Fitch: Skilled Nursing Headwinds Back on Healthcare REITs' Radars

NEW YORK--(BUSINESS WIRE)-- The effects of widely anticipated headwinds for skilled nursing operators are beginning to show up in metrics causing angst amongst healthcare REITs and their bondholders says Fitch Ratings. While material and by no means a credit positive, most healthcare REITs are fairly insulated from a rating perspective. Moreover, Fitch does not expect these pressures will manifest in secular bankruptcies like those seen in the late '90s and early '00s as they are incremental changes rather than the wholesale shift from 'cost plus' (i.e. a guaranteed margin regardless of cost and efficiency) to 'fee for service.'

'Increasing coverage under Medicare Advantage is leading to shorter stays and lower rates. This, when combined with the Department of Justice investigations into billing practices and various pilot programs for bundled payments and coordinated care from the Affordable Care Act, is pressuring margins at skilled nursing facilities,' said Managing Director Megan Neuburger.

While these challenges will persist for the foreseeable future, stronger operators should be able to react accordingly. Operators' financial policies are of equal importance to changes in government reimbursement rates when determining outcomes.

As far as healthcare REITs are concerned, the market's collective memory around skilled nursing facilities is long and justifiably so. Most healthcare REITs currently have the cushion needed to manage through this environment in terms of facility level rent coverage and leverage at the REIT. Nonetheless, 'healthcare REIT equity values and capacity for external growth on a leverage-neutral basis could suffer if skilled nursing facilities continue to underperform,' said Director Britton Costa.

'Re-Examining Healthcare REITs and SNFs Amid Headwinds' is available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available on www.fitchratings.com.

Re-Examining Healthcare REITs and SNFs Amid Headwinds (REIT Leverage and Tenant Rent Coverage Drive Ratings)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878088

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160329005990/en/

Fitch Ratings
Britton Costa, CFA
Director
+1-212-908-0524
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY, 10004
or
Megan Neuburger, CFA
Managing Director
+1-212-908-0501
or
Steven Marks
Managing Director
+1-212-908-9161
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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