-2013 to end-2018 Dublin Madrid Barcelona Budapest Lyon Prague Milan Berlin London West End London City Brussels Warsaw Frankfurt Amsterdam Helsinki Munich Paris Annual per cent change 16 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

17 EUROPEAN REIT MARKET Global Comparison World 250 REITs Americas Europe 12% 14% Diversified Hotel 8.69% 4.20% 16.78% 21.80% 10% 11% 34% 18% Office Retail HealthCare Industrial Residential Other 13.79% 15.48% 15.68% 27.77% 60.30% 13.70% Globally, Healthcare REITs make up 10% of the REIT world. The US is the most developed healthcare investment market at over 15% of market by value. Source: GPR 250 Europe is the only major REIT market in which Healthcare REITs do not comprise a significant proportion of the market by Market Cap. In Europe, Office REITs dominate. Source: GPR CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

18 EUROPEAN HEALTHCARE REAL ESTATE IN CONTEXT Key Attractions Immature Market High yielding, secure income streams Long leases (typically years), subject to indexed rents Undisputed social commitment to accessibility to key services for all Public, state & institutional funding predominate Potential for diversification within the three main sectors (elderly, acute and specialist) Potential for market maturation to bring yields down (triggered by increased activity, transparency & liquidity) Opportunity for experienced asset managers to improve healthcare portfolio efficiencies 18 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

19 EUROPEAN HEALTHCARE MARKET Scale of Healthcare Real Estate Sector CBRE estimate that the core European healthcare markets comprise circa $65 billion of investable stock in elderly, acute & primary care markets. There are few recognised European managers to deliver the value and returns available. Cross-border investment has been limited. E A P E A P E A P France >$25 billion Germany >$25 billion UK >$17billion 19 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

20 FRENCH SENIOR LIVING MARKET Scale France provides State funding for those aged over 60. There are 1.2 million receiving support, of which 40% live in EHPAD care homes. EHPAD = Etablissements d Hébergement pour Personnes Agées Dépendantes Facilities increasing in size Upward pressure on fees & occupancy Under-supply in Ile de France & Rhone Alps Market consolidation 540, No. EHPAD beds Av. No. beds Turnover No. Homes No. Beds Korian/Medica ,937 Orpea ,659 DvD ,387 Source: Xerfi 20 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

21 FRENCH SENIOR LIVING MARKET Performance The French Senior Living market is highly protected with strong barriers to entry. The EHPAD system requires any new home to be State authorised. French EHPADs Key Stats No. Homes 7,530 % Nursing 96% Capacity 531,864 Private for profit 25% Turnover (2013) +3.0% Occupancy rate 96% Average monthly fee 2,200 ALOS (2013) 3.8 years Source: Xerfi EHPAD Performance % Turnover Maximum authorized rates 6% 4.7% 5.6% 4.3% 4.5% 4% 2.3% 3.0% 3.0% 2% 0% (f) Sources : Xerfi via Greffe des Tribunaux de Commerce, Legifrance 21 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

22 GERMAN POST ACUTE REHAB Scale Post acute rehab is enshrined in German law, being recognised as a social norm & economically beneficial. Public authorities, pension funds & health insurance pay in excess of 85% of rehabilitation patient care costs. Growing demand for orthopaedic, oncology and neuro rehab; Above inflation fee growth for best operators New markets in Russia & Persian Gulf Market consolidation at operator level 170,000 1,270 No. rehab beds No. clinics Status No. Beds No. Clinics DRV Public 15, Median Kliniken Private >8, MediClin Private c.8, Source: Web sites, HPS Report,; annual reports Source: 22 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

23 GERMAN POST ACUTE REHAB Performance The inpatient post acute rehab markets for specialist care, including neurological, orthopaedic and cardio-vascular, are growing faster as a result of the ageing population and the population retiring later. This places upward pressure on fees for the best providers. Source: Destatis, RHM, McKinsey German Rehab Key Stats No. Clinics 1,270 No. beds 171,000 Top 10 market share c30% Annual Expenditure 9.0 Billion Forecast Growth Rate % p.a. ALOS (2013) 3 6 weeks Sources: Destatis, McKinsey, RHM Post acute treatment Outpatient Sources : RSD, incl. PA, completed rehab, Deutsche Rentenversicherung 23 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

24 MARKET TRENDS

25 UK INVESTMENT TRANSACTIONS Market Re-Priced 8.50% Hospital Care Home Specialist Medical Centre 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% Jan-05 Sep-05 May-06 Jan-07 Sep-07 Jun-08 Feb-09 Oct-09 Jun-10 Mar-11 Nov-11 Jul-12 Mar-13 Nov-13 Aug CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

26 UK INVESTMENT TRANSACTIONS Overseas Capital Dominated 2012 & ,000,000 UK Healthcare Investor UK Institution UK Other US Healthcare REIT Overseas Other 800,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 0 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

27 PRIME WHOLECO Strong Private Pay Location SOUTH EAST ENGLAND Southern England, Main Metropolitan Cities & Affluent Towns Separate Nursing (SNF), Senior Living & Dementia 100% single en-suite bedrooms Bedrooms at 20 sq m (210 sq ft) per resident Day space at 8 20 sq m ( sqft) per resident High specification design including residents bar, cinema and hair salon AWF may be combination of room rate & care fee Entry charge (community fee) may be payable 27 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

28 CAPITAL VALUES RISING Sale & Leaseback long dated, index linked rents Sale & Manage back long dated management agreements Premium pricing achieved based on trading dynamics and NOT strength of operator credit risk 400, ,000 UK Investor US Investor 300, , , , ,000 50, CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

29 EVOLUTION OF UK HEALTHCARE INVESTMENT Real estate investment in the development of premium operational healthcare Audley Maria Mallaband Sunrise Private Elderly Care Operator International Investor Pramerica Retirement Village Operator UK Property Company Moorfield Manor House Retirement Village Operator UK Property Company Marcol Urban Renaissance Retirement Village Operator UK Property Company Helical Bar Private Elderly Care Operator UK Healthcare Specialist MedicX Pegasus Private Elderly Care Operator Private Equity Fund Oak Tree Signature Private Elderly Care Operator US Healthcare REIT HCN Sunrise Private Elderly Care Operator International Investor Arcapita Orchard Private Elderly Care Operator Institutional Fund ING London Care Domiciliary Care Operator Private Equity Fund Sovereign Signature Private Elderly Care Operator UK Healthcare Specialist MedicX Circle Private Hospital Operator Institutional Investor BP Pension Fund Gracewell Private Elderly Care Operator Private Equity Fund Patron Spire Private Hospital Operator UK Institutional Fund LaSalle Care UK Private Elderly Care Operator Institutional Investor Schroders 29 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

30 UK - SENIOR LIVING MARKET DYNAMICS Value Parameters PREMIUM PRIME SECONDARY Size Up to 120 beds Size 60 to 80 beds Size 40+ beds AWF Over 1,200 AWF 800 to 1,200 AWF 600 to 900 Occupancy 90% to 95% Occupancy 90% plus Occupancy 80% plus Multiple/YP 12.0x to 14.0x Multiple/YP 9.0x to 11.0x Multiple/YP 7.0x to 9.0x Values per Bed Over 250,000 Values per Bed 100k to 200k Values per Bed 60k to 100k 30 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

31 UK - WHOLECO TRANSACTIONS Modern, Good Quality Real Estate South West England Beds 66 South East England Beds 55 North East London Beds 49 Plot Circa 1 acre Plot Circa 1 acre Plot 1.5 acres Transaction Going concern sale Transaction Going Concern Transaction Going Concern AWF 823 AWF 997 AWF 713 NOI Multiple times stabilised NOI Multiple 9.70 time trailing NOI Multiple Circa Price / bed 112,068 per bed Price 158,181 per bed Price 102,000 per bed 31 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

32 UK INVESTMENT TRANSACTIONS Still priced on Tenant Credit Risk Annuity Grade Beds 70 Investment Grade Beds 120 Sub-Investment Grade Beds 80 Lease Triple net 30 years, index linked Lease Triple net 30 years, index linked Lease Triple net 30 years, index linked Transaction Investment Sale Transaction Investment Sale Transaction Investment Sale Tenant Credit Risk Extremely low NIY % <5.00% Tenant Credit Risk NIY % 6.20 % Low to medium Tenant Credit Risk High NIY % 7.25% Price / bed 130,000 per bed Price > 110,000 per bed Price 80,000 per bed 32 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

33 EUROPEAN INVESTMENT TRANSACTIONS Pricing lagging UK opportunities for investment French Hospital German Care Home German Clinic Beds 120 Beds 210 places in 120 rooms Beds 100+ Lease Transaction 15 years 12.5 million Lease Transaction Internal repairing 25 years, index linked c. 10 million Lease Transaction Triple net 25 years, index linked Investment Sale Tenant Credit Risk NIY % 6.90% Capio low risk Tenant Credit Risk High NIY % 7.30 % Tenant Credit Risk NIY % 7.50% Medium to low Price / sqm 2,605 Price 47,000 per place Price 21.5 million 33 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

34 OPPORTUNITIES FOR REAL ESTATE INVESTMENT

35 EUROPEAN OPPORTUNITIES Key sectors UK PRIMARY CARE GERMAN SENIOR LIVING GERMAN REHAB Scale Billions Scale Billions Scale Billions Income Profile Current Market Investment rationale 25 year index linked Govt backed 1 billion Pricing 5 6% Commissioning changes creating real estate opportunities Income Profile Current Market Investment rationale Pricing 6-7% Up to 27 years, CPI linked No more than 2 billion Demographics, market consolidation & yield compression Income Profile Current Market Investment rationale Up to 27 years, CPI linked 250 million Pricing 7-8% Security of income, market consolidation & mispriced real estate 35 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

36 APPENDICES European Healthcare Economies Comparison

37 EUROPEAN HEALTHCARE MARKETS Healthcare real estate investment across the whole territory of Europe is complicated by the fact that each country in Europe has its own, individual system of funding, ranging from complete funding from the national government, as is the case in the UK, to more liberal systems which are regulated and controlled by the government, but run by private institutions, such as the Netherlands. The key features of each of the five jurisdictions may be summarised as follows: United Kingdom The vast majority of treatment is free and provided by the NHS (National Healthcare Service) which comes out of the central government budget. Around 11% of the population chooses to have additional private insurance in addition to the NHS provision. Elderly care funding is provided by local authorities, which each have a different system for allocating funding within a set framework. Those with assets in excess of 32,000 are obliged to pay for their elderly care in part or in full. Belgium Virtually all the population is covered by a mandatory public health insurance, which amounts to 7.35% of gross salary paid for by a mix of employer (3.8%) and employee (3.55%) contributions. There are seven main health plans and 1/3 of the population choose to take out additional voluntary health insurance to cover costs not included within the mandatory policy. 37 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

38 EUROPEAN HEALTHCARE MARKETS France The majority of French healthcare funding comes from two social insurance policies NHI (National Health Insurance) which is compulsory for the entire population and VHI (Voluntary Health Insurance). NHI covers 77% of total health expenditures, with the patient typically required to provide a top up for most treatments. For example the policy covers 80% of hospital treatment costs, 50-75% of GP costs and % of vaccinations. 91% of the population choose to take out VHI, which covers many of the costs not included in the NHI. The National Solidarity Fund for Autonomy allocates funds from NHI to provide social and health services for the elderly. People who are unable to pay the insurance (c.7%) are subsidised by the government. The public sector owns half the hospitals and approximately 2/3rds of acute care beds. Germany The system is funded by social health insurance which is paid for by the employer and employee. The vast majority of the population (87%) is covered by the government organised Statutory Health Care Insurance (SHI) which is compulsory for everyone earning less than 49,500 per annum. Those earning more than 49,500 can opt for a private healthcare policy, however 75% of people earning over this amount still decide to use SHI. There are c.160 different SHI policies to choose from which provide comprehensive care coverage. 38 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

39 EUROPEAN HEALTHCARE MARKETS It is mandatory for the population to have a separate insurance policy (but usually from the same provider) to cover the costs of long term care. This was introduced in 1995 as an acknowledgement of the country s ageing profile. In 2011 healthcare spending was in deficit of 11 bn. In response the government introduced changes to the insurance premiums raising them from 14.9% to 15.5%. The vast majority of hospitals are non-profit, both public and private (about 50/50 split). However, the private, for profit sector has been growing and is now around 1/6th of all beds through takeovers of public hospitals. This is expected to continue to increase as the government sell off healthcare assets to reduce the budget deficit. Netherlands The system was liberalised in 2006 from a two-tier system, where people earning under 30,000 per annum were covered by public healthcare, with those earning more using private healthcare. From 2006 onwards all residents were required to purchase health insurance. The insurers are required to cover a number of key aspects of care including GPs, hospitals and ambulance services. There are a number of companies to choose from but they must all provide the same basic care coverage. Most people purchase supplementary insurance to cover costs not included in the standard healthcare policies. The population has to pay the first 150 ($216) of health costs in any given year. Insurance is funded from 6.5% of the first 30,000 of taxable income in every salary. All Dutch hospitals are privately owned. 39 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

40 EUROPEAN HEALTHCARE REAL ESTATE Key Risks and Mitigations European healthcare real estate has the potential to offers very favourable risk-adjusted returns. As an immature asset class, it also presents a range of risks, albeit ones that may be managed away through appropriate deal structuring and robust professional advice: Limited historical data which make it very difficult to understand the dynamics of the market, how it would perform in certain circumstances under stress and where the various downside risks could emerge from going forward. As an immature market it is still comparatively illiquid. The lack of historical time-series data makes it very difficult to forecast a disposal plan. The sector has a very high influence from the public sector, and is susceptible to cuts to spending which are introduced. It is therefore absolutely critical to ensure that the occupational lease structure offers flexibility to cushion such adverse external developments - rent setting, and in particular management of the extent to which rent is covered by projected operational profit from the outset, has emerged as a vital consideration. The sector is very complex, with rules and regulations which vary significantly in different regions/countries. Robust specialist professional advice is required to navigate through these potential obstacles. There is a significantly higher risk of operator mismanagement that other asset classes, and there is a need for ongoing visibility over the operator s performance at individual asset level to ensure that income risk can be identified early and managed appropriately. The specialised nature of properties means limited speculative development opportunities will emerge. Key to securing an adequate investment pipeline is identifying operators with robust expansion plans and the means to deliver, and securing a property advisor able to identify opportunities. 40 CBRE JEFFERIES HEALTHCARE REIT CONFERENCE

41 TOM MORGAN HEAD OF HEALTHCARE CBRE LONDON DAVID BATCHELOR HEAD OF SPECIALIST MARKETS CBRE LONDON CBRE JEFFERIES HEALTHCARE REIT CONFERENCE