Growthpoint Healthcare Property Holdings (GHPH)

In FY20, Kagiso Capital increased its holding in the fund to 15% of the issued share capital. It intends to match this with a 15% investment in the fund's management company and this arrangement is in progress.

Healthcare properties are generally resilient and tend to maintain their performance in downturns and rebound quickly in upturns. Even though Covid-19 did not spare any economic sector, including healthcare, this resilience proved to be true in the GHPH portfolio. Hospitals were unprepared for the first wave, during which elective procedures – which can make up anywhere from 40% to 80% of revenue – were prohibited for a few months. But they quickly learned to manage staffing, PPE and ways of treating those with and without Covid-19 in the same facility. The fund's hospitals made a quick recovery and were relatively unscathed by the second wave. They are also confident they will cope equally well through the third wave, which swelled towards the end of FY21 and any similar future scenarios. All rental deferments given to assist tenant hospitals during the first wave, barring three months from one facility, had been recovered by end-June.

The pandemic has crystalised gaps and opportunities in South Africa's healthcare sector and this paints a positive picture for the fund's growth. There remains a great need for more private sector hospital beds and healthcare facilities in some provinces. These include acute and day hospitals, laboratory facilities and biotechnology manufacturing, warehousing and logistics properties. GHPH is ideally positioned to play a role in meeting these needs.

The fund's promising R3.5bn growth pipeline includes both acquisition and development projects, and it intends to execute transactions corresponding to capital capacity. In FY22 it expects to finalise at least two further acquisitions for a combined R750m.

Furthermore, in a market with liquidity constraints, GHPH continues to attract capital. This was seen recently with RMB clients introducing additional equity to support the fund's growth pipeline.

While the fund still enjoys the benefit of having essentially no debt on its balance sheet, debt is both limited and expensive in the current market. Thus GHPH remains on a capital raising trail and is in discussions with local and international DFIs, institutional investors, asset consultants and pension funds to attract more investors.

Asset allocation

GHPH is the first unlisted healthcare fund to invest exclusively in healthcare property assets in South Africa. The investment mandate remains to acquire and develop acute, day and specialist hospitals, as well as laboratories and biotechnology manufacturing and warehousing facilities.

Portfolio

GHPH has grown a portfolio of seven healthcare assets, including six hospitals and one medical chambers building. The fund's assets are characterised by long leases, because hospitals and clinics are most often enduring elements of their communities. Four of the hospitals have consistently been on Discovery Health's annual list of top South African hospitals, as rated by patients.

The GHPH healthcare assets are:

• Netcare N1 City Hospital and Medical Chambers
• Mediclinic Louis Leipoldt Hospital
• Busamed Gateway Private Hospital
• Busamed Hillcrest Private Hospital
• Busamed Paardevlei Private Hospital
• Cintocare Hospital.

Deal flow

Enabling the growth of healthcare operators, particularly newer or smaller ones, is expected to provide deal flow for the GHPH specialised investment vehicle. Strong regional healthcare operators continue to express interest and we have lined-up several such opportunities. In the medium to long term, this healthcare-focused property company will give established hospital operators a credible platform to sell and lease back some of their property assets in order to manage their balance sheets more efficiently. This is consistent with models followed by hospital groups globally. We continue to engage with the big three national operators to unlock long-term opportunities.

Target

Liquidity for investors will be through an IPO and stock exchange listing which is anticipated once the fund has R10bn in assets. The fund has achieved a third of this scale.

FY21 contribution to Growthpoint

Since pioneering healthcare property fund investment in South Africa in 2018, GHPH has delivered good growth to its investors, including good returns in FY21. GHPH was one of only a few funds showing DPS growth of 11.6% and DPS of 86.41 cents (FY20: 77.45 cents), which is an excellent result in this market. Yet, while income returns remained strong, capital returns edged down -1.3%. This decrease relates to the impact of the Covid-19 pandemic and the shortening of the leases at Netcare N1 City and Mediclinic Louis Leipoldt which expire in 2023 and 2025 respectively. Both are being negotiated.

Top healthcare tenants by gross rental contribution as at 30 June 2021