Aged care hospitals just what the doctor ordered

Radius Oakhaven Hospital in Kamo Rd, Whangarei, is one of three care homes being sold. Photo / Supplied

Three freehold aged care hospital facilities offering the potential security of a 30-year revenue stream are up for sale in Whangarei.

The three hospitals are to be sold and leased back by Radius Residential Care as part of the company's ongoing strategy to focus on its core business of providing care to elderly people.

Radius claims to be the third largest aged care provider in New Zealand.
"We operate 24 aged care facilities across the country, from Paihia to Dunedin and we lease all but the three properties we own in Whangarei," said Brien Cree, chief executive of Radius Residential Care.

"These properties represent too big an investment for us in a non-core business. Their sale will allow us to release the capital to reinvest in our core business, which is providing a high level of quality care for the elderly," Cree said.

John Davies and Roger Seavill of Colliers International in Auckland, together with Peter Peeters from Colliers in Whangarei, are marketing the properties which are for sale by deadline private treaty with a closing date of Wednesday, September 2.

Presented to the market either as individual properties or as one parcel, the three facilities offer a total of 135 hospital beds and 18 rest home beds all located within 6km of each other within central Whangarei.

The properties are different in style and are all near to major shopping areas, offering a combined rental approaching $1 million per annum.

Radius Potter Home & Hospital is a landmark property in the heart of town at 174 Bank St, set in park-like surroundings on 5138sq m of prime land. An early 1900s structure with subsequent alterations and additions, the property was established in 1945 as the Potter Memorial Home, for which it became well known in Whangarei. Over time it has been purpose-adapted to provide 39 private hospital beds, together with an 18-bed rest home comprising single room accommodation. In total the annual rental return is $333,840.

Palliative and respite care facilities are part of the hospital, as well as a dedicated unit for younger people with special needs. Among other services provided are physiotherapy assessments and treatments, podiatry services, hairdressing and church services, courtesy of a visiting chaplain.

Radius Oakhaven Hospital, at 297-299 Kamo Rd, is a purpose-built single-level facility on a 4550sq m section, comprising 61 beds, four of which are twins plus 53 single rooms. The building is low maintenance and offers a total rental of $380,640.

The hospital provides comfortable, quality living in a facility designed for the elderly and is surrounded by landscaped grounds only 10 minutes from the CBD. Outdoor courtyards, with garden boxes and a water feature, provide an environment alongside the palliative and respite care provided by the hospital for both elderly and young disabled patients.

Radius Lester Heights Hospital is situated on 2630sqm of land at 93 Fourth Ave. A multi-level, purpose-built hospital that provides a total of 35 hospital beds and associated amenities, it offers a high standard of medical, nursing and allied health support.

Built in the 1980s, the property also contains an upstairs office and staff area. A registered nurse is always on site to offer 24-hour care, a weekly clinic is available for all medical needs and a physiotherapist is available as required, as is a podiatrist, hairdresser and chaplain. The hospital is well situated for access to State Highway 1 and Whangarei's CBD, and offers an annual rental return of $218,400.

The three properties offer an initial 15-year lease term with a further 15-year renewal and the combined properties return an annual total contract rent of approaching $1 million.

Today, more than 33,000 elderly New Zealanders and their families are cared for in about 750 aged residential care facilities.

However, Cree said the ageing population in New Zealand was expected to increase exponentially.

"Statistics New Zealand estimates that the number of New Zealanders aged over 65 is set to grow to nearly 800,000 in the next 20 years," Cree said. "This will require substantially more beds in rest homes and hospitals across the country with the projected number of people requiring residential care estimated to exceed 80,000 over the next two decades."

The typical person who enters an aged care facility has an entitlement, superannuation and/or a Work and Income payment or another subsidy.

"As funding for aged care beds comes from district health boards and the private sector, the majority of the money that comes in from people in aged care beds is sourced from superannuation and healthcare entitlements," Cree said.

Financial assistance is often available in the form of a residential care subsidy provided by the Ministry of Health and funded through the district health boards. The Government at present subsidises aged care by $843 million a year to assist with the cost of contracted care for clients in long-term residential care in hospitals or rest homes indefinitely. The Ministry of Health is responsible for the payment of residential care subsidy to the hospital or rest home where the client resides.

Davies said the revenue differs from a typical commercial lease because it was effectively government-sourced.
"This means that the risk factor for investors is much reduced," Davies said. "In fact all the residents have at least a degree of government-backed funding and the market is not going to stop growing - making for a very bankable proposition."

This "bankability" is enhanced through the rigorous processes Radius Residential Care's facilities have to go through to become eligible for government funding. The Ministry of Health states that "only rest homes or hospitals that have achieved certification under the Health and Disability Services (Safety) Act 2001 and comply with the Health and Disability Sector Standards 2001 can have a contract with DHBs." Cree said the three properties being offered for sale were predominantly hospitals at the high end of the care spectrum.

"This is where the industry is moving, so investors looking to get into the sector will appreciate that this offering is more future-proofed than many other investment areas.

"From a purchaser's point of view, this is a solid, premium care brand in a sector that is in rapid growth. In the current environment, when we are seeing a flight to solidly tenanted offerings, this is a very attractive proposal with a 30-year revenue stream from a reputable operator with guaranteed rental growth at regular intervals. That's a pretty compelling offering."

Davies said the rental growth would be assured with annual rent review increases of 2 per cent each year. Further, rents would be reviewed to market in years 5 and 10.

"From a landlord's perspective this is probably the perfect lease formula to underpin rental growth and alignment to the market - the best of both worlds."

Seavill said that the target market for the properties was largely passive investors, including family trusts and high net worth individuals.

"These properties will be expertly managed and looked after by the tenant - it is not like an office tenancy. Therefore, the investor could be anyone who is looking for guaranteed rental growth, a long-term tenant and a secure investment. Through a single purchase a buyer could lock in a multi-property portfolio investment."

Colliers is talking to potential purchasers across New Zealand, linking its Whangarei and Auckland offices but also looking nationwide.