Are FIIs Losing Their Reluctance to Invest in Hospitals? TRX Explains Its Bet on the New Albert Einstein Hospital Center

The Fund Manager explains the reasons that led TRX Investimentos to invest R$ 621.3 million for a 70% stake in the hospital asset;
Considered a 'Trophy Asset,' the space will be dedicated to the oncology and hematology departments of Einstein

Gabriel Barbosa, The fund manager of TRXF11.

By: SiiLA News

08/26/2024

In July of this year, TRX Real Estate (TRXF11), a real estate investment trust managed by TRX Investimentos, made a notable announcement that grabbed the market’s attention. The fund revealed plans to construct a new oncology and hematology center for the Albert Einstein Hospital—a 41,600-square-meter facility set to be located within Parque Global, a massive development by Benx on Marginal Pinheiros.

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The news generated quite a buzz in the sector, as few funds are currently investing in hospital assets. A source within the FII market even mentioned to the REsource news team that there has traditionally been some bias among investors against this type of property.

The hesitation to include hospitals in FII portfolios stems from several factors: past unsuccessful cases, the age of available hospital properties, the specific nature of these ventures, the difficulty of potential evictions due to their social and healthcare impact, and the fact that hospitals are typically single-tenant spaces.

Despite these concerns, TRXF11 is set to invest R$ 621.3 million for a 70% stake in the new Einstein hospital complex. Benx, the landowner, will retain the remaining 30%. In addition to the hospital, the 218,000-square-meter complex will feature residential apartments, corporate offices, a shopping mall, a college, and a hotel.

Speaking to REsource, TRXF11’s manager Gabriel Barbosa explained the rationale behind the Fund's decision to invest in this new venture and why the asset is considered a "trophy asset" by the TRX Investimentos Real Estate team.

"Initially, when this opportunity arose, we were hesitant, given the existing bias against hospital assets. However, after a thorough analysis, we recognized it as a strong opportunity. Considering the reputation of Einstein—a hospital renowned internationally with a stellar market reputation—and the favorable terms of the deal, we concluded that this asset would be highly valuable for the Fund," Barbosa explains.

Factors That Favored the Deal

Several factors influenced TRXF11’s decision to proceed with the development. One key factor is that the project falls under the "built-to-suit" category. This means that although the property is not yet completed, it already has a tenant and will be delivered according to the specific needs of the Albert Einstein Hospital.

Moreover, the lease agreement is "atypical," meaning it is set for an extended term. In this case, the lease between TRXF11 and Einstein will last for 20 years without any rent reviews, according to Barbosa.

The Fund also points out that the hospital will be the most modern in Latin America and that the property is part of a mixed-use development that includes other segments, as previously mentioned. The Einstein complex will also have a lease guarantee insurance, ensuring liquidity of payments and dividends to the Fund’s shareholders.

"We are paying around R$ 21,500 per square meter. We believe that at this price, combined with the favorable terms, the asset has significant potential to appreciate above inflation rates," Barbosa adds, noting, "our goal was to acquire 100% of the property."

According to Barbosa, the Fund's cautious approach to hospital assets will continue, but future opportunities will be evaluated on a case-by-case basis.

Payment and Portfolio Expansion

Upon signing the deal, TRXF11 made an initial payment of R$ 5 million as a deposit. An additional R$ 160 million is expected to be paid by December of this year. The remaining amount, approximately R$ 456.3 million, will be paid according to the schedule set in the contract.

TRX Real Estate’s portfolio previously consisted of 590,500 square meters of Gross Leasable Area (GLA), spread across 50 properties focused on "urban income," with spaces leased to major retailers such as Assaí, Pão de Açúcar, Extra, Carrefour, Grupo Mateus, Obramax, and Leroy Merlin.

One of TRXF11’s recent deals was a contract signed in 2022 to build the first Leroy Merlin store in Salvador. The agreement with the Albert Einstein Hospital marks a significant diversification of the FII’s portfolio.

The initial forecast is for the hospital to begin operations by mid-July 2026. Due to a six-month rent-free period starting from the date of occupancy, rental income is expected to begin in January 2027.

According to the specialized FII website Clube Fii, there are currently only six funds specializing in hospital assets: HCRI11 (Hospital da Criança) and NSLU11 (Hospital Nossa Senhora de Lourdes/Rede D'Or), both managed by BTG Pactual; HUCG11 (Hospital Unimed Campina Grande), managed by Coinvalores; HUSC11 (Hospital Unimed Sul Capixaba), with Rio Bravo as fiduciary manager; HUSI11 (Hospital Unimed Salto/Itu), managed by Trustee DTVM; and NVH11 (Hospital São Luiz Blocks A, B, C, D, and E), managed by Genial Investimentos.

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