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Skilled Nursing Facilities Being Spun into New REIT

04/21/2015

Ventas has plans to spin nursing facilities into a new REIT although at this time it has not been named. The announcement came earlier this month when Ventas, Inc. announced a spin-off of 355 facilities, as well as outpatient recover centers. The overall goal is to turn the properties into a new real estate investment trust or REIT.

With this move, it becomes apparent there is increasingly growing interest in properties that focus on specialized medical practices. These investments come with increased risk while at the same time, provide a much higher potential for return.

Market Value

According to insiders, the value of the new company could ready as high as a $5 million market value based on the trade of numerous smaller companies. As one of the largest health-care property owners in the country, Ventas is said to produce a net income of $315 to $320 million annually from the spin off.

Debra Cafaro, chairman and chief executive of Ventas said what the company is really doing is creating two unique REITs that would be able to deliver outsized growth but also results for shareholders. She added that at this time, the market is starting to appreciate the value of this asset class.

Risks and Benefits

Compared to senior living properties and conventional medical office buildings, post-acute care and skilled nursing facilities are views as being riskier. The reason is that skilled nursing care is paid for by customers with insurance or through Medicare. Whenever cuts occur to government funded insurance programs to include Medicare, money is diverted from these types of facilities.

At the same time, there is an increase in demand for these facilities because patients with private insurance are being pushed to use outpatient and skilled nursing facilities as an alternative to lengthier and more costly stays in the hospital. For this reason, larger companies are buying facilities that equates to more consolidation.

From a broad perspective, skilled nursing is no longer a fragmented private market but more of a consolidated public market.

Last October, Omega Healthcare Investors agreed to spend $1.65 billion for its competitor, Aviv REIT, Inc. That transaction created the largest ever REIT with sole focus on skilled nursing properties. In a statement from Green Street, investors that are buying skilled nursing home assets are putting them into separate companies because the market has assigned such a high valuation to that type of property.

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