A Post-2Q17 Comparison of the Top 3 Healthcare REITs


Aug. 18 2017, Updated 1:43 p.m. ET

Which multiple should we consider?

The performances of healthcare REITs in 2Q17 and their expected performances for the rest of the year can be best evaluated through the price-to-FFO (funds from operations) ratio. That ratio gives us an idea of how much an investor has to pay per share of a company’s profit. It has the same implication and meaning as the price-to-earnings ratio for companies in other industries.

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Price-to-FFO ratio

Healthcare Trust of America (HTA) is the most premium among our top three healthcare REITs in terms of price-to-FFO multiples. It trades at a price-to-FFO multiple of 18.75x. Boosting shareholder value by hiking its quarterly dividend and its decent second quarter results may have pushed the stock higher.

Welltower (HCN) trades at a price-to-FFO multiple of 16.83x. It’s well placed with properties located in premium Class A cities. In 2Q17, it reported higher-than-expected results in 2Q17 and year-over-year growth for the 17th consecutive quarter. Welltower has recently undertaken several strategic expansion activities in order to boost its top line. It has also carried out the disposition of several non-core businesses such as its skilled nursing facility business in order to maximize profits. These activities may have made investors optimistic about the company, thus pushing the stock to a price rally.

Ventas (VTR) trades at a price-to-FFO multiple of 15.96x. Its higher-than-expected top line and bottom line during the second quarter and its enhanced guidance for fiscal 2017 may have also made investors optimistic about the stock. Ventas’s recent endeavor to dispose of its skilled nursing facility business goes well with the current macro trend where the future of the Affordable Care Act is uncertain.

EV-to-EBITDA multiples

Healthcare Trust of America trades at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 28.25x. Welltower and Ventas, on the other hand, trade at EV-to-EBITDA multiples of 18.39x and 17.32x, respectively.

These three healthcare REITs and Public Storage (PSA) together make up 26.0% of the iShares Residential Real Estate Capped (REZ).


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