Scenario for the sector
Healthcare REITs have positioned their properties in premium locations where there’s high income growth. That has helped them tap healthcare owners who offer costly services to consumers. With a growing proportion of the US population above 65 years, the demand for healthcare facilities has gone up.
The current macro situation has helped healthcare REITs tap into this opportunity and thus grow their businesses. Let’s look at the 2Q17 revenues and FFOs (funds from operations) of the top three healthcare REITs—Welltower (HCN), Healthcare Trust of America (HTA), and Ventas (VTR).
Welltower reported lower revenue, FFO increased YoY
Welltower’s adjusted FFO of $1.60 per share surpassed analysts’ estimate by 52.4%. It also came in 7.8% above the year-ago mark, backed by higher same-store NOI (net operating income), synergies from investments in its properties, and the disposition of non-performing assets. Its revenues, however, were negatively impacted due to lower rents during the quarter. Revenues of $1.1 billion missed the year-ago mark and analysts’ estimates by 1.8% and 1.5%, respectively.
Healthcare Trust of America’s FFO fell in 2Q17
Healthcare Trust of America reported lower YoY (year-over-year) FFO in 2Q17. FFO of $0.30 per share fell 2.5% YoY. The results also missed analysts’ estimate by 0.80%. Lower net income and margins were responsible for lower profit during the quarter. Rental income was $139.5 million, a 23.3% rise from the year-ago period. About 78.0% of its tenants were retained during the quarter.
Ventas’s FFO missed analysts’ estimates
Adjusted FFO rose 2.0% to $1.06 per share for Ventas (VTR), backed by higher revenue, which was accompanied by prudent cost control. However, FFO missed analysts’ estimate. Ventas’s revenue rose 8.9% to $6.0 billion, backed by higher rental income, triple net leased income, and office space income. Higher demand for senior housing facilities drove its top-line results for the quarter.
These three REITs, along with Public Storage (PSA), make up 26.0% of the iShares Residential Real Estate Capped (REZ). The ETF has 98.8% exposure to REITs and an average traded volume of 34,239 shares. That could rise in the future following the decent results for REITs in 2Q17.
In the next part of this series, we’ll see what to expect from these REITs in the year ahead.