Investment Rationale​

Investment Rationale

  • Investments in healthcare infrastructure are recession resistant.
  • Healthcare is the fastest growth sector in the US economy in terms of employment and dollars. Healthcare is now the largest employer in the US with job growth outpaced nearly every other sector.
  • Healthcare infrastructure benefits from secular growth from the aging mega trend. 10,000 Americans are turning age 65 every day (4x more doctor visits as younger population).
  • Expansion of Affordable Care Act (ACA) and fast-growing Medicare insurance enrollment for age 65+ will increase insured population more than ever before.
  • The outpatient care trend is greatly benefiting demand for off-campus MOBs, unlocking greater demand for consumer-centric healthcare infrastructure.
  • While demand for healthcare infrastructure continues to surge, supply is limited due to a lack of speculative construction.
  • Healthcare infrastructure tenants have high retention rates due to high switching and fit-out costs.
  • Large addressable market and fragmented ownership provide massive growth opportunities.

The Silver Tsunami

  • Aging Mega Trend (2020-2030)
  • 2020-2030 is a golden 10-year period to invest in the fast-growing US aging demographics trend.
  • Currently 10,000 Americans are turning age 65 every day.
  • The age 65+ segment will increase 34% from 52 million in 2018 to 70 million by 2030.
  • By 2030, all the U.S. baby boomers (1946-1964) will be older than age 65.
  • The 80/20 rule in healthcare: 80% of a person’s healthcare costs usually take place in the last 20% of his life time.
  • People are living longer due to advancements in medical technology. Increased life expectancy is coinciding with the aging of baby boomers. This demographic shift is defined as “The Silver Tsunami.”

Expansion of Insured Population

Source: Congressional Budget Office, Center of Medicare and Medicaid Services (CMS) and Medicare Payment Advisory Commission (MedPAC)

  • The Medicare Beneficiary Population
  • Medicare insurance is a government-funded entitlement program for
  • All US citizens age 65+ or
  • Those who are disabled under age 65 or with end-stage renal disease or Amyotropic Lateral Sclerosis.
  • Medicare enrollment is expected to rise to 77.5 million by 2030 from 52 million beneficiaries today.
  • Medicare spending is projected to rise 104% from $835 billion in 2020 to $1.7 trillion in 2030.
  • Affordable Care Act
  • 20 million more Americans have obtained insurance through Affordable Care Act (ACA), a government funded program that extended government-funded insurance to low income families.
  • Uninsured rate has dropped to a historical low of 10% after ACA.
  • Medicaid spending is projected to increase 72% from $425 billion in 2020 to $732 billion in 2030.

Healthcare Spending & Employment​

  • Healthcare Spending
  • Healthcare accounted for 17.6% of GDP vs. defense accounted for 3.3% of GDP.
  • Healthcare’ share of US economy will increase to 20% by 2025.
  • US health spending has reached $11,597 per person in 2019.
  • National health expenditure is projected to grow at an average annual rate of 5.4% for 2019-2028 and reach $6.2 trillion by 2028.

Per-Capita Health Care Spend by Age

Source: Center of Medicare and Medicaid Services (CMS)

  • Healthcare Employment
  • Healthcare is now the largest employer in the US with job growth outpaced nearly every other sector.
  • Healthcare jobs are expected to grow 15% from 2019 to 2029, adding about 2.4 million new jobs.
  • Healthcare occupations are projected to add more jobs than any of the other occupational groups.
  • Six of the 10 fastest growing occupations in the US are related to healthcare.

Shift to Outpatient Care​

  • Outpatient care refers to medical procedures and services that don’t require an overnight stay; ambulatory surgery centers (ASCs), urgent care centers, retail or walk-in clinics, primary care clinics, and imaging centers are all examples of outpatient facilities.
  • Outpatient trend is one of the most important catalysts for utilization of medical offices outside of hospitals. Hospitals’ outpatient revenue is now 95% of inpatient revenue.
  • The U.S. government (payor for Medicare and Medicaid insurances) and insurance companies are driving more medical procedures (including invasive surgeries) to outpatient settings to save costs.
  • Outpatient medical facilities can locate in town centers that provide easy access and proximity to where they live and work.
  • Majority of the adults age 65+ have at least one chronic condition that requires care. Much of this increased care for older adults will increasingly take place in lower cost outpatient settings.

Source: American Hospital Association’s 2019 Hospital Statistics Report

A Recession Resistant Investment​

Source: Revista

  • Healthcare infrastructure is a recession resistant investment.
  • A recession resistant investment: outpatient medical office buildings’ occupancy in top 50 US metros has not dropped below 90% during the Global Financial Crisis and COVID-19 Pandemic.
  • Demand for healthcare is likely to remain strong regardless of the ups and downs of the economic cycle.
  • Supply is limited because of the highly specialized fit-out requirement (i.e. oncology center), which discourages speculative construction.
  • Healthcare infrastructure tenants have high retention rates due to high switching and fit-out costs.

Steady Cash Income with Tax Benefits

  • Steady monthly cash income from real estate properties leased to healthcare tenants (i.e. hospitals, local physician groups, and diagnostic labs).
  • Inflation hedge benefits from contractual annual rent increase.
  • Real estate provides tax benefits that other investments do not offer. Tax benefits such as depreciation and interest deduction allow more retention of profits at tax time.
  • Healthcare infrastructure provide potential for long-term capital gain.

A Unique Healthcare Infrastructure Platform​

  • Infrastructure provides downside protection from holding physical assets and upside potential from generating recurring cash income and capital gain.
  • Distinguishing Characteristics
  • An investment process rooted in understanding asset criticality, tenant creditworthiness, healthcare industry risk, and real estate market potential.
  • Risk-based thinking: minimize risk for every dollar of return generated. Build value and resilience through better risk management.
  • Structured investment committee processes providing oversight for investments.
  • A separate investment advisory committee consisted of principal investors who are executives and investment managers with a long-established track record in real estate and healthcare.
  • A culture of open communications and transparency with investors.

Source: Congressional Budget Office, Center of Medicare and Medicaid Services (CMS) and Medicare Payment Advisory Commission (MedPAC)