03/18/2013 | By Carisa Chappell
With health care REIT’s continuing to trade at high premiums to net asset value (NAV), industry analysts say the sector’s transactions market will likely remain active for the time being.
The sector was trading at a 38.9 percent median premium as of March 11, up from a 27.6 percent median at the end of 2012, according to data from financial research firm SNL Financial. The premium on health care REITs’ assets far exceeds that of equity REITs as a whole, which are trading at a median premium of 5.3 percent.
Health care REITs also posted gains of 11.06 percent so far in 2013, higher than the 6.91 percent gains for all REITs, according to the FTSE NAREIT ALL REIT Index.
“Overall performance has been steady over the last several years for health care REITs,” Stevens said. “Low leverage, high liquidity, and low interest rates continue to leave health care REITs well-positioned to make big moves from a transaction perspective.”
The sector was extremely active in the transactions market in 2012 including Health Care REIT Inc.’s (NYSE: HNC) acquisition of Sunrise Senior Living for $1.9 billion and Ventas Inc.’s (NYSE: VTR) $8 billion acquisition of Codgell Spencer Inc. and Nationwide Health Properties Inc.
Stevens said the high NAV premiums are an enticement for deals, because they can provide large gains for the sellers. However, Stevens added that given the large number of deals in recent years, REITs may find that the numbers of high-quality health care assets or portfolios are scarce,
“The question remains whether or not the high-quality assets many health care companies have come to expect are available at the right prices,” Stevens said.
Stevens also noted that high NAV premiums leave little room for underperformance from an operating standpoint for REITs.
Brad Case, NAREIT’s senior vice president for research and industry information, shares Stevens’ position on the likelihood of further acquisitions by health care REITs. Looking at the broader economic picture, Case said health care REIT sector investors aren’t showing much concern for the ongoing policy debates in Washington.