The SeniorCare Investor

Senior Care Deals Lead M&A Market (Again)
The third quarter results are in, and the senior care sector leads all health care services segments in terms of number of announced transactions. The fourth quarter is off to a strong start as well. See
page 1

Skilled Nursing Market
It has been an active month for skilled nursing facility sales, with seven to report on, including two multi-facility sales. See page 2

Retirement Housing Market
The largest deal of the month involves the sale of the Parkside Senior Services portfolio to a Texas real estate venture for $144.3 million. See page 4

Assisted Living Market
Sunrise will take over management of 22 EdenCare facilities, but the buyer of the real estate has not been disclosed. A few small sales were announced as well. See page 5

REIT News
Health Care REIT ends the third quarter with two large transactions with Emeritus and Southern Assisted Living. See page 8

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The health care merger and acquisition market has been unusually steady during the first three quarters of 2003. The total number of announced transactions has ranged between 225 and 230 in each of the past three quarters, and the total dollar amount of deals with disclosed prices was almost identical in the second and third quarters, at just over $19 billion each. Based on results and prices revealed in the first three quarters, there have been 684 total transactions worth a combined $49.15 billion in the health care market. With two large managed care acquisitions announced at the end of October, however, that dollar amount will increase by more than 40% by the end of the year.

The most significant change in the third quarter came in the hospital market, which finally broke out of the doldrums with 19 announced transactions, compared with four in each of the first two quarters of this year. The hospital sector has always been considered a market barometer for other sectors of health care services, so this up-tick in activity should bode well for areas such as long-term care.

For the fourth quarter in a row, the long-term care sector has led the health services sector in terms of number of transactions. In the third quarter, with 25 announced deals, long-term care was just ahead of the hospital market, as can be seen in the chart on page 1. In the second quarter, long-term care had more than three times the level of deals as the next most active services segment. In addition, while all the other health care services sectors are gyrating wildly in M&A activity, the number of long-term care transactions has been extremely consistent at approximately 25 per quarter. Given the activity in October alone, the fourth quarter promises to be at least in line with the previous quarters, and may well be the most active quarter since the end of 1998.

So what does this tell us about the current market? Quite simply, there are buyers in the market for assets of differing levels of quality, and capital is available to get deals done. Although it may be a little unnerving for some to see "real estate" investors coming back into the market, who may or may not understand, and respect, the service aspect of the senior care business, the diversity of buyers and sources of capital is a healthy sign that the corner has indeed been turned. And right now, there is a stronger than usual emphasis on operations, census, quality and financial controls, rather than simply growth for growth’s sake, and this will contribute to the much needed stability that investors and lenders are looking for in a sector that has lived through a difficult past several years.

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