Diversification and Strong Balance Sheet Generate Interest in this Non-Traded REIT
On May 6, The Wall Street Journal reported California-based Griffin-American Healthcare REIT II Inc. is the target of four bidders, representing a deal that could value the non-traded REIT at approximately $3.66 billion. If accepted, one of the following four companies the Journal named could expand its portfolio with 279 health care buildings: Ventas Inc., Health Care REIT Inc., American Realty Capital Healthcare Trust Inc. and a division of NorthStar Realty Finance Corp.
As reported in Griffin-American’s 2013 Form 10-K, these 279 buildings are located across 30 U.S. states and the United Kingdom. As of Dec. 31, 2013, Griffin-American had completed 72 acquisitions to date, comprising approximately 10,565,000 square feet of gross leasable area, for an aggregate purchase price of nearly $2.79 billion.
The company’s U.K. senior housing portfolio, which was purchased Sept. 11, 2013, for $484.4 million including acquisition fees, added approximately 962,000 square feet and 2,550 beds and represented the company’s highest exposure to any one market as of May 13, at 14.8% of revenues. The company noted in a Sept. 12 news release that the majority of the portfolio is “concentrated in England’s affluent South East region,” with additional locations near Birmingham, Bristol, Oxford and the “affluent areas north of Edinburgh,” among other locations.
In the U.S., Griffin-American’s top exposure is in Indiana, with 33 medical office buildings comprising 1.2 million square feet of gross leasable area spread across 14 cities. The company reported 9.5% of its total annualized base rent from properties located in Indiana as of Dec. 31, 2013.
Texas was the REIT’s second-highest U.S. market by size, with just over 1 million square feet of space spread across 21 cities. By revenue, Texas came in third, generating 7.8% of the company’s annualized base rent as of Dec. 31, 2013.
Looking at Griffin-American’s balance sheet, it has just under $400 million in total debt, creating a 15.2% leverage ratio, measured as total debt to gross properties, as of Dec. 31, 2013. This is compared to the traded and non-traded U.S. health care REIT median leverage ratio of 44.7%.
Griffin-American’s interest coverage ratio of 5.6x, measured as recurring EBITDA to interest expense, also bests the traded and non-traded U.S. health care REIT median of 3.6x. Non-traded health care REITs CNL Healthcare Properties Inc., Summit Healthcare REIT Inc. and Sentio Healthcare Properties Inc. were each well below Griffin-American’s interest coverage ratio, at 0.3x and 0.5x and 2.2x, respectively, as of Dec. 31, 2013.
As of Dec. 31, 2013, Griffin-American had declared 51 cents in distributions over the last 12 months to common shareholders, well below the $1.15 SNL-covered traded and non-traded U.S. health care REIT median.
This article was written by James Mathieu of SNL Real Estate and reprinted with permission.
