Positive impact, long-term leases drive investment in daycare centres, All things property, under OneRoof

Long-term leases and significant government support are enticing property investors to invest in daycare centres.

Alan Henderson, Director at property investment company Erskine + Owen, said the specialist investment sector is also attracting investors who have a passion for supporting early childhood education.

“The key role daycares play in childhood development and the future growth of communities is a significant attraction for a growing number of investors.”

“They can give something back to the community, make a positive impact on young children’s lives by ensuring they have the best start possible before going to school, and still make a competitive return on their money,” said Mr Henderson.

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The latest addition to Erskine + Owen’s NZ Daycare Properties Fund LP is a purpose-built centre operated by Rainbow Corner in the growing suburb of Enderley in Hamilton.

Mr Henderson said the property was chosen because it is in an area with strong future development plans and a population that utilises daycare services.

The Enderley property joins the fund’s initial property, another daycare centre located in Hamilton’s Burbush area and also operated by Rainbow Corner. The fund has delivered the projected pre-tax return of 6.25% since inception.

Mr Henderson said that investment in daycare property is often considered attractive due to the long-term leases in place. As an example, the new Enderley property has an initial lease of 18 years that runs to 2038.

“The sector has long lease periods to provide stability given the important role these businesses play in supporting the existing community and future development in these areas. For investors, the long-term nature of these leases could assist in providing more certainty in terms of future income streams.”

Mr Henderson said ongoing government funding support for the early childhood education (ECE) sector provides additional appeal.

The 2020 Government budget committed $278 million over four years to fund ECE services employing fully qualified staff. This coincided with the number of children enrolled at education and care services increasing from 63 percent in the 2015 ECE census to 69 percent in 2020.

“ECE subsidies help to underpin tenant revenue and there is significant value associated with the Ministry of Education licence on these sorts of premises,” said Mr Henderson.

“Early childhood centre operators like Rainbow Corner have a role to provide the best care for their children in the short term, but also play a major part in supporting their long-term development and educational needs before they enter the school system.”

Rainbow Corner operates multiple sites around New Zealand, and conducts early childhood training to NZCA Level 4 to ensure a reliable supply of expert staff to help meet future demand in the business.

Mr Henderson said the objective of the NZ Daycare Properties Fund LP is to create a portfolio of daycare properties over time that offer wholesale investors opportunities in a unique commercial property category.

“We are focussed on purchasing properties that are purpose-built centres in high growth locations where there is an ongoing need for quality early childhood education.”

The NZ Daycare Properties Fund LP is raising $3.45 million through the issue of 3,450,000 units in the Limited Partnership at $1 each. The capital, together with bank finance, will be used to purchase the $5 million Enderley property.

The minimum investment is $50,000 with a projected (pre-tax) 6.25% per annum cash return paid monthly. Investment is available only to wholesale investors under Schedule 1 of the Financial Markets Conduct Act 2013.

Erskine + Owen has a track record of successful investments in early childcare centres. Its first early childhood syndication was released in 2020. Made up of five early childcare centres valued at $15.55 million, the Daycare Property Syndicate Limited Partnership has delivered on forecasted returns during one of New Zealand’s most turbulent economic periods.

KEY INFORMATION:

Address: 10 – 18 Shakespeare Avenue, Enderley, Hamilton

Property type: Near-new (2020) daycare centre and sealed carparking area

Land area: 2,444 sqm

Floor area: 584.4 sqm

Purchase price: $5,000,000

Market valuation: $5,000,000

Annual rent: $306,017

Lease term: Eighteen Year Lease Term from 13 July 2020. Annual Rent Reviews of CPI + 1%.

Market Rents Reviews on 5th, 10th and 15th anniversary of the commencement date and on

renewal.

Tenant: The Rainbow Corner Early Learning Centre Private Limited