Summary and implications
We have seen significant investment from institutions and US REITs in UK healthcare throughout 2013/14.
The US REITs were involved with the larger transactions including Healthcare REIT's £500m investment in Sunrise Living, followed by their £140m investment in Avery, and Griffin American Healthcare REIT's £300m acquisition of 44 elderly care homes from the Caring Homes Group.
There are now three UK REITs active in UK healthcare (Assura, PHP and Target). The US market is more mature and comprises fifteen healthcare REITs (three with market capitalisation in excess of $17bn) and many more private healthcare REITs.
The REITs have to date invested in top-end residential care facilities, with strong operator covenants, predominantly in the south east and other affluent residential areas. The transactions were asset acquisitions, but some included development finance and debt provision for existing operators. As they have become more familiar with the UK healthcare model, the US REITs are now open to other areas within the UK and Europe and alternative assets such as polyclinics and hospitals.
Middle Eastern and Asian investors are following the US healthcare REITs. London is an important centre for Islamic finance and well regarded from an ethical perspective by sovereign wealth funds and private Middle Eastern investors. The UK systems of land registration, finance security, and a transparent regulatory market together with asset quality and strong demographics are all attractive for foreign investors. UK healthcare is delivering strong total returns with low investment risk and this is anticipated to continue throughout 2014/5.
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