As part of its commitment to impact investing to meet the demand from the social sector, the AEW UK Real Return Fund (RRF, the Fund) has acquired two care homes, in partnership with Prime Life, in Lancashire for a total of £11.5m.
The deal involved Prime Life acquiring Springhill Care Group and simultaneously selling the freehold of two properties to the Fund. Prime Life has taken 30-year leases on the two properties with annual reviews linked to RPI (2.0%-3.5% collar and cap) and has set affordable and sustainable rental levels for each home. The homes are well positioned in their current markets and well suited to Prime Life’s existing portfolio.
Springhill Care Centre, in Accrington, is registered for 116 residents, with 104 single bedrooms on a 3 acre site. It has an annual passing rent of £653,040, and will generate a net investment yield of 6.8%. The price per bed of the property is £74,388 and the passing rent per bed, per annum, is £5,937. It is located within a densely populated residential area, close to transport links and community infrastructure.
Birch Green Care Home, in Skelmersdale, comprises a purpose built nursing and residential home. The care home is registered for 74 clients with a range of nursing needs over the age of 45. It has an annual passing rent of £180,000 and will generate a net investment yield of 6.7%. The price per bed of the property is £33,784 and the passing rent per bed, per annum, is £2,432.
In the current environment the Fund is adopting a defensive strategy, targeting assets in the less cyclical areas of the economy and in sectors driven more by demographics and social need. This acquisition increases the weighting to supported living, care, education and the NHS to almost 40%, all secured on leases over 15 years and adding to the 84% of total income linked to inflation or with fixed uplifts.
Ian Mason, Portfolio Manager at AEW UK Real Return Fund, commented: “The care home sector is driven by strong social and demographic needs and the UK is set for huge growth in its elderly population over the next few decades. As a result, it has strong market fundamentals and should remain resilient to any Brexit risks/uncertainties and AEW has taken the strategic decision to increase the Fund’s weighting in this sector.
“We are therefore delighted to have these two properties with Prime Life as tenants, a top provider of higher acuity and nursing care, with a strong balance sheet. They are well regarded by operators and investors in areas of complex care needs and specialities. The Fund was attracted to the deal due to the yield, length of income with annual inflation linked reviews, covenant strength and the fact that the purchase price is underpinned by the going concern value of the homes”.
The AEW UK Real Return strategy aims to align the real benefits of property with the liabilities of pension savers and long-term investors. It targets a real total return of 4%pa and a 5% gross portfolio yield and inflation-linked income growth. The fund aims to provide capital preservation, in real terms, by building a portfolio based on the strong property fundamentals of this real asset class. The fund accesses a wider UK investible universe of traditional and alternative sectors than typical core funds, aiming to generate greater diversification and lower volatility.