Amid a ‘volatile’ year for REITs, HFF says the healthcare sector delivered the best returns
HFF was retained by CNL Healthcare Properties to help the $3.5 billion healthcare REIT to pursue strategic alternatives. REIT sectors with M&A activity tend to be less volatile, HFF says. The CNL portfolio includes the University of Tennessee Medical Center Cancer Institute building in Knoxville, Tenn. (Photo courtesy of BarberMcMurry Architects)
Although real estate investment trust (REIT) performance has been “volatile” in 2018, most REITs are on track to finish the year in positive territory, with healthcare REITs leading all sectors in total returns.
That was according to the Quarterly Market Perspectives report, released Nov. 29 by HFF Securities, the real estate investment banking group of HFF Inc. (NYSE: HF).
The HFF report noted that REITs have a “historically high correlation to both broader markets and interest rates,” which has fueled recent volatility. But one of the key findings of the report was that, as of the time of its release, net lease REITs had “significantly outperformed” and were among the sectors with a positive total return in 2018, “likely driven by their defensive profile despite raising rates.” The report also noted that REITs with mergers and acquisitions (M&A) activity, including healthcare and industrial, have also outperformed, “pointing to a potential take-out premium.”
Before we go any further, it should be noted that the term “healthcare REITs” as used by HFF encompasses a wide range of property types under that umbrella, including the full continuum of different kinds of senior living facilities, as well as medical office buildings (MOBs) and other outpatient buildings, rehabilitation hospitals and other post-acute facilities, hospitals and other inpatient facilities, and life sciences properties.
It should also be noted that senior living is the dominant real estate product type in the sector, constituting the largest proportion of asset value in the portfolios of all of the “big three” healthcare REITs: Welltower Inc. (NYSE: WELL), Ventas Inc. (NYSE: VTR) and HCP Inc. (NYSE: HCP) – although some REITs, such as Healthcare Trust of America Inc. (NYSE: HTA) and Physicians Realty Trust Inc. (NYSE: DOC) are “pure play” REITs focused on a single product type (MOBs). So the thing to recognize is that data regarding the healthcare REIT sector as a whole is skewed toward senior living facilities.
Having said that, the HFF report still contains some interesting nuggets.
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