Financial Analysis on medical assets

• Passing yield - yield over the total development cost - propensity to risk
  • Dictates what the market is willing to pay
  • total development cost - how much you are willing to put on the line

Ongoing political tensions has an overall impact on consumption

• discretionary spending has slumped

working out whether to sell or hold on to assets

• QIC buy aggressively in tough times

Alternate investments:

• Build to rent, affordable housing, self storage

Healthcare:

• Usually underpinned by strong medical covenants, long WALEs, diversified asset class

  • within the assets, leases are backed by really strong tenants

• Considerations that underpin the sector demands include - growing/aging populations, exposure to chronic diseases, growing preventative care focus, undersupply of medical facilities, government subsidies and employment growth

• medical, broad umbrella with what the funds seek

• Attractive risk/return profile given high level of resilience through economic cycles, non-discretionary positions within the economy

• ambulance wait times, hospital beds within area
• need to factor in to long term viability of development
• investment into healthcare per capita

• intention is to develop and sell
• investor will take a longer term approach
• assumption into the life of the asset
  • hold into a fund and pay

Case study: Robina Lifestyle + Medical

Property Summary

• develop it and sell on completion
  • DA to pre-let
  • capital intensive fitouts - long lease agreements

Medical Rents

• specialty vs anchor - need to secure anchor medical
• Attractor to specialist medical
• secure anchor medical, typically the loss leader
  • position specicalist medical, 20% of the floor plate but contribute to 80% of the profit
  • Pharmacy - yield big marks in assignment, highly regulated with PBS rules
    • High requirements to get a pharmacy, up to $1100/sqm
    • Cannot be within 300m of another Pharmacy
    • Highest and best purpose

Incentives

• for pre-leasing
• fitouts, for radiology
• rent-free, cash, or you do the work
• High face rent?

Build cost

• Sprinklers and basements have large impacts on the build cost

Return on total development costs - typically 20%

Passing yield - 4.79% cap rate

• medical asset in Ipswitch actively advertised for 8%

Tenancy mix:

• Pharmacy will want the pole position
• Who can take B, C and D grade locations
• What do you need for the project to succeed?
• lease to a solar panel company

Centuria Healthcare Unlisted Funds

• assumptions of the fees you want to take as a fund
• hurdle rate, 8% as a minimum

• every half year, will re-value their asset to determine capital growth/value
• distribution, income stream the asset generates

Net Rents

• Commercial leases will have a rent review embedded in them - CPR, Cap/collar
  • For medical assets, have a rachet clause, greater of CPI or 4% e.g.
• Income should grow year on year
  • Take into account vacancy periods (ignored in his examples)
• Cap out each year revenues to

Cap rate of 4.75 but returns of 10%? Blended income return and capital growth over the period of time

Loans and LVR covenants

• 40% of the capital will be raised by debts
• Cost of debt associated with that - 5%

less management fees - will

• acquisition fee
• exit fee
• performance fee - perform over 8% will have a clip as well

How much are you willing to pay?

• IRR
• terminal value -

Construction

• bucket of contigency for development
• Banks want a 5% contingency bucket
  • sensitivity analysis for how much the

Consideration

• operational works, road shutdowns
• permits to shut down roads and permit for upgrades

profit risk rate - 30% -