Se­nior hous­ing boom pro­pels healthcare REITs

Modern Healthcare - - BY THE NUMBERS - By Michael San­dler

A grow­ing pipeline of se­nior hous­ing con­struc­tion projects has buoyed growth for the healthcare real es­tate in­vest­ment trusts on Mod­ern Healthcare’s an­nual list of the largest healthcare REITs, ex­perts say.

Con­struc­tion of se­nior hous­ing ex­panded in the mid-1990s, fell off for many years, then picked up again over the past two years, said Calvin Sch­nure, se­nior vice pres­i­dent of re­search and eco­nomic anal­y­sis at the Na­tional As­so­ci­a­tion of Real Es­tate In­vest­ment Trusts.

Se­nior hous­ing is be­ing built in an­tic­i­pa­tion of baby boomers’ in­ter­est in mov­ing into com­mu­ni­ties of­fer­ing a con­tin­uum of hous­ing and as­sisted-liv­ing op­tions that meet their needs as they age, Sch­nure said. There is a strong mar­ket shift to­ward se­niors who have saved a nest egg and are eye­ing se­nior liv­ing com­mu­ni­ties as a lifestyle choice rather than based on im­me­di­ate med­i­cal or nurs­ing needs, he said. “This is sup­plant­ing peo­ple mov­ing in with their chil­dren,” he said.

Al­most ev­ery REIT on Mod­ern Healthcare’s list had a higher mar­ket cap­i­tal­iza­tion as of May 31 than in the pre­vi­ous year. All saw in­creases in to­tal rev­enue in 2014 over 2013. Healthcare REITs led all other real es­tate prop­erty sec­tors in div­i­dend yield listed on the FTSE NAREIT U.S. Real Es­tate In­dex, at 5.55% as of June 26.

Healthcare REITs are con­tin­u­ing to ex­pand their port­fo­lios, and one ma­jor fac­tor is more trusts are em­brac­ing the REIT In­vest­ment Diver­si­fi­ca­tion and Em­pow­er­ment Act (RIDEA), said Kevin Tyler, a healthcare REIT an­a­lyst at Green Street Ad­vi­sors, a con­sult­ing firm based in New­port Beach, Calif.

Be­fore the law was en­acted in 2008, healthcare REITs had to be struc­tured as triple-net leases with rent pay­ments and es­ca­la­tions. But un­der the RIDEA model, the REIT owns and op­er­ates the prop­erty, rather than just col­lect­ing rent, Tyler said. That gives them more earn­ings po­ten­tial. Toledo, Ohio-based Health Care REIT, which topped the Mod­ern Healthcare list, has 35% of its to­tal port­fo­lio in RIDEA-struc­tured in­vest­ments, while 27% is in triple-net leases, he said. RIDEA-struc­tured in­vest­ments aren’t the only source of rev­enue growth for healthcare REITs. Health Care REIT has ex­panded to the U.K. and ac­quired four pri­vate-pay hos­pi­tals in Lon­don in the first quar­ter of 2015, said Scott Estes, ex­ec­u­tive vice pres­i­dent and chief fi­nan­cial of­fi­cer. The com­pany also com­pleted the sale of its life sciences port­fo­lio last month, he said.

Tyler

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