Back in mid-February, it looked as if the world of healthcare REITs had collapsed, with no end in sight. Almost every healthcare REIT hit a new low in a span of a few days, but it has been a vastly different story in the six months since then. The average healthcare REIT stock has jumped in price by about 50% since mid-February, with a range between 27% (Care Capital Properties) and 78% (Sabra Health Care REIT). While that means the higher-yielding REITs have dropped down from double-digit yields, the range of dividend yields is still a healthy range of 4.1% to 8.5% (at least for investors). Price pressure will certainly pop up again if the Fed does increase rates next month, but no one is expecting a big increase, if it comes at all. All eyes, however, will be on HCP as it gets closer to the spin-off of its skilled nursing portfolio into a separate REIT (Quality Care Properties). Some believe the impact of the spin-off is already priced into HCP’s shares, while others believe at current levels the stock remains overvalued. Regardless, expect a lot of volatility for both stocks in the days after the spin.
The REIT Recovery
The Big Short 2.0 is about to come crashing down on HC REITs.
We are already seeing the first wave of lease-payment default rates of facility-based PAC operators (SNF, IRF, LTCH). Next will be ACHs as doc-owned ACOs shift cases out of high cost facility-based settings into more cost effective and patient preferred HCBS. As one physician leader put it “aside from heart and brain surgeries and complicate deliveries and trauma cases, why are we using the hospital at all?”
Big opportunity in this perfect storm will be AL/IL with variable care (H@H) service capabilities, these will include surgical suites and urgent care centers on campus – think micro-hospital
I agree with you on the future need for hospitals, but have not seen a big spike in defaults from PAC tenants with their rent to REITs, at least not yet. And the REITs are starting to trim their PAC holdings to maybe prevent that from happening to them.