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Prognosis & Q2 Earnings Headlines of 3 Big Healthcare REITs
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The healthcare REIT space has been hit hard, thanks to the rapid spread of coronavirus. The nationwide shelter-at-home mandates imposed to contain the pandemic and incidences of the outbreak in senior housing communities have resulted in low move-ins and tour leads as well as high move outs.
Also, the financial condition and liquidity of healthcare operators have deteriorated due to higher operating expenses and negative revenue trends, impairing their ability to pay rents. Nonetheless, since life-science assets have provided indispensable support to combat the pandemic, there is still light at the end of the tunnel for healthcare REITs that have exposure to this property type.
Against this backdrop, let’s examine how the big three diversified healthcare REITs — Welltower Inc. (WELL - Free Report) , Healthpeak Properties, Inc. and Ventas, Inc. (VTR - Free Report) — have fared in the second-quarter reporting cycle and how they are poised for the future. It should be noted that the second quarter of 2020 was the first quarter wherein the full impact of the pandemic-induced damage was visible.
The common themes that favorably influenced these Zacks Rank #3 (Hold) healthcare REITs second-quarter results were year-over-year growth in same-store net operating income (NOI) for triple-net leased assets and outpatient medical properties.
However, senior housing operating portfolio endured significant challenges, resulting in steep occupancy and revenues declines as well as a sharp increase in expenses.
Ventas reported second-quarter 2020 normalized funds from operations (FFO) per share of 77 cents, beating the Zacks Consensus Estimate of 73 cents. However, the company’s revenues of $943.2 million in the second quarter lagged the Zacks Consensus Estimate of $974.8 million. Total same-store cash NOI declined 13.6% year over year.
It reported 42.7% year-over-year decline in same store NOI for seniors housing operating portfolio but recorded 14.4% growth in life-science segment. Average occupancy at senior housing operating portfolio sequentially plunged 470 basis points (bps) to 82.2%, which further declined 50 bps to 80.1% in July.
Healthpeak reported second-quarter 2020 FFO as adjusted of 40 cents per share met the Zacks Consensus Estimate. Nonetheless, the healthcare REIT generated revenues of $588.4 million, missing the Zacks Consensus Estimate of $687.6 million. Total cash same-store portfolio (SPP) NOI was down 2.2% year over year.
The company witnessed a 21.2% decline in senior-housing operating segment cash NOI but 7.3% growth in life-science segment. Senior housing operating portfolio spot occupancy as of Jun 30, 2020 was 78.9% and declined 110 bps in July to 77.8%.
Welltower reported normalized FFO per share of 86 cents for second-quarter 2020, which surpassed the Zacks Consensus Estimate of 83 cents. However, revenues of $1.19 billion missed the Zacks Consensus Estimate of $1.23 billion. Total same-store NOI was down 10.5% year over year.
The company witnessed a 24.5% decline in senior-housing operating NOI and 1.8% growth in medical office building segment. Senior housing operating portfolio occupancy declined around 500 bps in second quarter to 80.1% as of Jun 30, 2020. This continued in July, with spot occupancy witnessing a sequential decline of 70 bps to 79.4%.
Is a Shift in the Cards?
With the senior housing operating environment showing no signs of recovery in the near term, we expect medical-science research and innovation facilities to be the bright spots for healthcare REITs.
Notably, the pandemic has highlighted the importance of companies researching and developing vaccines and new drugs to battle the health crisis. Moreover, critical monetary support from the government, higher philanthropic investment in medical research and streamlined process for FDA approvals have strengthened the fundamentals of life science and medical research assets.
Amid this, we expect this asset type to enjoy robust demand for space and strong leasing economics. Understandably, REITs like Ventas and Healthpeak have been benefiting from exposure to the medical research space.
Specifically, per Thomas Herzog, CEO of Healthpeak, “We intend for the majority of our future growth to be in life science and medical office, which already accounts for the majority of our asset value.”
Moreover, Ventas formed a perpetual life vehicle — Ventas Life Science and Healthcare Real Estate Fund, L.P — to focus on investments in research and innovation centers and medical office asset classes.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Prognosis & Q2 Earnings Headlines of 3 Big Healthcare REITs
The healthcare REIT space has been hit hard, thanks to the rapid spread of coronavirus. The nationwide shelter-at-home mandates imposed to contain the pandemic and incidences of the outbreak in senior housing communities have resulted in low move-ins and tour leads as well as high move outs.
Also, the financial condition and liquidity of healthcare operators have deteriorated due to higher operating expenses and negative revenue trends, impairing their ability to pay rents. Nonetheless, since life-science assets have provided indispensable support to combat the pandemic, there is still light at the end of the tunnel for healthcare REITs that have exposure to this property type.
Against this backdrop, let’s examine how the big three diversified healthcare REITs — Welltower Inc. (WELL - Free Report) , Healthpeak Properties, Inc. and Ventas, Inc. (VTR - Free Report) — have fared in the second-quarter reporting cycle and how they are poised for the future. It should be noted that the second quarter of 2020 was the first quarter wherein the full impact of the pandemic-induced damage was visible.
The common themes that favorably influenced these Zacks Rank #3 (Hold) healthcare REITs second-quarter results were year-over-year growth in same-store net operating income (NOI) for triple-net leased assets and outpatient medical properties.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, senior housing operating portfolio endured significant challenges, resulting in steep occupancy and revenues declines as well as a sharp increase in expenses.
Ventas reported second-quarter 2020 normalized funds from operations (FFO) per share of 77 cents, beating the Zacks Consensus Estimate of 73 cents. However, the company’s revenues of $943.2 million in the second quarter lagged the Zacks Consensus Estimate of $974.8 million. Total same-store cash NOI declined 13.6% year over year.
It reported 42.7% year-over-year decline in same store NOI for seniors housing operating portfolio but recorded 14.4% growth in life-science segment. Average occupancy at senior housing operating portfolio sequentially plunged 470 basis points (bps) to 82.2%, which further declined 50 bps to 80.1% in July.
Healthpeak reported second-quarter 2020 FFO as adjusted of 40 cents per share met the Zacks Consensus Estimate. Nonetheless, the healthcare REIT generated revenues of $588.4 million, missing the Zacks Consensus Estimate of $687.6 million. Total cash same-store portfolio (SPP) NOI was down 2.2% year over year.
The company witnessed a 21.2% decline in senior-housing operating segment cash NOI but 7.3% growth in life-science segment. Senior housing operating portfolio spot occupancy as of Jun 30, 2020 was 78.9% and declined 110 bps in July to 77.8%.
Welltower reported normalized FFO per share of 86 cents for second-quarter 2020, which surpassed the Zacks Consensus Estimate of 83 cents. However, revenues of $1.19 billion missed the Zacks Consensus Estimate of $1.23 billion. Total same-store NOI was down 10.5% year over year.
The company witnessed a 24.5% decline in senior-housing operating NOI and 1.8% growth in medical office building segment. Senior housing operating portfolio occupancy declined around 500 bps in second quarter to 80.1% as of Jun 30, 2020. This continued in July, with spot occupancy witnessing a sequential decline of 70 bps to 79.4%.
Is a Shift in the Cards?
With the senior housing operating environment showing no signs of recovery in the near term, we expect medical-science research and innovation facilities to be the bright spots for healthcare REITs.
Notably, the pandemic has highlighted the importance of companies researching and developing vaccines and new drugs to battle the health crisis. Moreover, critical monetary support from the government, higher philanthropic investment in medical research and streamlined process for FDA approvals have strengthened the fundamentals of life science and medical research assets.
Amid this, we expect this asset type to enjoy robust demand for space and strong leasing economics. Understandably, REITs like Ventas and Healthpeak have been benefiting from exposure to the medical research space.
Specifically, per Thomas Herzog, CEO of Healthpeak, “We intend for the majority of our future growth to be in life science and medical office, which already accounts for the majority of our asset value.”
Moreover, Ventas formed a perpetual life vehicle — Ventas Life Science and Healthcare Real Estate Fund, L.P — to focus on investments in research and innovation centers and medical office asset classes.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>