REIT Skilled Nursing Concern Is "Overblown"

Earlier this month, skilled nursing facility operators Genesis and Signature received qualified audits, sending a ripple of concern through the industry and causing some investors to pullback from REIT investing. While qualified audits can cause concern over tenant risk, Mizuho Securities says that the concern is largely “overblown.” With government support behind the market, Mizuho Securities expects skilled nursing tenants to continue to fulfill rent obligations, making them a stable tenant. In fact, not only is Mizuho maintaining the rating for healthcare REITs in the skilled nursing market segment, but it is raising its earnings estimates and price targets for SBRA, OHI and CTRE.

Government support for skilled nursing facilities is critical to Mizuho’s ongoing support for the market. Already, the government has pumped $14.6 billion into the industry. This equated to $1 million per skilled nursing facility in the US. In addition, skilled nursing facilities are receiving additional Medicaid payments through FMAP, a temporary suspension of the 2% Medicare sequestration period and a 2.2% increase in skilled nursing Medicare reimbursement in October among other things, according to Mizuho. This additional support for the industry should ultimately provide $30 billion in government relief funding to the industry, which will result in less rent deferral and rent concessions.