Making Money With Obamacare: Health Care Legislation Provides Significant Medical Real Estate Investment Returns In The Near Future According To Leading Industry Expert

• On 8:01 am EDT, Wednesday September 23, 2009

67 WALL STREET, New York - September 23, 2009 - The Wall Street Transcript has just published its Medical Real Estate Report: a series of detailed interviews with senior executives and industry experts on Healthcare REITs, Long-Term Care Facilities and Hospitals. This Special Report offers a timely review of the sector to serious investors and industry executives. The 45 page feature contains expert industry commentary through 9 in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investor Perception of Medical Facilities Publicly Traded Securities -- Shift from Inpatient to Outpatient Care -- Economic Implications of Health Care Reform -- Medical REITs Growth -- Public Markets Reaction to Obamacare Proposals -- Sustainability of Dividend Yields In Different Health Care Legislation Scenarios -- Ability to Access Debt Capital -- Implication of Aging Population -- Profits of Outpatient Versus Inpatient Care -- Health Care Delivery Costs -- Leaseback Arrangements -- Skilled Nursing Costs -- Growth of Seniors Housing -- Geographical Analysis for Medical Facilities -- Advantages to Investing in Licensed Hospitals -- Access to Equity Underwriting -- Economics of a Fragmented Industry -- Consolidation Opportunities -- Debt Refinancing Strategies -- Mergers and Acquisitions in the Medical Facilities Industry

Companies include: LifePoint Hospitals (LPNT); Community Health Systems (CYH); Psychiatric Solutions (PSYS) and Tenet (THC); Medical Properties Trust (MPW); Healthcare Realty Trust (HR); LTC Properties (LTC); Health Care REIT (HCN); National Health Investors (NHI); HCP Inc. (HCP); Alexandria (ARE); BioMed (BMR); Senior Housing Properties Trust (SNH); Omega Healthcare Investors (OHI); Ventas (VTR); Emeritus (ESC); Brookdale (BKO); Fannie Mae (FNM); US Physical Therapy (USPH); AmSurg (AMSG)

In the following brief excerpt from just one of the 9 in depth interviews in this 45 page report, medical real estate all star analyst Jerry Doctrow discusses the outlook for the sector and for investors.

Jerry L. Doctrow is a Managing Director of Stifel, Nicolaus & Co., and he leads the firm's six-person health care services and health care real estate research team. He has been recognized six times by The Wall Street Journal and twice by Forbes/Starmine as one of the best health care or real estate analysts in the U.S. Mr. Doctrow and his team follow 45 publicly traded companies, including 11 health care REITs. Mr. Doctrow has over 30 years' experience in equity research, consulting, public policy, finance and market analysis. He spent 18 years at Legg Mason, where he led the health care services research team and served as President of the firm's real estate consulting unit, advising not-for-profit and corporate clients on the development of senior housing and health care facilities. Stifel Nicolaus acquired Legg Mason's capital markets division in December 2005. Mr. Doctrow served on the board of a not-for-profit agency that developed several hundred units of senior housing and, together with members of his family, has selected and monitored assisted living and nursing facilities for his own parents. He spent his early career in the public sector as an urban planner and housing finance program administrator. Mr. Doctrow has a B.A. in social and behavioral science from Johns Hopkins University, and a master's in public administration from George Washington University. He is an Associate on the faculty of the Department of Health Policy and Management at the Johns Hopkins University Bloomberg School of Public Health; he has also advised researchers at the World Bank on using private investment to improve health care delivery in developing countries. Mr. Doctrow is a frequent speaker at industry conferences. He leads an annual conference on senior housing and health care real estate that features CEOs from all of the public senior housing providers and health care REITs, and co-chairs the Stifel Nicolaus/Johns Hopkins annual health policy symposium, which this year focused on "The Tangible Impacts of Healthcare Reform." His recent publications include "Healthcare REITs - Antidote for an Economic Downturn?", published in the winter of 2008.

TWST: Would you go through the different types of health care-related properties that these companies typically invest in?

Mr. Doctrow: Absolutely, and I think this is roughly in the order that they are represented in the public market, certainly in REIT investments. The biggest class is the private-pay senior housing, and that includes independent living, assisted living, continuing care retirement communities, some dedicated Alzheimer's or dementia facilities. We call it private pay because 95% of it is paid by folks out of pocket, increasingly using long-term care insurance, but to differentiate it from other facilities where there is more government reimbursement. That's an industry that has been around for a while but really came into its own in the mid-1990s, and has had some ups and downs since then. But it's probably the largest single asset class of health care real estate represented in health care REITs. And as a summary of where that is right now, occupancies have suffered some in the recession and because of the housing market, and also because we've had some pick-up - not dramatic - but some pick-up in construction over the last several years. I think it's held its own; operators have been able to raise prices and control expenses to offset some of the decline in occupancy, but it has been under some pressure again from both construction and the economy. We feel very good about the private-pay senior housing sector. We have a couple buys among the operating companies where I think the greater opportunity is compared to health care REITs. The reason is as you look forward, the demand is still there. We're still seeing good growth in the 85-plus population, which is really the target audience. And new construction, the delivery of new units, really grinds to a halt in 2010 because capital is just not out there for construction. And so the combination of what we hope will be an economic recovery, very little new construction and continued growth in demand from the core population make private-pay senior housing an attractive area as we go forward. The operators capture more of the upside than the REITs do, but in both cases it's probably a good asset class to own.

The second asset class in terms of size is skilled nursing - we call them skilled nursing facilities, or SNFs. These facilities, many of them date from the 1960s, typically about a hundred beds, often dual occupancy, feel more like a hospital than a nice home or hotel. And much more of the reimbursement is public sector. For most of these guys, it's probably 75% or more coming from the public sector - either Medicaid, which is joint state-federal for indigent seniors, or Medicare. There was a big disruption in the industry back in 1999-2000, when the feds cut reimbursement for Medicare dramatically. But most of that reimbursement was replaced within a year or so, and the industry has come back. It's pretty stable; the number of units overall continues to decline. And what goes on in skilled nursing has shifted. Whereas 10 years ago it was caring for mostly frail seniors, as a lot of the population has moved to private pay, the people that are in nursing homes now are people that really need medical care. Many of them are there for short stays following hospitalization, rather than just being old and frail. I think that asset class is not growing a lot, it's relatively stable. There is a fair amount of money being spent trying to renovate and keep these facilities updated, and adapting them to providing more active medical care. Probably less dramatic stuff going on at the moment in that asset class. A number of publicly traded companies were taken private over the last five years; a lot of that was done with CMBS real estate financing. What happens to those assets as those companies either IPO again or those projects get refinanced is one of the more interesting things that we'll see over the next couple years.

Probably the next big asset class is medical office buildings, MOBs, and outpatient facilities. If you are New York-based you will probably see less of this because this is more of a suburban-like phenomena, but most hospitals that are not in Manhattan - and even some that are in Manhattan - will have medical office buildings on their campuses or there will be medical office buildings clustered around hospitals. And as care has shifted from an inpatient to an outpatient setting, and in some cases technologies have allowed more and more procedures to be done right in the physician's office, you need a place to house those, and there is a fair amount of that real estate. It has been growing at a pretty good clip. That's been an attractive area to invest. I think the REITs invested less in MOBs as pricing got to be much more competitive, and now they're looking to invest more. A good chunk of the MOBs that may become available for investment is actually owned by the hospital systems, including not-for-profit hospital systems. And I think one of the other big issues that's discussed - I don't know whether we have seen that much by the way of real examples yet - is as the tax-exempt capital market has been disrupted and there's more uncertainty in the whole health care system because of health care reform, we may see more MOBs being developed in the private sector or sold to the private sector as a way for hospitals to raise capital for other things that they need. So there is an expectation we might see more MOB transactions by health care REITs, but there has not been a lot in the last year. I think in some ways, MOBs are seen by investors as the most attractive health care real estate class, just because MOBs are most like office buildings, most like a regular real estate investment - a greater group of investors are comfortable with MOBs.

And then the last category is hospitals of a whole variety of stripes: general acute care hospitals, long-term acute care hospitals, rehab hospitals, specialty heart hospitals. There are not a lot of hospitals that are owned by the public REITs. There are some, but you only have one REIT that really specializes in that asset class, Medical Properties Trust (MPW). Again, there were some companies taken private and we may see more of that real estate come back to market. Everybody in the hospital area in particular will be keeping an eye on what's going on in Washington to see whether that changes things dramatically, and whether there is a need for different types of facilities or for hospital companies to reposition themselves. But with the exception of MPW, there is less active investment in that area for REITs. I think the only other one that's talked about new hospital investments recently and done a little bit is Health Care REIT (HCN), but it's not really been a focus.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 45 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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