IRVINE, CA-As Baby Boomers enter the senior category in droves, the need and opportunity for healthcare-related business continues to grow. In fact, the consolidation of smaller practices into larger ones and the tremendous growth of Griffin-American Healthcare REIT II in December 2013 and throughout last year are testament to the fact that healthcare real estate consolidation has yet to reach its peak.
“Healthcare can continue its consolidation path literally for decades,” Jeff Hanson, chairman and CEO of Griffin-American Healthcare REIT II, tells GlobeSt.com. The REIT completed acquisitions during December 2013 totaling approximately $541.3 million and completed approximately $1.5 billion in acquisitions during the year, now owning a diverse portfolio of healthcare real estate valued at approximately $2.8 billion, based on aggregate purchase price, located throughout the US and the UK.
With the demographic tsunami of Baby Boomers reaching 65 just beginning, Hanson sees this translating directly to healthcare real estate. “Healthcare today is only 8% to 9% institutionally owned. All other major product types—office, industrial, retail, multifamily—are at least 25% institutionally owned. There are at least a couple of decades of additional robust consolidation in the healthcare sector by major institutional owners.”
The trend is certainly playing out for this particular healthcare REIT. Hanson says the firm launched the REIT in 2009 “with the strategic goal of building a diverse, institutional-quality portfolio of clinical healthcare real estate assets. Today, less than four years since we acquired our first property, we own a significant and well-diversified portfolio that is positioned for additional growth in 2014 and beyond.”
Hanson tells GlobeSt.com that the REIT has experienced radical growth while maintaining the lowest leverage in the industry. “In terms of total debt financing, we’re very pleased with the growth. We’re currently deploying the remaining equity that we raised prior to the termination of our offering with the expectation to get to $3.5 billion in assets.”
What makes the REIT so successful? Hanson says when considering portfolios for acquisition, the firm looks at the average age of the buildings in each of the four clinical classes in which it buys (skilled nursing, assisted living, medical-office buildings and hospitals). With MOBs, it also considers what percentage of the portfolio is on or off campus and how strongly it is affiliated with a regional hospital. With skilled nursing, assisted living and hospitals, it also considers cash flow to rent coverage, which can be a good indication of the credit quality of the underlying tenants.
In addition, Hanson says Griffin-American Healthcare REIT II makes strategic acquisitions of one or two portfolios at a time rather than purchasing competitors and operating companies for multiple billions like many publicly traded REITs do. “We roll up our sleeves, and it’s a lot harder. It takes more time. But when it’s done well, you’re targeting and acquiring specific assets and sub-portfolios of real estate that will be accretive to the most important performance metrics. The end result is clear in the results that our portfolios currently posting.”
As GlobeSt.com reported in November 2013, the REIT expanded its portfolio to $2.23 billion and acquired $672 million of new assets during third-quarter 2013. As a result, the REIT became one of the largest and best-diversified healthcare REITs in the country, according to Hanson.