05-15-2014, 08:10 PM
I've been running into information suggesting that healthcare REITs might not be the place to be for the long term.
Bloomberg reports on a speculative senior housing building boom, with oversupply being a negative for REITs. In other words, people investing in senior housing and skilled nursing facility REITs anticipating a flood of demand are not ahead of the curve.
http://www.bloomberg.com/news/2014-05-15...-boom.html
An author on SA with a contrarian view to the standard drumbeat of articles says the same. In particular, he points out that OHI's wild swings in price and payout over their history were tied to changes in government reimbursement policies.
http://seekingalpha.com/article/2186043-...nvironment
Finally, Morningstar reports that healthcare inflation has outpaced general inflation by 2.5x, and suggests this is not sustainable, meaning that there is going to be risk for lease renewals with the same escalators built in. I can't link to that research report because it's only available to me through MerrillEdge.
In conclusion, I'm not going to abandon the space, but I've decided that VTR will be my only healthcare REIT after all, with a 2%-3% target allocation. I don't pay attention to public financing of senior housing, and I don't want to assume that as a risk factor with OHI. VTR is 82% private payer, and is expanding into Canada and the UK, so I'll stick with them and not worry about it too much.
Bloomberg reports on a speculative senior housing building boom, with oversupply being a negative for REITs. In other words, people investing in senior housing and skilled nursing facility REITs anticipating a flood of demand are not ahead of the curve.
http://www.bloomberg.com/news/2014-05-15...-boom.html
An author on SA with a contrarian view to the standard drumbeat of articles says the same. In particular, he points out that OHI's wild swings in price and payout over their history were tied to changes in government reimbursement policies.
http://seekingalpha.com/article/2186043-...nvironment
Finally, Morningstar reports that healthcare inflation has outpaced general inflation by 2.5x, and suggests this is not sustainable, meaning that there is going to be risk for lease renewals with the same escalators built in. I can't link to that research report because it's only available to me through MerrillEdge.
In conclusion, I'm not going to abandon the space, but I've decided that VTR will be my only healthcare REIT after all, with a 2%-3% target allocation. I don't pay attention to public financing of senior housing, and I don't want to assume that as a risk factor with OHI. VTR is 82% private payer, and is expanding into Canada and the UK, so I'll stick with them and not worry about it too much.