Last September, Senator Orrin Hatch (R-PA) introduced the REIT Investment Diversification and Empowerment Act of 2006 (RIDEA) to Congress. The bill was re-introduced to the House of Representatives by Rep. Joseph Crowley (D-NY) and Rep. Eric Cantor (R-VA). This legislation has been referred to the Ways and Means Committee for review. If enacted by Congress, RIDEA’s provisions will allow health care REITs to participate in property-level cash flows using the taxable REIT subsidiaries (TRS) structure.

This recent legislative development caused Moody’s Investors Service to examine the TRS structure, the newly proposed provisions and how subsidiaries impact the health care sector.

According to Moody’s Analyst Lori Marks, using the TRS structure under RIDEA could result in greater strategic flexibility and potentially increase profits for health care REITs. “Health care REITs predominantly operate under a triple net lease operating structure for collecting rents,” she says. “The TRS would allow them to profit from property operations. Right now, leakage arises from the income that is earned by the REIT versus the rent paid to the REIT. The new structure would allow them to capture that income.”

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