AMP reaches financial close on Sydney hospital deal

The Australian fund manager’s acquisition of the PPP project from RBS comes less than a week after it announced a major reshuffle of its infrastructure equity team.

AMP Capital (AMP) has reached financial close on the acquisition of a 100 per cent interest in Sydney’s Royal North Shore Hospital and Community Health Services Public Private Partnership (PPP) Project from UK givernment-owned Royal Bank of Scotland (RBS).

The deal follows the announcement in September last year by New South Wales (NSW) government officials that the state should capitalise on the buoyant real estate market by selling or leasing the southern section of the Royal North Shore Hospital campus in order to fund a childcare centre and related staff accommodation.

“The market for social infrastructure investment in Australia remains strong and we expect to see further demand going into 2015. Investors like social infrastructure assets because of the limited or no demand risk; stable, government-backed, inflation-linked returns; attractive yield and low volatility; and the fact these investments have a positive community benefit,” said AMP Capital head of social infrastructure and aged care, Julie-Anne Mizzi.

AMP will own the asset until October 2036. More than 70 per cent of the equity will be acquired by AMP Capital’s Community Infrastructure Fund, with the remainder coming from other AMP-managed vehicles.

AMP is expected to restructure about A$1 billion (€686 million; $776 million) of RBS debt incurred in redeveloping the hospital in partnership with the NSW government. The sale of the asset was postponed last year until completion of an adjacent car park.

According to local press, AMP is to be paid a contracted amount, indexed to inflation, for managing and operating the hospital, which will include overseeing the cleaning, maintenance, retail, catering, car parks and security of the facility.

AMP trumped three bidders through winning the deal, which also saw fund managers Macquarie Group and Brookfield as well as construction company John Laing and Brookfield submit offers. All parties are said to have offered more than A$1.1 billion for the asset. Goldman Sachs advised on the sale and Bank of Tokyo-Mitsubishi advised AMP on the purchase.

Established in 1885, Royal North Shore Hospital is located in St Leonards, approximately six kilometres away from Sydney’s central business district, and has around 750 beds. The PPP project involved the redevelopment of the site to replace more than 50 buildings with purpose-built facilities.

Following its merger with Dutch bank ABN Amro in 2007, RBS inherited a portfolio of Australian infrastructure assets that included, among others, the Victoria schools project (a parcel of 11 schools located in the greater Melbourne region), as well as the Darwin Convention Centre, the Southbank Institute, and the New South Wales Schools II PPP, all bought by AMP Capital in late 2013 and 2014.

RBS, 81 percent UK state-owned, has embarked in a series of divestments globally since the financial crisis, so as to honour a 2010 European Commission injunction to sell a portion of its business unit as a trade-off for British government’s acquisition of the bank.

According to Australian press reports, the divestment coincides with RBS’s sale of its former broking and investment banking businesses, bought by Malaysia’s CIMB, and concludes the series of asset sales undertaken by chief executive Ross McEwan, who joined from Commonwealth Bank in 2012.

The deal comes less than a week after a reshuffle within AMP's infrastructure equity team that saw three senior executives leave the business and three promoted to head a reduced number of divisions.