{"id":1004344529,"date":"2019-08-07T08:09:15","date_gmt":"2019-08-07T16:09:15","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004344529"},"modified":"2019-08-14T06:24:10","modified_gmt":"2019-08-14T14:24:10","slug":"why-you-cant-paint-healthcare-reits-with-a-broad-brush","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/why-you-cant-paint-healthcare-reits-with-a-broad-brush\/","title":{"rendered":"Don’t Paint Health-Care REITs With a Broad Brush"},"content":{"rendered":"
\"\"

Lori Marks Photo courtesy of Moody’s<\/em><\/p><\/div>\n

In Moody\u2019s view, healthcare REITs\u2019 operating performance would vary during an economic slowdown depending on their property-type mix and the structure of their investments.<\/p>\n

REITs with large senior housing portfolios would face the greatest challenges because demand for these properties is somewhat discretionary and relies on seniors\u2019 private wealth resources. By contrast, the MOB segment (medical office buildings) would likely remain a source of stability due to strong demand drivers that would continue regardless of the economic climate.<\/p>\n

Skilled nursing facilities, another key property type for many REITs, also have limited exposure to macro influences, as government reimbursement trends will remain the more dominant driver of tenants\u2019 performance. The federal and state governments, however, could potentially curtail the rate of Medicare and Medicaid increases as a means of cutting costs and easing budgetary pressures.<\/p>\n

Slowing economy would have modestly negative impact on senior housing\u2019s revenue growth.<\/em><\/strong><\/p>\n

The senior housing industry has been contending with challenging operating conditions for the past four years due to rising labor costs and excess new supply. New construction starts have declined over the past year, which positions the sector for better growth as we look toward 2020. A slowing economy, however, would moderate the pace of this anticipated recovery.<\/p>\n

Senior housing includes independent living, assisted living and memory care, with many facilities offering a mix of units within one community. Independent living residents are younger and in good physical health; they choose to live in these facilities for the nonmedical services and amenities they offer, such as dining and social activities. Assisted living and memory care residents are more frail, have various degrees of medical needs and require assistance with daily activities, such as bathing and dressing.<\/p>\n

Senior housing\u2019s monthly fees vary according to a resident\u2019s needs, as well as the location and amenities of a particular community. Seniors often fund their moves by selling their existing homes and drawing on other sources of wealth, including investment savings, which may decline in value during an economic slowdown. Declining wealth would put pressure on facility rates and occupancy, as more seniors would delay moving to the extent that their physical condition allowed. Still, there is a large population of seniors with higher acuity and more limited choices, which provides some resilience to senior housing demand through economic cycles.<\/p>\n

Easing labor costs would boost margins for senior housing and skilled nursing.<\/em><\/strong><\/p>\n

Labor is a significant operating expense for senior housing and skilled nursing, comprising 50\u201360 percent of each sector\u2019s expense structure. Low unemployment has been driving up industry wages about 4 percent annually in recent years, which is modestly above revenue growth rates. An economic slowdown would likely temper the rate of future wage increases, boosting margins and profits for operators across both industries\u2014a credit positive for the REITs.<\/p>\n

MOBs would continue to experience steady demand, regardless of the macroeconomic climate.<\/em><\/strong><\/p>\n

MOBs and outpatient facilities have historically been among the most stable classes of healthcare real estate, a trend that Moody\u2019s expects to continue regardless of the economic environment. We expect the sector will continue to deliver low single-digit growth in annual operating income over the next few years, owing to strong secular demand trends underway.<\/p>\n

Physicians and health systems are driving increased demand for MOBs and outpatient facilities, as healthcare delivery continues to move away from the hospital setting. According to the American Hospital Association, the distribution of outpatient vs. inpatient revenue increased to 48 percent in 2016, up from 38 percent in 2006. Outpatient settings not only offer more convenience to patients but also provide more cost-effective and better-quality care. Given these benefits, Moody\u2019s expects demand for MOBs, particularly the large multispecialty buildings that tend to dominate the healthcare REIT portfolios, will remain strong.<\/p>\n

Balance sheets are well-positioned for external growth.<\/em><\/strong><\/p>\n

Healthcare REITs have modest financial leverage and multiple sources of liquidity that will enable them to take advantage of acquisition opportunities likely to arise during an economic slowdown. Healthcare real estate valuations remain near historical highs due to low interest rates and vast amounts of institutional capital seeking to invest in the sector, particularly senior housing and MOBs. Should an economic slowdown decrease the flow of private capital, Moody\u2019s anticipates that prices would likely decline and expand healthcare REITs\u2019 acquisition opportunities.<\/p>\n","protected":false},"excerpt":{"rendered":"

A slowing economy would weaken companies with large senior housing portfolios, but other companies in this sector would fare better, contends Lori Marks of Moody’s.<\/p>\n","protected":false},"author":1160,"featured_media":1004344535,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[],"class_list":["post-1004344529","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-viewpoint"],"acf":[],"yoast_head":"\nDon't Paint Health-Care REITs With a Broad Brush - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/why-you-cant-paint-healthcare-reits-with-a-broad-brush\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Don't Paint Health-Care REITs With a Broad Brush\" \/>\n<meta property=\"og:description\" content=\"A slowing economy would weaken companies with large senior housing portfolios, but other companies in this sector would fare better, contends Lori Marks of Moody's.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/why-you-cant-paint-healthcare-reits-with-a-broad-brush\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2019-08-07T16:09:15+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-08-14T14:24:10+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/08\/Marks_Lori_06_14_JPG.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Lori Marks\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-you-cant-paint-healthcare-reits-with-a-broad-brush\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/why-you-cant-paint-healthcare-reits-with-a-broad-brush\/\",\"name\":\"Don't Paint Health-Care REITs With a Broad Brush - 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