4/10/2012 | By Matthew Bechard
Health care REITs have been able to benefit from the REIT Investment Diversification and Empowerment Act (RIDEA) , according to Pam Kessler, executive vice president and chief financial officer with LTC Properties Inc. (NYSE: LTC).
Kessler sat down with REIT.com at REITWise 2012: NAREIT's Law, Accounting and Finance Conference in Hollywood, Fla., last month to discuss both opportunities and challenges within the health care sector. She said that RIDEA has allowed health care REITs to "participate in the upside of their properties," as opposed to being limited to the triple net lease structure.
The downside of the law, according to Kessler: It still requires health care REITs to be externally manage, which means paying a third-party management fee. Kessler added that other REITs, such as those in the apartment and office sectors, can internally manage their properties, so they don't have to pay management fees.
"So from that standpoint, we are still not capturing all of the upside of all of the profits," Kessler said. "But we're significantly closer than we were with the triple net lease."
Kessler explained that ongoing challenges in the industry range from Medicare reimbursement issues to state budget cuts. However, she said companies that have experience in underwriting health care properties understand the risk and will be able to make sound investment decisions.
"But there are risks from the headlines that fluctuate throughout our industry," Kessler pointed out. "It can make our property type less desirable for some."
She said the news headlines may make investors get out of the sector, because either they perceive the risk to be too great or because they aren't interested in the business anymore due to government regulation.
However, on a positive note, she said it also creates opportunities for REITs like LTC Properties that have been in the industry for decades and have witnessed the market cycles. Kessler said LTC and others similar REITs are well prepared for any challenges because they know how to underwrite the risk and are finding properties attractively priced.