Healthcare REITs

Here is a Bloomberg article on healthcare REITs.  The positive, but awkward article highlights two non-traded REITs, Griffin-American Healthcare REIT II and ARC Healthcare Trust.  The reporter credits, in part, Obamacare for spurring demand for medical office space as more people gain health insurance - 975,000 people signed up for insurance in December, according to the article -  and presumably are visiting doctors.  The report's main focus is medical office buildings, and excludes hospitals and senior housing, which are generally included in healthcare REITs' portfolios.

Here is a passage:

Investor interest in medical-office buildings is driving up values. Capitalization rates, a measure of returns that declines as purchase prices rise, reached a six-year low of 7.3 percent nationally in 2013, Real Capital data show. That’s still higher than the 6.4 percent average cap rate for general offices and 5.7 percent for apartments, according to the firm.

I don't understand the first sentence of the next passage, but the subsequent information on the lack of new supply makes sense:

The large pool of properties to buy gives medical office investors ample opportunities to generate more income, according to Hanson of Griffin-American. A limited amount of construction should help landlords retain tenants and keep building occupancies high, he said.

Almost 15 million square feet (1.4 million square meters) of medical offices were completed in the past two years, compared with 41 million square feet in 2008 and 2009, according to Marcus & Millichap Real Estate Investment Services. (emphasis added)

Despite the positive trends the article reports that "Bloomberg's index of 11 health-care trusts fell 11 percent, making them the worst-performing industry group in 2013. The broader REIT index slipped 1.4 percent."  I hope the reporter means that health-care was the worst REIT sector and not the worst industry in the entire market.