Health Care Real Estate Segment Note Affordability is the challenge for operators as for governments
In this note we update our models on Aedifica and Cofinimmo to the new market realities over the next 12-18 months (see company profiles P15 an P32):Model Update Aedifica, Accumulate, NEW TP EUR 104.0 from 133.0
Model Update Cofinimmo, Buy, NEW TP EUR 111.0 from 150.0
Care Property was updated on, Buy, TP unchanged at EUR 22.2.
STRUCTURAL TRENDS:
In the first section, we discuss some structural trends that determine the environment where the HC REITS operate in. We gather public data and draw some conclusions that also influence our expectations on the financials.
Aging population: The Demographic evolution requires tripling current HC RE investments as the aging trend accelerates over the next decade.
Affordability and government budgets: Governments will push more to the private sector as they are unable to carry costs of the aging population. Private wealth will be used more to afford elderly care. Poorest layers of society will have more care at home depending on social security systems. We include a comparison of different health care systems in the countries where Belgian HC REITs are active.
Operators: Increased default risk of operators due to inflation, energy costs and image deterioration in the short term and personnel scarcity in the medium-long run. Bear cases introduced to estimate default impact on valuation. Further consolidation trend in HC RE leads to more M&A opportunities in HC RE sub classes. Specialized elderly care (i.e. Alzheimer) deserves investment focus.
Risk Premiums: Historical risk premiums explain our 50-75 bps yield expansion assumption.
Aedifica is a property company, which is specialized in residential real estate. Co.'s portfolio has a superstructure of more than 225,911 sq. m as of June 30 2010. It owns: residential or mixed buildings in Belgian cities with classical leases; buildings with furnished apartments buildings in the heart of Brussels with shorter term leases; senior houses and serviceflats with very long term and triple net leases; and hotels. Co. invests: in existing and already leased buildings; and in projects with future completion. Co.'s activities can be divided into four segments: Residential or mixed buildings; Furnished apartments buildings; Senior houses; and Hotels and others.
Care Property Invest NV. Care Property Invest NV, formerly Serviceflats Invest NV, is a Belgium-based real estate investment company that builds and finances housing for pensioners. The Company specializes in premises equipped with technologies ensuring safety and comfort of elderly people. In addition, Care Property Invest designs, builds, supervises the progress of a number of construction works, monitors the budget and finances projects in the long term. Care Property Invest NV cooperates mainly for public health care center in Antwerp -Openbaar Centrum voor Maatschappelijk Welziijn (OCMW), including Berchem. The Company focuses its activities on the Belgian market. It operates through a number of subsidiaries, such as Ter Bleuk NV, Siger SA and Konli BVBA and VSP Wolvertem bvba.
Cofinimmo is a fixed capital real estate investment trust. Co. specializes in rental property. Its core investment segments are office property and nursing and care institutions. The portfolio also includes a Distribution property networks segment. Most of Co.'s assets are in Belgium. The foreign part consists of nursing homes/ clinics and the MAAF agencies network in France and the Pubstone portfolio in the Netherlands. Co.'s operations are organized into four segments: Offices, Nursing homes/Clinics, Distribution property networks, and Public-Private Partnerships.
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