This is the second in a 3-part series I’m doing on the Health Care REIT sector. Last week, I reviewed a recent article on this sector which looked at the broader macro-forces affecting the industry. This week is my regular REIT sector 1-year report, and next week I’m going to dive a bit into the recent SEC filings from some of these REITs to discuss specific issues these REITs and the broader industry are facing.

The Health Care sector includes several different property types, including senior living (including assisted living, memory care, and congregate independent living), life sciences, medical offices, and even some specialty niches.  The senior living industry is a large portion of this sector and has been adversely affected by the continuing impact of the COVID-19 pandemic as well as the current economic and market conditions. These conditions continue to have a significant negative impact on results of operations, financial position and cash flows. Although there have signs of recovery and increased demand when compared to the low levels during the COVID-19 pandemic, the recovery of senior housing operating portfolios has been slower than previously anticipated.  As such, REITs report that they cannot be sure when or if the senior housing business will return to historic pre-pandemic levels.  Added to this is the burden of rapidly increasing labor costs and labor shortages. 

Diversified Health Care Trust (DHC) owns medical office buildings (36% of their portfolio) as well as a senior living communities (46%), life sciences (13%) wellness centers (4%) and Skilled Nursing (1%).  They own about 27,000 senior living units and about 100 other buildings with about 500 tenants spanning 36 states and DC, with the largest proportion of holdings in the sunbelt, and particularly California, Texas, and Florida.  Substantially all NOI comes from private pay Properties.  The medical offices, life sciences laboratories, and other medical related facilities appear similar to regular commercial office buildings but are engineered with plumbing, electrical, lighting, waste disposal, ventilation, and mechanical systems to support the healthcare field.  For the 2^nd quarter of this year, they reported negative $0.30 earnings per share (EPS), compared with negative $0.46 the same quarter last year.  Funds from Operations (FFO) for the 2^nd quarter was $0.01 per share, the same as 2^nd quarter 2022.  As a result of the post-pandemic challenges, DHC reports substantial doubts as to its ability to continue as a going concern.  DHC has entered into an agreement to merge with Office Properties Income Trust (OPI) which is expected to close during the 3^rd quarter.  As a result, their 1-year stock gain of 95.65% is somewhat misleading.  A better picture is told by their 5-year performance, which was down 86%.

Welltower (WELL) focuses on senior housing, post-acute care, and outpatient medical (medical offices).  They operate through local partners, such as Balfour, Brandywine, and StoryPoint.  Currently they have 1,778 properties in their portfolio, consisting of 852 senior housing properties, 568 medical offices (rented at triple-net) and 358 outpatient medical facilities.  The largest number of their properties are in California (11% as of the end of the 2^nd quarter), the UK (8%), Texas (7%), Canada (5%), and Pennsylvania (5%).  None of their partner entities provide more than 8% of their NOI, the largest two being Integra Healthcare and Sunrise Senior Living.  For the 2^nd quarter of this year, their EPS stood at $0.20, the same as last year, and FFO/share was $0.93, slightly up from $0.90 last year.  As such, their stock is up 24.16% year-over-year.  WELL is up about 29% over the past 5 years.

Omega Health Care Investors (OHI) is primarily in the skilled nursing care field, with 893 properties in the forty-two of the US states and the UK with a total of 88,322 beds.  The largest concentration of properties is in Florida (11.4%) followed by Texas (10.2%), Indiana (6.6%) and the UK (6.1%).  EPS for the 2^nd quarter was $0.25, compared with $0.38 for the same quarter last year.  Omega contracts with 66 “operators” who lease the facilities from OHI.  Indeed, nearly all of OHI’s revenues are from rental and interest income.  These operators in turn were impacted by the pandemic via reduced revenues, lower occupancy, increased expenses, and uncertainties regarding reimbursement levels and regulatory support.  Their stock is up 10.83% year-over-year, and all of that return has occurred in the most recent 6 months.  Over the past 5 years, the stock has cycled a good bit, but today is basically back where it was 5 years ago.

Caretrust REIT (CTRE) invests in skilled nursing facilities (72% of their portfolio, 148 properties), assisted and independent living facilities (15%, 32 properties) and campuses with a mix of services (12%, 25 properties).  They have 205 properties in 25 states with 22,311 beds total.  Of the total properties, 28% are in California and 23% in Texas.  As of the end of the 2^nd quarter, 36% of revenues came from one partner (Ensign) and 16% from another (Priority Management Group).  EPS for the 2^nd quarter was a negative $0.01, compared with $0.21 the same quarter last year.  Much of this can be attributed to a recognition of certain impaired real estate assets, attributed to post-pandemic inability of partners to fully meet obligations on certain facilities.  Their stock is up 7.36% year-over-year, and aside from the big dip—and-bounce that nearly all REITs experienced during the early days of the pandemic, their stock has been relatively flat over the last 5 years. 

Sabra Health Care REIT (SBRA) invests in skilled nursing (55.7% of their portfolio), Senior Housing both managed (15.4%) and leased (10.5%), Behavioral Health (13.6%), Specialty Hospital (4%) and other health care properties (0.8%).  They have 392 properties through 67 partners in the U.S., British Columbia, and Alberta.  Other than the 61 managed Senior Housing communities, all of their properties are triple-net leased to partners.  For the 2^nd quarter, EPS was $0.09, up from $0.07 the same quarter last year.  FFO was $0.32 per share, down from $0.36 the same quarter last year.  While their stock is up 4.26% year-over-year, it has been on a steady downward trend for the past 5 years, down about 40% over that period.

Global Medical REIT (GMRE) is a net-lease medical office REIT which acquires healthcare facilities and leases those to physicians groups and healthcare systems.  They own 186 buildings with an aggregate of 4.8 million leasable square feet.  Nearly all of their income is from facility rentals.  EPS for the 2^nd quarter was $0.18, up from $0.03 the same quarter last year, and FFO/share for the second quarter was $0.21, down from $0.24 the same quarter last year.  The stock has been nearly flat for the past year, and despite some price swings, the stock is basically in the same place it was 5 years ago.

Ventas (VTR) owns 1,392 properties spanning 24 million square feet including senior living (825 properties), life sciences, research & innovation properties (46), medical & outpatient offices (414), skilled nursing (51) and other health care real estate (56) in the US, Canada, and the UK.  Same store NOI for senior housing is reported at 81.3%, while for outpatient medical and research facilities it is 91.7%. EPS for the 2^nd quarter was $0.26, up from negative $0.10 the same quarter last year.  FFO for that same period, while not reported on a per-share basis, increased about 10.5%, and NOI was up by 7.8%.  Ventas stock has been basically flat for the last year, but down about 20% over the past 5 years.

Community Health Care Trust (CHCT) owns 184 properties in 34 states totaling about 4 million square feet, including medical office buildings (85 properties), inpatient rehab facilities (7), specialty centers (37), physician clinics 30), acute in-patent behavioral facilities (5), hospitals and surgical centers (10),  behavior specialty facilities (9) and one long-term care hospital.  As of the end of the 2^nd quarter, 91.7% of properties were leased with a weighted average lease term of 7.1 years.  The largest number of their properties is in Ohio (25), followed by Florida (22), Texas (16), Illinois (16), and Pennsylvania (13).  Their largest single tenant by gross investment is Lifepoint Health, with 5 properties constituting an aggregate investment of $82.3 million, and their largest tenant by number of properties is GenesisCare with 9 properties and an aggregate investment of $31 million.  For the 2^nd quarter, EPS was $0.24, compared with $0.21 the same quarter last year.  FFO per share for the 2^nd quarter was $0.62, compared with $0.57 the same quarter last year.  Community Health shares are down 8.71% over the past year, but basically flat over the past 5 years.

National Health Investors (NHI) specializes in sale-leasebacks, joint-ventures, mortgage and mezzanine financing of senior housing and other medical properties.  Most of their holdings are in a portfolio of investments in 163 health care properties located in 31 states and triple-net leased to 25 operators.  That portfolio includes 97 senior housing communities, 65 skilled nursing facilities, and one hospital.  They also have two ventures which directly own 15 independent living facilities in 8 states totaling 1,734 units.  EPS for the 2^nd quarter was $0.92, compared to $0.47 the same quarter 2022.  FFO/share was $1.06, compared with $1.26 the same period last year. NHI shares are down 13.27% from this time last year, and down about 32% over the past  5 years.

LTC Properties (LTC) invests in seniors housing and health care primarily through sale-leasebacks, mortgage financings, joint-ventures, construction financing, and structured finance (preferred, bridge, mezzanine, and tranche lending).  Their current portfolio of 148 properties includes assisted living (57.5%, with 97 properties), skilled nursing (41.6%, 50 properties), and 1 other property (0.9%).  They have 5,570 assisted living beds and 6,349 skilled nursing beds.  Income, however, comes from rentals and interest.  EPS for the 2^nd quarter was $0.57, the same as last year, and quarterly FFO, while not reported on a per-share basis, was up 4.5% year-over-year.  LTC shares are down 18.41% over the past year, and down about 29% over the past 5 years.

Physicians Realty Trust (DOC) owns 227 medical office buildings in 32 states, with approximately 15.6 million leasable square feet, leased to physicians, hospitals, and health delivery systems.  As of the 2^nd quarter, they reported 95% occupancy, and 91% of the leasable square footage was either on a hospital campus or strategically affiliated with a health care system.  EPS for the 2^nd quarter was $0.23, the same as the 2^nd quarter 2022, and FFO/share was $0.25, compared to $0.27 for the 2^nd quarter 2022.  DOC is down about 20.36% over the past year, and about 27% over the past 5 years.

Healthpeak Properties (PEAK) invests in lab campuses (3, in San Francisco, Boston, and San Diego totaling 146 properties), outpatient medical usually co-located on hospital campuses (295 properties), continuing care retirement communities (15) and other properties (19).  Lab properties and outpatient medical both report a same store occupancy rate of 97.4%, while for the continuing care retirement communities that is 83.4%.  EPS for the 2^nd quarter was $0.09, compared with $0.13 the same quarter last year, and FFO, while not reported on a per-share basis, increased 12.9% from the 2^nd quarter 2022 to the 2^nd quarter 2023.  PEAK is down 22.45% over the same time last year, and down 28% over the past 5 years.

Healthcare Realty Trust (HR) owns 680 outpatient medical facilities spanning 39.8 million square feet in 35 states.  The majority of their properties on the campus of or adjacent to an established health care system, and they report an average of 87.4% occupancy, with 89% in same-store properties.  The 2^nd quarter EPS was negative $0.22, compared with $0.04 the 2^nd quarter of 2022.  FFO/share for the 2^nd quarter was $0.39, compared with $0.45 the same period last year.  Notably, the number of shares outstanding increased from 149.7 million to 378.9 million due to a reverse merger dated July 20, 2022 by and among Healthcare Realty Trust, Healthcare Trust of America, and related holding companies.   HR stock is down 28.98% over the past year,  with nearly all of that decline happening over the past two months.  Over the past 5 years, HR shares are down 47%.

Strawberry Fields REIT (STRW) partners with nine skilled nursing facility operators with a total of 79 properties and 10,189 skilled nursing beds, 63 long-term acute care beds, and 99 assisted living beds in Arkansas, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Tennessee and Texas.  EPS for the 2^nd quarter 2023 was $0.19, compared to zero the same quarter 2022.  While FFO is not reported on a per-share basis, it increased by 6.5% from the 2^nd quarter 2022 to the 2^nd quarter 2023.  STRW is down 37% over the past year  The stock only began trading in September of last year.

Medical Properties Trust (MPW) is the 2^nd largest non-governmental owner of hospitals in the world.  Their portfolio of 44 properties spans 10 countries, including the US (61%), the UK (22.4%), Germany (3.9%), Switzerland (3.5%), Australia (1.6%), Spain (1.2%) and others (6.4%).  They have about 44,000 licensed beds, including general acute care (197 facilities), behavioral (70), inpatient rehab (114), and long-term acute care (20) and freestanding ER/urgent care (43). They invest in both sale-leasebacks as well as direct investing.  For the 2^nd quarter, EPS was reported at $0.29, the same as the previous year, and FFO/share was $0.48, compared to $0.46 for the same period last year.  The stock is down 57.21% over the past year, and down 64% over the past 5 years.

So that’s it for today, folks.  The industry has some good performers, and some of these stocks have real potential as the aftermath of the pandemic works its way out.  As always, I’m not an investment advisor, and this is not a solicitation or recommendation to invest in anything. Further, I and the entities I’m involved with may have positions or interests in one or more of the securities discussed here. However, if you have any questions about this, please don’t hesitate to reach out.

John A. Kilpatrick, Ph.D., MAI

[email protected]