April 7, 2020
Mike Hargrave

MOB Pricing – What the Public Markets are Telling Us

A little over a month ago things were business as usual within the world of healthcare real estate.  The Revista Medical Real Estate Investment Forum had just wrapped up very successfully and many attendees were speaking of another year ahead of continued growth in transaction volumes. 

Oh, how things can change!

Just one month later investors in the sector are searching for clarity as the country is now dealing with the COVID-19 pandemic.  Stakeholders are seeking color on many metrics but particularly with regard to pricing or cap rates! While we have not yet seen a measurable change in cap rates from recent closed transactions there is a source we can look towards that could provide some guidance.  The public markets have remained open while many businesses have closed until further notice. 

For this analysis we looked at the change in implied cap rates of the MOB REITs between 12/31/2019 and 3/31/2020.  The MOB REITs we examined were Healthcare Trust of America (NYSE: HTA), Healthcare Realty Trust (NYSE: HR) and Physicians Realty Trust (NYSE: DOC).  Together these 3 “pure play” MOB REITS boasted a total enterprise value of $21 Billion (B) at the end of 2019.  By the end of the 1st Quarter, 2020, the total value had dropped to $17.8B.  Implied Cap Rates, which were 5.1% on a weighted average basis for the group on 12/31/2019 were 6.2% as of 3/31/2020.  The public markets are telling us cap rates have moved up a little over 100 basis points from the end of 4Q19 to the end of 1Q20. 

Are the public markets correct (yes or no)?  There are arguments to support both answers to this question.  On the one hand, the public markets are often very telling of future conditions in many sectors.  On the other hand, recent volatility in the markets has many questioning whether the sudden changes in stock prices are rational or just driven by fear.

In either case we will begin to learn the truth in coming weeks!

Revista is hosting a current economic outlook webinar – a conversation with Sam Chandan on May 6 at 1pm.  Industry Leader, John Winer, Senior Managing Director and CIO of Seavest will lead a discussion with Dr. Sam Chandan to provide an update on the current economic trends in light of COVID-19, and their implications for healthcare real estate today. Dr. Chandan is renowned as one of the leading experts in economics, capital markets and commercial real estate. Registration is complimentary and click here to register.

MOB REIT Implied Cap Rates

Source: Company Filings, Y Charts; dollar amounts in 000’s;
Net Operating Income is previous quarter annualized.