There were some “green shoots” in the 3Q18 senior housing data from NIC, in a challenging environment. That is according to a recent report from BMO Capital Markets. “On the positive, occupancy remained flat sequentially at 87.9% in primary markets, and units under construction declined for the third straight quarter,” the firm says.
However, NIC still expects units representing 4.7% of supply to be delivered in the next 12 months, which may further challenge operators and their rent coverage, the report says. “We remain cautious on healthcare REITs but favor the medical office and life sciences asset classes within the sector.”
The analysts report points out that senior housing fundamentals stabilized in the third quarter of 2018. In addition, the firm points out that third quarter completions represented 0.71% of supply, in line with the three-year average of 0.75%. Units under construction declined for the third straight quarter.
“We are cautious on healthcare REITs given cyclical supply pressures in senior housing, rising cost pressures, and already tight EBITDAR rent coverage levels,” the report says, noting that declining senior housing construction figures, though, “are encouraging.”