Fresenius and DaVita are the top two dialysis providers in the nation. Demand for these centers has increased dramatically in recent years due to the aging baby boomer population and rising obesity rates. This niche within the medical sector is expected to grow. Both are considered stable tenants because of the market demand, attractive cap rates, and credit rated companies.
DaVita and Fresenius are generally located in freestanding buildings with others being in strip centers. The lease structure of these dialysis centers often includes annual rent increases and option periods. Dialysis centers are located in close proximity to the hospitals and medical offices in an effort to bring the centers closer to their patients. Since kidney dialysis requires routine visits, there is a guaranteed income stream for these tenants.
Table 1 and Table 2 below include the average national cap rates for 2016 up to Q3. The medical sector cap rates were at 7.01%. DaVita's average cap rates were 6.88%, while Fresenius's was 7.65%. The data included sales comps with short-term leases that resulted in an increase in cap rates. According to Table 2, DaVita had an average cap rate of 5.53% that included sales comps with brand new 15-year leases. Fresenius showed an average cap rate of 6.15%, the data included comps with lease term between 10-15 years. The cap rates for this sector have continued to compress due to strong investor demand.
The one caveat about these dialysis centers are the retail locations are extremely customized. Should the medical tenant leave, it may result in an expensive re-lease. However, both DaVita and Fresenius are credit rated companies. Both tenants are rated with a “stable” outlook. DaVita holds an S&P credit rating of “BB” and a rating of “Ba3” by Moody's. Fresenius Medical Care's S&P corporate credit rating went from “BB +” to “BBB –“ and Moody's continued to rate Fresenius “Ba1.” DaVita operates 2,293 outpatient dialysis centers and Fresenius has 2,210 locations nationwide.
Investors are recognizing the stability that the dialysis centers provide. Considering the low supply and high demand for both DaVita and Fresenius, investors are willing to pay a premium for these high yield net lease opportunities.
Fresenius and DaVita are the top two dialysis providers in the nation. Demand for these centers has increased dramatically in recent years due to the aging baby boomer population and rising obesity rates. This niche within the medical sector is expected to grow. Both are considered stable tenants because of the market demand, attractive cap rates, and credit rated companies.
DaVita and Fresenius are generally located in freestanding buildings with others being in strip centers. The lease structure of these dialysis centers often includes annual rent increases and option periods. Dialysis centers are located in close proximity to the hospitals and medical offices in an effort to bring the centers closer to their patients. Since kidney dialysis requires routine visits, there is a guaranteed income stream for these tenants.
Table 1 and Table 2 below include the average national cap rates for 2016 up to Q3. The medical sector cap rates were at 7.01%. DaVita's average cap rates were 6.88%, while Fresenius's was 7.65%. The data included sales comps with short-term leases that resulted in an increase in cap rates. According to Table 2, DaVita had an average cap rate of 5.53% that included sales comps with brand new 15-year leases. Fresenius showed an average cap rate of 6.15%, the data included comps with lease term between 10-15 years. The cap rates for this sector have continued to compress due to strong investor demand.
The one caveat about these dialysis centers are the retail locations are extremely customized. Should the medical tenant leave, it may result in an expensive re-lease. However, both DaVita and Fresenius are credit rated companies. Both tenants are rated with a “stable” outlook. DaVita holds an S&P credit rating of “BB” and a rating of “Ba3” by Moody's. Fresenius Medical Care's S&P corporate credit rating went from “BB +” to “BBB –“ and Moody's continued to rate Fresenius “Ba1.” DaVita operates 2,293 outpatient dialysis centers and Fresenius has 2,210 locations nationwide.
Investors are recognizing the stability that the dialysis centers provide. Considering the low supply and high demand for both DaVita and Fresenius, investors are willing to pay a premium for these high yield net lease opportunities.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
