Kayne Anderson, Remedy Seal $7.2B Health Care Deal

Bloomberg

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00:00As you may or may not know, 18% of GDP goes to health care.

00:03You've got 11,000 Americans every day turning 65, 5,000 Americans a day turning 80.

00:09Also, importantly, that's the baby boom generation, which is the wealthiest portion of the U.S. population.

00:14So just massive demand trends, really, for as far as the eye can see,

00:19which is what initially attracted us to the sector almost 20 years ago.

00:23And we've got decades of demand in front of us,

00:27this demographically driven demand that is not going to stop anytime soon.

00:32Yeah, I think Ed Yardeni estimated that the baby boomers have about $75 trillion in assets.

00:39And I've heard higher estimates than that as well.

00:41But the interesting thing to me is that this medical outpatient,

00:47these offices have become more and more prevalent.

00:50And doctors will steer you or hospitals will steer you away to these centers now increasingly.

00:56How big of a trend is that?

00:59It's a massive trend.

01:00In 2010, that's really when insurance companies changed reimbursement dynamics.

01:04So we had a hospital-centric system, which was massively expensive.

01:08And so insurance companies changed reimbursement rates to incentivize everybody within the healthcare ecosystem,

01:15doctors, patients, hospital systems, to use outpatient care.

01:18It's far more affordable.

01:19It is a better outcome for everybody involved.

01:24So in 2010, 90% of healthcare was delivered in or around a hospital.

01:29Today, it's 90% is delivered outside of a hospital.

01:32So you have a massive trend.

01:35In 2010, 7% of total practitioners were employees of a hospital healthcare system.

01:42Today, that's about 75%.

01:43Five years from now, it'll be 95%.

01:46So this train is going down the tracks.

01:48And really, what we've done is position ourselves in the middle of this massive shift in the healthcare ecosystem.

01:55So yes, we own real estate and we own and manage and have huge strategic advantages with the real estate itself.

02:00But what we've really done is position ourselves as a true partner to these hospital and healthcare systems,

02:08aiding, assisting, and abetting them in better healthcare delivery.

02:11And with this, JV, as I mentioned, you've become the largest owner of outpatient medical buildings.

02:17Maybe in the past, that would have perked up ears of regulators.

02:21How much of this deal being possible to do is because of the regulatory regime that we're in right now?

02:26I don't...

02:27This really doesn't fall under any regulatory dynamic because it's 44 states.

02:33We now control 53 million square feet.

02:35But there's nothing from a monopoly or oligopoly perspective that would impact this deal.

02:43I think it's important to note, you mentioned the 75 trillion.

02:47Matt, I've actually heard higher estimates.

02:49But it's a big number.

02:51And part of the dynamic is that we focus on the higher end portion of healthcare delivery.

02:56So our top five tendencies by specialty are orthopedics, oncology, neurology, cardiology, and diagnostics.

03:02So we are specifically tailoring our business to the highest margin businesses within healthcare

03:09and specifically to the higher net worth portion of the U.S. population,

03:14which we deem to be the most recession-resistant, least volatile portion of an already low volatility asset class.

03:21I think it's worth noting that medical office over the past 20 years nationally has never been below 90.9% occupied.

03:30So I would say it's arguably, if not definitively, the lowest volatility asset class that exists in real estate.

03:37And obviously, going back 20 years, encompasses the GFC, the downturn in 2015, and the global pandemic.

03:43How are prices right now?

03:45Because on the one hand, you have office and mall that are experiencing problems.

03:52We were talking today about the mall in Nyack.

03:55On the other hand, you have so many dollars out there chasing the same assets.

04:00And obviously, the real estate assets you buy are much more valuable because you're after the students, the seniors, and healthcare, right?

04:07Which is pretty recession-proof.

04:09But what are prices like?

04:11That is the right question, Matt, because you can have constricting supply and massive demand,

04:17but the number one determinant of your return is your cost basis.

04:20What we've done is differentiate ourselves in this asset class by really positioning ourselves as a true partner to hospital systems.

04:29So we are talking to them about healthcare delivery all day, every day.

04:33We have a wholly owned subsidiary called Percival Health Advisors.

04:35So we are a strategic partner to hospital systems, helping them define their marketplace, gaps in their healthcare coverage,

04:44what private practices should they buy to fill those gaps, how should they fund that,

04:48what are the implications for their balance sheet, their income statement, their public credit rating.

04:52So what we do is very differentiated, which leads to a far better pricing dynamic for us

05:00because the reality is that these hospital and healthcare systems want us to own their real estate

05:05because we help them in terms of their healthcare delivery, both in reducing cost, operating expenses,

05:12as well as expanding their successful practices and practitioners within their system.

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