Primonial acquires German clinics for €800m in biggest deal of the year

French portfolio management company Primonial REIM has acquired €800m of German healthcare assets, it announced this month, marking the biggest healthcare deal of the year.

The company is acquiring a 50% stake in a German real estate portfolio managed by Alabama-based healthcare REIT Medical Properties Trust (MPT) for institutional investors in Germany. The portfolio comprises 71 properties with a combined total value in excess of €1.63b. MPT will retain a 50% interest in the portfolio and one of its affiliates will continue to manage the facilities.

Primonial is betting big on healthcare, its deputy CEO of real estate, Laurent Fléchet, told REFIRE: ‘Our goal is to invest between €1.5b and €2b in healthcare assets in Europe per year, in markets such as Germany, France, Italy and Ireland,’ he said. ‘The healthcare market is already pretty mature in France and has moved a lot in Germany in the past two years. We think we’ll see more consolidation in the sector going forward.’

While Primonial is unable to discuss details of the MPT acquisition until the deal closes next month, it has been quietly ramping up its exposure to the European healthcare sector over the past two years. In July 2016, it acquired a portfolio of 66 healthcare facilities in France from Gecimed for €1.24b all in cost. The portfolio, since renamed Immocare,consists of 66 healthcare facilities run by ten operators (8,220 beds) with full occupancy. In the same month, Primonial acquired the Panacea portfolio in Germany for €994m. The portfolio consists of 68 healthcare facilities across 13 German states, run by 28 operators and (8,614 beds), with an occupancy rate of 92.5%. Primonial maintains there is scope for growing the portfolio further in Europe, particularly in Italy, Spain and the Benelux region.

For MPT, the sale of the stake to Primonial ‘demonstrates the importance of hospitals as an asset sector in general, and MPT’s portfolio in particular’, said Edward K. Aldag, Jr., MPT’s chairman, president and CEO. ‘Investor interest in this JV opportunity was strong and came from funds based in Asia, Europe, Canada and the U.S.,’ he added.

The latest acquisition will increase Primonial’s healthcare assets under management to €5.2b, up from €4.4b, of which half the assets are in Germany, with an additional €2.2b in France. MPT entered the German market in 2013 and acquired 40 clinics from Dutch healthcare provider Median Kliniken Group a year later for €705m.

Primonial is also betting big on the residential space: it intends to increase the share in its portfolio to 20% up from 6%, with a focus on cities such as Frankfurt and Berlin.

MPT expects to report a gain of approximately €500m upon closing, based on an agreed 6% valuation of the portfolio’s 2017 rental income. Total expected proceeds to MPT, including its portion of secured debt, will be approximately €1.14b.

The company will use the proceeds to fully repay balances under its revolving credit facility and to make investments in additional US and European hospital assets. Closing of the transaction will be governed by customary conditions, including approval of the German Federal Cartel Office and completion of definitive documentation concerning secured financing, and is expected to be completed during the third quarter of 2018.

‘We are delighted to partner with Medical Properties Trust to make this new strategic investment in the German healthcare sector,’ said Yann Balaÿ, head of healthcare real estate investment at Primonial. ’This is a significant deal that will allow us to strengthen our position in this sector both in Germany and in Europe. We hope that this will pave the way for fruitful future cooperation with Medical Properties Trust in Europe.’

Primonial has also been building a string of European alliances in recent months in order to deepen its European footprint. In October, it set up the ‘European Social Infrastructure No.1’ fund with Luxembourg-based fund manager AviaRent Capital Management, with a view to establishing a large social infrastructure vehicle.

‘We could grow the fund to up to €1b within the next two to two and a half years,’ Mathias Giebken, CFO and managing partner at AviaRent, told REFIRE. ‘The fund’s target return is between 7% and 9%.’

AviaRent already manages in excess of €500m of healthcare and micro-living assets across its own funds in markets such as Germany, France, Portugal and the UK, Giebken added.

Other investors are also getting in on the act. Earlier this month, listed Belgian real estate company, Cofinimmo, acquired 17 nursing and care homes in Germany comprising 1,500 beds for €172m from a joint venture belonging to European private equity group, Revcap.

‘This is the most important transaction so far for Cofinimmo in Germany and it represents a major step in our development on this market,’ said Cofinimmo’s CEO Jean-Pierre Hanin. ‘Our group owns 28 sites in Germany, with a total fair value of approx. €330m. Healthcare real estate now represents 49% of our global portfolio, and we are approaching, faster than at the end of 2019 as previously announced, the objective of increasing the share of healthcare real estate to 50 % of our global portfolio.’

All 17 assets are let to German operator Stella Vitalis, with whom Cofinimmo has signed leases for a fixed 30-year period. The initial gross rental yield of the transaction stands at around 5.5%. Following this deal, 19% of Cofinimmo's healthcare real estate portfolio is located in Germany, up from just 9% in March last year.

Today, typical healthcare yields in France stand at around 4.75% compared to around 6% in Germany, Giebken said. But that is set to change, according to Fléchet: ‘It will not stay that way,’ he said. ‘In two-to-four-year’s time, the yields for healthcare assets will be similar across Europe.’ (ssk)