The Healthcare REIT sector has been a hot topic in the senior housing industry as of late, but Registered Rep is reporting that some investors are starting to wonder whether this “sleepy” sector is ripe for growth or is already overhyped by the baby boom generation’s imminent mass retirement.
“There is nothing terribly attractive about valuations for healthcare REITs. They’re not over- or under-valued,” said Rich Anderson, a senior research analyst with BMO Capital Markets who specializes in HCREITs during an interview with the publication. “But it’s been interesting to follow their maturation to a more economically sensitive business model. And there is a measure of excitement in the space that is unique.”
According to the article:
Despite the size of the HCREIT sector—13 publically-traded companies with a combined market cap of $57 billion—it’s still considered a niche real estate sector, similar to student housing and self-storage. The sector has tended to attract institutional investors that were looking for stability rather than growth, says Jerry Doctrow, a managing director with Stifel Nicolaus and a HCREIT expert.
HCREITs have evolved significantly over the past 15 years, although the biggest metamorphosis is occurring right now. Historically, these companies have been considered defensive investment plays, similar to fixed-income investments.
They’ve offered investors a low-risk investment with attractive yields, analysts note. As of early April, annualized yields for HCREITs ranged from 4.52 percent to 6.97 percent, according to data from SNL Financial. Moreover, during the most recent recession, HCREITs were not forced to cut their dividends, unlike other REIT sectors; they actually increased their dividends.
HCREITs have been able to provide that stability because they’ve been less vulnerable to economic conditions, unlike other REIT sectors such as hotels. In the past, they’ve invested in senior housing (assisted living) and skilled nursing facilities. Their property portfolios were heavily concentrated in these sectors, and they generated income from leasing properties to operators instead of getting involved in the day-to-day operations of the facilities.
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