REIT investors step up involvement in health infrastructure
LONDON: Real Estate Investment Trust (REIT) investors are stepping up their collective involvement in new hospitals and other health assets.
In a capital-constrained world, innovation is critical when developing new hospitals and other health assets. The Queensland government’s partnership with Australian Unity demonstrates exactly what can be achieved when private sector funding is applied to new health assets.
Australian Unity’s Healthcare Property Trust built and funded the new $340 million Surgical, Treatment and Rehabilitation Service (STARS), which is part of Brisbane’s Herston Quarter precinct.
The asset provides medium to long-stay rehabilitation services, short-stay elective surgery such as endoscopy and specialist outpatient care. It includes 182 beds, seven operating theatres, three endoscopy suites and specialist consulting rooms.
STARS has been delivered as part of an innovative version of a public private partnership (PPP). Metro North Health operates STARS under a 20-year lease, with two 10-year options. Investors in Australian Unity’s Healthcare Property Trust receive income from the asset.
This is a unique structure for a significant public health facility, which are more traditionally funded using infrastructure funding models. The funding model used is one which is “capital light” for the Queensland government, which is important given public sector budgets are under pressure as a result of costs associated with an aging population and the pandemic.
“STARS is a very significant piece of public infrastructure,” says Mark Pratt, executive general manager of real estate investments, Australian Unity. “We’re really pleased that Australians saving for their retirement are able to participate in important infrastructure for them and the broader community.
“With this asset, we have been able to bring private capital to bear in never-before-seen ways and also construct the hospital on time and to budget. It’s a great example of the public and private sectors coming together to find the best outcome for all stakeholders,” he adds.
Investors in Australian Unity’s Healthcare Property Trust value the long-term income streams that assets such as STARS deliver. “Our investors are looking for returns to support their retirement, which is challenging in an era of ultra-low interest rates. The income stream from STARS helps investors, who include self-funded retirees and people going into retirement, to put their capital into an investment that not only builds wealth but hospitals at the same time,” Pratt says.
On the flipside, access to private funding allows Queensland Health to build assets that may otherwise not receive funding, says Debbie McNamara, STARS’ executive director.
“It also means assets can be built within shorter time scales, because it removes reliance on capital investment from public funds,” McNamara says. “We’re a health service. Our job is delivering healthcare to the community. So, it’s about combining skills and expertise to deliver the right outcome.
“Private funding gives us additional capacity to create contemporary facilities. It provides an environment and platform where the health team can deliver quality of care.”
Australian Unity has a long-term view of its relationship with operator Metro North Health and STARS. Pratt says: “We’re not a property developer with the intention of selling the asset. We’re a delivery partner who is prepared to invest from day one, with a 40-year time horizon. So, our time frames are much more aligned with our operating partners. Our model also supports health agencies to focus on what they do best, the delivery of healthcare services.”
McNamara, who has longstanding expertise working in PPPs, agrees the partnership is more than an investment transaction. “It’s an enduring relationship and Australian Unity is committed to the health outcomes and health infrastructure we deliver.”
She says for the relationship to be a success, it’s important for both sides to appreciate each other’s interests. “You’re always mindful about not just what you want to achieve, but what your partners want to achieve and their drivers. It’s critical to keep that front of mind because PPPs are complex. Keeping in mind shared outcomes as you go along the journey is vital.”
