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Health-care real estate deals surge as investors seek ‘flight to quality’

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Investment appetite for health-care real estate remains strong in traditional assets such as care-home developments.


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Health-care property and services deals are on track to reach their highest level in 25 years, as assets including care homes and mental health care facilities are put up for sale.

Total investment volumes into U.K. health-care property have risen to £2.24 billion ($2.32 billion) so far in 2020, a 25% rise on the £1.76 billion for all of 2019, according to research by Frank Knight.

The global real estate consultancy predicts that transaction levels in the final quarter of 2020 are heading toward the highest since 1995, with a number of high-profile deals on the market and in the pipeline.

These include The Priory Group — England’s largest mental health-care provider — which was put up for sale in September for an estimated £1.5 billion by its U.S. owner Acadia Healthcare
ACHC,
+3.89%
.

Also on the auction block is mental services provider Elysium Healthcare, owned by private equity group BC Partners, which is valued at around £900 million, and Keys Group, the children’s care-and-education-services provider that is worth around £250 million.

Another £3 billion worth of specialist providers of mental health and learning disability services, and £1 billion of broader health-care transactions, are also up for grabs, Knight Frank said.

Read: The case for defunding nursing homes and replacing them with a radically different model

Julian Evans, head of health care at Knight Frank, said there are currently two distinct investment silos: institutional capital chasing social care fixed income such as real estate and private equity, and infrastructure funds seeking specialist sector companies.

He added that the COVID-19 pandemic had shown health-care real estate as a haven, with investor appetite for the sector remaining strong, both in more traditional assets such as care-home developments as well as the increasingly popular mental-health-services sector.

This demand is only strengthened by the limited supply within the health-care market combined with the awareness of the ever-growing demographic fundamentals for these assets that are driving the sector.

“As a result, there will undoubtedly be a flight to quality as investors seek defensive health-care assets and we anticipate that investment into the sector will continue to rise, from a broad church of domestic and overseas investors,” he said.

Knight Frank’s predictions come despite several businesses in the sector coming under pressure from rises in the minimum wage pushing up costs, and a fall in funding for residents from cash-strapped councils.

In October, administrators for Four Seasons Health Care launched a process to sell its care homes in Northern Ireland. The holding companies behind Four Seasons — Elli Finance (U.K.) and Elli Investments — went into administration in April 2019 after struggling to pay their debts.

In April this year, Spire Healthcare Group
SPI,
+2.45%
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which has 39 hospitals across the U.K., agreed a covenant waiver with banks. RBC Capital upgraded its share price target on the stock by almost 50% on Nov. 4, as it said concerns that its forecasts for the private hospital group were too optimistic had been eased by new data.

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