Private buyers accounted for $1.3 billion in closed transaction volume in the seniors housing and care sector, according to new first-quarter data from the National Investment Center for Seniors Housing & Care (NIC) — though overall mergers-and-acquisition volume took a major tumble.
Nursing care transactions included about $900 million in closed deals, while seniors housing saw $1.7 billion worth of deals. The total volume was down 5% from the fourth quarter of 2017, and down 45% from the first quarter of last year.
Private buyers represented half of all closed volume in the first quarter, and private buyer volume was up 9% from the 2017 fourth quarter. It was, however, down 8% from the first quarter of 2017.
For public buyers, the cost of capital has increased significantly over the past year, NIC senior principal Bill Kauffman wrote in a blog post on the findings. This has led to these firms — including real estate investment trusts (REITs) having a harder time competing for deals; Sabra Health Care REIT (Nasdaq: SBRA) and Omega Healthcare Investors, Inc. (NYSE: OHI) were listed as the two examples of the trend within the skilled nursing sector.
“[W]hen the REITs trade at a premium to asset value (asset value is based on the private market capitalization rates and the REIT’s portfolio holdings) then the REITs can go out and buy properties by raising equity and realize an instant increase in value because the private market value is lower than their publicly traded equity value,” Kauffman wrote. “In other words, their cost of capital is low when the premium is high.”
Public real estate investment trust (REIT) activity decreased drastically after the second quarter of 2015, when the premium at which the stocks traded relative to their gross asset value took another downturn in that year, Kauffman noted. The premium continued to decline through 2017.
Into 2018, there has been a significant decrease in that premium.
“As private equity is still relatively active in the markets and pricing still remains strong, many public REITs are finding it harder to compete for properties, especially larger portfolios,” Kauffman wrote.
On the company’s most recent earnings call earlier this month, Omega executives talked up the demand among private buyers in certain individual markets as the REIT embarks on a major push to offload $250 million in properties through the end of the year — on top of $98 million already sold during the first quarter.
“Our strong sales results to date reflect the continued appetite for SNF assets by local-market private buyers,” Omega CEO Taylor Pickett said on the call.
Sabra CEO Rick Matros, meanwhile, emphasized the execution of smaller deals, as well as focusing on senior housing over skilled nursing, as part of the REIT’s short-term future planning as it wraps up its major pivot away from properties operated by Genesis (NYSE: GEN).
Written by Maggie Flynn