Consolidation Sparks Net Lease Opportunities in Veterinary Real Estate

Healthcare is a hot area in net lease, whether hospitals, clinics, or provider offices. Oh, sorry, not human healthcare. Veterinary care for cats, dogs, birds, pot-bellied pigs, chickens, or what have you.The American Veterinary Medicine Association and software and data vendor Vetsource track 5,552 practices with average annual revenues of $2.2 million. Grandview Research estimated the 2022 market size at $11.92 billion, with an expected compound annual growth rate of 8.7% from 2023 to 2030.The numbers are large enough to catch the attention of big players. Private equity firms Silver Lake and Shore Capital Partners reportedly plan to create a U.S. veterinarian care group valued at $8.6 billion, according to the Financial Times.This might depend on “what Shore and Silverlake have planned for any fee-owned sites,” Chris Lomuto, associate vice president in Northmarq’s San Francisco region, told GlobeSt.com. “But over the last 40 years we’ve certainly helped a lot of clients with sale-leaseback, and if you needed a leading indicator for that kind of activity, I would say industry consolidation is a pretty good one. We saw that clearly with QSR, Convenience and Gas, and Car Wash, among several others. Those three industries alone kept us pretty busy for the better part of a decade.”Whether the companies plan on using a sale-leaseback model is yet to be seen. According to the FT, Silver Lake and Shore Capital will add a new equity investment of $4 billion. The new company has raised $3 billion in debt. Reportedly, the combined venture will seek to add additional vet clinics and hospitals.Early news of this started in the first week of August. VIN News Service reported that Mission Veterinary Partners and Southern Veterinary Partners planned a merger that would become one of the largest veterinary practice groups in the U.S. A Change.org petition seeks to block the move. Southern Veterinary’s website claims 420 locations across 26 states with more than 10,000 personnel. Mission Veterinary says it has more than 330 locations (grown from 22 in 2017) across 35 states with more than 7,800 personnel.VIN News said that the largest in the field is candy company, Mars, which owns more than 2,000 practices under three brands: Banfield, VCA, and BluePearl. National Veterinary Associates said it has more than 1,400 locations. Vetcor claims 800 and Thrive, 380. That would apparently make this new organization the fourth largest.Other competitors include IVC Evidensia, owned by Sweden-based EQT, and PetVet, a KKR property.Data from Northmarq says that about 50 NNN vet clinics per year have sold industry-wide over the last five years. The average is about 5,000 square feet in size with a $25 price per square foot. About half the leases were 10-year with options, a quarter were 15-year, and another quarter were 20-year. About 17 of the total deals were between Mission Vet and Southern Vet, each fitting well into the averages.GlobeSt.com reported in July about Terravet Real Estate, which doesn’t own practices but is a REIT, established in 2012, that has been acquiring and rolling up physical net-lease locations. Often the practices don’t own the properties they work from. Terravet chief executive and founder Daniel Eisenstadt told GlobeSt.com at the time that Mars, while the largest player in the U.S., is his company’s largest tenant. He estimated that there were about 50 other corporate veterinary groups, primarily owned by private equity. Terravet frequently uses section 721 UPREIT exchanges, so those who own the real property can contribute it to the REIT for an equity stake.