With Health Care REITs So Successful, Aviv Is Ready
We all know how health care REITs came to dominate the seniors housing and care acquisition market, at least for the large transactions. Their cost of capital is low, they seem to be able to sell a nearly unlimited number of common shares in their stock offerings, always going to market with one number, increasing the number of shares at least once and then allowing the underwriters to exercise their over-allotment option (another 15%) after the initial tranches have been sold. In short, it is a wonderful time to be a REIT, especially a publicly traded one.
That is just one reason why Chicago-based Aviv REIT, Inc. is making a stab at the IPO market one more time. The last time, back in late 2009 when the company tried to sell 16.6 million shares between $17 and $19 per share, the deal was pulled after resistance from investors, who were also looking at another IPO attempt by a rival REIT. That didn’t get done either. And Aviv’s first attempt was in late 2008 when the market was in a free-fall. Timing is everything, and while there are no guarantees, the timing this time around could hardly be better. Every health care REIT stock rose in value in 2012, with almost all of them posting double-digit returns when dividend payments are included, and some with very sizable returns. And when looking at the 2012 total return performance in the table on page 21, it is apparent that the larger returns were associated more with the smaller REITs. Why? Because it is much easier to show investors growth when coming off a smaller base, and that growth can be used for more acquisitions and increased dividend payouts.
Now before the “Big Three” get their knickers in a knot by that statement, we acknowledge that they have grown incredibly over the last few years, with billions of dollars of acquisitions that can’t be matched by the smaller publicly traded REITs or their private brothers. Their market caps have grown as well, as they continue to issue millions of new shares. But their stock performance certainly lagged in 2012, and that may have something to do with their size and the dilution that comes with offering so many new shares before the large acquisitions have time to mature to the bottom line. We are not worried about the Big Three, and their shareholders have done very well over the years. It’s just that there is a whole world of opportunity for the smaller REITs right now, and many of them are taking advantage of it………Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today