Nursing homes may be a less desirable acquisition target than they have been in recent memory due to an ongoing series of cuts to Medicare and Medicaid reimbursements and the uncertainty that surrounds them, writes the Wall Street Journal.
Both Health Care REIT (NYSE:HCN) and Senior Housing Properties Trust (NYSE:SNH), which have previously been active in the skilled nursing acquisition space, have indicated they will scale back from new acquisitions due to an expected decline in profitability of the properties. Ventas says it is still comfortable with its existing investment in the space but will hold off on future acquisitions pending more information on entitlement cuts, the WSJ reports.
“The retreat comes as the outlook for nursing homes remains cloudy,” the WSJ writes. “A growing number of cash-strapped states are scaling back Medicaid reimbursement payments to nursing homes, while the federal government cut Medicare rates by 2% on April 1 as part of across-the-board budget cuts known as sequestration. These entitlement programs combined make up about 90% of nursing-home revenue. If they are diminished, some nursing homes could have difficulty paying their rent.”
Health Care REIT says it plans to re-focus its investment targets on businesses that exist on private-pay clients including assisted living, the WSJ writes, while Ventas has expanded aggressively into the private-pay investment landscape.
Aviv REIT (NASDAQ:AVIV), in contrast, is largely focused in the skilled nursing sector, with more than 85% of its rents coming from skilled nursing properties, the WSJ reports.
Written by Elizabeth Ecker