April 11, 2018
A new report from Chilton Capital Management advises REIT investors to focus on other real estate sectors instead of healthcare REITs. The Houston-based firm points out that no healthcare REITs adequately price in the risk that exists in today’s market.
Healthcare REITs own about 11% of the total healthcare property pie or roughly $172 billion, according to data from NCREIF and CoStar.
Earlier this year, the Houston-based firm met with 20 healthcare REITs and key tenants, toured multiple properties, and evaluated the overall sector for investment opportunities. The result: “What we found was not inspiring.”
After a thorough review of the healthcare REIT space, Chilton Capital analyst Parker Rhea (pictured above) believes dividend growth will be highest for: a) REITs that specialize in research-oriented healthcare properties and b) trophy MOBs located on the campuses of large, healthcare hospital systems. However, these REITs “remain fully priced after accounting for slow growth at most large hospital systems, uncertainty regarding public healthcare policy, and healthcare REITs’ sensitivity to rising interest rates,” the report states.
REITs that focus on higher-risk properties, such as senior housing, skilled nursing facilities (SNFs), and hospitals, are trading at some of the lowest multiples in the REIT universe, according to Chilton Capital. That doesn’t necessarily make them a good investment since fundamentals for these REITs continue to deteriorate, significantly reducing the predictability of future dividend growth, the report says.
“While there will always be a need for a physical place to go for health-related issues, there are unique investment characteristics of healthcare real estate that must be considered,” the report states. “We are still waiting for the appropriate time and price to add a healthcare REIT to the Chilton REIT Composite.”
For questions, comments or concerns, please contact Jennifer Duell Popovec