January 15, 2020
Healthcare REITs entered the 2010s as the single-best performing real estate sector of the prior decade, driven by a “continuous wave of accretive acquisitions,” according to Seeking Alpha. But how did the sector end the decade?
A review of the Hoya Capital Healthcare REIT Index, which includes 18 healthcare REITs totaling roughly $150 billion in market value, shows healthcare REITs have historically been a defensively-oriented sector. They generally pay high dividend yields, averaging 4.6%, which is well above the REIT sector average of 3.5%, according to Seeking Alpha.
However, the 2010s were a “comparatively disappointing decade for healthcare REITs.” From 2010 to 2019, the sector delivered compound total returns averaging 10.1% per year, 250 basis points shy of the 12.6% average compound total returns delivered by the FTSE NAREIT All Equity REITs Index, according to Seeking Alpha.
After years of underperformance, healthcare REITs began to “show signs of renewed life” in 2018 and 2019. Last year, the sector delivered total returns of 21% on a market-capitalization-weighted basis, but that performance was dragged down by the performance of the “Big 3” – Ventas, Welltower, and Healthpeak, which recently changed its name and ticker symbol from HCP Inc.
However, when using a simple average, healthcare REITs spiked more than 40% in 2019. At the sub-sector level, medical office and research/lab focused REITs led the way, averaging 43% returns in 2019, followed by senior housing REITs at 31% and skilled nursing REITs at 29%.
And, despite the disappointing 3Q19 earnings from seniors housing REITs, Seeking Alpha says “early tremors of the long-awaited demographic-driven demand boom are finally beginning to appear,” which translates into a “promising” new decade.
For questions, comments or concerns, please contact Jennifer Duell Popovec