Why Reits fund managers should consider investing in healthcare

 

Stanlib Fahari Income Real Estate Investment Trust CEO Anton Borkum. PHOTO | FILE 

By EDWARD OMETE

In Summary

• Healthcare investments have a social impact that shopping malls and other such areas miss: saving lives.

After a long wait the country’s first Real Estate Investment Trust (Reit) was launched to the public at the Nairobi Securities Exchange.

Though uptake has not been as successful as anticipated the Stanlib Fahari I-Reit heralds a new path for those keen to have a relaxed investment into the real estate scene devoid of the attendant management tasks.

Reits and their idea of piecemeal ownership of investments in real estate projects offer an attractive avenue for many Kenyans to make entry into property joint ownership, with easy exit avenues of investments.

Funds from the initial public offering as seen in the information memorandum and various media sources will be channelled towards investment in a local mall. Future investments will probably follow this or alternative routes.

Prior to the fund’s launch a few weeks ago, an informal online discussion and “tutorial” on Reits by an investment banker revealed that the concept is poorly understood in Kenya.

The managers of the product have data to guide them on prioritising the investments into various commercial entities. But while Stanlib’s fact sheet does include hospitals as one of the areas of investment, its placement at the bottom of the list of 10 is not reassuring for health workers.

Not surprising the list starts with mixed-use, retail and commercial developments as areas to use the funds.

In terms of return of investment (ROI), the verdict is out there with the number crunchers as to whether hospitals can outperform malls and other retail projects. Unfortunately financial data for health enterprises is not easily available, partly because hospitals rarely disclose their financial and operational data.

For Reit managers the lure and attraction of malls is perhaps their simplicity: tenants lease space and pay monthly; full stop. Hospitals may be a bit tricky.

Would an I-Reit investment in a Kenyan hospital yield better returns?

An evaluation of potential hospital space use as an investment avenue could perhaps answer this question.

With a carefully chosen product it is hard to find many commercial real estate investments with a ROI as good as hospital bed space for top and mid-tier hospitals.

Currently Kenya’s total bed capacity as per 2013 enumeration stands at about 50,000. Out of these less than 5,000 beds are in the class of top or mid-tier private facilities, translating to a big deficit of quality bed space.

Knight Frank’s 2014-2015 quarterly survey puts commercial rental space charges from leading property developers in Nairobi at $21/sqm/month (Sh2100 per square metre) as does Hass Real Estate’s Property Index and the Kenya Property Developers Association.

Hospital bed space ROI is calculated from the average bed days divided by area occupied multiplied by the daily charges, which may vary from a low of Sh1,500-Sh2,300 a night for bottom-tier hospitals to Sh15,000-Sh25,000 for top-tier hospitals

Here’s the cherry in this equation though – healthcare investments have a social impact that shopping malls and other such areas miss: saving lives.

A mature I-Reits market offers novel approaches to financing healthcare infrastructure projects as a cost reduction strategy.

Since hospitals are in the Stanlib list, hopefully once the market picks up, we shall see some of the funds committed to the health sector.

Feedback: info@healthinfo.co.ke

Twitter:@healthinfoK