Opinion: Africa Needs More Healthcare Real Estate Investment Trusts

By Dana Sanchez Published: November 30, 2016, 1:39 pm
Africa needs more healthcare real estate investment trustsTygerberg Hospital in Bellville, Cape Town, is the second largest in South Africa. Photo: capetownadvisor.com

Healthcare real estate investment trusts are becoming more attractive on the continent as African countries try to build up a listed real estate industry, according to Ortneil Kutama, media director of pan-African real estate industry news website, Africa Property News.

A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timber lands. They can be publicly traded, or private.

REITs provide investors with an extremely liquid stake in real estate, receiving special tax considerations and typically offering high-dividend yields, according to Investopedia.

In more mature markets, healthcare REITs are often popular investments, Kutama said. “There is a gap for hospital services in Africa and property investors can benefit from this,” he said.

From Africa Property News.

As Africa tries to build up a listed real estate industry, healthcare real estate investment trust (REITs) become more attractive on the continent.

They would formalize an industry with much potential, said Ortneil Kutama, Africa Property News Media Director.

“REITs are well structured and provide investors with tax benefits and regular income in theory as long as they make consistent profits,” Kutama said.

Countries like South Africa, Kenya, Ghana, Morocco and Nigeria, which have growing populations, improving hospitals and healthcare industries, could gain capital boost. If the hospitals in these countries were listed, investors could bring that major capital boost.

Property groups in Africa should study how well healthcare REITs have performed in the U.S. and U.K. and then replicate the most effective structuring and management methods.

“The argument for healthcare REITs continues to grow. There is a gap for hospital services in Africa and property investors can benefit from this,” he said.

In more mature REIT markets, specialized funds are far more abundant. In the U.S. and Netherlands, healthcare REITs are often popular investments.

In South Africa, more hospitals need to be built and current hospitals need to be upgraded. There is a shortage of doctors in the country too.

“There are also benefits in investing in these healthcare assets designed to prolong life,” Kutama said.

Some fund managers have in the past tried to list a healthcare REIT in South Africa but struggled to find the scale of assets required to do so. Yet many small funds have listed on the JSE and NSE in the recent past with market capitalization of around R1bn to R3bn.

REITs have to pay out the majority of their income as dividends and this would have to be the same with healthcare groups.

Healthcare REITs could include retirement or wellness center assets. Africa’s retirement industry needs to professionalized. This can become easier to achieve if the retirement homes and villages are brought into a listed vehicle.

REITs attract investment funds because of the tax benefits. REIT Investors like them because they guarantee dividend payments. Specialized funds can be attractive because they are focused in their niches but they need scale.

Investors often promote specialized funds because they like it when management of these funds understand their markets well. There could be the possibility that a large hospital owner like Netcare or Life Healthcare in South Africa could sell hospitals to a property manager which ran a healthcare REIT. The REIT would then lease them back. The sale of the assets would be in order to get cash in a difficult and weak economy.

Fund managers would want specialized property companies to be worth a few billion (rand) when they listed.

In the U.S., the scale is clearly there. Various healthcare REITs have been very successful this year in what is the largest REIT market in the world. They argue that people should invest in assets related to promoting and prolonging everyday life.

One such fund is Ventas Inc, which operates in the U.S., Canada and the U.K.

Read more at Africa Property News.

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