Healthcare real estate investment trusts (REITs) have been gaining more attention with the increase in people reaching retirement age every day. This has naturally given a good outlook on industries like healthcare, pharmaceuticals, and senior housing.
Before the 2020 COVID-19 pandemic, there wasn't much reason to think there would be any significant disruptions in these industries. Not in the short term, at least. However, the pandemic had such an impact on healthcare and senior housing that they are unlikely to return to business as usual.
Picking healthcare REITs today requires a deeper dive into how well they can weather the COVID-19 storm and whether they're in a position to adapt to whatever changes the various healthcare industries experience.
The question, of course, is which REIT is in a position to be a great buy for investors? We'll take a look at two REITs that may be in a position to provide a great buying opportunity for investors and which one of them will be the better buy.
Physicians Realty Trust (NYSE: DOC)
Physicians Realty Trust invests in healthcare properties, including medical office buildings, specialty hospitals, and rehabilitation centers. The majority of the REIT's assets are a mix of single-tenant and multi-tenant medical office buildings leased to physician groups.
During the past two years, Physicians Realty Trust has sold higher cap rate assets to reinvest in properties with more stability. This move came at a good time as it set the company up to be in a better position during a sudden decline in revenue across several healthcare businesses.
Physicians Realty Trust also didn't feel much of an impact in terms of rent collection. It collected 94.4% of rent in May and expects the remaining 5.6% to be collected over time. The percentage of the rent it collected is higher than the average across healthcare properties, which was at 87.4% in April.
Physicians Realty Trust was hit hard in March with the rest of the market but began its recovery relatively quickly after being down -38.7% year to date (YTD) and has continued to steadily improve.
It's common for physicians to have high rent coverage, so rent collection shouldn't decline over the next several months.
Healthpeak Properties Inc. (NYSE: PEAK)
Healthpeak Properties Inc. is a healthcare REIT with a portfolio mix of medical offices, life science, and senior housing. The REIT has a fairly well balanced portfolio between the three property types, limiting its exposure at all points in the healthcare industry cycle.
Healthpeak Properties may sound like a new name, but it's actually been around since 1985, when it was originally named Health Care Property Investors Inc., which changed to HCP Inc. in 2007 and finally Healthpeak Properties Inc. in 2019.
The most recent name change came after some restructuring of its portfolio, including selling $1.4 billion worth of its senior housing portfolio to reinvest in more modern private-pay senior housing assets that are better positioned for income growth in the long term.
Healthpeak Properties has felt a direct impact from the sudden blow to the revenue of its senior housing properties because it has management agreements with most of its operators rather than triple net leases. Several of its properties have had confirmed COVID-19 cases, and at least 50% of its properties aren't currently taking any new move-ins.
While leasing activity on Healthpeak's life sciences properties has likely slowed due to the pandemic, its current tenants are quite stable since this industry is normally well capitalized and has been fairly safe from the current economic climate.
The REIT's recovery hasn't been very progressive since its value took a dive in February, likely due to its senior housing portfolio still being impacted. It is remaining steady, however, thanks to the rest of its portfolio being well insulated.