The health care industry is poised to take advantage of increasing opportunities to grow, according to panelists at a Nov. 13 session during REITWorld 2012: NAREIT's Annual Convention at the Manchester Grand Hyatt in San Diego.
Ross Nussbaum, managing director with UBS, moderated the session. Panelists included Debra Cafaro, chairman, president and CEO of Ventas Inc. (NYSE: VTR); George Chapman, chairman, president and CEO of Health Care REIT Inc. (NYSE: HCN); and James Flaherty, chairman and CEO of HCP Inc. (NYSE: HCP). They agreed that mergers and acquisitions within the health care industry will continue due to the need for low-cost, efficient health care solutions combined with an aging baby boomer demographic.
“Real estate and REITs are in a sweet spot generally and are able to do win-win transactions for sellers, but I think our opportunities are greater in health care. Assets will flow to the most efficient owners,” said Cafaro, adding that prospects for both internal and external growth are significant.
Chapman said the opportunities to grow his company’s portfolio have been unprecedented. With the health care industry’s overall need to improve, he pointed out that there will be a lot of operators that have to consolidate.
“That kind of pressure is going to drive continued change, enhance quality and grow consolidation,” he said. “It’s a great confluence of factors coming together.”
The health care industry is in the “third inning of nine-inning baseball game” in terms of growth, according to Flaherty. Market pressure for more efficient health care will create more mergers and acquisition transactions that he said should benefit health care REITs.
“I wouldn’t trade the fundamental economic driver for any REIT space in the world. It’s the aging baby boomer that’s going to spend more money on health care in the last years of life,” Flaherty said.
Cafaro said she anticipates that the second term of President Barack Obama's administration will be a net positive for health care providers and REITs.
“There will be less pressure on government reimbursements, and I think the medical office buildings will benefit from increased utilization and more of the uninsured coming into the buildings,” she said.
Chapman said medical office buildings are changing. He called them “one-stop shops” and added that they are closer to resembling health care facilities than they’ve ever been before.
“Kind of like hospitals without beds,” said Chapman, adding that more medical office buildings will locate to the suburbs. However, he said affiliation with a good hospital system is key to those buildings' success.
Chapman said medical office buildings are a stable part of the health care system, but panelists noted that both the skilled nursing and private pay senior living subsectors provide the best growth opportunities.
“I’ve been pretty consistent about skilled nursing for a long period of time. It is a critical part of the health care delivery system,” Cafaro said. “So I think we will likely always have some investment in the skilled nursing business. It’s here to stay.”