Belgian listed company investing in healthcare real estate

Strategy

 

Aedifica is a Belgian listed company that specialises in investments in European healthcare real estate, in particular housing for seniors with care needs. Aedifica has established itself in recent years as a leader in the European listed real estate sector and has the ambition to further expand this position in the coming years. By investing in quality buildings that generate recurring and indexed rental income and offer potential for capital gains, Aedifica aims to offer its shareholders a reliable and sustainable real estate investment with an attractive yield.

 

1. A sector with growth potential

The European population is increasingly ageing and, on average, living longer. In Belgium, Germany, the Netherlands and the United Kingdom – the four markets where Aedifica operates – more than 25 % of the population will be aged over 65 and more than 10 % over 80 by 2060. Over the next 40 years, this increasing number of seniors in need of care will drive the demand for healthcare real estate. In addition, governments have limited resources to meet this growing demand, which means that private investors are also being counted on to finance real estate infrastructure that responds to the care and housing needs of the ageing population. Moreover, the long-term need for healthcare real estate investments is also supported by the consolidation of healthcare operators on a European scale, with real estate being sold to finance the further growth of healthcare groups. Given the long-term demographic trends, the limited public funds and the consolidation of healthcare operators, Aedifica is investing in a real estate sector with strong growth potential.

 

2. Specialist in healthcare real estate

In recent years, Aedifica has established itself as a specialist in healthcare real estate investments. Because of the many years of experience and knowledge it has developed, the Group is able to respond in a flexible way to the increasing market demand and the specific real estate needs of healthcare operators. As a result of its long-term partnerships with care operators, Aedifica is in constant dialogue with its tenants. Thanks to this sustainable interaction, the Group is aware of the specific needs of these operators, enabling it to respond to their needs and invest in the development of buildings that integrate innovative care concepts and technologies. This specialisation strategy makes Aedifica the ideal partner for investments in healthcare real estate and sets the Group apart from other investors in the sector.

 

3. A diverse portfolio in full expansion

Aedifica essentially pursues a buy-and-hold strategy that, by definition, focuses on the long term. The Group plans to further expand and optimise its healthcare real estate portfolio through sale-and-rent-back transactions of existing buildings, and by investing directly in the construction of new buildings and in the renovation and/or expansion of existing sites. These projects are always fully pre-let. In order to limit risks and to avoid over-reliance on a particular social security system, Aedifica is building a balanced portfolio by diversifying its investments from a geographical point of view as well as in terms of tenants and target groups.

3.1 Geographical diversification

Aedifica has developed a diverse geographical spread in Belgium, Germany, the Netherlands and the United Kingdom. As it currently operates in four different European countries, the Group does not depend on a single social security system and can further diversify its tenant base. In Germany, the Netherlands and the United Kingdom, the consolidation of the sector is still in full development, resulting in more investment opportunities and higher average rental yields than in the mature Belgian market. In addition, Aedifica intends to explore new European markets. More information about the healthcare real estate market in the four countries in which Aedifica is active is available in the Property Report of this annual financial report.

3.2 Tenant diversification

Aedifica rents out its buildings to more than 55 groups of professional and specialist healthcare operators on the basis of long-term contracts that generate high rental yields. Each healthcare group that operates Aedifica property generates less than 15 % of the Group’s total rental income, which therefore benefits from a diverse income stream. Aedifica intends to continue to diversify its tenant base in the future.

3.3 Asset diversification

Aedifica also diversifies its portfolio by investing in healthcare real estate for different target groups. The primary focus of investments is on all types of housing for seniors with care needs, enabling the Group to meet both the expectations of the care providers and the growing demand resulting from demographic developments. In addition, the Group is also investing in real estate for other types of people in need of care. Within its healthcare real estate portfolio, Aedifica identifies the following segments:

  • healthcare buildings for care-dependent seniors are the permanent residence of seniors who continuously rely on collective domestic services, assistance in daily life and nursing or paramedical care. This type of building is referred to in Belgium as ‘woonzorgcentrum’ and ‘maison de repos’, in Germany as ‘Pflegeheim’, in the Netherlands as ‘zorgresidentie’ or ‘verpleeghuis’ and in the United Kingdom as ‘care home’.
  • healthcare buildings for independent seniors with on-demand services consist of individual housing units where older people live independently, with common service facilities that can be used on an optional basis. This type of building is referred to in Belgium as ‘assistentiewoningen’ and ‘résidence-services’, in Germany as ‘betreutes Wohnen’ and in the Netherlands as ‘seniorenappartementen’.
  • mixed-use healthcare buildings combine within one building (or within several buildings on one site) housing units for both care-dependent seniors and seniors who want to live independently with care services available on demand. Some sites also combine housing for seniors with other types of care, such as medical centres.
  • healthcare buildings for target groups other than seniors provide permanent housing for people with high care needs due to a disability or illness (regardless of age). This segment only represents a small part of Aedifica’s portfolio (approx. 1%).

 

4. Corporate social responsibility

Acknowledging its role in society, Aedifica has assumed its responsibilities by developing an ambitious CSR action plan, which the Group intends to carry out by 2025. This action plan, based on the Sustainable Development Goals (SDGs), sets out the objectives that Aedifica intends to achieve in terms of sustainability, corporate responsibility and social responsibility. More information on this action plan and what has already been achieved can be found in Aedifica’s sustainability report.

 

5. Growth strategy

Aedifica’s ambitious growth strategy is bearing fruit: the fair value of the investment properties including assets classified as held for sale* averaged a compounded annual growth rate of 26% over 13 years and reached €2.3 billion as of 30 June 2019. Aedifica intends to maintain this growth rate in the coming years and thus continue to create economies of scale, in particular:

  • strong diversification of risks
  • greater capacity to effectively respond to market opportunities
  • increased liquidity of the shares
  • easy access to capital markets
  • optimal management of the portfolio

All with a view to ensure:

  • predictable revenues
  • optimisation of fixes costs
  • increasing EPRA Earnings per share and, subsequently, optimal returns for shareholders

 

6. Possible strategic developments

Within the sphere of European healthcare real estate, senior housing is currently the most developed and therefore most relevant segment for Aedifica. Population ageing is expected to have a significant impact on the ‘consumption’ of care and this trend could encourage the development of other segments, which are more oriented towards ‘cure’ (care hotels, rehabilitation centres, hospitals, medical facilities, etc.) than ‘care’. Aedifica is therefore studying the possibility of investing in new sectors of the healthcare real estate market and is continuously evaluating the needs and opportunities generated by shifting demographics. Aedifica is also studying the possibility of investing in new geographic markets within Europe, with a continued focus on healthcare real estate.