Healthcare Realty Investments
FOCUSED Healthcare ReaLTY Investment Platform
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SCP & CO is leveraging its platform, SCP & CO Healthcare Realty (“SHR”), to take advantage of near-term market dynamics and favorable long-term secular trends in the skilled nursing and senior housing industry to build a successful portfolio of healthcare real estate assets. Our current portfolio contains over $50 million in assets across multiple classes of healthcare realty, including skilled nursing and assisted living facilities. We are actively seeking to make acquisitions from $5mm to $200mm in size to supplement the existing portfolio.  Please reach out to us with any potential business combinations.

Investment Thesis

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SHR is looking to capitalize on current market conditions and a variety of long-term factors, including historical high yield performance compared to other real estate asset classes, stifled compensation, advantageous demographics, positive impact of emerging trends in a still highly fragmented industry.

TIMING

MARKET

DEMOGRAPHICS

GEOGRAPHY

PROPERTY TYPE

DIVERSITY
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Competition

Fragmented Industry

Yield Dynamics

SPONSOR RESULTS
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areas of interest
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We are interested in exploring properties in the following asset classes.

Skilled Nursing

SKILLED NURSING

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Senior Housing

SENIOR HOUSING

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Medical Clinics

Medical Clinics

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Veterinary Hospitals

Veterinary Hospitals

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WHY WORK WITH SCP & CO?
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Since its inception in 2002, SCP& CO has completed eighty transactions totaling $1.8+ billion of aggregate transaction volume.  Over half of the firm’s transactions have been platform acquisitions, financings, or add-on’s for SCP& CO’s Principals’ buyout control investment vehicles.

ARE YOU LOOKING TO SELL, BUY OR MAYBE DISCUSS YOUR OPTIONS?

COVID – 19 Creates Discounted Buying Opportunity

1) Near-term trends driven by COVID-19 impact will result in a challenging 2021 for most operators, which will create value-add buying opportunities for properties

2) COVID-19 buying opportunity is created by census decline, expense increases and staffing challenges

3) Early signs of recovery as census appears to be bottoming

We support evolving models that can enhance cash flows above traditional REIT models with the expectation of more consistent rental streams while lowering risk

1) Shift in Operations

a) Clinical complexity continues to increase
b) PDPM creates incentives for quality outcomes versus old model focus on delivery of therapy
c) Reduces importance of urban location with meaningful therapy.  Levels playing field to acuity and outcome driven performance
d) Shorter length of stays counterbalanced by higher reimbursement in first 20 days of stay

2) New Clinical Model (One Medical, Oak Street and Others)

3) Physical Plant Evolution – Utilization of Vacant Space

4) Addressing affordability in Senior Housing
a) Hotel conversions
b) Re-thinking building design in post-COVID environment

After declining census resulting from low birth rates of the Silent Generation, the favorable shift in demographics in the United States should provide long-term growth in census for the industry and drive SNF occupancy beyond capacity in the next decade

1) The Baby Boomer population is approximately 72 million and began turning 75 in 2016, marking the start of a seismic demographic shift that SHR believes will place upward pressure on SNF utilization and demand

2) Supply of facilities and beds to meet increasing future demand is limited due to Certificate of Need (CON) and bed moratorium restrictions. 86% of states have a moratorium on new beds or CON restrictions

3) The number of SNF beds currently under construction account for only 0.6% of existing inventory

4) Based on current market capacity and anticipated absorption rates, the skilled nursing industry should reach near 100% occupancy sometime between 2025 and 2030

The SHR pipeline was developed over the past year and includes a diversification across geographic areas around the United States. We have operating control of several Midwest properties, tenant relationships and long-standing banking relationships with Northeast properties, and near-term transaction opportunities into several portfolios in the South and Southeast.

Our portfolio will be extremely diversified in deal size.  We expect to transact on single properties as low as $5 million or less, mid-sized deals ranging from $10 million to $100 million, and in special cases, we will consider the purchase of large portfolios with dozens of properties where the transaction size could be over $500 million.

Our property distribution will span Skilled Nursing (SNF), Independent Living Facilities (ILF), Assisted Living Facilities (ALF), and Memory Care (MC) centers. The sponsor, SCP & CO, has a long history of investment in skilled nursing, and this portion of the portfolio is expected to make up the lion’s share of the portfolio, up to 85% of the total properties.

The largest buyers in the industry are currently on the sidelines due to current market conditions

1) As a result of “bad bets” on thinly capitalized tenant operators and the unexpected COVID-19 pandemic, current incumbent REITs are not competitive in the acquisition markets for the near term

2) Current share prices of publicly traded REITs are unfavorable for issuance of new equity, thus reducing growth appetite for the lowest cost of capital buyers in the market

3) Near term focus of publicly traded REITs has shifted to stabilization of existing portfolio and divestitures.

The SNF industry’s publicly traded players own just 11% of total supply, providing SHR with a sizable opportunity to capitalize on the inefficiencies that are inherent to the remaining 89% of the market

1) The SNF industry is a large and fragmented sector with over 15,000 facilities and over 1.6 million licensed beds1

2) Vast majority of Senior Housing and SNFs are owned by smaller, regionally-focused investors and individuals that are often less sophisticated in their property and portfolio management1

3) Many SNF properties are currently owned directly by the underlying operators, which often seek liquidity through sale/leaseback transactions with trusted landlord relationships

SNFs have historically provided a compelling yield advantage over comparable property sectors, which may provide an arbitrage opportunity for managers that are able to prudently manage the risks related to government reimbursements and navigate state-specific regulatory environments

Nursing care properties—also called skilled nursing properties, skilled nursing facilities, or SNFs—rely on government reimbursement—Medicaid and Medicare—for over two-thirds of their revenue, while other types of senior housing are predominately private pay. Nursing care properties house two types of residents/patients: one for long-stay custodial care and the other for short-stay postacute care. Medicaid is the largest single payor of patients’ long-term care while Medicare is the largest single payor for the care of short-stay post-acute patients.

Senior housing is housing that is suitable for the needs of an aging population. It ranges from independent living to 24-hour care. In senior housing there is an emphasis on safety, accessibility, adaptability, and longevity that many conventional housing options may lack.

Assisted living facilities (ALF) are a housing option for seniors who cannot live independently and need help with medications and activities of daily living, such as bathing, grooming, eating, dressing and going to the bathroom.

Independent living facilities (ILF) are for retirement-age persons who have the ability to live independently, but desire companionship and social opportunities with others of a similar age. Independent living offers specific services, amenities and programs that cater to senior adults and promote active, healthy lifestyles for their retirement years.

Memory care (MC) assisted living provides specialized services and engagement activities for loved ones living with Alzheimer's disease and other forms of dementia. Staff members are specifically trained in caring for those with memory impairment.

Primary senior care centers are growing rapidly as we shift from fee-for-service to value-based care

We estimate that the core addressable market for primary senior care centers is approximately 27 million Medicare
eligibles in the target demographic. We believe this market represents approximately $325 billion of annual healthcare spend. As of
2018, there were approximately 60 million Medicare beneficiaries in the United States, with an additional 10,000 individuals
reaching the age of eligibility every day.

While traditional healthcare facilities are often located in medical office buildings that are removed from where patients
spend a majority of their time, dominant players like Oak Street Health, One Medical, Cano Health, and CareMax target locations
in highly accessible, convenient locations close to where our patients live. The average center has a capacity of ~3,500 patients
but could increase through supplemental use of technology.

These companies provide wraparound care to older adults, we foresee more opportunities for senior living providers that are
seeking ways to bolster their health care offerings in light of Covid-19. We expect both partnership and roll-up strategies
with senior living organizations to expand rapidly

The veterinary services industry benefits from strong fundamentals, consistent growth, recession-resilient characteristics
and no reimbursement risk. The market reaches $36 billion with attractive secular fundamentals. In addition this industry has
demonstrated consistent historical and projected growth with recession-resilient tendencies driven by inelastic demand.

In veterinary care, diverse cash-pay customers results in no reimbursement risk and a short cash conversion cycle. For investors,
the fragmented industry creates compelling growth and consolidation opportunities for platforms of scale.