Seniors Housing Business

FEB-MAR 2017

Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.

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www.seniorshousingbusiness.com 39 February/March 2017 n Seniors Housing Business Let Our Team Work For You Senior Living Investment Brokerage, Inc.: The leader in Seniors Housing Brokerage WHAT WE OFFER: • Represent over 30% of announced transactions • Built a team with over 235 yrs. of brokerage experience • Sold over $4,000,000,000 • Assembled largest team of dedicated Sr. Housing brokers • Represent Sellers confidentially • Achieve an average 96% of list price • Preserve wealth for our clients • Manage transactions from start to finish Ryan M. Saul / Managing Director Don't sell direct when you can leverage the experience of our team of dedicated brokers to generate the controlled competition that will maximize your investment objectives. Allow us to put together a confidential proposal to determine your market value. We'll show you how our services will create value and navigate through challenging market conditions. Contact Ryan today at 630-858-2501 ryansaul@slibinc.com www.slibinc.com / www.ryanmsaul.com science centers operated by Wex- ford Science Technology for $300 million. HCP (NYSE: HCP) spun off its skilled nursing ManorCare port- folio, and is developing a life sci- ence campus in the San Francisco area. The REIT also announced in November that it would sell a portfolio of 64 Brookdale-leased properties for approximately $1.1 billion to affiliates of Blackstone Real Estate Partners VIII LP, and to Columbia Pacific Advisors. Last November, Welltower (NYSE: HCN) announced that it had increased its 2016 disposition target from $1.3 billion to $4.1 bil- lion, though the company only reached $2.8 billion by the end of the year. Of that amount, about $1.2 billion consisted of seniors housing triple-net leased proper- ties. Welltower's target for 2017 is $2 billion in dispositions, accord- ing to its February earnings call. At Senior Housing Properties Trust (NASDAQ: SNH), holdings are split about 50/50 between seniors housing and medical office buildings. For 2017, Hegarty expects to invest more in medical office properties than in seniors housing projects. He specifically cites the higher cost of capital and a flood of new seniors housing projects for the pullback. Over the last year, interest rates have increased 25 to 50 basis points for debt financing — both acquisitions and refinancings — sources say. Another factor is the large amount of capital pouring into the sector from private equity groups, which helps to keep prop- erty prices at high levels and drive down returns. "We are not going to compete against that kind of money," says Hegarty. "It seems like every month another fund is announced and they have to find deals." Last October, the large pri- vate equity investor ROC Seniors Housing Fund Manager launched its second fund with plans to acquire more than $2 billion in medical office properties and seniors housing. Expect smaller deals Despite the headwinds, the REITs are still buying proper- ties and financing the develop- ment of new ones. While invest- ment returns in seniors housing are slowing, the sector still out- performs other real estate asset classes, according to the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index. The annual return through the third quarter of 2016 was 13.11 percent. The REITs are primarily focused on niche locations and partnering with operators with a proven track record of success. Welltower and its develop- ment partner Hines plan to build a 15-story assisted living building in Midtown Manhattan. Execu- tives from the companies have said in press reports that they aim to fill a supply gap in the densely populated urban area amid strong demand. The project is expected to open in late 2019 and will be oper- ated by Sunrise Senior Living. "Equity is chasing the good operators," says Brian Robinson, senior vice president in the health- care division at Chicago-based MB Financial Bank. The REITs can still expect decent returns as long as they choose the right operators in the right locations, he explains. Small portfolios and one-off transactions are likely to domi- Five-Year Annual Total Returns of Big Three Healthcare REITs* 100 80 60 40 20 0 -20 -40 Five-Year Annual Total Returns (%) Ventas (52.10%) Welltower (49.01%) HCP (5.69%) The combined equity market cap of the Big Three healthcare REITs — Ventas, Welltower and HCP — was $60.2 billion at the end of 2016, which accounted for 61 percent of the total equity market cap in the sector, according to the National Association of Real Estate Investment Trusts. That's why the performance of these three publicly traded companies is so closely watched. This chart shows that the five-year annual total return registered by HCP pales in comparison to the large double-digit returns posted by Ventas and Welltower during the same period. * Source: S&P; Global Market Intelligence

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