The Pandemic Has Made Healthcare More Desirable

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“The pandemic increased demand and made healthcare a more desirable asset class,” Rahul Chhajed, VP and senior director of healthcare at Matthews Real Estate Investment Services, tells GlobeSt.com about how the asset class fared during the pandemic.

For one, medical properties moved onto the list of darling asset classes, and it isn’t hard to understand why.

“It is no longer just a recession that investors are worried about. If there is another pandemic, healthcare services are something that people are always going to need. At the end of the day, everyone needs medical care,” says Chhajed.

With the exception of a temporary pause in the market at the beginning of the pandemic, when elective surgeries and other healthcare services were paused to allow healthcare providers to focus on COVID-19, healthcare properties outperformed other asset classes. Chhajed notes that many tenants didn’t need rent relief and continued to pay rent.

This year, investors have been trading out of more challenged asset classes, like retail and office, in favor of medial facilities.

“COVID really provided a proof of concept for the industry to show that this product type is here to stay. It is not only institutional, but it is an asset class that private capital should look at as well,” says Michael Moreno, VP and senior director of healthcare at Matthews Real Estate Investment Services.

Institutional capital has been the dominant player in the healthcare sector, and that is because it can be a more complicated asset class. Now, both institutional capital and private investors are competing for deals.

“More institutions have definitely entered the ring, but we are also seeing the private markets have started to buy these deals,” says Moreno.

And, there is a third player: owner-occupiers. Existing owners are looking at the demand—which has driven cap rates down significantly—and deciding to sell.

“The sale-leaseback market is really picking up, and a lot of that has to do with pricing,” says Moreno.

Over the last few years there has been significant cap rate compression, and owners would rather take the proceeds and put it back into the business and grow.

“Private buyers love those deals because they typically contain long-term leases and they are triple net,”  Moreno says.

On the lease side, retail owners are finding new users in healthcare. Many clinics and ambulatory centers are signing leases in retail facilities as part of the trend from in-patient care to out-patient care.

“Retail-centric healthcare is great for providers because the care is coming to the consumer,” says Chhajed. “A lot of these healthcare systems are looking for ways to provide ease of access, and retail centers meet those needs to make healthcare more accessible. The confluence of these trends is creating a heyday for medical assets after the pandemic. Now healthcare is looking stronger than ever.”

 

Source: GlobeSt.

Tenet Healthcare To Acquire 92 Ambulatory Surgery Centers For $1.2 Billion

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Tenet Healthcare and subsidiary United Surgical Partners International are expanding their ownership of ambulatory surgery centers, buying 92 from SurgCenter Development.

The $1.2 billion deal expands USPI’s reach into high-growth regions in Arizona, Florida and Texas and includes an attractive case mix of service lines, including musculoskeletal care for total joint and spine procedures, Tenet said in a statement. The transaction will further diversify Tenet’s mix with a larger portion being produced by its higher-margin ambulatory portfolio.

SurgCenter Development owns a minority interest of approximately 39% on average in 86 of the ambulatory surgery centers and a majority interest of approximately 55% on average in six of the ASCs, Tenet said in a released statement.

Tenet plans to finance the transaction through the issuance of first-lien secured notes. The transaction is expected to close in the fourth quarter.

United Surgical Partners International and SurgCenter Development will enter into a five-year partnership and development agreement to provide continuity and support for SCD’s facilities and physician partners, Tenet said. Going forward, USPI also has the exclusive option to partner with SCD on new development projects over the life of the agreement.

The centers to be acquired are located in 21 states. They include 65 mature centers, as well as 27 that have either opened within the last year or will start to perform their first cases in 2022.

Why This Matters

Since 2009, USPI has acquired 67 SurgCenter Development centers. Additionally, in the coming months, USPI plans to acquire a portion of equity interests in the ASCs from physician owners for up to $250 million. Following the addition, USPI will have more than 440 facilities in 35 states.

The terms of the transaction include entry into a new development agreement under which USPI will partner with SCD on the future development of a minimum target of at least 50 centers over a period of five years.

With each center, USPI will have the exclusive option to obtain an immediate ownership position at the time of development with an additional option to purchase SCD’s ownership stake 18 months after the opening of such facilities.

Tenet said it expects the transaction to generate strong financial returns and to realize at least $45 million of annual run-rate synergies over the next three to four years.

The Larger Trend

Tenet Healthcare Corporation, headquartered in Dallas, includes United Surgical Partners International. It operates 60 hospitals, more than 460 other healthcare facilities and Conifer Health Solutions, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.

On Aug. 2, Tenet announced it had completed the sale of its five hospitals and related operations in Florida’s Miami-Dade and Southern Broward counties to Steward Health Care for a reported $1.1 billion. But Tenet’s ambulatory facilities operated by United Surgical Partners International in these markets remained with Tenet and were not included in the transaction.

On The Record

“We are extremely pleased to announce this transformative transaction and partnership, which builds upon USPI’s position as a premier growth partner and SCD’s track record of developing high-quality centers with leading physicians,” said Dr. Saum Sutaria, who took over leadership of Tenet as  CEO this September. “By welcoming these centers into our company, USPI will maintain its reach as the largest ambulatory platform for musculoskeletal services, a high-growth service line. We are also creating a pathway for further expansion through a partnership that pairs the expert development and operational capabilities of our two organizations.”

 

Source: Healthcare Finance

Seniors Housing and Skilled Nursing Could Be Investor Favorites

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Skilled nursing sectors investor favorites, a new report from Marcus & Millichap predicts.

Third quarter data showed that seniors housing move-ins are rising as more residents become vaccinated, with occupancy rising in both segments from July through September. Rents are also up annually by more than 1% across all four levels of care, led by memory care and assisted living.

Skilled nursing’s recovery was a bit more muted, with occupancy at 76.2% in November, down 1,000 basis points over 2019 numbers. But nationally, the average daily rate has increased or held firm in every quarter for more than a decade.

“But the near-term future is opaque with the pandemic still creating uncertainty,” Marcus & Millichap’s Benjamin Kunde notes. “However, seniors housing and skilled nursing facilities remain a key piece of the care spectrum, and the current environment may present unique favorable circumstances for investors. Temporary hurdles coincide with longer-term tailwinds that are becoming more apparent.”

Development has eased as of late, with less than 48,000 seniors housing units breaking ground in October, a 30% decrease from the typical pace. But Kunde says “robust demand is on the horizon, potentially outpacing supply and powering occupancy improvement.” In particular, aging baby boomers are likely to push a demand surge in the future, and they have money to spend: some estimates say the segment holds more than half of all US wealth.

One potential headwind? Labor shortages, which continue to plague both segments. A study by the American Health Care Association and the National Center for Assisted Living shows that three-fourths of respondents believe the staffing situation for assisted living has gotten worse from midyear through September.

“Many operators are utilizing higher compensation to attract staff, which is costly at a time when insurance fees have increased and infrastructure improvements are needed for virus containment,” Kunde notes. “Furthermore, some operators are allocating funds to ramp up marketing efforts, as many facilities are trying to fill rooms at the same time. Endeavors to entice prospective residents are especially important in the near term, as move-ins should accelerate once a broader return to workplaces reduces the number of people able to provide at-home care.”

Meanwhile, investors who pressed pause during the pandemic have a stash of capital and are reentering the market. Sales volume has matched the 2020 total already, and Kunde predicts that momentum will continue as owners list properties following the end of government stimulus funds which helped keep the industry afloat.

“The cost of capital remains low, and potential interest rate hikes and tax changes on the horizon could drive sales activity in the near term,” Kunde says. “Still, many investors are taking a cautionary approach as various short-term headwinds are lingering. Uncertainty in the marketplace and ongoing price discovery adds a wrinkle to getting deals done.”

 

Source: GlobeSt.