My Two Cents on Two Health Care Mergers
I noted two health care mergers yesterday. It appears that both deals were driven by senior housing, which includes skilled nursing facilities. There are a couple of forces behind the focus on these types of health care properites. Many senior housing and skilled nursing facilities qualify for government agency debt, which means the leverage can be higher (70% to 80% debt) and the interest rate lower than traditional financing. Medical office buildings do not qualify for the agency debt and have debt options that require more equity, leaving leverage ratios typically between 45% to 55%. It appears that health care companies are giving premiums to property types that can utilize attractive financing.
The focus on senior housing is also a bullish sign for the economy. Much of senior housing is elective. When seniors and families decide it's better for an elder person to live in an assisted living facility, compared to moving in with families or staying alone, it's an expensive decision and long-term financial commitment. (Obviously, skilled nursing and memory care facilities are less optional.) Financing aside, the demand by buyers of senior housing tells me these buyers believe that demand for senior housing will increase.