Fresenius Medical Care is a division of the global parent company, Fresenius Medical Care AG & Co. KGaA, with their North American headquarters located in Waltham, MA. They provide emotional, medical, dietary, financial & well-being resources for patients with chronic kidney care (CKD) and end stage renal disease (ESRD). They care about all aspects of a patient’s care – the whole “you”. Their services include in-center hemodialysis, at-home hemodialysis, at-home peritoneal dialysis, counseling and guidance for non-dialysis options, nutritional counseling, as well as patient training and education classes.
Fresenius Medical Care is one of the leading providers of CKD and ESRD care. As of September 2016, Fresenius operated 3,579 clinics worldwide, and of those, 2,277 were located in the United States. Over 187,000 patients have been treated in Fresenius United States based clinics, with over 21.6M treatments performed.
Net Lease Overview
Investors are drawn to medical net lease investments. With the demand for dialysis growing, along with Fresenius Medical Care’s small price point, investors have found this area an attractive investment. They like the security that is inherent with the investment made by the tenant in the build out of the property and installation of specialty trade fixtures.
This investment makes it less likely for the tenant to leave at lease expiration. In addition, the very nature of Fresenius’ business, kidney dialysis, requires clients to visit routinely and consistently, which in turn produces a reliable income stream for that location.
According to the 2015 report issued by the American Kidney Fund, kidney disease is the 9th leading cause of death in the United States. An estimated 10% of the adult population in the United States (~ 31 million people) have chronic kidney disease (CKD).
Despite the 100,000+ patients who need kidney transplants, approximately 16,000 actually receive transplants each year. Dialysis is the only other option for the rest of the patients. As the population in the United States ages, the prevalence of chronic kidney disease will rise according to a report published in the American Journal of Kidney Disease. Adults, ages 30 and older, who have CKD is projected to increase from the current 13.2% to 14.4% in 2020, and 16.7% in 2030. These projections continue to support the demand for dialysis centers and the growth in this industry.
The medical industry as a whole is poised for future growth and net lease investors are logical in recognizing the stability this lends. During 2016, the medical markets have been trading and yielding a return on investors’ money of roughly 7.0%.
Fresenius Medical Care is a dominant player in the United States dialysis market with DaVita, being their number one competitor. As shown in Table 1, throughout 2016 Fresenius’ average cap rates have been 7.65% while DaVita’s have been 6.88%. Given the limited supply and high demand for these dialysis centers, investors are willing to pay a premium for NNN medical tenanted properties.
During 2016, Fresenius tenanted properties with a lease term of greater than 10 years, have shown an average cap rate of 6.15%, while lease terms of less than 10 years have been trading at an average cap rate of 7.92%.
Table 3 shows the average cap rates for Fresenius tenanted properties that are structured as NNN vs NN. In 2016, NNN and NN Fresenius’ traded at 7.12% and 7.80% respectively.