Policy Changes Impacting Skilled Nursing Real Estate

Kevin Tyler

In the latest episode of The REIT Report: NAREIT's Weekly Podcast, Kevin Tyler of Green Street Advisors discussed trends in health care real estate investment.

Tyler noted that the skilled nursing segment of the medical office building sector has undergone an eventful period of transition. The segment has long faced "stroke of the pen" risk, meaning that the business model is highly sensitive to public policy decisions. As the Medicare payment system evolves, skilled nursing operators and investors are trying to determine what the changes mean for the businesses going forward, according to Tyler.

Additionally, profitability rates are in flux as private companies become more involved with Medicare, Tyler said. The shift to greater private sector involvement is also resulting in shorter medical visits, he said.

Regarding the decision by health care REIT HCP Inc. (NYSE: HCPI) to spin off its skilled nursing division, ManorCare, Tyler pointed out that ManorCare's profitability has flagged since being acquired by HCP in 2011. It focuses more on Medicare than other major players in the space, he said.

"Investors will have to get comfortable with a tenant that has seen their operations deteriorate over a number of years," he said. Conversely, competitors are more diversified, according to Tyler. As for HCP, Tyler said spinning off ManorCare strengthens its asset base.

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