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June 12, 2024

An opportunity underpinned by location: why the Cromwell Healthcare Property Fund

Colin Mackay, Research and Investment Strategy Manager, Cromwell Property Group

 

As a property segment, medical centres have all the right ingredients to provide a compelling investment opportunity – industry-wide structural tailwinds, strong fundamentals resilient to economic cycles, alignment to government funding, and attractive investment characteristics. But like any real estate investment, location matters. In this short article, we’ll outline some of the factors that make the Cromwell Healthcare Property Fund (Fund) stand out, with its proposed acquisition of 16 Playford Boulevard, Elizabeth, South Australia (the Property).

Catchment characteristics

Demand for healthcare is closely linked to population growth, particularly amongst those aged over 65. The Property is located in the fastest growing region in South Australia (Outer North), with total population growth of 2.8% p.a. projected from 2021-31, and growth in the 65+ segment projected to be even more significant (4.3% p.a.). At a more granular level, the Local Government Area (LGA) in which the Property is located (Playford), is projected to see the third strongest population growth over the period, at 2.9% p.a.1 

 

 

Low socioeconomic status is linked to higher incidence of disease and greater need for care. Due to cost, those with more socioeconomic disadvantage have lower rates of private health coverage2. They are also less likely to see a health practitioner but more likely to visit an emergency department2, resulting in a greater number of avoidable hospital presentations which unnecessarily take up valuable resources. The Property is located in the fourth most disadvantaged LGA in South Australia (out of 71) and the lowest socioeconomic LGA within metropolitan South Australia3, which Cromwell believes indicates significant demand within the catchment for affordable, public-aligned healthcare services, such as those provided at the Property.

 

 

Important node in the Local Health Network

The Property is leased entirely to a South Australian government healthcare operator, which provides a number of important healthcare services for the Northern Adelaide Local Health Network (NALHN), including outpatient services. The main hospital servicing the NALHN, the Lyell McEwin, is the third busiest hospital in South Australia and has the highest number of non-urgent presentations4. The percentage of emergency department patients commencing treatment within the recommended time is the second lowest across South Australia5. The Property operating as a GP Plus Health Care Centre aims to help to reduce the number of unnecessary hospitalisations and better respond to the health needs of local communities6.

The Property is well placed to meet the needs of the catchment, forming part of an essential services precinct adjacent to the major shopping centre of the region. The location provides significant car parking and convenient road access, and is in close proximity to rail and bus public transport. With a substantial site area of nearly 12,000 square metres, the Property also has the potential to expand in line with growing demand for services within the region, providing continuity of care for patients.

A unique proposition

As detailed in the Product Disclosure Statement, the Fund presents a unique investment opportunity, underpinned by a property with an attractive location and catchment characteristics. The Property is located in a fast-growing region with significant need for healthcare services. The Property is well placed to meet the needs of the catchment, providing a broad range of affordable, public-aligned healthcare services. The precinct benefits of the location, adjacent to a major shopping centre and with convenient access to public transport and car parking, further enhances its long-term appeal.

 

Footnotes
  1. Medium series population projections, Jun-23 (Government of SA; Cromwell)
  2. Patient Experiences 2022-23 (ABS)
  3. Socio-Economic Indexes for Australia, 2021 (ABS)
  4. Emergency department care activity 2022-23 (AIHW)
  5. Emergency department care access 2022-23 (AIHW)
  6. GP Plus Health Care Services and Centres, SA Health.
Disclaimer

This correspondence has been prepared for information purposes and is not a product disclosure document or any form or offer to invest in the Cromwell Healthcare Property Fund (Fund) under the Corporations Act 2001 (Cth) (Corporations Act). This document does not constitute personal financial product or investment advice (nor tax, accounting or legal advice) nor is it a recommendation to subscribe for or acquire securities or other financial products and it does not and will not form any part of any contract for the subscription or acquisition of securities or other financial products.

Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333 214 (CFM) is the responsible entity of and issuer of the Cromwell Healthcare Property Fund ARSN 676 931 838 (Fund). In making an investment decision in relation to the Fund, it is important that you read the Product Disclosure Statement dated 27 May 2024 (PDS) and the Target Market Determination (TMD). The PDS and TMD are issued by CFM and are available from www.cromwell.com.au/chpf, by calling Cromwell’s Investor Services Team on 1300 268 078 or emailing invest@cromwell.com.au.

This communication has been prepared without taking account of your objectives, financial situation and needs. All investments involve risk and before making an investment decision, you should consider the PDS and TMD and assess with or without your financial or tax adviser whether the Fund is appropriate for you having regard to your objectives, financial situation and needs.

Any ‘forward-looking statements’ are not guarantees of future performance but are predictive in nature and are subject to known and unknown risks, uncertainties and other factors which may be beyond the control of CFM. CFM does not represent or warrant that such ‘forward-looking statements’ will be achieved or will prove to be correct, and actual variations from the projections or estimates may be material. You are cautioned not to place undue reliance on any forward-looking statements.

Cromwell Healthcare Property Fund

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January 22, 2024

Cromwell releases annual ESG report, details full scope 3 inventory

 

In January, Cromwell released its most detailed, comprehensive ESG report to date. This report serves as a snapshot of how the business is progressing towards meeting our environmental, social, and governance commitments over the short and long-term.

The report was developed in collaboration with all relevant disciplines across the global business, and aligns with major reporting standards, including the Sustainability Accounting Standards Board and the Global Reporting Initiative. It has been designed to provide transparency through qualitative and quantitative data, while showcasing the Group’s effort to deliver tangible positive impacts, citing case studies from across the business.

Most significantly, in line with the organisation’s desire for greater transparency, this recent report details Cromwell’s full scope 3 emissions inventory disclosure for the first time.

What ESG progress means for investors

Increasingly, ESG reporting is being used by investors as another way to track an organisation’s activities and keep businesses accountable for their actions. Some investors use ESG results to determine poor performers, associating the factors that cause companies to receive low ESG ratings with weak financial results; some investors seek out high ESG performers, expecting exemplary ESG outcomes to drive superior financial results.

ESG reports are a key source of ESG performance information relied on by investors and stakeholders to make informed decisions about an organisation’s impacts. Investor and stakeholder expectations around ESG disclosure are increasing and reporting standards are rising to respond to that expectation.

Indeed, the term “ESG” was first mentioned in the United Nations Global Compact “Who Cares Wins” report in 2004 and has now become synonymous with the ability to demonstrate good corporate citizenship. Industry trends, as well as independent studies, indicate that investors are now wanting to see tangible ESG results.

A 2022 Ernst & Young Global Corporate Reporting Survey, released in November that year, found that 78% of investors want companies to focus on environmental, social, and governance activity, even if it hits short-term profits.

These days, a company’s risk profile is raised in the eyes of investors if it fails to consider ESG risks adequately and disclose its approach to them. Among other things, this makes it difficult for a company to access capital and can over time, render it ‘un-investable’ to investors, many of whom now have ESG or green mandates.

 

ESG and our tenants

As a commercial real estate investor and property manager, meeting the diverse needs of our tenants remains a high priority.

Through regular, ongoing engagement and detailed annual surveys, our tenants have outlined that helping meet their own ESG requirements and ambitions needs to be a key priority for Cromwell as the building owner. By helping meet these needs, we significantly increase tenant retention across our portfolio – and attract new long-term blue-chip tenants.

Cromwell’s October 2023 Tenant Satisfaction Survey Portfolio results showed that 66% of respondents rate sustainability as important or very important in their organisation’s decision to lease; and almost 60% of respondents are already at net zero, considering net zero, or already working to become net zero organisations.

For instance, over the past 12-24 months, state and federal government departments have put increased emphasis on restricting leasing properties that can’t demonstrate a credible net zero pathway for the building.

With government tenants making up a significant percentage of our Australian leasing pool, Cromwell has committed to ensuring that we take necessary steps in improving our ESG performance to retain these crucial tenants.

In this way, we satisfy current tenant needs – and future-proof existing buildings – to increase tenant retention, improved rental yields, and deliver for our investors.

This report covers Cromwell Property Group’s environmental, social and governance (ESG) performance for the year ending 30 June 2023.

Download the report

The significance of understanding scope 3 emissions

Scope 3 emissions – also known as ‘value chain’ emissions – are indirect greenhouse gas emissions both upstream and downstream of an organisation’s main operation. Consequently, for this reason, they are also traditionally the most challenging emissions scope to calculate and address for many businesses as they are not directly controlled by the organisation.

Regardless, the UN Global Compact has found that scope 3 emissions generally make up more than 70% of an organisation’s total emissions footprint and it is accepted that understanding them is critical to identifying the greatest reduction hotspots, avoiding future value chain risks associated with the transition to a zero-carbon economy, and mitigating against greenwashing.

Group Head of ESG Lara Young said that reducing scope 3 emissions, and including this emission scope in net zero carbon targets, is critical to ensuring legitimate net zero targets that deliver tangible change. Addressing scope 3 emissions, she said, can deliver substantial business benefits by providing a clear transparency, understanding, governance, and oversight of an organisation’s full value chain and the evidence of the positive impacts delivered.

“Despite the industry challenges of data quality and availability for scope 3 emissions, the Group is proactive with joint venture partners in Oceania – and its supply chain partners, clients, and tenants globally – to collate scope 3 data via the roll-out its green lease initiative and ESG schedules,” said Ms. Young.

“Cromwell has committed to positively contributing to the communities in which we operate, and that goal involves supporting tenants and investors with achieving their net zero targets and evolving ESG needs.”

“Cromwell’s FY23 ESG report is the first time that Cromwell will publicly disclose scope 3 emissions, and this will place the Group among the minority of industry peers that publicly disclose this data. This outcome is a testament of the Group’s capability and desire for full transparency.”

Cromwell’s FY23 ESG report is the first time that Cromwell will publicly disclose scope 3 emissions, and this will place the Group among the minority of industry peers that publicly disclose this data.
Lara Young – Group Head of ESG, Cromwell Property Group

 

Progressing on our ESG commitments

The FY23 ESG report shows that Cromwell made notable advancements toward our ESG commitments during FY23 – including the development and implementation of our updated ESG Strategy; preparing a globally aligned approach to decarbonising the business to meet our targets of net zero scope 1 and 2 emissions by 2035, and all scope 1, 2, and 3 emissions by 2045.

This activity is supported by emissions abatement cost modelling for our Australian and European portfolios to facilitate emissions reductions and associated decarbonisation costs.

The report also highlights the progression the business has made in the past 12 months regarding specific ESG results. Among our key achievements, emissions intensity (scope 1, 2, and 3) was reduced by 12% in Australia, compared to the previous financial year; European assets recorded reductions of 22%.

Cromwell’s Direct Property Fund was third in the Australian NABERS Sustainable Portfolio Index (SPI) – the highest ranked geographically diversified fund in Australia – and Cromwell’s Australia investment portfolio was fourth in the same index.

Cromwell Polish Retail Fund (CPRF) achieved a five-star rating and a Cromwell record-high overall score of 90 points, ranking 11th out of 32 European retail non-listed peer funds and 17th out of 87 in the European Retail category.

And, significantly, Cromwell’s Australian gender pay gap decreased by 44% since it was first calculated in FY21.

Lara Young said that, among other metrics, these key achievements highlighted the progress the organisation is making.

“We know that ESG is not just about carbon emissions. While reducing emissions is crucial, this cannot be at the expense of biodiversity, social value, or natural capital. These topics are all interlinked and the Group recognises we cannot be successful if focusing on each in isolation,” said Ms. Young.

McKell Building case study

One of the largest, and most involved, ESG-led projects this year was the electrification of the McKell Building in Sydney’s CBD.

The multi-million-dollar project has involved converting the building’s existing commercial gas-fired heating system to an electric heat-recovery reverse cycle heating, ventilation, and air conditioning (HVAC) system.

Cromwell’s Head of Property Operations, Tessa Morrison, said the upgrade of the 24-storey building has been designed to help ‘future-proof’ the asset by replacing outdated, 1970s-era infrastructure with modern, energy saving equipment.

““The McKell building is a 1970s-constructed building with an existing NABERS 5.5 Star energy rating, so while it is already significantly energy efficient, we are undertaking this project to reduce emissions and drive further energy efficiencies,” said. Ms. Morrison.

“This is the first time that a multistorey, 25,000sqm commercial building in the Sydney CBD has undergone an electrification upgrade – and we’re excited to have engaged experienced mechanical air conditioning contractor Velocity Air to help deliver the project.”

Efficiencies in the new reverse cycle HVAC system will mean that hot air removed as part of the building’s air conditioning process will be recycled back into the system for use elsewhere, including heating the building’s water.

Looking long-term

Through its data informed approach, Cromwell is working focus on the broad spectrum of the ESG agenda, while prioritising the most relevant aspects. Cromwell recognises that the industry needs to remain pragmatic, but also strike a balance with a wholistic systems view.

Cromwell’s key long-term targets remain:

  • Net zero operational emissions (scope 1 & 2) by 2035.
  • Entire portfolio (scopes 1, 2, & 3) including tenant and embodied carbon by 2045.
  • Significantly reduce our gender pay gap year on year.
  • Achieve 40:40:20 gender diversity at all levels.
  • Integrate ESG into risk register and business strategy, including objectives and key results.

“Cromwell recognises the ESG challenges that the property industry faces; however, we also recognise the opportunity to deliver tangible positive impacts. The Group has a global in-house ESG team and dedicated Australian and European teams that supporting all Cromwell ESG targets and activities,” said Ms. Young.