The Dealmakers Forum: Senior Care REIT News

 Health care REITs did not turn in a stellar year in 2011, but the overall markets did not fare that well either.  The REITs did perform better than their tenants, which could be expected in a low interest rate environment and the relative security of their rental income in these choppy markets.  Of the REITs we cover, four turned in negative price returns although with dividends one of them, National Health Investors (NYSE: NHI), was pushed into positive total return territory.  NHI was ranked at the top in 2010 with a total return of 28.1% in a year that all the health care REITs posted total positive returns, so it is difficult to repeat that. 

While the clear winner in 2011 was Care Investment Trust (PK: CVTR) with a total return of 43.4%, there should be an asterisk by that since its market capitalization is well below $100 million with many days of zero trading volume, so one or two trades can have an outsized impact on its price.  So when moving on to the larger cap REITs, Health Care REIT (NYSE: HCN) took top honors in 2011 with a total return of 20.4%, closely followed by HCP, Inc. (NYSE: HCP, 17.8%),  LTC Properties (NYSE: LTC, 15.9%) and Universal Health Realty (NYSE: UHT, 13.4%).  At the bottom of the heap was Sabra Health Care REIT (NASDAQ: SBRA), the newcomer and the one REIT with heavy exposure to one tenant, although that exposure is decreasing as a percentage of total assets.

The big REIT news at the end of the year did not involve seniors housing.  Ventas (NYSE: VTR) announced in late December an agreement to buy most of the assets of Cogdell Spencer (NYSE: CSA), a medical office building REIT, for $4.25 per share in a deal with a total value close to $760 million when the debt and preferred stock are included.  CSA has not performed very well in recent years, but its MOBs seem to have a relatively high occupancy rate.  Ray Braun, former president of Health Care REIT, took over as CEO of CSA 15 months ago, but for a variety of reasons CSA’s stock price has declined by about 30% since then, even after taking into account the measly 8% premium shareholders will be receiving.  Diversification has been the name of the game for health care REITs, so we assume this will work well for Ventas, but we really can’t opine on the MOBs.

In other news, CNL Properties Trust announced an agreement to acquire five senior living communities from affiliates of Primrose Retirement Communities for approximately $84 million, or $213,200 per unit.  Two of the communities are located in Ohio and one each in Wyoming, Nebraska and Montana with a total of 394 units, and they will be leased back to Primrose. 

Rumors were swirling around in December about the potential sale of Caisse de depot’s nearly $1.0 billion “Maestro” seniors housing portfolio in Canada...Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today