Physicians Should Consider Healthcare Real Estate Investment Trusts

April 17, 2014

Investing in real estate can sometimes be risky, but in volatile times, healthcare REITs have been viewed as a stable investment.

Last July, I addressed the concept of Real Estate Investment Trusts (REITs) and their use in healthcare. As a refresher, a REIT is a security that sells like a stock on the major exchanges and invests in real estate. The trend in various types of joint ventures, mergers, and acquisitions between various health systems, as well as between physicians and hospitals, lends itself to readdressing this topic.

The dynamic implementation of the ACA, as well as the decrease in investor confidence in clinics and nursing homes, has brought healthcare REITs into the spotlight once again. For physicians, REITs can be an additional way to obtain capital. Participating in a REIT or investing in a REIT, may provide additional financing and capital options; and with good reason.

Since the beginning of the year, healthcare REITs outperformed the comparable real estate trusts with shares increasing by 14 percent. According to the Wall Street Journal, "'When the market's showing some turmoil, or you've got some macroeconomic world event like Ukraine and Russia, investors flock to more defensive names, and healthcare REITs are thought of as stable,' said Daniel Bernstein, who covers healthcare REITs for Stifel Nicolaus & Co." This is probably due to the fact that healthcare is a fundamental need. And, with the aging population and implementation of the ACA, utilization of healthcare facilities is expected to increase.

One factor to watch in relation to the timing of a REIT investment is interest rates. Just like one assesses the rates and timing when buying a home, so should an investor in REITs consider interest rates when purchasing shares. This is because last year, when interest rates rose, healthcare REITs plummeted 19 percent in nine months. In sum, macro-environmental and economic factors such as interest rates and government reimbursement rates to providers should be considered when evaluating REITs as a financing or investment source. While the adage "location, location, location" lends itself to REITs, so does timing.