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Demand For Healthcare Real Estate Investment Trusts To Get Boost

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U.S. healthcare real estate investment trusts recorded solid performance in the second quarter, with average funds from operations and same-store net operating income up 20.3% and 8.1%, respectively, year over year, according to a new report from Nareit.

Nareit is the US-based trade association for REITs and publicly traded real estate companies.

The sector is expected to continue performing well due to demand tailwinds such as the aging population in the country. In just over a decade, for the first time in U.S.history, people aged at least 65 years are expected to outnumber those under the age of 18, according to U.S. Census Bureau projections.

Healthcare REITs, which own senior living communities, hospitals, medical office buildings and skilled nursing facilities, comprise 8% of equity market capitalization as of the end of August.

The sector’s share in the FTSE Nareit All Equity REIT Index stood at 4.5%, surpassing the office sector’s share, the report said.

 

Source: S&P Global

DigitalBridge Group Agrees To Sell Wellness Portfolio For $3.2 Billion

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DigitalBridge Group Inc., the real estate investment trust led by Chief Executive Officer Marc Ganzi, agreed to sell its so-called wellness infrastructure portfolio of more than 300 facilities in a transaction valued at $3.2 billion.

The REIT is set to obtain $316 million in proceeds from the sale of the division, which includes senior housing and skilled-nursing facilities, hospitals and medical office buildings, to Highgate Capital Investments and Aurora Health Network, according to the newly released statement. Highgate and Aurora are set to assume about $2.9 billion in associated debt. Bloomberg News first reported the agreement earlier.

“We’re incredibly bullish about our ability to get the right price for that asset and, ultimately, find the right home for it,” Ganzi said on a second-quarter earnings call last month.

The REIT is working to rotate away from real estate sectors that were favored by its founder Tom Barrack and exclusively pursue digital infrastructure assets such as data centers, fiber networks and cell towers.

“There’s a path to finish the mission between now and the end of the year to get to 100% digital,” Ganzi said at a conference last month.

Boca Raton, Florida-based DigitalBridge, formerly known as Colony Capital, in June agreed to sell assets to Fortress Investment Group LLC. In March, it announced the completion of its sale of a hotel portfolio to Highgate and an affiliate of Cerberus Capital Management LP. Those transactions followed other divestitures including the sale of a stake in real estate investment firm RXR Realty as well as its warehouse portfolio.

DigitalBridge’s shares have gained 146% in the past 12 months, outperforming the Bloomberg U.S. Real Estate Large & Mid Cap Price Return Index, which rallied around 33% over the same period.

Highgate, led by Mahmood and Mehdi Kimji, has historically focused on hotels, its website shows. Its partner on the transaction, Aurora, led by Joel Landau and Leo Friedman, has been an owner-operator of skilled nursing facilities.

 

Source: Wealth Management

Medical Office Building Investors Will Be Chasing Deals In 2020

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As we prepare to swing into the new year, the outlook for the medical office sector is good…largely.

Underpinning the market, as it always has, is the continual aging of the population and the increased medical services that come along with it.

But, despite this sure-bet demand, the sector is not without its challenges, as Al Pontius, SVP and national director of Marcus & Millichap’s Office and Industrial divisions, makes clear. Those concerns arise as a result of the massive industry trend toward consolidation and the move on the part of many formerly independent care providers to saddle up with national care brands.

The firm’s second-half Medical Office Buildings Report defines the growth of the merger movement:

“Hospital and health-system merger activity continues to transform the medical office sector, driving a reduction in physician-owned practices in recent years. In 2012, nearly half of locations were physician-owned practices, but in 2018, just 31 percent were owned by doctors.”

And therein lie the concerns for the existing stock of medical office buildings (MOB).

“There’s a lot of older-vintage product that’s not located where the health systems want to be,” says Pontius. “Some assets may not accommodate the desired configuration of services that the major health systems see as appropriate, modern enough or technologically supportive enough. Consequently, there are a number of buildings that will under-perform relative to newer properties in the sector as well as other asset classes.”

But while there might be assets that sit on the sidelines as healthcare needs grow, few investors, be they institutional or private, are doing the same.

“The consolidation has supported investor sentiment as major providers create efficiencies and broaden service coverage,” says the report. “A sizable pipeline of new space and major expansions by high-credit tenants will sustain elevated investment activity through the end of this year.”

 

Source: GlobeSt.