Swedish Hemsö's German nursing home assets reach €350m

The Swedish community services specialist Hemsö has bought a portfolio of four nursing homes in Kiel, Rehren, Bonn and Nittenau for a total investment of €40m. The seller was a German fund manager, advised by Terranus.

The acquisition, comprising a total of 275 beds and 75 senior housing apartments, brings Hemsö’s portfolio in Germany up to 37 properties with a market value of approximately €350m. As with previous deals, Hemsö was advised by the Offenbach-based Quadoro Doric.

Hemsö said that its strategy for the German market was to acquire nursing homes in growing cities. By acquiring properties in two new states, Bayern and Schleswig-Holstein and adding two new operators, Seniorenresidenz Rheinallee and Compassio, Hemsö increases its German exposure and broadens the geographical and operational diversification of its portfolio. The property in Bonn comprises 75 senior housing apartments, adding to Hemsö’s existing portfolio in this segment.

The portfolio's tenants comprise the private nursing home operators of Senator (Alloheim Gruppe), Medicare (Orpea), Seniorenresidenz Rheinallee and Compassio. The weighted average lease duration of the portfolio is 14.7 years.

Separately, Belgian investor Cofinimmo also recently bought a nursing home in Germany along with two medical office buildings in the Netherlands, for a total of €24.2m. The German asset at €8.8m is Cofinimmo's sixth investment and second nursing home in the country.

The property, the 'Seniorenzentrum Brühl' is an 8,400 sqm property in Chemnitz in Saxony with 94 beds and 17 service flats. It is leased to German operating group Azurit Rohr GmbH, which specialises in long and short term care and support for the elderly, and which manages 73 nursing homes throughout Germany.

A ‘double net’ lease has been signed for a fixed 25-year period, with a five-year extension option, with the rent indexation be based on the German consumer price index. The initial gross rental yield is 5.9 %.

REFIRE: An outspoken critic of the hype surrounding Germany's healthcare and nursing home market is Jens Nagel, who heads up Swedish group Hemsö's investment operations in Germany. In particular he takes issue with German media reports which suggest that the market is growing in leaps and bounds, simply because this year has seen record-breaking turnover in transaction volumes.

As REFIRE reported in a recent issue, Nagel reckons that Germany has about 13,500 nursing homes with 800,000 residents, and that the overall market value is about €100m. The whole market is in need of a rejuvenation cure, he believes. In particular, with nursing homes requiring total refurbishment every 25 years, the need for investors to put aside reserves is huge, with capex on new acquisitions not infrequently amounting to 100% of the purchase price.

In Hemsö's latest company newsletter, Nagel points out that the market is in fact barely growing. This year's transaction volume is grossly distorted by two over-sized portfolio sales, which simply indicated the departure of two big players from the scene. He describes the transaction market as a merry-go-round, with the same assets frequently changing hands. The real potential lies in the 95% of nursing and old people's homes that are not being bought or sold. These 12,000 properties appear nowhere in the statistics, he says.

The biggest risks to investing in the sector undoubtedly come from local political considerations, Nagel is convinced, all of which vary wildly from state to state and even among local municipalities. In particular building regulations are often introduced at a whim, such as minimum room size, single versus double occupancy, number of baths per patient, and a host of other regulations, leading to hugely different capex costs for compliance.

The clear take-home message, as we at REFIRE have learnt throughout this year, is that the German healthcare and nursing–home sector is so differentiated that investors can certainly not rely on demographic trends alone to guide their investment strategies. There are myriad traps in the sector which can turn an apparently good-looking investment sour.