The health care REIT sector has been a hotbed for acquisitions in 2012, and Steven Mauldin, president and CEO of CNL Healthcare Trust and CNL Lifestyle Properties, sees that as a trend that will continue.
CNL Healthcare, which intends to qualify as a non-traded REIT, seeks to acquire properties in the senior housing and health care sectors. Its recent transactions include a $226 million agreement announced in July 2012 to acquire seven senior housing communities through a joint venture agreement with Sunrise Senior Living Inc.
Mauldin spoke with REIT.com about industry trends, growth drivers and the recent presidential election.
REIT.com: As you look at prospective deals in this environment, what stands out to you?
Steve Mauldin: This has been an active market for acquisitions this year. As we look at prospective deals a couple of things stand out.
There's still pretty small public REIT ownership of health care real estate as ownership is pretty fragmented. The last figure I saw is that approximately 8 percent of senior housing is owned by public REITs, and the rest is owned by individuals and institutions. So, there are still meaningful consolidation opportunities.
Also, as we think about opportunities in today's world, we like developing and nurturing deeper relationships with our tenant operators. In many cases, these are our sellers. We believe the relationship transcends the transaction and we've done a lot of investments in the health care space, particularly in the senior living space. That would not have been possible without deep industry relationships and without our team's deep understanding of senior assets and their opportunities and challenges.
REIT.com: Your company has been aggressive in expanding its senior housing portfolio. How do the fundamental drivers in that property type look for the near and long term?
Mauldin: Our aging baby boomers are remaining a very powerful force. The underlying demographics of senior housing, which today we exclusively focus on, are incredibly powerful. We're at the very front end of an aging baby boomer population.
Also, we have significantly decreased health care spending trends, but the supply of new product has not kept pace. In the senior space, a lot of this is mainly due to the recession, when capital became constrained. The supply has frankly not met demand and doesn't really expect to meet demand anytime soon.
While certainly market-specific, generally speaking, as we look out over the country, the occupancies and rental rates all show growth and absorption of new product is all very good.
REIT.com: Are there any other areas within the health care market that you see having above-average growth potential?
Mauldin: Over the last couple of years, need-based senior housing, referred to sometimes as memory care facilities, has grown. Those are specific units designed for residents with progressive memory loss, or Alzheimer's, dementia, et cetera. This is incredibly sad in many ways. It's woefully underserved. There's just simply not enough physical product to meet the current demand, let alone the future demand. We've seen, in many cases, the memory care facilities with wings within larger facilities fill up very quickly. Some have lengthy waiting lists, which very sadly identifies that as a growth opportunity. So, that's one that's a function of our senior living investment.
Also, the medical office space, the office campus ambulatory surgery centers, will continue to grow and experience significant growth in our view as service and delivery options of health care continue to get driven out of high-cost health settings on-campus. That's just a shift to respond to providing services in a lower cost setting in response to growing demand.
REIT.com: What do you see as the dominant trends in the coming year?
Mauldin: I think probably a lot of what I just mentioned and increasing health care expenditures. As you live longer, you spend significantly more and more on health care, and we've seen data estimates that health care spending increased almost 140 percent from age 65 to 85.
I would also say that as a part of that, just a continued shift in the way and where health care services are delivered. They will continue to migrate to lower cost settings. That's consistent with a policy out of Washington that was happening before and will continue to happen. Some of that is for convenience, but, frankly, a lot of it is driven by cost-containment drivers.
REIT.com: Now that the presidential election is over, what does that mean for the health care sector?
Mauldin: I will tell you that health care is pretty apolitical. The demographic drivers and the backdrop of the election in our view don't really change any of the industry trends that we've already seen or that are underway. Consolidation, growth, the growth of health care expenditures and all of those things continue regardless of which party you like or who's in control. It's just an incredibly powerful demographic story that, frankly, is just not materially impacted by who's in office.