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UBS 'Sort Of' Upgrades Senior Housing Properties Trust

UBS 'Sort Of' Upgrades Senior Housing Properties Trust

On June 18, UBS analyst Nick Yulico published a research note, "Yield offers support; Upgrade to Neutral," upgrading Senior Housing Properties Trust (NYSE: SNH) from Sell to Neutral.

Notably, $4.3 billion cap Senior Housing is currently paying the highest dividend yield in the health care REIT sector, 8.5 percent.

SNH owns 429 properties, located across 42 states and Washington D.C., primarily comprised of 50 percent senior living communities and 45 percent medical office building (MOB) assets.

Tale Of The Tape - Difficult 2015 YTD


During the past 52-weeks SNH shares have traded in a range of $17.71 to $23.34, and are down ~16 percent so far this year.


Industry stalwarts $24 billion cap Health Care REIT (NYSE: HCN) and $21.3 billion cap Ventas, Inc. pay dividends yielding 4.84 percent and 4.9 percent, respectively.


A higher dividend yield has not compensated SNH investors for the poor share price performance relative to these two health care REIT industry leaders.

RMR - External Management Factor

Senior Housing Properties has recently been in the headlines regarding the recent sale of 48.4 percent of external manager REIT Management & Research LLC (RMR) pro rata to shareholders of its four managed REITs.

Related Link: RMR Managed REIT Executives Tout External Manager Deal

Collectively, the shareholders of Senior Housing Properties will own 17 percent of RMR, after paying the "historic owners" $60.8 million dollars, payable $14 million in cash and the balance of $46 million in 2,345,000 SNH restricted shares, subject to a 10 year lock-up period.

RMR has announced its intent to publicly list the shares of the management company.

SNH REITWeek Presentation - Highlights


Only 3 percent of SNH NOI comes from its skilled nursing homes, which limits the REITs exposure to Medicare reimbursement issues.

Senior Living Communities


Five Star was originally spun out of SNH in 2000, and operates a total of 272 communities totaling 31,270 units across the U.S. and is also managed by RMR.


Medical Office Buildings

Vertex Pharmaceuticals dwarfs the other MOB tenants in the SNH portfolio.


Notably, the CCIT acquisition was facilitated through a related party transaction between SNH and RMR's net-lease focused Select Income REIT.

Balance Sheet


Related Link: RBC Capital Markets Isolates UK Trends That Matter To US REIT Investors

UBS - SNH: Upgrade Sell To Neutral, Lower PT $20 To $18

Rationale: UBS "remain[s] negative on SNH's external management structure and [is] skeptical the company can create a path to sustainable dividend growth, but believe SNH's valuation now reflects these concerns with the stock trading at 11x AFFO, an 8.5% dividend yield and 24% discount to our NAV estimate; we are upgrading to Neutral from Sell."

  • RMR Retains Control: While UBS noted that the sale of a partial interest in RMR to SNH shareholders does carry a "positive headline" of aligning RMR and shareholder interests; the net effect is to extent RMR control for 20 years, and make SNH "takeover-proof" by creating a hefty $500 million buy-out of the management contract.
  • Growth Challenges: "SNH equity currently trades at an AFFO yield of about 9%. SNH's 2024 bonds trade at 4.7%. This results in a WACC of about 7.5%. With cap rates for quality healthcare real estate in the 5.5%-7.5% range, we struggle to see how SNH will be able to grow earnings/dividends via acquisitions."

UBS - Bottom Line

"Moreover, we expect rising interest rates and G&A to eat into SNH's modest internal growth. We therefore see a muted low single digit growth trajectory for SNH for the foreseeable future."

Given the negative analyst sentiment and the lowering of the UBS target price for SNH shares; this "upgrade" is tepid at best, with the 8.5 percent yield perhaps the only silver lining for investors, along with the future value of the RMR shares SNH shareholders were forced to buy.

Latest Ratings for SNH

Jan 2020Raymond JamesUpgradesUnderperformMarket Perform
Oct 2019Bank of AmericaInitiates Coverage OnUnderperform
Sep 2019Morgan StanleyReinstatesEqual-Weight

View More Analyst Ratings for SNH
View the Latest Analyst Ratings


Related Articles (HCN + SNH)

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