Healthcare REITs Exposed to this Top Independent Living Tenant

chart01Last week, we showcased Genesis Healthcare, one of the largest providers of skilled nursing (SNF) in the United States. We discussed how a single operator could have a tremendous impact on multiple healthcare REITs. Genesis is such a sizeable tenant that they influence the bottom line of Omega Healthcare, LTC Properties, and Welltower. Today we will be featuring Holiday Retirement, another operator in the healthcare segment.

With over 300 senior living communities, Holiday Retirement is one of the largest providers of independent living in the U.S. Along with New Senior Investment Group, a healthcare REIT, Holiday is under the wing of Fortress Investment Group, LLC. Fortress is a global, publicly traded investment management firm with approximately $71 billion in AUM.

In addition to New Senior, Holiday has lease agreements with Ventas (NYSE:VTR), Sabra Health Care REIT (NasdaqGS:SBRA), and National Health Investors Inc.(NYSE:NHI).

Unlike Genesis Healthcare, Holiday is not publicly traded. Due to this fact we certainly cannot paint the entire picture. That being stated, we do know that Holiday’s founder sold the company to Fortress in 2007, and is set to mature as an investment in 2017. In addition, Fortress reduced the company’s assets by fifty-percent from 2013 to 2015. As you will notice the business sold many of their properties to REITs.

Is Independent Living Dependent On Medicare/Medicaid?

According to the above-mentioned REITs, we can infer that most independent living facilities do not have the high levels of exposure to both Medicare and Medicaid. These types of properties, different from SNFs, are subject to less government regulation due to the fact that they rely on private sources. On the other hand, when being compared to SNFs, independent living facilities share the exact same level of competitiveness resulting in the potential that their rent coverage may be thin.

What Is Their Exposure?

Holiday encompasses 76% of New Senior’s net operating income. Blue Harbor, a company that is also manages senior living properties and is a part of Fortress Group, covers an additional 12%. Together, these two companies consist of over 88% of New Senior’s net operating income. Based on that reason alone, any investment in New Senior is also highly concentrated in both Fortress and its funds.

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Holiday is a Ventas’ top tenant contributing 3% of net operating income. They certainly have been a contributing factor by increasing Ventas’s current footprint to 786 senior housing communities. In 2014 alone, Ventas acquired 29 senior housing communities in Canada from Holiday Retirement. This transaction is referred to as the Holiday Canada Acquisition.

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Holiday is Sabra Health Care’s second largest tenant. In fact, 17% of Sabra’s annualized revenues have been generated directly from a master lease with Holiday. In 2014, Sabra added 21 independent living facilities from Holiday. These properties are located in fifteen states, and have lease terms of 15 years.

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Holiday is a significant tenant for National Health Investors, encompassing 21% of their total rental income. In December 2013, National Health acquired 25 independent living facilities from an affiliate of Holiday. The company was able to ink a master lease term of 17 years.

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Source: New Senior Investment Group In(NYSE:SNR), Ventas (NYSE:VTR), Sabra Health Care REIT (NasdaqGS:SBRA), National Health Investors Inc.(NYSE:NHI).

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Something that we haven’t seen for quite a while

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Download our Dividend Yield Report. 

It’s been a very good week for equity REITs, something that we haven’t seen for quite a while. Virtually all stocks went positive. In fact, a mere 8 out of the 174 we track had a negative performance. On average, stocks saw a 4.2% increase, higher than the S&P500. We had several stocks that closed the week with a two-digit growth.

Last week, in anticipation of the release of the Q4 results, investors discovered some stocks that had been undervalued and went on a buying spree. Last week’s top three performers, Monogram Residential Trust (apartments), Pebblebrook Hotel Trust, and Sabra Health Care REIT, will soon be releasing results this week. Other top performers included lodging and timber REITs, as well as CorEnergy Infrastructure Trust, which had been one of the most volatile among equity REITs.

At the same time Monogram stock spiked by 6% on Friday, Madison International Realty, a global real estate investment company and current stockholder in the company, disclosed their potential interest in the acquisition of assets. I’m not sure how or even if they are related, but this stock has seen a lot of activity over the past week. Monogram stocks increased by 13%, topping the list as our best performing stock of the week. On the surface, their stock seems to be overpriced since AFFO multiple has reached 21x. As for Pebblebrook and Sabra, their stocks seem to be a bit underpriced.

The sectors that exceled last week were lodging, healthcare, and self-storage. The first two have certainly been battered this year, so it is understandable that there would be some type of reaction above the market average. The median return for both was between 6-7%, but they will still enjoy one of the highest dividend yields among REITs.

On the other hand, self-storage seems to be unstoppable, bordering on irrational exuberance. Public Storage released strong results last Tuesday and their stocks soared by 8%. Its AFFO multiple is very close to the 30s. Sovran Self Storage and CubeSmart also released the Q4 results and their guidance for AFFO growth has been strong. These two stocks have AFFO multiples in the 20s. The truth is that self-storage hasn’t been a sector to find yields. Stocks have fared well, but yields have been below the REIT industry average.

CubeSmart’s growth was spectacular in the fourth quarter. Their FFO share increased by 18% year over year and same-store net operating income growth reached 11%. The company will not be able to keep up this growth in 2016, but the guidance for next year’s growth rates is still very good. FFO per share growth should grow by 10% and same store NOI by 8%.

As for Public Storage, the largest in this sector, their Core FFO per share increased by 11% in the fourth quarter year over year. The company also touched upon market supply, which appears to be growing at 2-2.5%, and even more in highly populated states, including Texas and Florida, where we expect a decrease in rental rates at some point. However, the company wasn’t able to say when the sector as a whole would be affected by oversupply.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: CubeSmart(NYSE:CUBE), Monogram Residential Trust, In(NYSE:MORE), Public Storage(NYSE:PSA), Sovran Self Storage Inc.(NYSE:SSS), Pebblebrook Hotel Trust(NYSE:PEB), Sabra Health Care REIT, Inc.(NasdaqGS:SBRA), SEC, Fast Graphs

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 19, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.