Aviv REIT, Inc. (AVIV) enjoyed a successful IPO this year by taking advantage of high REIT multiples and the increased stability in the Medicare reimbursement outlook, which may lead to other health care REITs going public, says Dana Hambly, Analyst at Stephens Inc.
“[Aviv REIT] IPOed in March, so right at the height of where all the REIT multiples were…As long as interest rates stabilize here and with the multiples these REITs are still getting, I still think it’s a good time for an IPO of a health care REIT. You need some stability here in the interest rate environment, but overall, yes, I still think it’s probably a good time for a health care REIT to go public,” Hambly said.
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Hambly believes that Aviv REIT was more successful this time with the IPO because there has been more stability in the Medicare reimbursement outlook, which reflects a continued need for skilled-nursing-type facilities, despite the concern that skilled nursing will endure more Medicare cuts. Should the current reimbursement environment continue, Hambly says, skilled nursing could see more capital inflows.
“The Medicare cuts, we lapped those in the fourth quarter of last year. I think that if the reimbursement environment proves to be more stable than what a lot of investors might be thinking, you will see capital start flowing back into the group. I think we’re seeing that already. Aviv, I think, had tried to IPO two previous times unsuccessfully, and I think the reason it was more successful this time around is because on the financing side, those guys are seeing a little more stability in the Medicare reimbursement outlook, and there is still a need for these types of facilities, and that need will grow. And I think, again, because you can get those facilities cheaply relative to other senior housing stocks, we’re seeing the capital inflows first, and I think that will ultimately translate into the operators doing better, particularly the operators that own a fair amount of their real estate,” Hambly said.
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