After a “quiet” year in 2020, Summit Healthcare REIT is looking to make more transaction noise going into 2022.
The Lake Forest, Calif.-based real estate investment trust (REIT) in July acquired three skilled nursing facilities in California for $20 million, and considers itself to be “back in acquisition mode,” Elizabeth Pagliarini, COO and CFO of Summit, told Skilled Nursing News.
For Summit, transactions will stem from stabilized, cash-flowing properties rather than distressed deals.
Its goal is to have a “couple billion dollars” of assets under management, Pagliarini said.
Since 2014, Summit grew from having 10 facilities with $100 million in assets to 53 facilities and $500 million in managed assets.
Summit was originally established as an industrial REIT called Cornerstone Core Properties in 2005, before repositioning itself to focus more on senior housing and changing its name to Summit Healthcare REIT in 2013.
An eye for SNFs
Summit is actively looking at other acquisitions, while taking a look at how its existing portfolio has fared the past year-and-a-half. The REIT is “solely focused” on purchasing skilled facilities when it comes to possible M&A, Pagliarini said.
“We were just focused on helping our operators in any way that we possibly could, there was a lot of devastation. Some of our portfolios were hit much worse than others,” noted Pagliarini of 2020. “It was geographic, we have some buildings in Connecticut that just were ravaged.”
While declining to name this specific SNF operator, Pagliarini did say Summit deferred rent for one of its portfolios in 2020. That operator was able to catch up with rent quicker than anticipated, paying in December.
Summit’s skilled assets have fared much better than its assisted living buildings; the REIT owns 70% in skilled and 30% in memory care, assisted and independent living across 13 states.
Assisted living facilities Pennington Gardens in Chandler, Ariz. and Sundial Assisted Living in Redding, Calif. have not been able to pay full rent for the past few months, she said.
“It was a factor of the high Medicare and Medicaid reimbursements and the stimulus program that were put in place for those particular facilities,” said Pagliarini, of Summit’s SNF properties. “The private pay [assisted living] facilities suffered, there’s no doubt about it. They had a lot of deaths, and a lot of people put off moving into them.”
Summit isn’t looking at assisted living acquisitions right now, nor were they prior to the pandemic: “Assisted just got too expensive for us, the returns weren’t there and the capitalization rates, in our opinion, got crazy.”
New competition, possible partners
Summit isn’t opposed to working with new players to the game while acquiring skilled properties, Pagliarini said, citing institutional money and private equity, as well as international investors.
“We’re seeing a lot more of that in our space than we used to. I mean, even just from 2014 to now, I think there’s been a lot of that [player] demographic shift in our country,” explained agliarini.
Summit currently has two Chinese joint venture partners — insurance company Union Life and Fantasia Holdings Group Co. in Hong Kong.
“We did deals with them back in 2015, 2016 and 2017. The Chinese government put the skids on international investment, especially in real estate, so that money did dry up a little,” said Pagliarini.
Less “stroke-of-the-pen” risk associated with skilled nursing facilities, coupled with the release of Provider Relief Funds, makes skilled investment less risky to players that would normally associate themselves with independent and assisted living facilities, which have a lot of private pay.
“That’s what I’m hearing when I’m talking to some of these private equity people. It’s really changed their opinion on the investment, that maybe having these government-reimbursed plays isn’t such a bad thing,” said Pagliarini.