Transcripts

Healthcare REIT's Show Remarkable Signs Of Recovery

SUSIE GHARIB: Aging Baby Boomers and an improving economy are giving a shot in the arm to health care REITs or real estate investment trusts. Those types of REITs own property and lease it to hospitals, nursing homes, and other facilities. The segment was in critical condition a few years ago, but now it's outperforming many other types of REITs. Diane Eastabrook profiles one health care REIT that's promising double-digit dividends for the next five years.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ventas (NYSE:VTR) says a better climate for health care facilities is also improving the overall condition of health care REITs. Demand for health care is growing, property values of hospitals and nursing homes ha! ve been improving, as Medicare reimbursements are rising. The combination has helped Ventas stock double in price over the past year. Chairman and CEO Debra Cafaro thinks strong industry fundamentals and rent increases Ventas has built into leases will keep the company's stock riding high.

DEBRA CAFARO, CHMN. & CEO, VENTAS: We've been able to give people an increasingly secure, growing cash-flow steam that sort of has captured a lot of the upside in the health care operating business, but gives them a very sound protection on the downside. And that's very valuable to people.

EASTABROOK: Ventas' largest tenant is Kindred Healthcare (NASDAQ:KIND), which operates nursing homes and hospitals, like this one, across the United States. But recently, Ventas began acquiring other facilities, so it is not so reliant on Kindred for its revenues. Ventas recently bought 14 independent and assisted-living facilities that it will lease back to a Chicago-based firm. It's also w! rapping up the purchase of several other similar facilities. Cafaro thinks assisted- and independent living facilities are attractive because they could be more appealing to aging Baby Boomers, and they will help round out Ventas' portfolio.

CAFARO: It's a highly fragmented business, which is one thing I really like about it. And so we see a lot of opportunities to continue acquiring assets both through perhaps more industry consolidation on the public company side, as well as through sale lease backs with private operators.

EASTABROOK: But Banc of America Securities analyst, Gary Taylor, whose firm has an investment banking relationship with Ventas, warns there is some risk in its expansion plan.

GARY TAYLOR, HEALTHCARE REIT ANALYST, BANC OF AMERICA SECS.: Assisted living, in my view, is still the most dangerous. It is still the most overbuilt. It is still the place where you have the least coverage ratio. It has the lowest cash flow metrics. EASTABROOK: Still, Taylor says Ventas has been a disciplined leader in the REIT industry, and he's confident the firm can keep a healthy balance sheet. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.