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The Healthcare Investor Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses

Growth in Private Equity Opportunities in the Health Care Real Estate Investing Space

Posted in Healthcare Services Investing

Over the past 18 months, there have been several significant transactions which demonstrate ongoing opportunities for private equity investments in the health care real estate space.

In mid-October, Bloomberg reported that Blackstone Group LP fund and Emeritus Corp. will sell a group of senior housing properties to HCP Inc. The transaction is valued at more than $1.7 billion, making it the largest healthcare real estate investment trust (REIT) deal this year since April 2011. According to an Emeritus news release, HCP will acquire 133 senior housing communities. As part of the transaction, Emeritus will acquire nine senior housing communities for $62 million.

The deal comes just a few months after Health Care REIT announced it would acquire Sunrise Senior Living, Inc. As part of the transaction, Health Care REIT would acquire Sunrise’s 20 senior housing communities and Sunrise’s interest in joint ventures that own 105 senior housing communities. The purchase price reflected a real estate value of approximately $1.9 billion.

And in April 2011, Health Care REIT completed a $2.4 billion acquisition of almost all of the real estate assets of Genesis HealthCare. The long-term, triple-net lease included 147 post-acute, skilled nursing and assisted living facilities in 11 states.

In addition to these large transactions, there are plenty of smaller transactions taking place. An analysis of data by Bloomberg shows healthcare REITs have announced or completed $4.6 billion in acquisitions this year. For example, as Seeking Alpha recently reported, healthcare REITs Omega Healthcare, Medical Properties Trust and LTC Properties have all announced acquisitions for prices ranging from $54 million to $206 million.

Healthcare REITs look to be performing well if recent financial and operating results are any indication. Medical Properties Trust reported that its third quarter 2012 total revenues increased 55 percent to $53.7 million compared with $34.6 million for the third quarter of 2011, while the Baltimore Sun reported that Omega Healthcare’s third quarter 2012 earnings were 40.5 percent higher than earnings in same period last year.

The growth and activity in this industry segment is arguably driven in part by activity in other areas of healthcare. A trend that is worth monitoring is that of small, single or regional facility operators of dialysis, ambulatory surgery centers and other healthcare industries selling off their affiliate-owned real estate to a large REIT, not just to create liquidity for that single sale but also in conjunction with selling the facilities themselves to another buyer. This ancillary investment opportunity may provide an additional opportunity for PE investors interest in various aspects of the healthcare space.