Despite a smaller first quarter acquisition pipeline than previously projected and a dwindling number of large, available portfolios, the CEO of Senior Housing Properties Trust (NYSE:SNH) expects the pace will start picking up soon.
The REIT is aiming for $300-400 million acquisition pipeline in 2013 but so far has only completed $75 million of acquisitions: one senior living community and three medical office buildings (MOBs). Another approximately $44 million of investments are under agreement.
“As we’ve experienced in the past, we saw a slowdown in opportunities to consider at the beginning of 2013, but we’re now seeing an increase in acquisition opportunities,” said CEO David Hegarty during a first quarter earnings call. “…[We] feel comfortable in our ability to invest between $300 and $400 million this year.”
Part of the problem, Hegarty said, is that most—although not all—of the large senior living portfolios have already been acquired.
What SNH has generally been seeing are one-off acquisition opportunities where developers have developed one or more properties, or someone has tried to turn around a distressed asset and then bring it to market after reaching stabilization.
“I think [the pace] is starting to pick up to pretty much a steady pace where it was in the middle of last year,” Hegarty said. “There is also [a] considerable amount of capital chasing senior living and medical office buildings, so it clearly probably will affect pricing and drive down cap rates a bit more.”
Class A assets will be coming onto the market one at a time, he expects, and will sell at cap rates in the fives and sixes. “A minus” and “B” properties will maintain cap rates in the sevens, along with “a pretty steady amount of individual assets from that category.”
The REIT’s net income and revenues rose in the first quarter compared to 2012, along with normalized funds from operations (FFO).
SNH reported a net income of $35.2 million, or $0.19 per share, for the first quarter ended March 31, 2013, compared to a net income of $32.4 million, or $0.20 per share one year previously.
Normalized FFO for the quarter were $78.9 million, or $0.43 per share, up from last year’s $72.4 million, or $0.45 per share.
Total revenues were up 31% to $189.4 million in the first quarter.
View the full earnings report here.
Written by Alyssa Gerace