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Investing in Healthcare - A Healthy Outlook

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Season 2 Episode 4 | 8 min 26 sec

Podcast Host Georgie Griffiths (Associate Director, National Capital Markets)

Podcast Guest Kenneth Mackenzie (Found and Chief Executive, Target Fund Managers)

 

Brief Summary

Following Prime Minister Boris Johnson’s announcement that the UK has hit a milestone of 10 million people having now been vaccinated, Kenneth discusses how the type of real estate purchased helped cope with the challenges of the pandemic and care homes being a priority for the vaccine roll out.

 

Podcast Transcript

Georgie Griffiths:
Hi, and welcome back to Series 2 of Take 10 with Colliers, I'm Georgie Griffiths, Associate Director within the Retail Capital Markets team. And in this podcast, I interview industry trailblazers across different commercial real estate sectors. 

Today, I'm being joined by Kenneth MacKenzie who is founder and Chief Executive at Target Fund Managers. Thank you so much for agreeing to join us today, Kenneth. 

Kenneth Mackenzie:
Pleasure. 

Georgie Griffiths:
If it's okay with you, I think it would be great if we could just start off by giving a quick overview of Target Fund Managers and the types of assets that you hold in your various portfolios. 

Kenneth Mackenzie:
Yeah. We're a specialist manager in senior living. We exclusively invest in that sector, in particular modern purpose-built care homes. We have three funds investing in the sector, around about 100 homes today in our portfolios and we're very focused on that sector. We know it really well, we understand it really well. 

Georgie Griffiths:
And speaking, just obviously very topical, not surprisingly the healthcare and care home sector has been in the press a lot over the last 12 months. So I guess, it'd be interesting to understand how you think pandemic and COVID has affected the sort of operational management of your care homes? 

Kenneth Mackenzie:
So first of all, remember that we're purely a landlord. So our role is owners of real estate, working with underlying tenants, operators of the homes. We're pretty unusual in that. We have 27 different tenants, so we've highly diversified our landlord base with lots of different operators providing us the income. They have found it challenging, emotionally exhausting, physically exhausting and we have also found it, I have to say very inspiring. Because the devotion that our tenants and their carers have shown to their residents has been exemplary. 

In terms of the way, we do our own role we describe ourselves as an engaged landlord. We have a team of three people who have run their own homes in depth, who have been in various businesses, who really understand operating care homes really well. They obviously could have had to stop visiting the homes and the way they've done previously, but we've done well over a thousand visits virtually. We've supplied extra iPads to the homes so that they can speak better to the residents so that the home managers can take the iPads around and show us what's happening in the homes. So it's had a big impact, but we've been glad to be able to get through it and get to a situation where today 100% of the homes have had vaccinations. 

Georgie Griffiths:
Oh wow, that's amazing. You mentioned before that the sort of quality of your care, the care homes that you buy is part of your USP. Has the pandemic highlighted any changes to the types of buildings that you'll look for in the future? 

Kenneth Mackenzie:
It has confirmed us in our view that the kind of buildings that we have actually been encouraging and acquiring for over 11 years are absolutely the right ones. The advantage a modern purpose built home with wet rooms in every bedroom is that the resident can be isolated in their own bedroom because full toileting facilities are available, showering facilities are available in their own room or in their own wing or on their own floor. So there are various points at which isolation can happen.  

So we've been really very encouraged by how the homes have operated. And in fact, there's a webinar on our website where some of our care home managers speak about how they believe that they could not have coped in some of the older homes and the way they were able to cope so magnificently in our modern purpose-built homes. So it's actually been a kind of humble privilege to understand what's happened when you provide devoted people the right kind of physical assets to be able to provide the care that is needed. 

Georgie Griffiths:
Yeah, definitely. I had a listen to your webinar, actually, it was really interesting, really nice to hear from all of the sort of individual care home… 

Kenneth Mackenzie:
Wasn't it? Yeah. 

Georgie Griffiths:
Yeah, really nice. I guess if we touch a little bit more on the investment side then, how do you think that the pandemic has affected investment in the healthcare sector? 

Kenneth Mackenzie:
Continued demand and greater demand for modern purpose built homes really. We are seeing the potential tenants that we spoke to 6-8 years ago who were operating the stock from the 90s, the old houses and making profits on all of that and they can be continued profitable. Just a whole bunch of these people saying, you know, you told us 8-10 years ago that we needed to change and upgrade our stock. We absolutely recognise what we have and we're actively working with people like that today to be able to help them improve the physical real estate and acquire more appropriate assets for the future.  

You have to remember that this sector comes from post-NHS creation when there weren't geriatric wards being built so much. They started off in the big old homes and so on and we surely need to be part of the future with modern purpose built. 

Georgie Griffiths:
In terms of, I mean obviously, the UK we have an aging population, do you think that there's enough supply coming through to support that? 

Kenneth Mackenzie:
Supply has always been the challenge in the sector. We've only really ever been banging about 20% of the sector. But one of the things that's interesting is that if you go back half a dozen years, 13% of the care homes of the sector had wet rooms, today it's 26%, it's very clear what the trend is and there will be more of the more appropriate product coming through in the coming years, and we're actively engaging in that. 

Georgie Griffiths:
Okay. Well, no, that's good to hear. I think, yeah, it's definitely a trend we're going to see more of going forward. 

Kenneth Mackenzie:
Yes. 

Georgie Griffiths:
Okay. If it's all right with you and we're going to do a couple of quick fire questions now. So the first one is if you had to pick two things that you think we'll see change in the care home sector over the next couple of years, what would they be? 

Kenneth Mackenzie:
So, I think the carers are better valued and I think that's really important. Remember this is always a service business and having the right ethos within the business and honouring the people who deliver the service is really important. And there will be vastly more care homes with wet rooms everywhere. 

Georgie Griffiths:
And what advice would you give to someone looking to invest in a care home or assess care homes at the moment? 

Kenneth Mackenzie:
If it's a physical real estate, it's probably better to do it diversified because there is risk. And don't believe that you can do that on your own, have a specialist manager to look after your interests who understands all of the risks in the sector. 

Georgie Griffiths:
Okay. Well, that brings us to the end of our episode and so thank you very much for joining us again, Kenneth. You can now listen to more episodes of Take 10 with Colliers in all of the usual places: Apple podcast, Google podcast, Spotify, and YouTube. And to find out more about who we'll be speaking to in the next episode, please follow us on our social channels: LinkedIn, Twitter, Instagram. Thank you very much for listening.  

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Georgie Griffiths

Associate Director

London - West End

Georgie joined Colliers International in 2015 and has been positioned within the Retail Capital Markets team since 2016, specialising in foodstore, out-of-town retail and long income investment sectors across the UK.

Georgie has worked with a variety of clients providing strategic advice on investment strategy, as well as advising on acquisitions and leading disposals for a range of different assets. More recently, she has advised on retail repositioning opportunities, including acquisitions of sites with potential for conversion to alternative use. 

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