Healthcare REITs Signal An Increased Focus on Medical Office
HCP, Welltower and Ventas all highlighted in their earnings report a strategy for the medical office asset class, says. Mizuho REITs analyst Richard Anderson.
It is earnings season, which means real estate companies are diligently releasing their earnings and analysts are intently scrutinizing said reports. Mizuho REITs analyst Richard Anderson covers healthcare REITs and he noticed a trend among the big 3 companies HCP, Welltower and Ventas in their recent releases: they all are emphasizing strategies involving medical office buildings.
To be sure, MOB is a staple among their holdings but as Anderson tells GlobeSt.com, “it just seemed interesting that each of the three highlighted a very specific strategy aimed at approaching the medical office business to some degree, versus past earnings reports.”
He says that:
- HCP made mention of its joint venture with Morgan Stanley that’s aimed at investing in medical office as well as a new partnership with HCA to focus on the asset class.
- Welltower is expected to close about $500 million of MOB transactions in the short term. “Also, they have always talked about using their senior housing portfolio as a quasi hanging carrot for medical office, as a medical office feeder.” The REIT has also brought on board a former Duke Realty executive Keith Knokoli, who has strong credentials in the MOB segment. “You don’t make an investment at that level of executive if you’re not serious about the business.”
- Ventas is re-igniting its exclusivity arrangement with PMB Real Estate Services. It is a medical office developer that Ventas inherited when it merged with Nationwide Health Properties many years ago, Anderson explains. Ventas just re-upped its exclusivity arrangement with the company for the next ten years, he says.
A Lower Risk Profile
What is strange, he says is that “cap rates on medical office assets that are trading hands are still quite low, but nonetheless REITs are maintaining a fair amount of attention toward the space.” Anderson also points out that medical office assets are known for their stability and relatively lackluster growth while skilled nursing is a higher returning asset class that comes with higher risk.
His tentative takeaway: there is possibly a return to risk-off mentality around the corner for healthcare REITs. “Maybe REITs are becoming buyers of medical offices simply because of their low risk orientation, even though the asset class remains quite expensive.”