Purpose-built care homes are a “future-proof” and “compelling” investment sector, driven by the UK’s ageing and changing population, said the founder of asset management firm, Target Advisers.

Speaking at a roundtable event focusing on alternative income, Kenneth MacKenzie said the healthcare property sector is “attractive” in terms of asset value, while also benefitting from long income security and low risk.

Target Healthcare launched a real estate investment trust (REIT) in 2013 which currently holds 28 purpose-built UK care homes valued at £135m, having acquired £50m in new assets since June last year.

“The advantages of holding healthcare property as an ‘alternative’ within a portfolio are twofold,” said MacKenzie. “Firstly, with favourable underlying population dynamics, the demand for investment in the sector is high.

“Secondly there is a real income advantage. With long leases on our properties, often up to 30 years, we are able to create a stable, long-term and inflation-linked income in the form of a 6% dividend paid quarterly.”

The portfolio income streams are spread across seven different providers and are a mixture of both small and large operators.

“Substantially upgraded”

According to MacKenzie, these properties are “future-proof investments”, citing research from Age UK which predicted that the number of over 85s will double in the next 20 years, and treble by 2045.

“Approximately 15% of over 85 year olds are expected to make use of residential care in one form or another,” he said. “To meet this demand the UK’s ageing care home stock needs to be substantially upgraded and new facilities built.”

“Engaged landlord”

“It’s quite interesting to reflect on healthcare and REITS compared to America,” he said. “The US has a 30-year track record investing in care homes, and has now become a mature market.

“There are only four healthcare REITS in the UK, and we’re the only one focusing on secondary care.

“We describe ourselves as an engaged landlord because we have a high level of information on our assets, reviewing the operational performance on an ongoing basis.”

Of those 49 investment companies in the UK yielding over 5%, around 65% are from specialist sectors, according to the Association of Investment Companies (AIC), which hosted the roundtable.

The Target Healthcare REIT is currently trading at 103.58p, with its share price increasing by almost 2% over the year.

Source: http://www.international-adviser.com/news/products/care-home-reits-are-a-future-proof-sector