Long-Term Prognosis Sound for Health Care REITs

REIT magazine: May/June 2018

Health care REITs have grown rapidly over the past two decades, bringing professional management to a critical sector of the economy as they have solidified their position as an important sector of the REIT universe. The number of health care REITs in the FTSE Nareit All Equity REITs index increased from 13 in 2000 to 19 as of March 31, 2018. The market capitalization of this sector rose from $4.7 billion to $87 billion during this same period. 

Health care REITs own and operate a range of facilities, including senior housing communities, medical office buildings, medical research, skilled nursing, and long-term care and rehabilitation facilities.  REITs have made net acquisitions of these properties totaling $50 billion in the past five years.

Investments in these properties have historically delivered solid returns to shareholders. Health care REITs have paid a total of $26.3 billion in dividends over the past five years, and total returns over the past 15 years have averaged 12.5 percent annually. However, the sector’s total returns have underperformed the broader REIT market more recently.

The health care property sector overall is experiencing a building boom, with new construction projects totaling 5 percent or more of the existing stock. Occupancy rates have eased a bit as the new supply is completed, but demand continues to grow, and health care REITs are well-positioned to take advantage of future growth in the sector.

 

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