Dialysis Performance
The past decade marked a significant shift in the healthcare sector with the rapid expansion of outpatient real estate. This transformation provided greater flexibility for patients, allowing them to receive treatment while maintaining their daily routines. Outpatient facilities also proved to be a more cost-effective alternative to inpatient care, eliminating the need for overnight stays while offering convenience for individuals with stable home environments. This proved to be beneficial for both hospitals and patients alike. As a result, outpatient care became a preferred option for managing chronic conditions, particularly in cases where patients needed to continue working or maintain a regular lifestyle.
During this era of outpatient growth, two dominant players emerged in the dialysis space: DaVita and Fresenius, which collectively control approximately 80% of the U.S. dialysis market with a combined 7,000 clinics in their global operations. These facilities are a critical part of patients’ weekly routines, as life-sustaining dialysis treatment typically requires multiple hours per session around three to four times per week.
Dialysis Market Benefits
From an investment perspective, dialysis real estate offers several compelling advantages. Tenant retention is exceptionally strong as these facilities require significant capital investment in specialized infrastructure—including dialysis chairs, medical layouts, plumbing, water filtration systems, and compliance with strict health regulations. The high cost of relocation makes it oftentimes financially impractical for operators to move, reinforcing their long-term commitment to a site. Additionally, proximity to patients is essential as the need for frequent treatments means relocating a clinic could disrupt care and result in patient attrition.
Beyond operational factors, dialysis centers have proven to be highly resilient investments, unaffected by economic downturns or public health crises. Dialysis is an essential, insurance-backed healthcare service with stable, non-cyclical demand, ensuring consistent occupancy and patient flow. These characteristics have positioned dialysis real estate as one of the most sought-after asset types for investors seeking a truly passive, stable investment backed by creditworthy tenants with long-term lease and location commitments.
DaVita’s Financial Health and Investment Outlook
Company Overview
DaVita is headquartered in Denver and operates an extensive network of dialysis centers that serve over 200,000 patients across the U.S. and select international markets. The company’s growth has attracted significant investor attention—most notably from Warren Buffett’s Berkshire Hathaway, which represents approximately 44% ownership in the company. Since its establishment in 1979, DaVita remained a dominant force in the dialysis industry and continues to be an attractive tenant. However, this financial stability had difficulties.
Financial Challenges and Credit Downgrade
DaVita’s credit rating downgraded to junk bond status a few years ago, due to a combination of regulatory risks, financial pressures, and operational challenges. A significant portion of its revenue comes from Medicare and Medicaid reimbursements, which are typically lower than private insurance payments. Changes in reimbursement rates posed a major profitability risk, and concerns over potential federal healthcare funding cuts further pressured the company’s financial outlook. Additionally, as a highly regulated industry, the dialysis sector has subjected DaVita to legal scrutiny, including settlements and investigations related to billing practices and referral allegations. In 2018, DaVita settled a whistleblower lawsuit for $270 million, fueling ongoing concerns about future legal liabilities.
Financial Pressures and Market Decline
In 2022, DaVita faced significant financial pressures, due to high debt levels, rising interest rates, and operational challenges. Its debt-to-EBITDA ratio exceeded 4x, largely due to aggressive share buybacks instead of debt reduction, exposing the company to higher borrowing costs as the Federal Reserve raised interest rates. At the same time, declining patient volumes—driven by COVID-19-related mortality rates—slowed revenue growth. Labor shortages and inflation further strained margins as DaVita increased wages and managed rising supply chain costs. These challenges led to a 35% decline in its stock price, prompting credit rating agencies like Moody’s and S&P to raise concerns about its debt burden and profitability outlook.
Recovery and Strategic Improvements
Today, DaVita has rebounded significantly, regaining investment-grade status through strategic debt management and operational improvements. The company repaid portions of its outstanding debt, slowed share repurchases, and refinanced debt at lower rates, reducing interest expenses and stabilizing leverage ratios. As patient volumes recovered post-pandemic, DaVita prioritized patient retention and expanded home dialysis programs to improve revenue predictability. Additionally, the company implemented cost-saving measures, including automation, workforce optimization, and better reimbursement negotiations with insurers and government programs.
Despite past challenges, DaVita’s resilient business model, insurance-backed revenue stream, and financial discipline have restored investor confidence. By strengthening cash flow stability, reducing leverage, and consolidating approximately 200 underperforming clinics, DaVita has secured better financing terms and positioned itself for long-term financial sustainability and growth.
Fresenius’ Financial Health and Investment Outlook
Company Overview
Fresenius Kidney Care, a division of Fresenius Medical Care, is a globally recognized leader in dialysis treatment and kidney care services. Headquartered in Germany, the company operates approximately 4,000 clinics worldwide. In addition to providing treatment for patients with chronic kidney disease and end-stage renal disease, Fresenius is vertically integrated, manufacturing dialysis machines, dialyzers, and other essential treatment-related supplies. This dual role enables the company to streamline operations, reduce costs, and maintain greater control over its supply chain, serving both its own network of clinics and independent dialysis providers. Its strong business model and corporately guaranteed lease structure makes Fresenius one of the most sought-after tenants in the healthcare real estate sector.
Strategic Growth and Acquisitions
Over the past decade, Fresenius has expanded its footprint through key acquisitions and strategic partnerships. A significant milestone occurred in 2019 with the $2 billion acquisition of NxStage Medical, a leader in home dialysis technology. This marked Fresenius’ initial move toward expanding its home dialysis offerings, aligning with industry trends favoring patient-centered and flexible treatment solutions.
Further strengthening its position in the U.S. market, Fresenius merged with Interwell Health in 2023, enhancing its capabilities in preventative care, risk-sharing payment models, and cost-efficient dialysis solutions. This merger positioned Fresenius as a leader in value-based kidney care, an approach designed to improve patient outcomes while reducing overall healthcare costs. Additionally, Fresenius has continued acquiring independent dialysis providers, further expanding its market share and reinforcing its leadership in the kidney care space. Its streamlined business model enhances patient care while improving operational efficiency and cost management.
Financial Strength and Stability
Fresenius maintains a strong investment-grade credit rating, reflecting financial stability, a resilient market position, and consistent cash flow. A key driver of this strength is its vertical integration, which differentiates Fresenius from competitors by allowing the company to own and operate dialysis clinics, while simultaneously manufacturing its own dialysis equipment and supplies. This model supports cost efficiencies, stable revenue streams, and supply chain control.
With two primary revenue streams—dialysis services and dialysis product sales—Fresenius benefits from strong EBITDA margins, sustainable leverage ratios, and solid debt servicing capacity. The firm continues to grow through ongoing acquisitions and partnerships, investments in home dialysis technologies, and a strategic shift toward value-based care models to improve the financial performance of clinics and patient outcomes.
Looking Ahead
With a solid foundation built on strategic acquisitions, such as the NxStage and Interwell Health mergers, the company is well-positioned to capitalize on the growing demand for value-based care and home dialysis solutions. Its integrated business model, which combines dialysis services with manufacturing capabilities, ensures continued cost efficiencies and supply chain control, which will be vital in adapting to evolving healthcare dynamics.
As Fresenius expands its footprint, invests in innovative technologies, and strengthens its relationships with insurers and healthcare providers, the company is set to drive long-term profitability and improved patient outcomes, further solidifying its place as a leading provider of kidney care worldwide.
The Growth of Home Dialysis and its Industry Impact
As with any evolving industry, the healthcare and dialysis sector continues to advance, seeking innovations that enhance patient outcomes and overall quality of life. In kidney care, improvements in waste removal, energy levels, symptom management, and treatment flexibility have been key areas of progress. The most significant development in recent years has been the rapid expansion of home dialysis.
A pivotal moment for this shift came in 2019 when the Centers for Medicare & Medicaid Services launched the Advancing American Kidney Health initiative. This program incentivized providers to transition more patients to home dialysis and kidney transplants, reducing dependence on in-center dialysis. Additionally, the End-Stage Renal Disease Treatment Choices Model introduced financial rewards for providers who facilitate the adoption of home-based therapies.
In response to these initiatives, Fresenius and DaVita have developed user-friendly home dialysis machines, making peritoneal dialysis and home hemodialysis more accessible to patients. Furthermore, advancements in remote monitoring and telehealth have enabled nephrologists to oversee treatment with greater flexibility, minimizing the need for frequent in-person visits.
Beyond clinical benefits, home dialysis offers financial advantages. Lower overhead costs associated with in-center treatment make home dialysis a cost-effective solution for both providers and payers. Additionally, Medicare reimbursement adjustments have further encouraged the adoption of home-based care.
From a patient perspective, home dialysis provides greater autonomy and convenience, allowing individuals to manage their treatment schedules with minimal disruption to their daily lives. Peritoneal dialysis, in particular, offers a more continuous and gentler filtration process than traditional tri-weekly in-center hemodialysis.
As technology advances and the healthcare system increasingly embraces value-based care, home dialysis will remain a critical component in improving patient outcomes while optimizing operational efficiencies for providers.
Landlords Should Know
While these investments can provide passive income and long-term security, it is essential for landlords to stay informed about industry trends and developments at similar clinics. For example, over the past two years, DaVita has closed more than 200 clinics as part of its ongoing efforts to consolidate underperforming locations. While each closure is driven by site-specific factors, understanding broader industry shifts offers valuable insight into tenant decision-making.
Some investors are often surprised when a tenant chooses not to exercise its lease extension, given that dialysis patients require life-sustaining treatment. However, many are unaware that tenants can redirect patients to nearby clinics, optimizing operational efficiency. Additionally, the growth of home dialysis has further enabled this flexibility, reducing dependence on brick-and-mortar locations. While not every patient is suitable for home services, there has been a shift in the industry.
2024 Dialysis Strike
Notably in late 2024, over 37 dialysis clinics across California, including both Fresenius and DaVita locations, went on strike over unfair labor practices, citing concerns related to staffing shortages, patient care, and wages for clinic workers. The strike also highlighted allegations of union-busting tactics and further underscored the staffing challenges faced across many facilities.
While the strike was eventually resolved, disruptions of this nature contribute to the industry’s increasing reliance on home dialysis. As labor disputes and operational challenges arise, home dialysis continues to serve as a viable and convenient treatment option, providing patients with greater flexibility and reducing dependence on in-clinic care.
Clinical Performance Indicators
With this in mind, we recommend that investors take a holistic approach when evaluating a clinic’s long-term viability. A thorough understanding of the dialysis fundamentals that influence a facility’s operational strength, competitive positioning, and patient demand is essential for making informed investment decisions. These core considerations can provide valuable insight into the clinic’s long-term prospects and help mitigate potential risks.
Below are the main factors landlords should monitor that play a crucial role in determining a facility’s sustainability and performance.
- Density of Competing Locations
- Clinic Hours of Operation
- Number of Chairs
- Services Offered at the Clinic vs. Other Locations
- Age of Building
- Market Rental Rates (some lease options are subject to FMV)
- Credit Rating of Tenants
- Ability to Backfill Location
Future Considerations
Additionally, landlords must understand the challenges of investing in a specialized building. If these tenants were to vacate in the future, securing a new tenant would likely require a substantial tenant improvement package, which is estimated at approximately $250,000. Additionally, since most of these properties are designed for medical use, the pool of potential replacement tenants is limited. Finding a medical tenant capable of maintaining the current rental rate—while also providing a corporately guaranteed lease, which is highly attractive to investors—can be challenging.
With dialysis center locations being destination-driven rather than reliant on prime visibility, many of these properties are not located on premier real estate. As a result, backfilling these spaces is often limited to medical practices, veterinary clinics, or similar uses. However, most local practices provide only personal guarantees rather than corporate guarantees, which can significantly impact both the security of the investment and the pool of prospective buyers. Institutional and sophisticated investors typically prefer corporate-backed leases, making this a key consideration for landlords.
