AustralianSuper, Charter Hall queue up for Ramsay Health Care PropCo spin-off
Big investors are positioning themselves to buy billions of dollars worth of medical properties if Ramsay Health Care’s real estate assets are hived off.
Private equity group Kohlberg Kravis Roberts is weighing up plans for a potential split off of the real estate held by Australia’s biggest private hospital group, Ramsay Health Care, with property funds group Charter Hall and superannuation giant AustralianSuper among the parties positioning to acquire billions of dollars worth of medical properties.
A split between an operating entity and a property holding company is one of the options under consideration by the US private equity house as it finalises due diligence on the listed hospital owner operator.
While the group is canvassing a range of options any move could dramatically enhance the returns for the KKR-led private equity consortium which last month lobbed a $20bn takeover bid for the global hospital company.
A move by property players would be focused on the 54 Australian hospitals which Ramsay owns and operates out of its local 72-strong empire.
Broker estimates of the assets that could go into a deal range from $4.5bn to $8.7bn and depend on how it is structured. But senior sources suggested that properties could even be worth as much as $10bn with the scale of any mooted transaction having the capacity to redefine the local medical industry and lock in sale and leasebacks as the dominant way to handle properties.
Ramsay shares rose last month after the company said it had received an indicative $88 per share bid from the KKR-led consortium which also includes health workers industry superannuation fund HESTA and international funds.
Any move is at any early stage, with the parties declining to comment or declaring they were not aware of negotiations. Any property transaction would be contingent on the takeover of the listed Ramsay getting up and may be a pointer to how the private equity house is supporting the super-sized bid.
The style of transaction is a hallmark of Charter Hall with the company the top exponent of major sale and leaseback transactions in Australia and active in corporate takeovers and direct property deals.
The company has built an $61bn-plus property empire and has close ties to superannuation funds and international pension funds which could also take an interest in the hospitals portfolio.
Medical property is a relatively new sector for Charter Hall but rival groups including Dexus, Canada’s Northwest Healthcare Properties and Centuria, are already major owners of Australian healthcare assets.
On Macquarie estimates, Ramsay’s Australian business is valued at $11.2bn, with the property assets making up $8.7bn and the operating business at $2.5bn.
Citi analysts led by John Deakin-Bell said the KKR consortium’s proposal exposed hidden asset value. They do not believe other bidders will enter even if the acquirer sold off the properties and offshore operations.
“The sale-and-leaseback of the Australian property portfolio could unlock the most value,” the analysts wrote, estimating this could unlock $5.3bn.
Citi cited the Brookfield takeover of Healthscope in 2019 and offshore plays, where private equity has a long track record of selling and leasing back assets so that the returns increase.
Brookfield, which took over Healthscope for $4.4bn in 2019, also undertook a sale and leaseback of the properties.
“The sale-and-leaseback of circa 80 per cent of the Australian property portfolio could unlock the most value in this transaction at $5.3bn,” Citi analysts wrote. ”Some of the smaller country hospitals would be able to be sold on cap rates that make the transaction viable.”
Citi assumed that the book value of the Australian property portfolio which is currently sitting at about $2.3bn on Ramsay’s balance sheet is well below market value and would get revalued upwards through acquisition purchase price allocation.
“This would result in negligible capital gains tax on a potential sale. If the bidder decides that it is happy to pay higher rent and further increase leverage in the operating business, then the value of the assets would be higher – the operating profit of the business would be lower, and potentially the exit multiple may be lower – hence there is a high variability in the outcome of the asset sale and leaseback,” the analysts said.
KKR has been crafting the bid for about a year. The New York-headquartered firm has also wooed the Paul Ramsay Foundation, which owns about 19 per cent of the company and has declared its support for the deal.
Ramsay granted KKR due diligence last month and said its discussions with the consortium were preliminary in nature.
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