Healthcare REITs Poised for Strong 2014

By Jeff Walraven, Assurance Partner, BDO USA, L.L.P.: While the overall REIT industry has been gaining momentum so far this year, healthcare REITs, in particular, are now especially interesting to watch.

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While the overall REIT industry has been gaining momentum so far this year, healthcare REITs, in particular, are now especially interesting to watch. Economic growth, employment levels, consumer spending and construction are all on the upswing, contributing to a robust REIT growth environment. However, President Obama’s new healthcare law and long-term demographic trends are specifically laying the groundwork for a strong year ahead for healthcare REITs.

President Obama’s Affordable Care Act has directly impacted healthcare REITs in an extremely favorable way.

According to Bloomberg, more than 975,000 people signed up for healthcare plans under the law in December alone. This activity is driving up the demand for facilities. To that end, sales of properties leased by doctors and healthcare providers totaled $6.7 billion in 2013. Additionally, Bloomberg noted that this is the second highest total in Real Capital Analytics Inc.’s 13 years of data records.

Investors have taken notice, and the result is that more money is pouring into healthcare assets. Increased investor interest has directly impacted this sector, resulting in higher transaction cap rates and bolstering the current value of healthcare assets in all categories of care continuum.

Further adding to the demand in the senior housing sector is the country’s booming aging population. According to the Administration on Aging, by 2030, the number of older people in the U.S. is expected to reach approximately 72.1 billion and those over 65 will account for 19 percent of the population. Couple these demographic trends with the cultural shift away from elderly parents living with family members, and the result is soaring demand and occupancy rates.

Due to President Obama’s healthcare law and the increasing aging population, the healthcare REIT industry is poised for a strong 2014 in all sectors. The future of interest rates remains uncertain and healthcare operators can often be more susceptible to increases in borrowing costs. If they monitor these risks and harness current momentum strategically, they may be able to stave off future challenges. With prudency as a leading factor, investors may be able to look forward to favorable returns on their investments.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.