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Is now the time to set up a healthcare REIT?

Matthew Stannard Matthew Stannard

We have seen increasing demand for UK real estate investment trust (REIT) structures from global investors seeking investment opportunities in the UK’s healthcare sector.

This demand is driven by a number of factors including the tax advantages of the regime and the stability of the structure, which is approved by HMRC and managed onshore.

The emergence of specialist REITs focused on specific asset classes is good news for investors and operators alike. Investors are able to control their exposure to specific sub sectors of the market, such as healthcare, while a REIT management team with a focused strategy and specialist knowledge should be well placed to deliver strong returns.

This type of constructive partnership allows both parties to focus on what they do best – allowing the REIT owner of the property to maximise rental income and enhance the value of properties in their portfolio while the operator focuses on providing a quality service.

Current trends in UK REITs

Against this background we have seen a growing trend for new and existing real estate funds adopting REIT status. This potentially makes the fund more attractive to a broad investor base particularly as a result of capital gains tax reforms that came into force from April 2019, which are bound to impact on the level of after-tax returns to investors.

The advantages of flexibility and liquidity make REITs ideal vehicles for alternative asset classes, enabling investment in socially beneficial enterprises. As providers of long-term stable income, healthcare REITs can be particularly attractive to pension fund investors.

A technical listing on an alternative exchange may enable a cost-effective entry to the REIT regime if the liquidity of a listing on the London Stock Exchange (LSE) main market is not needed. Equally a listing on the LSE main market may be an attractive proposition for a fund looking to grow its business by opening up to investment from the wider public.

Lessons from international REIT markets

UK and international REITs are major investors into the UK care homes market as existing participants continue their acquisition drive and international REITs make their UK debut.

The more mature US REIT market shows a trend of REITs specializing and investing in alternative asset classes and this trend is mirrored in the UK REIT market. So we can expect UK and international REITs’ share of investment into healthcare assets to continue to grow.

US healthcare REITs currently comprise roughly 12-14% of the US REIT market and hold approximately $200 billion worth of healthcare-related real estate assets in the United States.  There is therefore significant growth potential for UK and international REITs to continue to play their part in delivering property that meets the needs of the growing and ageing population, with its ever-increasing healthcare needs, in communities across the UK.

“The UK REIT market has grown dramatically in recent years and provided strong returns for many investors. There is now real potential for developing the role of REITs in meeting some of the current challenges in healthcare backed by international investors who continue to be attracted to the sector”

Jessica Patel, Partner, Real Estate Tax

To discuss REITs in more detail, please contact Matthew Stannard or Jessica Patel.

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