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Our Investment Thesis

The Healthcare Realty Opportunity

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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

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MARKET

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DEMOGRAPHICS

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Competition

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Fragmented Industry

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Yield Dynamics

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Execution is Key

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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.

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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

Increasing Pet Lifespans Driving Higher Need for Care:

• Advanced treatments and usage of preventative care has lengthened pet life expectancy
• Aging pet population requires more costly and frequent care, driving overall growth in veterinary services
• Geriatric pets typically demand more sophisticated procedures and specialty services, such as surgery and diagnostics
• As pets age, yearly maintenance and ownership costs escalate due to increased visit frequency
and the need for special diets and medication
• Senior cats and dogs cost an average of 25% and 50% more, respectively, on an annual basis

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.

Highly fragmented universe of veterinary hospitals presents consolidation opportunity for operators of scale

• 90%+ of the 28,000 veterinary hospitals in the U.S. are independently owned
• Veterinary services is in the early stages of consolidation
• Consolidator ownership is expected to nearly double by 2025P
• Consolidation trends are accelerating
1) aging of veterinarians
2) growing preference among graduating veterinarians to work for a veterinary services platform
3) declining interest in new grads to start their own practice or acquire an existing hospital

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