The residential real estate market may have slowed to a crawl, but the property market for healthcare services is still chugging along. Healthcare real estate investment trusts, or REITs, are strongly outperforming their peers that focus on other commercial real estate sectors, according to an analysis by Green Street Advisors, Newport Beach, Calif.
Last week, Medical Properties Trust, or MPT, Birmingham, Ala., said it has agreed to two separate deals worth a total of $92.6 million and covering five hospitals operated by Prime Healthcare Services, Victorville, Calif., and HealthSouth Corp., Birmingham. Meanwhile, Health Care REIT, Toledo, Ohio, said it invested $107.1 million in general and long-term acute-care hospitals and other specialty facilities during the second quarter ended June 30.
And, in a development toward a more traditional deal, Bannock County, Idaho, said it has narrowed the list of potential partners for its Portneuf Medical Center, Pocatello, Idaho, to two for-profit companies: LifePoint Hospitals, Brentwood, Tenn., and Legacy Hospital Partners, Plano, Texas. The county is seeking a capital partner to finance a replacement for Portneufs current two campuses, which came together in a 2002 merger.
Healthcare REITs have provided a 39% return to shareholders since Aug. 1, 2007, compared with just 2% during that time for other REITs, said Rosemary Pugh, a senior associate with Green Street. The slowing economy has a huge impact on other commercial real estate sectors, Pugh said. The demand for healthcare is driven by whether people are getting older and sicker, not by the economy, she said.
Some broader changes are at work, too, Pugh said. Investors are interested in healthcare REITs as a defensive investment during tough times. Healthcare properties are considered more stable, she said. Moreover, healthcare REITs have become more dynamic, moving into development and joint venture strategies, Pugh said. Theyre not just buying and holding. Theyre improving their growth prospects, she said. Financing development is becoming a much more important part of their business.
MPT agreed to provide $60 million in financing to Prime related to its purchase last month of three Southern California hospitals from Tenet Healthcare Corp., Dallas, in two deals. MPT said it expects to convert the financing arrangement into a sale-leaseback agreement within 30 days for an initial term of 10 years. MPT also has acquired two rehabilitation hospitals leased to HealthSouth by another REIT, HCP in Long Beach, Calif. The hospitals are located in Virginia and West Virginia.
In Idaho, voter approval will be required for Bannock County to implement its plan of converting Portneuf to a tax-exempt organization and then having that organization partner with LifePoint or Legacy. Two meetings are scheduled for this week, during which the finalists will answer questions from residents. The county said it expects to choose one of the finalists by the end of August and place a referendum on the November ballot to seek approval for the plan.