Competition in the senior housing and healthcare space has remained hot and heavy with few signs of letting up, but real estate investment trusts focused on the space still believe they’ll have plenty of opportunities for continued growth.
The senior housing M&A environment is “very competitive,” Justin Hutchens, CEO of Murfreesboro, Tenn-based National Health Investors (NYSE:NHI) said during the REIT’s first quarter earnings call.
“It is very competitive, which I always like to point out is a compliment to our asset class because [of its] tremendous stability over the past several years and all indicators are it will continue to have stability in the future as well,” he said. “So, it’s attracted a lot of competition, both with private equity and debt combinations as well as the REITs and the non-listed REITs, but I think that also has created a lot more potential volume out there in the market as well.”
All the competition is expected to have an impacted on cap rates.
“I think particularly the non-listed REITs are going to drive the cap rates down a bit,” he says, adding that it could continue until the 10-year Treasuries increase, as a lot of capital is being raised and deployed. Once the Treasuries go up, pricing is expected to get more aggressive.
“Whether they’re actually landing the deals or just bidding up the properties in a bid process, I see there will be some impact there from that that part of the competitive landscape,” Hutchens said. “However, like I said, we’re giving lots of opportunities that are under review.”
There’s “no question” there’s a lot of money available in the senior housing and healthcare space, said Lauralee Martin, CEO of HCP Inc., during the Long Beach, Calif.-based REIT’s first quarter earnings call.
“There’s been a great deal of activity, particularly in the retail aggregator space which we don’t play in,” she said. “However, it is setting pricing expectations moving into the more institutional market. What we’re doing is making sure we’re going to the places that need capital—and that’s one of the reasons to go international.”
HCP is also staying close to its existing operator partners for future growth opportunities, she added. The REIT recently announced a CCRC joint venture with Brookdale Senior Living, contingent on the completion of Brookdale’s merger with Emeritus.
While there’s definitely competition, it’s not really anything the industry hasn’t already seen, said CEO Rick Matros during Sabra Healthcare REIT’s first quarter earnings call.
“From a competitive perspective, we’re not seeing that much different at this time relative to what we’ve been seeing in the last six months,” he said. “And really the main thing that changed in last six months is we’re seeing more financial buyers that we saw earlier last year or in 2012. That seems to be the primary difference, as far as the non-traded guys.”
That hasn’t been seen for “quite a while,” he added. Other than international buyers, though, most of Sabra’s competition tends to be its peer group, as it has mostly been. That impacts the kinds of deals the Irving, Calif.-based REIT goes after.
“As we find ourselves competing for an asset with a financial buyer, they tend to pay out,” Matros said. “And so we usually [are] not going to want to win on those deals. But we seem to have enough in the pipeline to keep ourselves satisfied relative to hitting our goals for the year.”
Hutchens expressed similar sentiments.
“I feel as though we’re getting our fair share of opportunities that are under review, and I do have confidence in our ability to continue to grow,” he said.
Written by Alyssa Gerace