67 WALL STREET, New York - August 8, 2012 - The Wall Street Transcript has just published its Medical Real Estate Report offering a timely review of the sector to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Healthcare Real Estate Market Consolidation - Affordable Care Act and Reimbursements - Hospitals, Senior Housing, Skilled Nursing and Acute Care
Companies include: Sun Healthcare Group Inc. (SUNH), Ventas Inc. (VTR), Health Care REIT Inc. (HCN), Senior Housing Properties Trus (SNH), and many more.
In the following excerpt from the Medical Real Estate Report, Daniel Bernstein from Stifel Nicolaus discusses his outlook for the sector:
TWST: What's your overall sentiment or outlook on your universe right now, and how does that differ, if at all, between the property owners versus the operators of the facilities?
Mr. Bernstein: Real estate owners are benefiting from a very low cost of capital, increased access to capital, and a still-fragmented industry's growth opportunities, acquisition growth opportunities. However, we've been cautious on some of the valuations - maybe somewhat overcautious - thinking that maybe the economy would do a little bit better, and historically defensive health care real estate would underperform that. So we've been "underperform" on the health care REITs, notwithstanding where interest rates have gone.
And then, the senior housing operators, the fundamentals in senior housing are particularly good. If you look at the NIC MAP data, occupancy is up almost 100 basis points the last 12 months. And in the top 100 metro areas, construction is subdued. New construction starts to supply have been hovering around 1%, and absorption to supply has been hovering around 2%, and so we think the senior housing fundamentals for occupancy and rate are going to be very good. Four of the six companies in our universe in senior housing have a "buy" rating on them.
There is also a catalyst on the senior housing names, we think, for them to monetize their real estate. In the names we have "buy" rated, they have anywhere between about 25% and 40%-plus ownership of the real estate, and we think there's some upside opportunity for them to sell the real estate to a real estate investment trust or perhaps to a private investor, and there is an alternative even of a REIT OpCo split as we saw on the skilled nursing side several years ago with Sun Healthcare (SUNH) and Sabra Health Care REIT (SBRA).
On the skilled nursing side, we've remained "neutral" on all our names with a "hold" rating. The reimbursements coming up for fiscal 2013 don't have any surprises. It's obviously better than last year after our very harsh 11% cuts to Medicare reimbursement, and the stocks have performed very well as a result of that near-term moderating reimbursement risk. But longer term, we remain very cautious given what Congress is going to do, the election cycle and just the overall perception that the growth of public reimbursement of health care services needs to be curtailed over time to fix the U.S. and state budget deficits. So we remain cautious on the skilled nursing and postacute operators, but we don't see any real near-term risk in reimbursement, but it's not a real positive picture long term either.
TWST: What kind of growth prospects do these companies have? And whether it's by property acquisitions or development or M&A, how much activity do you expect to see?
For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.