01/02/2014 | By Sarah Borchersen-Keto
A number of recent foreign acquisitions by U.S. health care REITs underscores the sector’s pursuit of geographic diversity, high quality core assets, and access to prosperous, well-established markets, according to industry watchers.
During 2013, U.S. health care REITs conducted a number of overseas deals. Health Care REIT, Inc. (NYSE: HCN), invested in 47 senior housing and care communities in major Canadian metropolitan markets, and also boosted its presence in the U.K. senior housing market.
Other deals included Griffin-American Healthcare REIT II, Inc.’s purchase of a 44-facility senior housing portfolio in the U.K., as well as Medical Properties Trust, Inc.’s (NYSE: MPW) acquisition of 11 rehabilitation facilities in Germany.
Jeff Walraven, assurance partner in the Real Estate Practice at BDO USA, LLP., notes that total health care assets in the U.S. that are owned by REITs account for about eight to ten percent of all available health care assets.
“The REITs are always striving for the top end of those assets, for the Class A portion,” he said. And while the pool of Class A assets in the U.S. is by no means exhausted, according to Walraven, a lot of exploratory work is being done to find attractive assets outside of the country.
“As far as the size of the transactions they need, the quality of the transactions, to be able to show solid, continued growth, it’s just kind of natural for them to seek assets elsewhere, in addition to the ones that are here,” Walraven said. He added that health care REITs are also continuing to enjoy “substantial amounts” of capital.
Daniel Bernstein, analyst at Stifel Nicolaus & Co., Inc., pointed out that Europe is experiencing the same general demographic trends as the U.S., “so the U.S. health care REITs do see opportunities there.” National health care in Europe is well-established, and a little more stable in terms of reimbursements to hospitals and doctors. U.S. health care REITs’ interest in Europe, according to Bernstein, “can almost be viewed as a little bit of a hedge against all the changes that are happening here in the U.S.” in connection with the Affordable Care Act.
Frank Williams, Jr., senior managing director for acquisitions at Medical Properties Trust, told REIT.com that while MPT’s portfolio will always be dominated by U.S.-domiciled hospital assets, “we’ve spent a lot of time over the life of the company…looking at opportunities outside the U.S.”
MPT’s acquisition of 11 rehabilitation facilities in Germany operated by RHM Klinik- und Altenheimbetriebe GmbH & Co. , took about a year, Williams said. “We liked the stability in the system in Germany, and we were able to find what we think is a fantastic set of assets to purchase.”
Walraven at BDO USA explained to Commercial Property Executive that both the private and public sectors in Germany have invested heavily in the health care industry, while the country also guarantees its citizens health insurance coverage. “The importance and quality of German health care assets creates an appealing landscape for U.S. health care REITs looking to generate returns for their investors,” he said.
In a recent interview with REIT.com, Griffin-American chairman and CEO Jeff Hanson called the company’s approximately $470 million purchase of the Caring Homes senior housing portfolio in the U.K. a “significant and strategic acquisition.”
“In the near term and the midterm, you’ll see us continue to grow with Caring Homes as one of the best operators of senior housing in the U.K. We’ll fuel – as a capital partner – their growth. The relationship is very important to us in that regard,” he said.
Bernstein at Stifel Nicolaus notes that U.S. health care REITs have mainly focused their attention on Europe and Canada, adding that their “comfort level” will probably restrict them to these areas for the time being. Bernstein added that health care REITs are estimated to own only about 25 percent of the investable health care assets in the U.S., Canada and Europe. “There’s still a very large market for health care REITs to grow over the next decade,” according to Bernstein.
Meanwhile, Walraven highlighted some of the difficulties of working outside of Europe and Canada. He noted that in order for healthcare REITs to enter the Chinese market they need strong local relationships that can ensure access to the central government. In India, meanwhile, the difficulty of working with the government has stymied REITs’ interest in that country, despite its significant need for healthcare facilities.