Health Care REITs: Large Portfolio Deals Still Out There

Senior living operators looking to take advantage of low interest rates and ample capital in the sector by selling certain properties or portfolios are creating opportunities for larger investors, particularly publicly-traded real estate investment trusts (REITs), which say those large portfolio deals are still out there, as scarce as they have become.

During a few second quarter earnings calls held this week, several REITs indicated their appetites for investment target both national and regional senior housing operators.

One of those REITs is National Health Investors (NYSE:NHI), a Murfreesboro, Tenn.-based company, which said during an earnings call Monday that it is busy reviewing new potential investments that may include smaller, regional operators or larger, national providers.


“The market remains very active with many sources of capital available to operators,” said Justin Hutchens, CEO of NHI, during the call. “We are finding success and have always found the best results from focusing on operators with long-term business plans, who are seeking a capital partner to help facilitate their growth.”

While more opportunities have arisen to acquire exiting operators—those looking to sell amid the favorable market environment marked by historically low cap rates, as well as the increasing amount of capital entering the sector—NHI is more focused on long-term relationships.

“We are not looking to exit anybody,” Hutchens said. “We are looking to be a growth partner, and that may be with regional companies and it may be with national companies. We have opportunities in both categories under review.”


From a quality standpoint, NHI’s pipeline under review is bigger now than it was earlier in the year, Hutchens said, and the REIT is currently reviewing deals that included both large and small portfolios, as well as one-off assets.

For the second quarter ended June 30, 2014, NHI reported normalized funds from operations of $34.6 million, or $1.05 per diluted common share, an 18% increase compared to the same period a year ago. Additionally, the company reported a 7% year-over-year increase in net income attributable to common stockholders of $25.3 million, or $0.76 per diluted share, during the quarter.

Looking ahead, the Tennessee-based REIT’s growth plan remains focused on investing primarily in assisted living and independent living communities, as well as possible pursuing more opportunities with its existing partners, which include Holiday Retirement, Bickford Senior Living and National Healthcare Corporation. NHI derives at least 10% of its income from operations from the latter two of its partners.

While some, like NHI indicate the investment potential for portfolios both big and small, others noted the opportunities for some of the larger scale deals are slim.

“Usually we don’t see huge ones, but we do see most of the [deals] out there—both from a senior living and medical office side,” said David Hegarty, president and CEO of Senior Housing Properties Trust (NYSE:SNH), during an earnings call also held Monday.

The Newton, Mass.-based REIT, which is a large investor both in senior housing and MOB assets stated in its second quarter earnings disclosure that it remains active in selectively pursuing acquisitions, as well as dispositions, to further strengthen its senior housing and medical office building portfolios.

For the three months ended June 30, 2014, Senior Housing Properties Trust reported normalized funds from operations of $86.6 million, or $0.43 per share. In the same quarter last year, the REIT reported normalized FFO of $79.1 million, or $0.42 per share.

During the quarter, 43.5% of Senior Housing Properties Trust’s net operating income came from 218 triple-net leased seniors living communities tallying 24,383 units and an occupancy of 85.2%, a slight decrease from the same period a year ago when occupancy was 85.6%.

Additionally, 14.5% of the REIT’s NOI derived from 44 managed senior living communities with 7,051 units. Occupancy among these assets rose during the quarter to 88.5%, compared to 87.4% for the compatible period last year.

One of the most notable highlights for the company during the second quarter included its blockbuster $1.1 billion acquisition of two Boston medical office buildings occupied by global pharmaceuticals company, Vertex Pharmaceuticals, Incorporated (NASDAQ: VRTX).

Though the company has not written off anything just yet in terms of its future investment appetite, opportunities to pursue smaller, one-off deals seems more likely.

“We consider if it’s a fit or how much we think we could reasonably do, but I would say the ones that I currently envisioned are more the one-offs,” Hegarty said. “But again, we will look at the bigger ones and evaluate them anyways.”

Written by Jason Oliva

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