REIT Report: Reaffirmation of reform: Good for REITs

Healthcare real estate investment trusts likely to benefit from implementation

By Murray W. Wolf

Editor’s note: This “new” department, including the Healthcare Real Estate Insights™ REIT Index™, might be familiar to longtime readers. The REIT Index was a regular feature of HREI™ until it was discontinued in 2005. But with the growing importance of publicly traded REITs to the healthcare real estate (HRE) sector, and with our redesigned and expanded coverage, now seems like an opportune time to resurrect the HREI™ REIT Index™, and to add a related new department, the Real Estate Investment Trust (REIT) Report. We hope you enjoy this renewed and expanded coverage.

When the U.S. Supreme Court upheld the Patient Protection and Affordable Care Act (PPACA) last June and President Obama was reelected in November, it became very likely that most provisions of the PPACA will be implemented. The share prices of most publicly traded hospitals and other healthcare providers, as well as pharmaceutical companies, rose on the belief that the PPACA will increase demand for healthcare services and medications. According to most financial analysts, the same reasoning is a factor in why share prices for healthcare REITs have also been on the rise. More business for hospitals, physicians, and post-acute and senior living operators should, in theory, make them more creditworthy tenants in REIT-owned properties and increase demand for new development.

Of course, it’s not quite that simple. Yes, healthcare demand will increase, but providers still face potential cuts in Medicare reimbursements and mandated spending hikes. As those of us who focus on the HRE sector know, decreased revenues and increased expenses could make some tenants less creditworthy while inhibiting capital investment on real estate and facilities.