Internally managed Australian property group HMC Capital [ASX:HMC] (formerly Home Consortium) has halted on the ASX as it announces a ‘transformational acquisition’ and equity-raising fundraiser.
HMC has entered arrangements from Medical Properties Trust to grab 100% interest in 11 private hospitals for $1.2 billion — the Healthscope Hospital Portfolio.
The group says the portfolio comes with ‘attractive terms’ — with the purchase price representing a yield of 5.8% and a forecasted unlevered internal rate of return at 9%.
The property investment group says it will launch the $125 million equity raising in order to fund the acquisition, which will be made up of an institutional placement and entitlement offer.
Shares were halted at $3.67 each at the time of writing, having dropped by 14% so far in 2023:
Source: tradingview.com
HMC hospitals acquisition
Today the property managing real estate fund announced it has arranged to acquire 100% interest in 11 private hospitals, which are fully leased to Healthscope for $1.2 billion.
HMC says the acquisition is based on attractive terms, and the purchase price is representative of an implied acquisition with a net operating income (NOI) yield of 5.8%.
It also comes with an unlevered internal rate of return (IRR) of 9%, and gaining the hospital portfolio should strengthen base rent, rent coverage, and protect against inflation.
The new portfolio is made up of critical infrastructure for Australia’s major capital cities and will be beneficial through long-term net leases —For example, 16 years, with eight- or 10-year options to extend — and is with Australia’s second-largest hospital operator.
Terms have been developed to benefit both parties, with key material highlights being:
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‘Strengthened covenant: Base rent reset, operator EBITDAR rent coverage of >2.0×11
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‘Inflation protection: Base rent escalations renegotiated from 2.5% fixed to CPI-linked12
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‘Accretive developments: $255m13 of committed projects to be rentalised at the greater of 6% or 300bps spread to 10-year Australian government bond yield.’
The acquisition will be undertaken in three tranches and a new trust fund.
Once the tranches are settled, the (unlisted) fund will have a $1 billion hospital portfolio, with 50% equity interest and 50% third-party institutional investor interest.
Funding the acquisition
HMC will be undertaking a $320 million underwritten equity raising, comprising $89 million institutional placement and a $231 million 1 for 1.90 pro rata non-renounceable entitlement offer at $1.35 per unit.
The company will support the equity raising by providing a sub -underwriting commitment for its full $48 million entitlement in the institutional component of the offer and will also fully fund a 1 for 28 bonus unit in relation to all new units issued as part of the equity raising – subject to certain conditions.
Acquiring the hospital portfolio has also pushed forward HMC’s plans to open a $2 billion minimum healthcare and life sciences institutional unlisted fund that will target 10% of IRR.
In order to support all the group’s commitments, the full equity raising will be aimed at bringing about $125 million in total funds, with the unlisted fund as an added support measure.
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