By all accounts, US healthcare REITs had a banner year in 2014. Overall, healthcare REITs had total returns of over 33% in 2014 and had an equity market cap approaching $100 Billion by the end of the year. But what about the underlying REITs’ medical office portfolios? Did they have an implied return of 33% in 2014? Using a few publicly reported metrics, we can derive an implied valuation of the MOB portfolios. To do this we are examining major healthcare REITs with MOB portfolios valued at $3 Billion or more. There are 5 portfolios that meet this criteria. As of December 31, 2014, these 5 REITs had MOB portfolios with implied valuations of between $4.1 Billion and $5.8 Billion and as a group held MOB assets valued at $23.9 Billion. The 5 REITS are (in order of their respective MOB portfolio implied valuation) Health Care REIT (NYSE: HCN), Ventas REIT (NYSE: VTR), Healthcare Trust of America (NYSE: HTA), Healthcare Realty Trust (NYSE: HR) and Health Care Properties (NYSE: HCP). We can derive the implied value of these portfolios by using the REIT’s year end enterprise value and their publicly reported portfolio NOI. For the diversified REITs we used the MOB NOI compared to overall portfolio NOI to determine what percentage of the overall implied valuation should be ascribed to MOBs. For NOI, we used the reported 4th quarter NOI annualized.
Overall, the 5 REITS saw their significant rises in the implied valuations of their MOB portfolios. As a group, the implied cap rate compressed 85 basis points from 6.4 at year end 2013 to 5.5 year end 2014. On a price per square foot basis, values rose some 23% from $256/SF in 2013 to $314 in 2014. Of the group, HCN saw the largest compression in implied cap rate and ended 2014 with an implied cap rate of 5.0% for their MOB portfolio. HTA saw the largest increase in implied price per square foot (29%) rising from $253/SF in 2013 to $327/SF at year end 2014.
The results are laid out in the tables below.
REIT Medical Office Portfolio Implied Valuations – Change from year end 2013 to 2014
2014 REIT Medical Office Portfolio Implied Valuations
2013 REIT Medical Office Portfolio Implied Valuations
Sources: Company Filings, Revista LLC Research