The article originally appeared in Australian Financial Review.
Real Asset Management has bought another five healthcare and medical assets for $76 million before the imminent listing of its Essential Services REIT.
It will also embark on a $120 million, three-year development program across six assets beginning in October with an emphasis on expanding floor space and revenue, initially across its essential retail portfolio.
The funds management and development business now has 33 assets valued at $705 million for inclusion in the REIT listing, which managing director Scott Kelly said will happen soon.
“We’re planning that for early Q4, we’re coming into the teeth of it now. It’s essentially around the corner,” Mr Kelly said.
RAM has been on an expansion drive since last December, buying 18 healthcare properties for about $290 million, 85 per cent of which were purchased off market.
The portfolio weighting is now 45 per cent healthcare and 55 per cent essential retail.
Director of real estate Will Gray said the latest acquisitions include a Brisbane day hospital, two Darwin medical centres, a Gold Coast surgical clinic and a rehabilitation clinic in Townsville.
They were purchased on an average weighted capitalisation rate of 6 per cent and average price of $15.2 million.
“Our transaction capability is primarily in that sub-$50 million space and when we’re looking at medical centres and GP clinics the preferred size is somewhere between $10 million to $30 million,” Mr Gray said.
“We’ll buy smaller transactions, so sub-$10 million, but typically, they’re aggregated with other assets as part of a portfolio.”
Mr Gray said RAM has bid on larger assets to accelerate scale but had not found value at the higher price points, which tended to attract strong interest from well-capitalised buyers.
“We haven’t extended ourselves to where the winning bids were, primarily because we didn’t see value where they landed,” he said.
“Our capability is in the off-market space where we’ve done a lot of lease-backs with the operators themselves.
“That typically means it’s not a $100 million transaction, it’s a $20 million transaction, and we’re still getting access to primary healthcare assets in that space on preferred leases.
“So you’re looking at good strong net leases with an attractive review structure.”
Scott Kelly said the RAM acquisition strategy is “as much about what we’re not trying to do” which is declining to “chase down the big shiny assets in competitive tenders”.
For the $100 million plus assets, Mr Kelly said cap rates have plunged to “really scary levels” of between 4 and 5 per cent.
The essential retail portfolio, anchored by supermarkets, has held up well through the pandemic, Mr Gray said. Major tenants include Woolworths, Coles, Wesfarmers and IGA.
Meanwhile, RAM recently launched a new Diversified Property Fund, seeding it with a Canberra office building bought from Lendlease for $115 million.