Publicly-traded health care real estate investment trusts (REITs) continue to dominate the senior living market in regard to total investments in the space. With their ongoing presence and success, those REITs are shifting the way investors view senior housing and care, leaving the door open for more public REIT investment in the space.
American Realty Capital, LLC is one such investor that has made a recent foray into the public REIT senior living sphere. Over the last eight months the company has taken one sponsored REIT public and its intention to list another was announced.
American Realty Capital Healthcare Trust II, Inc. (Healthcare Trust II) filed an application last month to list its common stock on a national stock exchange under the symbol “HTI,” and, subject to approval, anticipates that its common stock will begin trading during the third quarter of this year.
Previously, the company’s American Realty Capital Healthcare Trust, Inc. (NASDAQ: HCT) was acquired by Ventas, Inc. (NYSE: VTR) for $2.6 billion — a transaction which closed Jan. 16 of this year.
Strategies in building both HCT and Healthcare Trust II included a focus on senior housing assets, says Thomas P. D’Arcy, CEO of American Realty Capital Healthcare Trust II.
“We’ve have built Healthcare Trust II into a very strong, diverse $2 billion-plus company that has been extremely active in the senior housing market,” D’Arcy says, noting that about 43% of its portfolio is senior housing.
D’Arcy points to the Big Three — Health Care REIT (NYSE: HCN), Ventas Inc. (NYSE: VTR) and HCP Inc. (NYSE: HCP) — as adding to the overall institutional credibility of senior housing investing, and says there is more opportunity ahead.
“From the investor perspective, the growth in senior housing and medical office building investments by REITs, mostly notably the Big Three, have had a pronounced effect on the market,” D’Arcy says. “The ongoing data they provide quarterly on the performance of their portfolio through supplemental disclosures have increased the transparency of the fundamentals of the business.”
There are 16 public health care REITs currently, D’Arcy says, adding that the trillion-dollar health care real estate market continues to expand as new entrants bring with them teams focused on growth. And last week, Ventas said it plans to spin off most of its post-acute/skilled nursing portfolio into an independent publicly traded REIT.
In the year to come the sector will likely see continued consolidation, D’Arcy predicts.
“I’m one of the believers that senior housing remains deeply fragmented and that over time more and more senior housing assets will migrate to public ownership,” he says.
REITs have many incentives to go public, and will continue to migrate into the public arena, says Michael Knott, managing director at Green Street Advisors.
“For health care REITs, the availability and cost of capital are both favorable, representing the primary ‘pros,’” Knott says. “The REITs tend to trade well above the value of their own real estate, conveying a cost-of-capital advantage that is not available to other investors in the space.”
And public market investors appreciate the many favorable attributes of health care REITs, providing a strong valuation that enables the REITs to continue acquiring, he says.
“This ‘green means go’ scenario remains intact, signaling that further growth through acquisitions will continue,” he says. “Health care is one of those areas of real estate where one could reasonably expect the REITs to continue to extend their dominance over time. A challenging down cycle or overbuilding could eventually put a halt to the virtuous cycle, but for now, the party continues.”
Written by Cassandra Dowell