EXAMINATION OF FACTORS AFFECTING PERFORMANCE OF US-LISTED HEALTHCARE REITS

Abstract

Healthcare REITs are growing steadily, in the presence of strong fundamentals including strong and inelastic demand for Healthcare. Furthermore, Healthcare REITs are unique relative to other REIT sub-sectors. One main reason for its uniqueness is the range of properties Healthcare REITs are invested in, namely Senior Living properties, Medical Office Buildings, Hospitals, and Life Science Labs. As such, there is a pressing need to study Healthcare REITs to guide decisions of both investors and Healthcare REIT managers and improve clarity.

The objective of this study is to evaluate the factors affecting performance of US-listed Healthcare REITs. With parameters of interest being the degree of diversification within the Healthcare REIT sub-sector. Control Variables are also included in the regression model so that parameters of interest can be explained free of confounding influences. These control variables include size, dividend yield, yield spread, and leverage.

A total of 23 REITs are included in the dataset and Q42008-Q12019 independent variables were regressed against the lagged Q12009-Q42018 performance indicators, ROE, ROA and Tobin’s Q. This enables us to understand the effects of diversification on operational performance, measured using ROA and ROE; and on valuation, namely investor premium, measured using Tobin’s Q.

Implications of this study are mainly on Healthcare REIT managers, which should seek to diversify within the 4 different property types in order to improve its operational performance and investor premium.