Chicago Illinois Real Estate Blog

A recently formed real estate investment trust that specializes in nursing homes plans to raise as much as $200 million in an initial public offering.

Chicago-based Aviv REIT Inc., which owns 156 properties in 20 states, plans to list its shares on the New York Stock Exchange after the IPO, according to a registration statement filed Monday with the Securities and Exchange Commission (SEC).

Leading Aviv are two veterans of the nursing home industry, Zev Karkomi, the firm’s 84-year-old chairman emeritus, and Craig M. Bernfield, its 47-year-old chairman and chief executive officer. They previously ran Aviv as a limited partnership and incorporated Aviv REIT last month.

Aviv, which leases its properties to nursing-home operators, aims to capitalize on demographic trends. As baby boomers hit retirement age, nursing home expenditures are projected to rise to $218 billion in 2017, up from $125 billion in 2006, according to the SEC filing.

“We believe that these trends will support a growing demand for the services provided by (skilled-nursing facility) operators, which in turn will support growing demand for our properties,” the filing says.

Aviv earned $6.6 million in 2007, down from $9.5 million in 2006, while revenue rose 58% to $72.4 million.

Though Aviv says it could raise as much as $200 million in the IPO, the SEC filing did not include a share price. The company plans to use the proceeds from the offering to pay down debt and redeem shares in an affiliated partnership owned by Messrs. Karkomi and Bernfield.

While many investors have fled from REITs amid the credit crunch and slumping economy, shares in health care REITs remain popular. Including dividends, the Bloomberg REIT Healthcare Index has returned 13% in the past year, vs. a -14% return for the broader REIT sector.

“Demand for health care real estate is primarily driven by people getting older and sicker, not by the state of the economy,” REIT research firm Green Street Advisors Inc. writes in a recent report. “Consequently, the weakened economy should have a more muted impact on the health care sector than on other property types.”

Yet Green Street wonders whether health care REITs have become overpriced, saying “it is difficult to reconcile the sizable valuation gap” between health care and other REIT sectors.
Source