Centuria Enters Health Sector via Heathley acquisition
Centuria has entered the emerging healthcare real estate sector, by acquiring a 63.06% economic interest in Heathley's property funds management platform for $24.4 million, after Dexus pulled out following the deferred listing of a REIT.
On completion of the transaction, the resulting Centuria Heathley vehicle will be jointly owned by Centuria and interests associated with Heathley management, however through a put and call arrangement Centuria can potentially acquire the remaining shares in Heathley from the end of year five. The call option is exercisable at 9x multiple of EBIT adjusted for NTA and the put option is exercisable at 10x multiple of EBIT adjusted for NTA
Curiously, while Heathley management hold 20% or more of the joint business then, if Centuria is subject to a ‘change of control’, Centuria may be required to sell all of its shares in Centuria Heathley to the Heathley management holders under the terms of the shareholders agreement, or may be required to buy all of the shares it does not hold in Centuria Heathley. These provisions do make it difficult for a hostile takeover of Centuria to succeed and may not (subject to the exact wording) therefore be in the best interests of it shareholders, nonetheless, the change of control arrangements are not uncommon in joint venture arrangements.
The move into the Healthcare sector adds to Centuria's diverse line up of funds and REITs and follows a recent move into the Affordable Housing sector, announced last month.
Heathley is a specialised healthcare property fund manager with a $620 million AUM platform of unlisted funds with nationally diversified assets and a strategic focus on the healthcare chain, including medical centres, day hospitals and tertiary aged care. The business was first established in 1977 and has managed over 40 closed end property funds.
Last November, Heathley aborted its attempted listing after it had been seeking to raise $226.4 million for an initial public offering in a deal that valued the company at $373 million on a market capitalisation basis.
As part of the listing plan and subject to the successful listing, Dexus had planned to acquire a 28.5% interest in Heathley for $11.3 million with an option to buy another 21.5% stake in the future. Dexus was also going to take a 10% cornerstone investment in the healthcare REIT at a proposed issue price of $2 per stapled security, for $37.3 million. In April 2019, after the listing was deferred, Dexus, confirmed that they were no longer proceeding with the proposed investments in Heathley.
The Dexus deal and the Centuira deal valued the Heathley Group at circa $39M or 10x earnings before interest and tax.
Centuria Heathley increases CNI’s unlisted real estate AUM by $0.6 billion, taking Group AUM to $6.2billion. The Transaction introduces a new asset class to Centuria’s expanding real estate platform and fully aligns it to the healthcare property sector though a preferred, specialised manager.
The Australian real estate healthcare sector is highly fragmented with a limited number of securitisation and institutional real estate managers servicing the asset class.
The new platform will seek to leverage Centuria’s in house real estate management and extensive national distribution capabilities in combination with Heathley's extensive healthcare market experience, its deep relationships with healthcare partners and its strong pipeline.
Centuria Heathley has capacity to expand to circa $1.0 billion AUM in the near term with known potential projects and has the ability to expand its asset footprint and unlock new retail and wholesale mandates within the sector.
Healthcare real estate has tended to produce higher total returns compared to traditional real estate sectors and is underpinned by fundamentals from Australia’s growing and ageing population, longer life expectancy, increased requirements for ongoing healthcare and continued focus from the Federal Government on preventative care. Healthcare expenditure accounted for $170 billion growing a 4.7% over the 10 years to 2015-16 and is one of the largest contributors to Australia’s GDP at 10.3% .