St John of God shortlists hospital suitors in $400m sell-off
Australia’s largest Catholic hospital operator, St John of God Health Care, has short-listed at least two medical real estate groups interested in buying its $400 million portfolio in the two-stage sale and leaseback and funding deal it kicked off in May.
The group, which operates 23 healthcare facilities with more than 3000 hospital beds across Australia, New Zealand and the Asia-Pacific, called in the National Australia Bank to advise on the sale.
The group is believed to have tapped heavyweights Australian Unity and Vital Healthcare Property Trust, as well as another group, potentially from offshore, that are interested in becoming its long-term property partner.
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Vital Healthcare is Australasia’s largest listed investor in healthcare real estate and has made seven acquisitions totalling $190 million in 2017.
It owns medical office buildings, aged care facilities and private hospitals but would probably need to undertake an equity raising if it went into partnership with St John of God.
The group declined to comment this week, but the chief executive of Vital’s manager, David Carr, said last month the group would “continue to strengthen established partnerships and look to develop new ones”.
The Australian Unity healthcare trust’s portfolio stands at $1.3 billion and it is geared at just 17%.
The assets under consideration are potential development sites and we are further refining our requirements before progressing.
The group is also understood to be working on a new liquidity mechanism that could position it to grow.
The area is running hot as major real estate groups, including Dexus and Lend Lease, vie for the assets against specialists Barwon, Heathley and NorthWest Healthcare Properties, which owns Vital’s management.
NorthWest this year took listed medical property landlord Generation Healthcare REIT private via a $508 million takeover while Australian Unity raised $170 million for its healthcare property trust in just two days.
The St John of God covenant, along with 3% annual rental increases and a weighted average lease expiry of about 20 years, are considered a lucrative drawcard for bidders.
The group also wants a like-minded investor to back its property plans over the long term but the pricing is said to have thinned out the bidding pool.
The group’s property partner will acquire an initial portfolio of up to three assets, under a sale and leaseback, and provide additional development funding of about $150 million.
We are keeping the short-listed parties updated and will advise them when we are ready to progress to the next stage
The partner must also fund a future hospital portfolio of up to $150 million to be acquired, developed or redeveloped by St John of God.
The process will support the development of hospitals in Western Australia and NSW, and help the group fund future developments, including in Victoria.
St John of God Health Care group director finance, Bryan Pyne, says the process to select a long-term capital partner for future capital development, at a select number of sites, is progressing.
He says a process to short-list potential partners had been undertaken.
“The assets under consideration are potential development sites and we are further refining our requirements before progressing.”
“We are keeping the short-listed parties updated and will advise them when we are ready to progress to the next stage,” he says.
This article originally appeared on www.theaustralian.com.au/property.
