Executives Show Little Concern About Pending Supreme Court Decision On Health-Care Reform
In the latest example of the uptick in seniors housing investment, including the second large portfolio sale this month, Ventas, Inc. (NYSE: VTR
) sold 12 assisted-living communities to Assisted Living Concepts, Inc. (ALC) for $100 million cash.
ALC was the tenant of the communities at the time of the closing. The sale terminates the leases and severs a relationship between the two companies marred by pending litigation. As part of the agreement, the parties agreed to dismiss their action in U.S. District Court for the Northern District of Illinois as part of the sale.
The 12 communities sold to ALC include 696 units in five states. Under the terms of the transaction, ALC also paid Ventas's expenses in connection with the litigation. Ventas's total annual base rent under its leases with ALC was close to $6.6 million on a cash basis.
Follow Randy Drummer on Twitter for live news updates.
The market has seen an upswing in large seniors housing portfolio transaction since April. CNL Healthcare Trust entered the seniors-housing market earlier this month, announcing a joint venture with Sunrise Senior Living Inc. to contribute seven communities totaling 687 units valued at $226 million.
Chartwell Seniors Housing Real Estate REIT and Health Care REIT Inc. last month teamed to acquire 8,187 suites across 42 Canadian retirement communities for $931 million. Ventas in April agreed to acquire 16 private-pay communities from Sunrise for $362 million.
While the Supreme Court decision regarding the Affordable Care Act is dominating health-care industry conversations, senior housing and other heal-care REIT executives have remained confident in recent presentations that financial impact to their companies should be negligible, whatever the outcome. Medical office building
(MOB) leasing activity appears continues to be brisk and senior housing fundamentals are still improving, according to Alexander Goldfarb, analyst at Sandler O’Neill.
While portions of the seniors housing market dependent on Medicaid reimbursements remain at a crossroads, other segments are benefiting from the improving economy and housing market, according to a recent research report on first-half 2012 from Marcus & Millichap.
"While investors are unlikely to repeat the banner trading year that was 2011, activity in the seniors housing sector is at a sustainable pace and demand will continue to filter into the product from outside sources," Marcus & Millichap said in the report. "Last year, multibillion-dollar deals lifted prices and sales volume to rarely seen levels, and illustrates the maneuvering that industry giants will focus on as operating conditions become more challenging."
Demand for assisted-living units should remain relatively healthy this year, with relatively light construction. Occupancy is expected to finish 2012 at 90.2%, up 10 basis points from 2011, while average rents will rise 1.8, according to the M&M report.
Consolidation in skilled-nursing facilities will continue as smaller operators find it difficult to compete. Small operators may divest ahead of a potential privatization of Medicaid, which would effectively force dispositions.
Independent living properties, meanwhile, will attract the attention of apartment buyers as capitalization rates in the multifamily segment remain compressed. These assets recorded the sharpest decrease in occupancy during the recession, but are now posting healthy gains. Occupancy should surpass the rate at assisted living properties by year end as multifamily demand remains strong, M&M said.