What's wrong with SNH? Something must be wrong - or else the yield would not be as high and the Price/FFO be so low - and it is specifically low for a REIT with 38.6% of NOI coming from MOBs.
One disturbing note - the weighted average cap rate for SNH's 2016 MOB was 11.5% compared to other REIT acquisition cap rates around 5.5%. I doubt that SNH was finding outstanding values overlooked by others. Thus the quality of those MOB's are suspect. REITs fail to provide total portfolio cap rate numbers. Added to this, SNH has had $18.674 million in 'impairments' in 2016. If SNH has as good a portfolio as the headline numbers on asset allocation imply - the impairments would not be this high. Summation - one needs to set a moderately high RRR on SNH.
Let's look at the three main segments:
(1) For the quarter ended December 31, 2016, 38.6% of SNH's NOI came from 119 properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or MOBs, with 11.4 million leasable square feet. SNH's MOB same property Cash Basis NOI increased 2.2% and same property NOI increased 2.7% for the quarter ended December 31, 2016 compared to the quarter ended December 31, 2015.
(2) For the quarter ended December 31, 2016, 44.7% of SNH's NOI came from 236 triple net leased senior living communities with 26,220 living units. Same property Cash Basis NOI and same property NOI from triple net leased senior living communities increased 2.3% and 1.8%, respectively, for the quarter ended December 31, 2016 compared to the quarter ended December 31, 2015.
(3) For the quarter ended December 31, 2016, 14.1% of SNH's NOI came from 68 managed senior living communities with 8,788 living units. As a result of casualty losses and hurricane evacuation costs, same property Cash Basis NOI and same property NOI from managed senior living communities each decreased 3.1% for the quarter ended December 31, 2016 compared to the quarter ended December 31, 2015.
Summary - NOI growth is relatively week. FFO growth is week (as will be shown). And there has not been a dividend increase since Q4-12.
Let's look at the FFOs and the price/FFO numbers using pricing data from 2/13/17:
Health Care Price/FFO Ratios 02-13
The UHT projected 2016 FFO stat is slightly under four times Q1 FFO. DOC IPOed in 2013. CCP was spun off in 2015.
|FFO / Share||% FFO Growth||Price/FFO||16 FFO Range|
SNH is not generating the FFO growth to produce much when it comes to dividend growth. It has the FFO to produce some tiny amount dividend growth - but it has not happened.
Let's look at the 2016 FFO numbers:
Normalized FFO were $446.4 million, or $1.88 per diluted share, for the year ended December 31, 2016, compared to $429.7 million, or $1.84 per diluted share, for the year ended December 31, 2015, which represents an increase of $0.04 per diluted share. This increase in Normalized FFO is primarily attributable to acquisitions, partially offset by increased interest expense of $0.06 per diluted share.
The projections from Nasdaq:
|Over the Last 4 Weeks
Number of Revisions
Historical earning projection accuracy since 2014 for SNH has been excellent - but it was not so good before that.
I would discount the relatively high 2019 FFO projection. And when that lone good number is subtracted - the forecast of for continued 1% growth. SNH fails to provide dividend guidance. I would say such guidance is needed. 1% FFO growth may fail to move the needle on dividend growth.
My REIT spreadsheets start with Q1-14 data. Over that specific time period, SNH looks in line with sector average on FFO growth. But we know from a longer time period perspective - that is the wrong perception.
|Senior Housing Properties Trust||Q4-16||Q3-16||Q2-16||Q1-16||Q4-15||Q3-15||Q2-15||Q1-15||Q4-14||Q3-14||Q2-14||Q1-14|
|Straight line rents||4.006||4.292||4.745||4.561||4.300||5.040||5.191||3.509||2.857||2.876||2.351||1.578|
|Norm FFO - straight||114.595||101.441||106.940||108.369||108.684||106.390||98.965||95.054||88.407||86.709||84.240||78.544|
|My AFFO number/share||0.483||0.427||0.450||0.457||0.458||0.448||0.42||0.429||0.434||0.368||0.380||0.385|
|LTM AFFO FAD Guide||1.82||1.79||1.81||1.78||1.76||1.73||1.65||1.61||1.57|
|Total Debt / EBITDA||5.7x||6.1x||6.0x||5.7x||5.7x||5.8x||5.9x||5.0x||5.4x||5.4x||5.7x||4.4x|
|Revenues + Div + Int||275.054||264.731||262.333||258.422||247.544||255.332||247.814||228.652||229.809||216.951|
Note - the Debt/EBITDA is a bit high and the interest coverage is a bit low - but not dramatically so.
I would put a bit of charity in my 1% dividend CAGR projection. The cap rates on MOBs scare me - so I would give SNH a Required Rate of Return assessment just under that of the SNF REITs. At a current yield around 7.72% ---- the yield + CAGR = 8.7% ---- which is relatively attractive. Then you need to subtract the RRR that is close to that same 8.7% - and find that SNH is close to fairly valued.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.