CHICAGO — Capital raised by healthcare real estate investment trusts (HCREITs) continues to outpace other REIT categories as investors remain focused on medical office buildings and seniors housing to drive superior and stable returns for their investment dollars.
According to data compiled by the Healthcare Capital Markets group at Jones Lang LaSalle, the capital raised by HCREITs through mid-year 2012 set a record at more than $7.5 billion, outpacing previous strong record years.
This total is more than 65 percent of the $11.3 billion in capital raised by HCREITs in all of 2011 and 80 percent of the $9.2 billion in capital HCREITs raised in all of 2010.
HCREITs continue to outpace capital raised by REITs in other property classes as well. HCREITs raised 20 percent of all REIT capital year-to-date through mid-year in spite of representing only 13 percent of REIT market value.
“The ability of healthcare REITS to raise debt and equity capital with attractive pricing supports aggressive, accretive acquisition programs and correlates directly with the market-pacing performance of this investment type,” says Mindy Berman, managing director of the Healthcare Capital Markets group at Jones Lang LaSalle. “The safe haven of healthcare real estate continues as it produces superior results across the board.”
Berman notes that outside of certain high-profile properties in gateway cities across the country, healthcare real estate has been the steadiest and most reliable performer of all property types. Interest in healthcare real estate, she says, has grown over the last three years based on the superior performance of this asset class in spite of the overall economic downturn and slow recovery.
“Though it’s a bold statement to make, healthcare-related real estate comes as close to being recession-resistant as a sector can get,” Berman says.
HCREITS are the top income producing property type in a wide variety of metrics. Even with the stabilized performances of REITs in other property classifications, HCREITs produced a superior level of results, specifically when compared to industrial, office and apartment REITs.
Through July 31, 2012, healthcare REITs produced current average dividend yields of 4.6 percent. By comparison, industrial, office and apartment REITS produced yields of 3.5, 3.3 and 2.8 percent, respectively.
The superior performance of HCREITs extended to a variety of other indices:
• When looking at total returns since the beginning of the recession, the HCREIT composite has produced a return of 84 percent, compared to 34 percent for the U.S. REIT Composite and 4 percent for the S&P 500.
• The 2012 year-to-date investment performance of HCREITs produced a compounded annual return of 19.81 percent. Close to this level are all equity REITs, which produced a compounded annual return of 17.40 percent. This compares to the Nasdaq Composite, S&P 500, Dow Jones Industrial Average and Russell 200 Index compounded annual returns of 12.83 percent, 11.01 percent, 6.48 percent and 1.61 percent, respectively.
Overall, the market capitalization of all REITs is $516 billion. With a market capitalization of approximately $66 billion, public healthcare REITs represent nearly 13 percent of the entire REIT pool. The segment is the single largest property type after retail, office and industrial and residential property.
Because of the capital being raised, HCREITs have been extremely active in mergers and acquisitions, adding to their control healthcare properties, from medical office buildings to seniors housing projects to skilled nursing homes, and using RIDEA structures to acquire the related operating businesses. REITs controlled the lion’s share of acquisitions in dollar volume, purchasing individual assets or portfolios and, in some cases buying other REITs outright.
“Healthcare REITs have incredible access to cash,” Berman says. “Superior results and the ability to raise capital go hand-in-hand. “People invest in the REITs because of the returns they produce. That leads to more equity and lower cost of debt for acquiring additional properties. We don’t see that cycle ending anytime soon.”