Health Care REIT on Acquisition Spree

NEWPORT BEACH, Calif. — Griffin-American Health Care REIT II, formerly known as Grubb & Ellis Healthcare REIT II, acquired 10 skilled nursing facilities and one medical office building for approximately $174.3 million in January. The properties are located in Alabama, Georgia, Louisiana, Tennessee and Texas.

Griffin-American purchased the skilled nursing facilities from affiliates of Wellington Healthcare Services LP. The properties total approximately 454,000 square feet and add 1,364 beds to the REIT’s skilled nursing facility portfolio. They range in size from 20,000 to 77,000 square feet and are master leased through 2027 by affiliates of Wellington Healthcare Services LP, a leading provider of skilled nursing and rehabilitation services.

Sierra Providence East Medical Plaza I is a 60,000-square-foot, three-story, multi-tenant medical office building built in 2008 on the 42-acre campus of Sierra Providence East Medical Center in El Paso, Texas. The 110-bed medical center is a member of the Sierra Providence Health Network and a subsidiary of Dallas-based Tenet Healthcare, one of the largest investor-owned hospital companies in the United States. Tenet is also the single largest tenant in the building, which is 90 percent leased to thirteen tenants.

Griffin-American Healthcare REIT II acquires clinical health care real estate in which patients are seen and treated.

“We don’t look to buy office buildings that are occupied by medical companies or health care-related companies. We look to buy hospitals, medical office buildings, skilled nursing facilities and assisted living facilities,” said Damon Elder, the SVP of marketing and communications for AmericanHealthcare Investors, the REIT’s advisor. “Places where patients are actually seen.”

The income REIT acquires properties that provide current income and have high tenancy from good tenants, rather than underutilized facilities that need to be managed up to higher value. It pays a 6.6 percent investor distribution on an annual basis and looks for properties that produce income above and beyond that supporting level.

The REIT purchases facilities throughout the country, although its portfolio is currently concentrated in southern and southeastern states.

“The good thing, from our perspective, is that there is really no significant market where demand for healthcare is dropping. Because of the demographics of the country and the aging of America, we see healthcare demand growing everywhere. So we will acquire anywhere, so long as it meets our criteria to pay steady income supportive of our distribution, etcetera,” Elder said.

This recent asset purchase is a microcosm of a preferred purchase for the REIT, which likes to buy large portfolios. It will acquire a standalone building priced from $15 million to $50 million, or it will acquire a 10-asset portfolio for $100 million to $250 million.

“It all depends on how it impacts the overall portfolio, how it impacts our payor mix, where we are deriving our revenue, and if it makes fiscal sense from a long-term perspective of our investors,” said Elder. “We look at everything, small to big. If it makes sense, we will go ahead.”

Griffin-American Healthcare can raise up to $3 billion in this REIT, but expects to raise about $1 billion to $1.5 billion and invest that in a portfolio valued in the $1.5 billion to $2 billion range. It is on pace to do that; the portfolio is currently valued, based on purchase price, at slightly more than $600 million and it is about to close on a few medical office buildings that will take it up to about $650 million. Beyond that, its pipeline is very full, says Elder.

“If you know what you are doing, right now is a great time to be health care real estate with the aging of America and the demographic wave,” he said. “We are very aggressive and we are very pleased with what is available out there for a REIT of our nature.”

Nursing Facilities Acquired:
• Bell Minor Facility: 2200 Old Hamilton Place NE, Gainesville, Ga. A single-story, 104-bed property totaling 39,000 square feet.
• Buckhead Facility: 2920 Pharr Court South, Atlanta. A five-story, 220-bed property totaling 77,000 square feet.
• Millington Facility: 5081 Easley St., Millington, Tenn. A single-story, 85-bed property totaling 33,000 square feet.
• New London Facility: 2020 McGee Road, Snellville, Ga. A single-story, 144-bed property totaling 45,000 square feet.
• Parkway Facility: 200 South Parkway West, Memphis, Tenn. A single-story, 120-bed property totaling 38,000 square feet.
• Riverside Facility: 5100 West St., Covington, Ga. A single-story, 158-bed property totaling 42,000 square feet.
• Rockdale Facility: 1510 Renaissance Drive, Conyers, Ga. A single-story, 102-bed property totaling 48,000 square feet.
• Sea Breeze Facility: 550 Congress St., Mobile, Ala. A three-story, 120-bed property totaling 46,000 square feet.
• Shreveport Facility: 1736 Irving Place, Shreveport, La. A four-story, 227-bed property totaling 66,000 square feet.
• Westminster Facility: 560 St. Charles Ave. NE, Atlanta. A two-story, 84-bed property totaling 20,000 square feet.