EQC Equity Commonwealth

Senior Housing Properties Trust (SNH), a real estate investment trust (REIT) which primarily owns private pay senior living communities and medical office buildings (MOBs) across the U.S., has recently announced its decision to acquire a portfolio of 13 MOBs  across 8 states for $167 million.

Senior Housing Properties will purchase the assets from CommonWealth REIT (CWH) – its erstwhile parent company. Senior Housing Properties was previously a 100% subsidiary of CommonWealth REIT until 1999, when it spun off to become a separate entity. The transaction is expected to be funded by cash on hand and availability under its unsecured revolving bank credit facility.

The healthcare properties spanning 1.3 million square feet of space are presently 95% occupied. About 3 of the acquired properties are located in California; while Illinois, New York, and Pennsylvania have 2 properties each; and Arizona, Minnesota, Ohio, and South Carolina have a property each. The acquisition is expected to be completed by the end of the current fiscal.

Senior Housing Properties has one of the most diversified portfolios in the healthcare sector with exposure to nearly all types of facilities. The company leases some of its owned healthcare related and senior housing facilities to third-party operators under "triple net" leases, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent.

Healthcare is relatively immune to the economic problems faced by office, retail and apartment companies. Consumers will continue to spend on healthcare at the expense of discretionary purchases.

The healthcare industry is also the single largest industry in the U.S., based on Gross Domestic Product (GDP). Consequently, healthcare REITs like Senior Housing Properties are poised to continue their bull run in the long term.

We presently have a Neutral rating on Senior Housing Properties, which currently has a Zacks #3 Rank that translates into a short-term Hold recommendation indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.

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