Healthcare Real Estate Fund Structure

Healthcare Real Estate is basically any property hosting healthcare facilities. This includes complete range of services provider and their real estate needs. In brief it can be hospital real estate, pharmaceutical manufacturing facility, research center, clinics, laboratories facilities, and senior living , assisted living homes, home care, diagnostic, special zone and research center, clinics.

What is Healthcare Real Estate?

Healthcare Real Estates is basically any property hosting healthcare facilities. This includes complete range of services provider and their real estate needs. In brief it can be hospital real estate, pharmaceutical manufacturing facility, research center, clinics, laboratories facilities, and senior living , assisted living homes, home care, diagnostic, special zone and research center, clinics. These are wide range of facilities considered as Healthcare real estate.

Why to Invest in Healthcare Real Estate Fund

Healthcare In the time of Financial Crisis –Healthcare is considered as defensive sector which is less prone to go down at the time of financial crisis. Healthcare is basic need of people and people cannot cut their expenditure on it as they can cut on other items. The items which can wait for some time without any negative impact on life is definitely delayed at the time of crisis. Health is necessity which cannot wait. This is why Healthcare is defensive sector and it does not any major impact of crisis on its balance sheet. Even during this worst time of financial crisis healthcare has done very well across the continents.

At the time when companies are looking for better alternatives in reducing cost and capital expenditure leased and rented properties become very attractive option for such companies.

This sector which is less prone to market cycle and holds physical assets is very good strategy as an investor. It can give regular income at the same time safe and less risky.

Market Analysis for Fund

The market can be divided according to the region, the fund can have different segment in different market.

European Union (Western Europe)– This is one of most developed market in the world. Even though Germany has world’s best healthcare system and doctors, senior living and assisted living are highly fragmented and dominated by small players.

There is very good potential for small hospitals in this region. The strategy will be to focus investment in the senior living, assisted living and small hospitals. The British is another market where apart small hospitals, government supported facilities and such hospitals is very good investment.

Developing World–India, Malaysia and Turkey will be focus for big hospital investments, specially hospitals which are focused on medical tourism is very good investment. When the facilities are not enough, waiting time is long and cost is high, patients are looking for cheaper alternatives. This is sole reason why Medical Tourism is doing very well. Investment in such hospitals caters very well to the investment strategy for fund.

Developed World (Other than USA, EU) –The fund will make selective investment in these market as diversification strategy. These are opportunist investment which can link very well to the long term growth prospects of the fund.

The Middle East–Even though GCC has one of the most rich population in the world, the healthcare sector is still under developed and there is no healthcare real estate. There is huge potential because of demand and supply gap. The present available capacity needs to be increased thrice to become developed nation standards; growth is very fast and huge opportunity. But there is no legislation (proper) and so is less development in this sector.

USA–The only opportunity here is government facilities, senior living, assisted living and specialized hospitals. This is very big opportunity is world’s biggest economy which is slow presently.

Demography and Fund Strategy

Europe, Japan and USA – Ageing population of these countries will remain our focus. The needs of baby boomer generation in USA, and old people in EU, Japan will remain at heart of strategy. These are the people and their facilities needs long term and continuous investment. The population dynamics are challenging so are healthcare needs of these countries and peoples.

The demographics in EU, USA and Japan has very clear indication, they are going down. The average population growth is very low or negative. This has very clear message, there will be more elderly people and there is no place for them. This gives us great opportunity to develop such properties for such people.

Emerging Market, specially India and Saudi Arabia and all of Asia is very young, but there are not enough beds for these young people. When the GDP is growing, Population is growing and per capita income is growing, there is urgent need of developing world class health care facilities in these regions. This has very good return in terms of profitability for years to come.

ISLAMIC HEALTHCARE REAL ESTATE INVESTMENT FUND

Risk Factors

General Operating and Investment Risks, Accounting, Disclosure and Regulatory Standards, Conflicts of interest, Tax Consequences, Currency Risk at the Investor Level, Real Estate Risks.

Concept: Establishing a Real Estate Fund with a total capital of US $100 million which will target buying and developing properties to establish medical service centers then renting these properties to medical institution to benefit from its revenues and add value to its assets.

Targeted Countries: Potential Market for Investment –

– India, Turkey, Indonesia, Malaysia, Egypt, Gulf Cooperative Council , Middle East North Africa , any other country that would generate the targeted return, In order of preference.

Sub sector Investment – Real Estate Investment with long rent contract and green field developments

The fund will be invested in Senior Living, Old age home, Nursing home for age old, Special Economic Zone, Free zone, Biotech Park, Biotech and pharmaceutical special economic zone. IT/ITES and bioinformatics parks will be core investment. – Wellness and spa – Hospitals – Laboratories

Target Investors for the fund will be Retirees, Widows and Single women looking for steady income – Low risk investors – Pension Fund – Social Security – Fund of Funds – Real Estate Funds

  • Basic Fund Information of the fund.
  • Capital of the fund is US$ 100 Million
  • Fund Duration is Open Ended. Registration Fees is 3%.
  • Management Fee 2% (part of which to the fund manager)
  • Hurdle Rate Is 8% per year.
  • Fund Manager Incentive is ( 30%:70% )above hurdle rate between fund manager and fund
  • Targeted Return is Regular quarterly distribution of return 70% of rental income after completion of 18 months. (7.5% per year distributed quarterly)
  • Fund will be traded on stock market at Net Asset Value and investor can sell the unit after listing any time.
  • Listing will be within 12 months of fund closing. Existing Redemption Fees is 3%.
  • Redemption is allowed. It is Open ended fund, traded on stock market.

Healthcare: Market Size & Growth

  • • Healthcare emerged as one of the largest service sectors in India
  • • In 2004, national healthcare spending equaled 5.2% ofGDP, or about US$ 34.9 bn
  • • Healthcare spending in India is expected to rise by 12% per annum through 2005-09 (in value terms)
  • • Expected to scale up to about 5.5% of GDP, or US$ 60.9 billion, by 2009
  • • Other estimates suggest that by 2012, healthcare spending could contribute 8% of GDP and employ around 9 million people

Investment destination – Incentives for Private Investment

  • • Limited government investment
  • • Needs US$ 32 to US$ 50 billion to reach half of China’s current bed per 10,000 population over 10 years
  • • Government likely to meet only 15-20 per cent of the demand
  • • 10 -15 per cent commitment from International donors
  • • Shortfall of nearly 70 %, could be funded by private companies

Incentive for International Investors

  • • Unmet demand for health care facilities
  • • Changing demographics
  • • Increasing private spending on healthcare
  • • Readily available intellectual pool

Trends pointing towards robust future growth

  • • Growing incomes, literacy and awareness bode well for the Indian healthcare services market
  • • Proportion of households in the low -income group has declined
  • • Rising income expanding rich and middle income group
  • • Shift in disease profiles from infectious to lifestyle-related diseases are expected to raise expenditures
  • • In the inpatient market, the share of infectious diseases is expected to decline from 19 per cent in 2004 to 16 percent in 2008.

Medical Tourism – India, the new heaven for health & holiday

  • • About 1, 80,000 patients arrived in 2004 from across the globe for medical treatment
  • • Medical tourism market in India estimated
  • at US$ 333 million in 2004, grew by about 25 %
  • • Predicted to become a US$ 2 billion-a-year business opportunity by 2012
  • • India seeing a surge of patients from developed countries as well as from Africa , South and
  • West Asia
  • • Cost of comparable treatment in India is on average 1/8thto 1/5thof those in the West
  • • Quality of Indian healthcare delivery second to none

High quality low cost treatment attracting foreign patients

  • • Overburdened health infrastructure and high costs in the west, a key driver for looking at India
  • • Around 50 mn citizens are uninsured in US
  • • India offers highly cost-competitive and technologically advanced treatments options

Hospital Services – Attracting private investors

  • The market for hospital services in India is estimated at over US$ 4 billion.
  • Private players account for almost 78 % of the healthcare delivery market.
  • Increasing spending power of 250-300 strong middle class driving growth opportunities for corporate healthcare providers
  • An estimated 95% of new hospital beds have come up in the private sector
  • Reportedly at least 20 international players vying to have a pie of the Indian hospital market
  • Several JVs (Parkway) or individual projects (Columbia Asia) underway

Foreign investors viewing for Indian market pie

Parkway Group, Singapore

Singapore based Parkway Group Healthcare PTE Ltd aggressively penetrating Indian market. It has entered into joint ventures with Apollo group to build Apollo Gleneagles, a 325-bed multi-specialty hospital at a cost of US$ 29mn and with Asian Hearth Institute and Research center to set up specialized center for medical excellence in Mumbai

Pacific Healthcare Holding, Singapore

Singapore’s leading healthcare provider, is coming up with Pacific Medical Centre, an international medical Centre in Hyderabad in a JV with Vitae healthcare Pvt. Ltd. Two more medical facilities one for women and children’s and other for stem cell bank are also coming up

Columbia Asia, Malaysia

Malaysia based Columbia Asia has set up its first 75 bed hospital in Hebbal, Bangalore through the FDI route. The group has two more projects in the pipeline, a 150 bed tertiary care hospitals and another of 75-100 bed in Bangalore

Medical Devices – Promising growth

  • India Market expected to touch US$ 1.7 billion by 2010, against US$ 1.2 billion in 2005
  • The demand for hi-tech medical devices in India growing between 12 -15% annually
  • Hi-tech product constitutes close to 80% of overall market
  • Higher involvement of foreign players in hi-tech devices, which account for US$ 770 mn.
  • 90 % of demand is being met by imports from countries like USA, Japan and Germany.
  • Changing disease profile and clinical needs, and growth of medical tourism are all expected to drive the potential for medical devices
  • Some foreign companies conduct first 500 surgeries in India after approval of a medical device or surgical treatment by US FDA

Healthcare BPO – USD 4.5 billion opportunity by 2008

  • Healthcare business processes outsourced to India can result in cost savings of 20-30%
  • Estimated opportunity for India is US$ 4.5 bn by 2008, employing about 200,000 people.
  • Apart from regular business processes, companies are further involved in converting existing data to HIPPA format

Pathology Services – Brisk growth

  • US$ 500 mn domestic pathology industry has been growing over the last 5 years at an estimated CAGR of 20%
  • Currently comprises almost 2.5 per cent of the overall healthcare delivery market
  • With 40,000 independent pathology laboratories in the country, the industry is highly competitive and price driven
  • Presently, the lab testing market is largely serviced by small unorganized players and hospitals
  • Molecular diagnostic and pharmacogenomics testing to be future growth drivers
  • By 2010, two million patients are expected for clinical trials in India; translating into 20 million tests
  • Outsourcing of pathology tests by foreign hospital becoming a huge opportunity. From UK alone its 450 million pounds or US$ 800 mn
  • Preventive healthcare and health insurance will drive domestic growth

Tele Medicine – Technology breaking barriers

  • 80% of the medical facilities are concentrated in the urban area while 73% of the population resides in the rural area
  • Exponential growth in Information and Communication Technology and plummeting telecom cost making India highly competitive
  • Government and public sector initiatives lend credence to telemedicine opportunity
  • Corporate sector taking lead in telemedicine

Tele-imaging – Opportunities abound

  • Indian health Imaging market expected to get double from existing US$350 Million by 2010
  • Radiologists are in short supply world over while demand growing
  • 50% of the 6000 hospitals in US do not have the technology for tele-radiology

Health Insurance – Gaining penetration

  • Health insurance premium set to touch US$ 533.3 mn at the end of 2005-06 as against US$ 385 mn in 2004-05
  • Industry analysts believe the figure could go up to US$ 777.8 mn by 2007
  • The number of lives covered under health plans has improved from 4-5 million about six years back to over 12 million today.
  • Increasing awareness and large-scale group insurance policies have pushed growth in the health insurance segment
  • Government policy spurs private initiatives e.g. IRDA has increased the FDI limit from 26% to 51%
  • Leading global players including Aetna, Brooke Shield, and Blue Cross are waiting to make a foray into the market

Policy Initiatives

  • National Accreditation Board to provide accreditation to all public and private hospitals to ensure quality
  • Clinical Establishment Act by 2006 to make sure quality healthcare services
  • Government to issues “Medical Visas” to Overseas patients within a month or less time to promote Medical Tourism
  • 100 % FDI through FIPB route
  • Amending Drug & Cosmetic Rules to Include medical devices
  • National Rural Mission Launched in 2005 to provide effective healthcare to rural population
  • Government institutionalizing a mechanism of Public Private Partnership In healthcare

OECD Market Analysis

  • Future health spending is expected to increase at a much higher level of growth than in the past. By 2020, healthcare spending is projected to triple in real dollars, consuming 21% of GDP in the U.S. and 16% of GDP in other OECD countries.
  • Transparency in quality and pricing was identified by more than 80% of HealthCast 2020 survey respondents as a contributor to sustainability.
  • Preventive care and disease management programs have untapped potential to enhance health status and reduce costs, but require support and integration across the industry for their benefits to be realized. The most effective means of demand management, according to the Health Cast 2020 survey, are wellness, immunization and disease management programs.
  • Industry leaders expect tremendous growth in consumer-oriented programs. Only 35% of respondents in the Health Cast 2020 survey said hospital systems are prepared to meet the demands of empowered consumers. But a large majority (85%) of organizations surveyed has initiated pay-for-performance initiatives, above the 70% who had started such programs in 2002.
  • Information technology (IT) is an important enabler in resolving healthcare issues when there is system-wide and organizational commitment and investment. The vast majority of Health Cast 2020 survey respondents viewed IT as important or very important to integrate care (73%) and improve information sharing (78%). But IT is not a solution in and of itself. A smaller percentage saw IT as important or very important for improving patient safety (54%) or restoring patient trust (35%).

German Market Analysis

  • Demographics in Germany are dominated by higher life expectancy and falling birth rates. According to a report released by Germany’s Federal Statistics Office in November 2006, the country’s population will decrease from the current 82.4 million to 69 million by 2050 and will have a significant percentage of senior citizens. It is expected that more than 10 million people over the age of 80 will live in Germany in 2050, almost triple what it was in 2005 (3.7 million). It is also expected that the life expectancy of persons aged 65 in 2050 will be 4.5 years longer than the 65-year olds of today. The average age of the population will rise from 42 to 50, and every second German will be over 50 by the year 2035. With an ageing population and comparatively higher disposable income, the developed countries of the Western Europe are seeing a heightened demand for quality facilities and nursing skills to address the need. Industry forecasts indicate that an additional 10,000 beds will be required in the near future, underscoring the opportunity for growth in this sector. It is expect Germany, with its comparatively high per capita GDP and an aging population will experience increasing demand for care homes for senior citizens. Coupled with the fact that increasing numbers of baby boomers will be falling into the old age bracket, prospects for the care home business in Germany are bright.

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