Thursday, April 10, 2014

Schorsch: ‘Tomorrow’s Healthcare REIT, Today’

By Paul BubnyNational
Schorsch: "We have a lot of growth, but we don’t have exposure to Obamacare."
NEW YORK CITY—It’s a good time for an established, but still young, healthcare REIT to begin trading, and this is what the three-year-old American Realty Capital Healthcare Trust has done. With listing on the NASDAQ Global Select Market now a done deal, the stage is set for what executive chairman Nicholas Schorsch calls “tomorrow’s healthcare REIT, today.”
Since its IPO in February 2011, ARC Healthcare has assembled a 141-property portfolio focused primarily on medical office buildings and seniors housing communities, along with hospitals, post-acute care facilities and other assets. With more efficient access to capital markets thanks to its NASDAQ listing as of Monday, the REIT is positioned for further acquisitions driven by its long-term view of the $1-trillion market, which is still highly fragmented.
“We see this as a business that will last for decades, and a lot of the assets that we’re buying are being driven by the need for capital by these healthcare systems,” Schorsch tells “You see a lot of hospitals now move people after a day into an acute-care, postoperative facility, whether they stay in or use it as an outpatient. These hospitals need to add more and more of these types of facilities, and they need the capital to do that or repatriate the capital back to their main business of being a hospital.”
ARC Healthcare’s strategy is to provide “almost an opco/propco for many of the healthcare systems,” says Schorsch. “That’s where we’re driving a lot of our acquisitions.”
The REIT is moving into its next phase with “a very low-leverage balance sheet,” says Schorsch. “We have a different set of facts and circumstances than what you’ve seen in most of the public healthcare REITs. They’re different than we are in the sense that the assets are much older. The assets were mostly 11, 12, 13 years old when they bought them 15 years ago. The average life of most of those hospitals and healthcare facilities is 20 or 25 years, where we’re about 11.”
The other focus that ARC Healthcare’s senior team believes sets it apart is that “a majority of our revenue comes from investment-grade tenants and private-pay, such as the large hospitals, the large healthcare providers, the large senior citizens operators which are net-leasing the senior housing facilities,” Schorsch says. “So we have a lot of growth, but we don’t have exposure to Obamacare,” the long-term ramifications of which are still being sorted out.
Affordable Care Act or no, “What you’re seeing more and more is that a lot of the healthcare systems and the large campuses are demographically driven,” Schorsch says. “We now have 11,000 new 65-year-old people every day, and for the first time in history, we’ve got a growing population of people over 85. And it’s happening almost exclusively in the US.”
While ARC Healthcare’s real work is ahead of it, the NASDAQ listing caps a busy fortnight that has also seen the assemblage of a high-caliber executive team. Thomas D’Arcy has been promoted to CEO, and the REIT has also hired Edward F. Lange Jr. as CFO and COO and Benjamin Hatzas VP of acquisitions. “We think this is a long-term strategy,” says Schorsch. “Our REIT’s newer, it’s lower levered, it’s got more rent growth, and less than 7% of our leased space is rolling over between now and 2017.”