Nationwide Investments for 2010 - Analyst Blog

Nationwide Health Properties, Inc. (NHP), a real estate investment trust (REIT) that invests in healthcare facilities, has recently announced that it has completed $924 million worth of total investments in fiscal 2010 at a blended initial yield of 8.7%. These included $503 million in medical office buildings (MOBs) at an initial yield of 8.4%, $285 million in skilled nursing facilities at an initial yield of 9.5%, and $111 million in assisted living facilities at an initial yield of 8.2%. At the same time, Nationwide Health invested $25 million in revenue-producing capital expenditures at a blended yield of 8.8%.

During fourth quarter 2010, Nationwide Health invested $108 million in skilled nursing facilities at an initial yield of 10.1%, $77 million in MOBs at an initial yield of 8.5%, and $59 million in assisted living facilities at an initial yield of 8.1%. In addition, the company invested $4 million in revenue producing capital expenditures during the quarter at a blended yield of 9.0%. The robust investments during the quarter showed positive signs of market stabilization and concluded an impressive year for the company.

Nationwide Health also announced a plethora of investment activity in first quarter 2011 totaling approximately $243 million at an initial yield of 8.5%. These include $109 million invested in assisted living facilities at an initial yield of 8.3%, $94 million in skilled nursing facilities at an initial yield of 9.4% and $40 million in MOBs at an initial yield of 7.1%. Nationwide Health expects to complete the transactions by March 31, 2011.

The company has continually focused on acquisitions to fuel its growth engine as demand for health care facilities is set to increase with an aging Baby Boomer generation. Furthermore, the health care sector is one of the more recession-proof real estate sectors and has persistently fared better than other sectors during the commercial real estate downturn. This offers a strong upside potential for the company.

Nationwide Health is structured as a triple-net lease health care REIT, which includes base rent (a regular income in the form of rent payments), preset thresholds (much like retail percentage rent clauses), and financing options (in the form of mortgage loans). The base rent and preset threshold agreements help eliminate operational risks, which are transferred to the lessee, yet offering a steady revenue stream to the lessor. The lessee also benefits by obtaining operational control and a larger share of profits without investments. 

We maintain our ‘Neutral' recommendation on Nationwide Health, which presently has a Zacks #2 Rank that translates into a short-term 'Buy' recommendation and indicates that the stock is expected to outperform the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral' recommendation and a Zacks #1 Rank (short-term ‘Strong Buy') for HCP, Inc. (HCP), one of the competitors of Nationwide Health.

 
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