Please ensure Javascript is enabled for purposes of website accessibility

Why Senior Housing Properties Trust Stock Fell 32% in April

By Reuben Gregg Brewer - May 6, 2019 at 9:59AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Senior Housing Properties made the hard call in April, and investors were not pleased at all.

What happened

Shares of Senior Housing Properties Trust (DHC 0.00%) dropped by just under 32% in April according to data provided by S&P Global Market Intelligence, losing nearly a third of their value in a single month. The real estate investment trust (REIT) has been losing ground for a little while at this point, and it is now down by more than 50% from its 2016 highs. The drop in April, however, is noteworthy because it was so steep and because it was driven by management's making a decision that no income investor wants to hear.

So what

To end the suspense, the big news from the Senior Housing Properties leadership team was a massive 61% cut in the dividend. That took the quarterly disbursement from $0.39 per share to just $0.15 per share. Although this isn't the first time that the healthcare-focused REIT has cut its dividend, that fact doesn't soften the blow any. That said, the current dividend haircut wasn't exactly unexpected. 

A man writing the word DIVIDENDS

Image source: Getty Images

Senior Housing Properties operates three distinct segments, and none of them have been performing particularly well. For example, at the end of 2018, management announced that its medical office, research, medical provider, and medical clinic assets saw occupancy decline by 0.5 percentage points year over year. Occupancy at assets owned for more than a year, however, fell even more, dropping 0.8 percentage points. Rent coverage at senior living communities that the REIT leases out to others, meanwhile, dropped from 1.22 times in 2017 to just 1.08 times in 2018 -- highlighting very weak rental coverage. And occupancy at senior housing assets that Senior Housing Properties owns and operates fell 0.01 percentage point. Although that's a small drop, occupancy was a fairly worrying 85.8% in 2018. 

To be fair, some of the REITs troubles aren't surprising. With more than half of its revenues tied to senior housing, the company is muddling through the same oversupply issues that every other provider in the space is facing. However, the company paid out $1.56 a share in dividends in 2018, but produced funds from operations (FFO) of only $1.59, leading to a troublingly high FFO payout ratio of 98%. With the senior housing industry continuing to face headwinds, the dividend cut was well short of a surprise, but it was still unwelcome news. 

Now what

Senior Housing Properties has taken the drastic step of cutting the dividend. Although that should put the current dividend on much more solid footing, the fact that it had to make this move suggests that most income investors would be better off looking at REITs with a better track record of success.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Diversified Healthcare Trust Stock Quote
Diversified Healthcare Trust
$2.20 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.