Standard and Poor’s said it has a neutral fundamental outlook on the specialized REITs industry —real estate investment trusts in diverse categories including lodging, health care, self storage, and specialty.
Financing could be an issue for the smaller players according to the company’s analyst.
“We see restrictive bank lending forcing many smaller players from the market, which augurs well for the supply and demand balance and should enable the larger, more established specialized REITs to make acquisitions,” said Robert McMillan, analyst for S&P.
Several high profile REIT deals have occurred in the last few months. In February, Health Care Health Care REIT (NYSE:HCN) signed a definitive agreement to acquire substantially all of the real estate assets of privately-owned Genesis HealthCare (Genesis) for $2.4 billion. Ventas Inc., also announced it was purchasing Nationwide Health Properties Inc. in a $7.4-billion stock deal that will create the nation’s largest health care REIT.
As far as the demand for REITs owning health care facilities, S&P said it expects the demand to remain relatively stable over the next 12 months.
“We do not expect health care reform to significantly impact this group near term, and think that the long-term effect will be more significant on the tenant-operators of the facilities as opposed to the owners of the property, which generally provide the space and collect the rent,” said McMillan. “Those tenant/operators, such as skilled nursing home and hospital operators that rely heavily on government reimbursement, could be pressured more than those operators relying on private-pay, such as senior housing operators.”
Year to date through April 1, 2011, the S&P Specialized REITs Index advanced 9.1%, versus a 6.3% gain for the S&P 1500. As of March 31, 2011, average dividend yields were 5.10% for health care REITs, 2.95% for self-storage, 1.62% for lodging/resorts and 3.16% for timber REITs.