The expanding horizons of aged healthcare in Northern Europe

Northern Horizon chief executive, Milda Dargužaitė, discusses ESG, investment and the future of aged care real estate. Paul Strohm reports.

New SHHA member Northern Horizon focuses, as its name suggests, on Northern Europe. The group was founded in a Copenhagen basement in 2001 and now has offices in the Nordic and Baltic regions, as well as in Germany.

The group’s chief executive, Milda Dargužaitė, spoke to Real Asset Insight about Northern Horizon’s journey, its plans for the future and shared views on the healthcare real estate market.

What is the portfolio split by sector, specifically what percentage is aged care property? How do you see this progressing in the future?

We currently manage four real estate investment funds:

• Aged Care Fund IV, aged care real estate (approximately 50% invested)
• Nordic Aged Care Fund, aged care real estate (fully invested)
• Hansa, residential real estate (fully invested)
• Baltic Horizon Fund, commercial real estate (listed on the Baltic Stock exchange)

Healthcare is one of our key investment strategies. We are on our fourth fund in the aged care space in the Nordics and we have very successfully exited our first aged care funds. We launched the first fund in 2007 and since then, we have acquired 130-plus aged care assets and established ourselves as experts in this segment.

Over the years, we have seen increasing investor interest in aged care property from pension funds, insurance companies and also from private wealth. In the current environment, with all its uncertainties, investors are particularly attracted by the new buildings, the long leases – which mean stable cashflows –and, of course, the social impact of the funds.

How big is the team that is devoted to aged care real estate? What proportion of the total team does this represent?

The core healthcare team is an experienced team of eight people. This core team is supported by our own fund services team as well as external property managers and partners.

Northern Horizon’s assets under management have encompassed different sectors of commercial property but aged care has become quite dominant. Can you tell us a bit more about the scope of your activities?

In the Nordics, long term demographic trends forecast a 37% growth in the 75+ age group by 2030. By 2050, the growth is estimated to be 78%. In numeric terms, the Nordics will have 1.9 million more seniors aged 75+ by 2050.

Nordic countries benefit from unique Nordic welfare models and government backed universal healthcare systems. However, to keep up with the demographic trend there is a growing need for privately owned and privately operated aged care homes to complement the municipally operated and owned facilities. This creates investment opportunities in the sector.

‘Our investment scope is modern, high-quality purpose-built aged care facilities and senior housing in strong locations.’

Milda Dargužaité, Northern Horizon

Our investment scope is modern, high-quality purpose-built aged care facilities and senior housing in strong locations. We have no operational angle in the properties. We co-operate with reputable, strong tenants – either from the public sector or private ones – and long leases in the Nordics are typically between 10 and 30 years.

The Healthcare I fund was launched in 2007 with the intention of investing into care homes in Finland. There are several reasons why Finland was the target of this fund, including the demographic development, which is slightly ahead of the other Nordic countries. The fund was also backed by six leading Finnish institutional investors.

Last year Aged Care Fund IV acquired a preschool in Skurup. This may not be everybody’s idea of “healthcare”. Can you tell me a bit more about that? How typical is this type of asset within your funds?

Aged Care Fund IV invests in aged care homes and similar residential care assets in Sweden, Finland, Norway and Denmark. While preschools are not the primary focus of the fund, investing into this asset class offers attractive diversification benefits. Similar to aged care assets, preschools are leased on a long-term basis – in this case 20 years – which ensures a stable cashflow. The tenant is Skurup Municipality.

ESG has become a major preoccupation for European real estate, with much of the attention focused on a more sustainable approach to energy use and conservation. Conserving energy is something that the northern Europeans have reputedly been better at anyway, owing to the region’s climate. So, when Northern Horizon thinks about ESG, what are your main preoccupations?

We have seen a strong increase in interest towards ESG matters from our investors over the past two to three years.

In 2021, we set an ambitious target to reach net zero emissions from operations for all managed funds by 2030 and we classified our funds under SFDR Article 8 committing to be “light green” funds.

We regard ESG as a core strategic measure. ESG is integrated into all our processes, from the initial opportunity screening to the day-to-day co-operation with our tenants, in the following ways:

When looking into new investment opportunities, ESG aspects are an integrated element in the decision-making process

• The majority of assets are certified according to widely used sustainable standards, such as LEED, BREEAM and DGNB
• We focus on sustainable innovation to reduce the carbon footprint
• When building properties, we aim for the most environmentally friendly materials and for energy efficiency
• We monitor and report our environmental KPI’s and performance
• We are introducing green leases and green clauses to our lease agreements.

We are participating in the GRESB assessment with our most mature funds, and we are committed to reaching the highest GRESB ratings. In 2022, Baltic Horizon Fund achieved a four-star GRESB rating, with 83 out of a possible 100 points. In 2022, Nordic Aged Care Fund also achieved a four-star GRESB rating, with
85 out of a possible 100 points.