Acquisition activity is increasing in the senior-living industry, especially among facilities with more private payers, as exemplified by a major deal and broader industry financials announced last week.
Ventas, a Louisville-based real estate investment trust, or REIT, with 287 healthcare properties at the end of 2004, announced that it has agreed to purchase Princeton, N.J.-based Provident Senior Living Trust, another REIT that owns 68 independent and assisted-living facilities, for $1.2 billion. Provident shareholders and regulators must approve the deal, but Ventas said it expects it to close in the second quarter of 2005.
Also last week, the National Investment Center for the Seniors Housing and Care Industries, a group that studies market trends, released a year-end report that showed loans for senior housing facilities increased sharply in the fourth quarter of 2004. The loan volume for senior-living facilities jumped 46% to $1.143 billion during the fourth quarter of 2004, from $783 million in the third quarter and up 50% when compared to $763 million in the fourth quarter of 2003.
The bulk of the increase was in three-to-five-year loans, which are typically used for acquisitions as opposed to construction or other projects, said Jim Pieczynski, managing director of the healthcare real estate group for CapitalSource, a commercial financing company.
"The market is right for acquisitions" of assisted-living and independent-living facilities, Pieczynski said. "The Ventas deal dovetails right into that," he later added.
Pieczynski said that buyers are seeing a strong return on investment and that more lenders are available because there is no longer an oversupply of facilities. The NIC numbers show occupancy rates for nursing homes, continuing-care retirement communities and assisted and independent living facilities are at around 90%.
As of Dec. 31, 2004, Ventas owned 201 skilled-nursing facilities, which traditionally rely mostly on Medicaid funds, and 30 senior housing facilities, which are mostly funded by private payers. The senior housing facilities made up $22.4 million, or 9.4% of the company's total revenue, according to Securities and Exchange Commission filings.
In 1998, Ventas was spun off from the nursing home chain Vencor, which changed its name to Kindred Healthcare. Kindred is still Ventas' primary tenant and helped the company earn $121 million in 2004 on total revenue of $236.86 million.
Ventas said acquiring the facilities would be cheaper than building new ones, but the average price Ventas has offered to pay per facility, $176,000, is higher than in most deals for assisted-living facilities, said Timothy Baker, senior vice president of valuation firm Wellspring Valuation, Chicago. He added that the purchase could spur more deals. "Others may be thinking, `If (Provident) can do it, so can we.' "