Senior housing transaction dollar volume was weak at the end of 2016, but the year was still active due to a relatively strong number of smaller dollar transactions, according to preliminary end-of-year data from the National Investment Center for Seniors Housing & Care (NIC).
However, separate M&A data released by Irving Levin Associates, also on Wednesday, paints a different picture of the year-end activity. Both sets of data showed annual M&A deal volume down from 2015, though.
Compared to 2015, transactions for 2016 were down a whopping 35%, registering just $14.1 billion for the year, including $7.8 billion in seniors housing and $6.3 billion in nursing care, according to the preliminary NIC figures. Closed transactions totaled $21.8 billion in 2015 and $19 billion in 2014. The number of deals didn’t drop off as steeply, dropping from 563 deals in 2015 to 477 in 2016.
Transaction volume for the fourth quarter reached just $2.3 billion in 2016, including $1.5 billion in senior housing and $800,000 in nursing care, preliminary data suggests. However, it is likely that more deals from the end of the year will boost that level as the data becomes available. The $2.3 billion preliminary figure is well below the $4.9 billion reported in the fourth quarter of 2015 and $4.4 billion during the same time period in 2014, according to NIC.
“It’s hard to tell exactly with these preliminary figures, but usually the fourth quarter is a little stronger,” Bill Kauffman, senior principal for NIC, told Senior Housing News. “At this point, it looks to be a little slower, significantly slower, actually, than the previous couple years. …Usually what we see is deals rushing to the closing table to get those deals to close before the end of the year.”
Public and Private Buyers
A lack of public buyers in 2016 contributed to the declining dollar volume in transaction in 2016, as senior housing real estate investment trusts (REITs) took a back seat in the face of rising costs of capital.
In 2016, public buyer volume—including public REITs—dropped to just $3.7 billion, down 71% from the $12.7 billion in 2015, according to NIC.
The reaction came after the Federal Reserve changed its fiscal policy to effectively bump up interest rates at the end of 2015. The Central Bank did the same at the end of 2016 and announced it would continue to gradually increase rates throughout 2017. At the same time, the big three health care REITs—HCP (NYSE: HCP), Ventas (NYSE: VTR) and Welltower (HCN)—saw their share prices decline.
“In the fourth quarter [there] continued to be interest rate increases,” Kauffman said. “After the election there was an increase in rates, which increased cost of capital for public REITs. And, on the private side, [that] could have an effect on financing deals that might have otherwise closed by the end of the year.”
Instead, REITs became net sellers for the year, Kauffman wrote in a blog post on the preliminary data.
In 2016, only 26% of buyer volume was represented by public buyers, compared to 58% in 2015. This left room for private and institutional buyers to engage more actively in acquisitions.
While transaction volume, both in terms of the dollar volume and the number of deals, slumped in 2016, it’s important to note that 2015 was, by all accounts, a booming year for transactions.
Typically, transaction volume drops off during the first quarter of a year and rise in the second quarter. However, the start of 2016 still was relatively strong, with $4.4 billion in deals closing, compared to $2.6 billion in the second quarter.
“In 2016, however, the significant increase in cost of capital most likely delayed the finalization of some deals, and we did not see a strong bounce back for deal volume in the second quarter as we had seen the past couple of years,” Kauffman wrote in a blog post about the data.
As for 2017, REITs may be poised to be more acquisitive with streamlined portfolios and a relative bounce back in share prices.
However, at this point, “anyone’s prediction is a wild card,” according to Kauffman, who says REITs could come back as buyers in 2017 if capital markets stabilize. The high level of transactions from private and institutional buyers is likely to remain consistent, he says.
Conversely, another set of data points, which includes closed and announced transactions, to a volume surge in seniors housing acquisitions in the fourth quarter of 2016.
Acquisitions totaled $6.5 billion during the quarter and $14.4 billion for the year’s total, according to Irving Levin Associates. The surge was more than double the $2.9 billion reported in the third quarter and the $2.3 billion from the same time period a year ago. The year total was even higher than the $14.2 billion in 2015, according to the data.
The number of transactions also jumped, according to Irving Levin, rising 33% in the fourth quarter from the previous three months to 93 transactions. This marked the third most active quarter ever. However, the same quarter in 2015 saw a record 106 deals, and there were a record 359 total transactions for that year. That is 6% more than the 337 recorded in 2016.
The sell-off by the Big Three REITs may have contributed to the high number of end-of-year deals, Irving Levin noted in a press release.
NIC’s data includes senior housing and nursing care transactions as tracked by the NIC MAP data service. Irving Levin maintains databases on the health care and senior housing markets.
Written by Amy Baxter