WASHINGTON, DC-It couldn’t be a better time to be a health care REIT executive right now--that is, if you were the type of executive that didn’t look further out than 18 months. That is when the ideal environment that currently exits for health care REITs is likely to start to evolve into something less friendly, acknowledged panelists at NIC’s annual conference, held in Washington, DC last week.

Even then, said George Chapman, chairman, president and CEO of Health Care REIT, REITs in this sector are likely to continue to perform relatively well for investors over the long run. "Our returns are inherently more stable than other asset classes," such as multifamily, he said.
Also, the reasons why health care REITs are performing so well now--easy access to relatively inexpensive capital, favorable demographics (baby boomers are just now retiring) and a healthy finance market for product development--will not end abruptly. Rather, they see more of a subtle shift. Indeed, panelists believe that health care REIT stocks are in fact undervalued now, and cap rates too high, by as much as 100 basis points.

Perhaps the stronger driver of growth for this asset class now is the supply of product available to be acquired, said Raymond J. Lewis, president of Ventas. "We are seeing an unusual level of transactions now, from private equity players that were looking to exit, among other reasons," he said. "These deals have created confidence among our investors that the deal flow is good and that this is an industry good at managing its balance sheet."

Certainly the acquisitions of this past year have been a headline story for the REIT space, and such billion-dollar transactions are likely to continue, panelists predicted. "There is an underlying pipeline of portfolios that don’t have the ability to go public and will end up on our balance sheets," said Jay Flaherty, chairman, president and CEO of HCP.

The panelists, and the industry at large, do acknowledge that such good times cannot last. "There will be a day when the market turns," moderator Mike Kirby, chairman and director of Research, Green Street Advisors, said. "There is going to come a time when a health care REIT does such a deal and the market doesn’t respond with 'great'."

The REITs say they are ready: they have a wide range of capital sources they are cultivating including the GSEs, for starters. They are also focusing on the full spectrum of assets in this class, from medical office buildings to skilled nursing to assisted living to senior care, for better diversity. Finally, they are often the preferred buyer for assets compared to private equity. "The operators don’t want private equity necessarily as an owner," Flaherty said. "They hold assets for maybe seven years and then their business model requires them to exit. We have a hold period of 15 to twenty years."