With strong tailwinds buoyed by promising demographics, the U.S. senior housing industry has become very attractive not only to the traditional buyers of health care real estate, but also increasingly to private equity and overseas investors.
As health care real estate investment trusts continue to make strategic dispositions and refocus their portfolios, foreign capital is seizing acquisition and joint venture opportunities with some of the biggest senior living real estate holders, according to a report released this week from credit-rating company Fitch Ratings.
“Foreign investors are increasingly looking to invest in US healthcare real estate, particularly those with longer term horizons such as sovereign wealth funds, pension funds and insurance companies,” Fitch writes.
Buyers and Sellers in 2016
After record transactions recorded in 2015, REITs took a step back in their acquisition activity in 2016, instead becoming net sellers. Picking up the slack in M&A was private equity, according to Fitch.
The “Big 3” health care REITs—HCP Inc. (NYSE: HCP), Ventas Inc. (NYSE: VTR) and Welltower Inc. (NYSE: HCN)—have all announced major sales this year involving private equity groups, in some form, or sales with foreign buyers.
“The increasing role of private equity and foreign capital has been as much about them as it has been REITs selling,” Britton Costa, an analyst with Fitch Ratings, told Senior Housing News. “The largest REITs have been selling to reduce leverage and because equity via asset sales was cheaper than issuing new shares. We believe they have leverage where they’d like it so they have less motivation to pare their portfolios to the same extent.”
Welltower recently agreed to sell a 75% interest in a portfolio of long-term/post-acute properties to two China-based companies, Cindat Capital Management Limited and Union Life Insurace Co. Ltd., for $930 million. The REIT has seen an increased interest in acquisitions from private investors as well as those abroad.
“We received significant inbound interest by private investors in owning post-acute long-term care assets as well as senior housing assets,” Welltower said in a quarterly earnings call. “…We believe one of the reason that Cindat was attracted to forming this joint venture with us is that they want to learn how to invest in this asset class because it has relevance to what will happen back in their home country.”
HCP also recently announced it would sell a significant chunk of real estate in a $1.125 billion deal to affiliates of Blackstone Real Estate Partners VII L.P. and Columbia Pacific Advisors. The portfolio includes 64 properties leased to Brookdale Senior Living (NYSE: BKD). The half a dozen or so other bidders in the portfolio were “primarily private equity,” with some other REITs at the table, HCP said during a recent earnings call.
REITs are also reducing their exposure to skilled nursing facilities (SNFs), with some major sales going to private equity with health care experience. Welltower’s portfolio overhaul—about $4.1 billion in sales by 2017—includes a $1.1 billion sale of 64 facilities to private equity company Lindsay Goldberg and Omega Healthcare Investors.
While they have recently been actively selling, REITs may shift their approach in the coming year, Costa says.
“REITs will likely be more active buying [in 2017] though not to the 2013 to 2015 levels.”
Written by Amy Baxter