Belgian listed company investing in healthcare real estate

Strategy

 

1. Diversification

 

Aedifica is positioned as a leading Belgian listed company investing in healthcare real estate in Europe, in particular in senior housing.

Its strategy is focused on the underlying demographic trend toward population ageing in Europe and the specific needs this trend implies in terms of care and housing. Aedifica aims to create a balanced portfolio that generates recurring revenues and offers potential for capital gains. As evidence to support these trends, Belgium’s Federal Planning Bureau anticipates that population ageing for the baby-boom generation will continue until it reaches its peak, in Belgium, by 2060. A similar trend is observed in Germany and The Netherlands.

These trends underlie long-term needs in terms of specialised real estate infrastructure. With regard to senior housing in particular, two additional factors should be taken into consideration: (i) consolidation of care operators on a European level and (ii) scarcity of public funding to finance such specialised real estate infrastructure. The combined long-term effects of population ageing, consolidation of operators and a lack of public funds, shape Aedifica’s strategy. The Group mainly concentrates its activity in the senior housing segment, but is also active in apartment buildings and hotels and other building types. The Company’s stated policy is to continue to grow in the senior housing segment, while analysing other segments of healthcare real estate in Europe.

Aedifica’s strategy – to specialise in healthcare real estate – constitutes its most unique feature and greatest strength. The Company strives to be innovative and constructive in order to provide its shareholders with a safe real estate investment over the long run, one that generates recurring revenues for them. Aedifica’s strategy is mainly a buy and hold type, which is by definition oriented over the long-term. Of course, this does not exclude disposals in accordance with an asset rotation policy, which aims to maintain the quality level of the Company’s property portfolio and is standard practice for real estate companies. Disinvestments are also realised within the acquisition policy, when an acquired portfolio contains properties that are considered non-strategic.

 

a. Senior housing

Professionalisation and consolidation in the senior housing market is evident at a European level. Aedifica participates actively in Belgium as well as in Germany and The Netherlands by acquiring buildings, engaging in sale and rent back arrangements for existing buildings, by intervening in upstream construction of new buildings, or by undertaking upgrades, renovations and/or extensions of existing sites. The Company puts its buildings at the disposal of professional and specialised operators under long-term contracts that generate high net rental yields. Considerable growth potential remains in this sector. As a portion of the number of beds approved by social security (INAMI/RIZIV) in Belgium, Aedifica holds approximately 4 % of the market as of 30 June 2016. Aedifica responds to the needs of its operators, and to the growing demand arising due to shifting demographics, by holding both rest homes and assisted-living buildings:

  • A rest home is a specialised building in which the elderly reside and benefit from continuous assistance in daily-life (catering, cleaning, and nursing or other care). These facilities are called “maison de repos” or “woonzorgcentrum” in Belgium, “Pflegeheim” in Germany or “zorgresidentie” / “verpleeghuis” in The Netherlands.
  • An assisted-living complex consists of one or several buildings that contain living spaces designed for the needs of the elderly and which allow residents to maintain autonomous living while benefiting from access to additional services on demand. These buildings are called “residence-services” or “assistentiewoningen” in Belgium or “betreutes Wohnen” in Germany.

The senior housing market generates stable and recurring revenues, which provide for the distribution of dividends to Aedifica shareholders. According to a study published by Cushman & Wakefield in January 2016, Aedifica held the 1st position in terms of private real estate investors in rest homes in Belgium for the period 2005-2015, representing 36 % of the total amount invested by RRECs, insurers, banks and other types of investors.

Since 2013, the Company has also been active in Germany, and since early 2016 in The Netherlands. This expansion into the German and Dutch market is consistent with the Company’s strategy in the senior housing segment. It allows for better diversification of tenants and extends the Company’s operations in a market which tends to structure itself at a European level. The Company positions its ambitions with respect to senior housing in a European context (see chapter on “Risk Factors” of the 2015/2016 Annual Financial Report). Information on the German and Dutch senior housing markets is given in the “Property Report” chapter of this Annual Financial Report.

On 30 June 2016, senior housing represents 74 % of the group’s portfolio.

 

b. Apartment buildings

Aedifica holds apartment buildings (preferably without co-owners) situated in lively districts that are centrally located and easily accessible within Belgium’s major cities, mainly Brussels. The buildings are primarily residential but may also include office or retail space, given their urban locations which commonly feature mixed-use buildings.

The apartment buildings in Aedifica’s portfolio offer good yield prospects given their potential for capital gains, which is further strengthened by the possibility to sell individual units within buildings initially acquired in full.

Most apartments are furnished by the occupants under traditional rental contracts. Others are furnished by Aedifica and tend to be let under short-term rental contracts.

On 30 June 2016, apartment buildings represent 20 % of the group’s portfolio.

 

c. Hotels and other

In prior years, Aedifica acquired six hotels that are operated by two professional and specialised operators under long-term contracts.

The portfolio contains two large hotels situated in two of the most touristic cities in Flanders (Bruges and Leuven), and four hotels in Limburg (Genk, Tongeren, and in close proximity to Maastricht).

This segment also comprises a number of small properties including office buildings and land reserves.

On 30 June 2016, hotels and other represent 6 % of the group’s portfolio.

 

2. Growth strategy


Aedifica follows a growth strategy which, between 31 December 2006 and 31 December 2015, has seen the Company rise successfully from 36th to 8th place in the ranking of Belgium’s 100 largest real estate portfolios (according to the “Investors Directory 2016”, published by Expertise BVBA in January 2016).

The Company intends to continue on this growth trajectory in order to derive benefits linked to its scale, including:

  • strong liquidity, which is an important criterion for investors;
  • strong diversification of risks;
  • capacity to effectively respond to market opportunities;
  • strong portfolio management, which features collaboration with high-level partners;
  • predictable revenues;
  • good coverage of fixed costs; and
  • increasing earnings (excluding changes in fair value) per share, and, subsequently, optimal returns for shareholders.

 

3. Possible strategic developments

 

Within the world of European healthcare real estate, senior housing is currently the most developed and therefore most relevant segment for Aedifica. Population ageing will probably have a very significant impact on care “consumption” and this trend could encourage the development of new 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 continually evaluating the needs and opportunities generated by shifting demographics.

Aedifica is also studying the possibility of investing in geographic markets within Europe outside of Belgium, Germany and The Netherlands, with a focus healthcare real estate.