Obamacare Positions REITs for More Senior Housing Investment

The Affordable Care Act is sure to impact the senior housing space, and the Big Three healthcare REITs expect their capital will be a crucial component for operators to stay in the game.

“The winners from the operating standpoint will be able to create new operating models or paradigms to lower the cost of care,” said Jay Flaherty, chairman and CEO of HCP, Inc. (NYSE:HCP) during a company presentation for REITWeek 2013, held this week in Chicago. “For us, this is a tremendous time to be making investments. It’s going to create new thinking about assets, and how those assets are needed.”

Medical office buildings (MOBs), for example, in the past have been used primarily as doctors’ offices. “Now, with the advances in technology, you’re seeing a significant amount of noninvasive surgical procedures done there, at a lower cost for the overall healthcare system,” he said.


MOBs can play a different role, including as part of a “virtual ACO,” said George Chapman, chairman, CEO, and president of Health Care REIT (NYSE:HCN) in his company’s presentation. HCN has multiple capital relationships at one such “ACO,” where a MOB and hospital system are flanked by a Genesis-run rehabilitation center and a Brandywine memory care community.

“We tell our senior housing operators, ‘If you’re part of a network, ultimately you’re going to have to assess how much risk you can take as part of that network,’” Chapman said. “Evidence-based care and measuring outcomes are going to be part of the ‘brave new world’ of healthcare, and your infrastructure is going to have to be better.” 

Improving infrastructure to stay competitive takes capital, though, and going forward, consolidation will certainly happen, he said.


“It’s almost inevitable that operators will have to come together, and that there will be M&A activity which may or may not give us more investment opportunities,” he said. “[The operators] will need to have better infrastructure, and better personnel to make their product better, and they may want to merge to create more power together, better systems together, and more opportunity to compete.” 

REITs have been aligning themselves with the biggest, best operators to help ensure continued investment success even after the healthcare landscape changes.

Health Care REIT has acquired senior housing giant Sunrise Senior Living in a $4.3 billion deal and has an established capital relationship with one of the nation’s largest post-acute care providers, Genesis Healthcare. HCP’s stated strategy is to partner with the people who are going to be leaders in their respective fields: Emeritus and Brookdale in senior housing, and HCR ManorCare on the skilled nursing and post acute side. 

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For Chicago-based Ventas (NYSE:VTR), healthcare reform is not a matter of if, it’s a matter of when—and it’s already gearing up for changes in care coordination and risk sharing.

“Those are going to be important drivers of opportunity for our business as we look forward,” Ray Lewis, president of Ventas, during the REIT’s presentation. “It’s a real opportunity for us—you’re going to see a lot more vertical and horizontal integration as companies coordinate care, and prepare to take risk in preparing to care for those patients [for a set payment].”

How that will play out in the industry, according to Lewis, is that healthcare systems are going to move away from “tying up valuable capital” in real estate.

“As assets flow to the most efficient holders of real estate —REITs—I think we’ll play a role in driving this change or convergence,” Lewis said. “Big picture, that’s what the ACA will do for the healthcare REIT space, but it will be over time—not this year. [It will happen in] five to seven years, and that’s a real big opportunity for us.”

Written by Alyssa Gerace

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