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Healthcare REITs ramping up activity


By Bob Herman
Posted: June 3, 2014 - 2:45 pm ET
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Healthcare real estate investment trusts have been actively building their portfolios this year, signaling that providers are open to monetizing certain assets for quick cash.

On Monday, two REITs made separate transactions. Health Care REIT, based in Toledo, Ohio, and owner of 1,212 properties, completed a $1 billion public offering. The company plans to use those proceeds to repay advances and ramp up investing in healthcare and senior housing properties. National Health Investors, a Murfreesboro, Tenn.-based REIT with 171 properties in 30 states, acquired a 56-unit assisted-living community within Chancellor Health Care in Sacramento, Calif., for $11.5 million.

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Earlier this month, Medical Properties Trust disclosed a slew of deals, including several freestanding emergency room agreements with First Choice ER and a $115 million sale-leaseback of HackensackUMC Mountainside in Montclair, N.J. The hospital is a joint venture between Hackensack (N.J.) University Medical Center and Plano, Texas-based LHP Hospital Group.

The biggest news in the healthcare REIT space, though, came from Ventas. The Chicago-based healthcare REIT, with market capitalization of $19.1 billion, announced Monday it plans to acquire its competitor, American Realty Capital Healthcare, for $2.6 billion.

Jack Meehan, an equity researcher with Barclays who follows healthcare REITs, said several forces have prodded the increased activity. He said the healthcare real estate market, a $2 trillion marketplace that “is very fragmented,” has become appetizing for providers that want to cash in on their investments.

“Additionally, M&A transactions have opened opportunities for REITs to get involved and source new transactions,” Meehan said.

Meehan also attributed REIT activity to “competitive” capital costs and a somewhat-predictable reimbursement schedule for Medicare. Skilled nursing facilities and hospitals, two large investment areas for REITs, have been hit with various Medicare cuts the past few years, such as sequestration and coding adjustments. So far, fiscal 2015 base payment rates look straightforward by comparison, which give REITs more confidence of how operations at their facilities will be funded.

“Simply put, FY 2015 appears to be the first year that investors have good visibility into Medicare rates without concerns over additional funding cuts,” Meehan said.

Many of the largest healthcare REITs are meeting this week at the National Association of Real Estate Investment Trusts' annual investor forum in New York City.

Follow Bob Herman on Twitter: @MHbherman


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