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Irony of Healthcare property investing

Article
29 May 2017
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For many Australian pensioners and self-managed superannuants in their later years, there is some rewarding irony to investing in Australian healthcare property.

Put simply, as they and many of their friends get older, they may have reaped financial rewards as those around them (and possibly themselves) increasingly seek out healthcare services.

Healthcare property has proven to be a unique investment

Healthcare property is the physical infrastructure supporting Australia’s healthcare system, including hospitals, medical clinics, aged care facilities, day surgeries, consulting rooms, rehabilitation units, radiology and pathology centres.

Combining the investment attributes of commercial property with steadily growing demographics and social and societal expectations has created an investment marked by stability and resilience.

Our experience of healthcare property is that it has successfully delivered steady income distributions and, particularly over recent years, substantial capital growth.

There are three fundamental reasons behind the long-term success of healthcare property investing.

1. Australia is ageing

In years gone by, Australia was a relatively youthful country. In 1970–71, for example, 31 per cent of the population was aged under 15. But, by 2001– 02, this proportion had dropped to 22 per cent 1. In 2016, it had shrunk further, to just 18.8 per cent 2.

The ageing of the Australian population is caused by two factors. Firstly, Australian families are, on average, having fewer children. Birth rates started declining in the late 1960s, and have been falling ever since. Since the mid-1970s, Australia’s birth rate has been below the replacement rate — meaning that without migration Australia’s total population would eventually begin to fall.

The second factor contributing to the ageing population is that we are living longer. For example, in 1960, life expectancy for males at birth was around 68 years1. Latest figures from the Australian Bureau of Statistics now have it at 80.4 years3.

In 2016, the proportion of people aged 65 years and over was 15.3%.2 Looking ahead, by 2060, the percentage of Australians aged 65 and over is expected to be ~25% of the population.1

2. Age is a major determinant of healthcare needs

At the same time they are getting older, Australians are also increasingly requiring healthcare services.

In 2014–15, 41% of hospitalisations in Australia were for people aged over 65.4

Logically, then, with Australia’s population projected to rise to around 38 million by 20605, there is little surprise that Commonwealth health expenditure is projected to substantially increase in the future 6.

The graphs below highlight the relationship between the age of Australians and their healthcare costs.

Source: An Ageing Australia: Preparing for the Future, Productivity Commission, Nov 2013

As you can see, other than the increased hospital costs associated with infancy, costs are broadly a function of a person’s age.

3. Australia’s healthcare depends on a cohesive public and private system

The third factor that effectively creates a triumvirate of tailwinds for the healthcare property sector is the unique co-mingled and dependent structure of our private and public healthcare system. While not perfect, the Legatum Institute recently rated Australia as having the world’s eighth best healthcare system.7

The cohesive nature of our private and public pairing can be seen in the distribution of healthcare services. In 2014-158 there were:

  • 698 Australian public hospitals
  • 5,980,000 public hospitalisations with an average overnight stay of 5.7 days
  • 624 Australian private hospitals
  • 4,170,000 public hospitalisations with an average overnight stay of 5.2 days

Digging a little deeper, Australia’s private healthcare system9is responsible for:

  • 40% of all patients
  • 2 out of 3 elective surgeries
  • 1 out of 3 beds in Australia
  • 47% of heart surgeries
  • 70% of admissions for rehabilitation, and
  • 4 out of 10 patients aged over 65.

This critical level of service means the Australian private healthcare sector has become an embedded part of society.

Understanding the performance of healthcare property

Our experience of investing in healthcare property is with the Australian Unity Healthcare Property Trust (Trust). In 1999, we opened this Trust to capitalise on Australia’s ageing population and the growing demands for healthcare services.

Over the last 17 years the Trust has grown to over $1.2 billion and become the largest healthcare property fund in Australia. Today, the Trust currently owns a portfolio of 40 quality, healthcare-related.

Properties across Australia that are actively managed by a large, specialised healthcare property team.

For investors, the Trust has delivered strong, steady income distributions since its inception, including through the global financial crisis. Over recent years, the Trust has also delivered substantial capital growth.

Importantly, while other investments have been exposed to the volatility of economic cycles, the steady demand for healthcare services has meant the healthcare property sector has remained relatively stable over the last two decades.

The chart below shows the performance of $50,000, invested in the Trust since the inception of Wholesale Units on 28 February 2002 (Retail Units were incepted in 1999). It compares the Trust’s total return against the broader direct property sector and several other assets, including fixed interest, listed property, international shares and Australian shares. A table of the Trust’s performance is also visible.

Source: Australian Unity Wealth, Bloomberg, March 2017. Australian Shares (S&P/ASX 300 Accumulation Index), Listed Property (S&P/ASX 300 A-REIT Accumulation), Fixed interest (UBS Composite Bond Index), Direct Property Index (PCA/IPD Pooled Property Fund Index – Unlisted Retail), International shares (MSCI All Countries ex Aust UnHedged in $AUD). Returns for the Trust are calculated after fees and expenses and assume the reinvestment of distributions. Inception date for the Trust is 28 February 2002. Past performance is not a reliable indicator of future performance.



Healthcare Property Trust - Wholesale Units

Trust Performance to 31 March 2017

 

1 yr %

3 yrs p.a. %

5 yrs p.a. %

10 yrs p.a. %

Since Inception p.a. %

Distribution return

6.94

7.23

7.61

7.47

8.72

Growth return

7.33

5.06

2.95

1.60

2.87

Total return

14.27

12.28

10.56

9.07

11.59


Returns are calculated after fees and expenses and assume the reinvestment of distributions. Past performance is not a reliable indicator or future performance. Inception date for Wholesale Units is 28 February 2002.

Re-opening the Trust to new investment

In April 2016, the Trust temporarily suspended new investment due to overwhelming demand and to safeguard the interests of existing investors.

After an incredibly busy and productive year, during which the Trust acquired eight assets and deployed more than $70 million to developments, we re-opened the Trust to investment on Monday, 15 May in order to raise approximately $150 million.

Because of the really impressive track record of the Trust and the sector into which it invests, the Trust successfully raised more than $170 million to help fund its future development and acquisition activities in just two days. As a result of the overwhelming demand, the Trust has now suspended investment applications.

More information on healthcare property investing

If you have any questions about capital raising the Australian Unity Healthcare Property Trust, please contact your Australian Unity Business Development Manager.

Alternatively, you can call a member of our Adviser Services team on 1800 649 033 or email us at investments@australianunity.com.au.

1‘Australia’s Demographic Challenges’, Australian Government, Treasury, February 2004
2Population by Age and Sex, Australia, States and Territories, Australian Bureau of Statistics, December 2016
3Life Tables, States, Territories and Australia, 2013-2015, Australian Bureau of Statistics, October 2016
4Australia’s hospitals 2014–15 at a glance, Australian Institute of Health and Welfare, July 2016
5An Ageing Australia: Preparing for the Future, Productivity Commission, November 2013
6 Commonwealth health expenditure is projected to increase from 4.2% of GDP in 2014-15 to 5.5% of GDP in 2054-55. (An Ageing Australia: Preparing for the Future, Productivity Commission, November 2013)
7The Legatum Prosperity Index 2016, November 2016
8Australia’s hospitals 2014–15 at a glance, Australian Institute of Health and Welfare, July 2016
9Private Hospitals Service Provision, Australian Private Hospitals Association, June 2016

Important information
The Australian Unity Healthcare Property Trust is issued by Australian Unity Funds Management Limited ABN 60 071 497 115, AFS Licence No. 234454.Effective 17 May  2017, new investor applications and additional applications from existing investors were temporary suspended. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. In deciding whether to acquire, hold or dispose of the product, investors should obtain the current Product Disclosure Statement (PDS) and consider whether the product is appropriate for them. A copy of the current PDS is available at australianunity.com.au/wealth or calling our Investor Services at 13 29 39. Investment decisions should not be made upon the basis of its past performance or distribution rate or any ratings given by a ratings agency, since each of these can vary. In addition, ratings need to be understood in the context of the full report issued by the ratings agency itself. The information provided in this document is current at the time of publication only.

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