The Motley Fool Previous Page

Health-Care REITs Are Prepared to Catapult

Zeeshan Siddique
March 8, 2011

Fools may want to pay attention to a specific subset of the U.S. commercial real estate investment trust (REIT) industry to nab future gains.

The commercial real estate market showed signs of growth in 2010 and is expected to do even better in 2011. However, a careful analysis shows that not all sectors of the REIT industry have been showing positive signs. Higher commercial vacancy in the U.S. real estate market makes some of the sectors still look quite bleakish, but a few areas look promising enough -- and the health-care REIT sector is definitely one of them.

Health care beats its siblings
During the slump, health-care REITs did not decline as much as other REITs, and now they are outperforming their counterparts. While retail stores, manufacturing facilities, and offices are still struggling, large health-care REITs are growing larger with multibillion-dollar acquisitions and attracting more investors than ever.

Part of the rationale behind this is obvious; while discretionary shopping demand is quite susceptible to all sorts of economic pressures, one's health-care expenses are always a top priority. Naturally, managers of medical offices and spaces are dealing in a product that surely is more defensive in nature and surely will only grow as time goes on, given various demographic changes in the American population.

In 2010, the sector announced acquisitions worth $11.25 billion, with HCP (NYSE: HCP  ) agreeing to buy HCR Manor Care for $6.1 billion. Ventas (NYSE: VTR  ) , which seems to have adopted an aggressive growth strategy, is buying Nationwide Health Properties (NYSE: NHP  ) for about $5.7 billion in stock, forming the biggest health-care REIT in the U.S.

Ventas had struck four deals last year; with this deal in its kitty, it will become the largest owner of assisted-living housing in the country. This is a move to lower the company's overall debt and, as Chief Executive Debra Cafaro puts it, Ventas wants to "have the best balance sheet around."

Health Care REIT (NYSE: HCN  ) has agreed to buy the real estate of Genesis Healthcare for $2.4 billion. It will buy all of Genesis' real estate assets and also hav