US healthcare real estate investment trusts should experience a slow but continual recovery in 2024, a new analysis from Fitch Ratings predicts.  

“Fitch Ratings expects the credit profiles of most healthcare REITs within its coverage universe to remain stable over the coming years as operations improve in the aftermath of the pandemic,” the credit rating agency said in a press release issued in conjunction with the report.

Although occupancy in skilled nursing facilities and senior living communities has yet to reach pre-pandemic levels, notable occupancy growth has occurred in recent months. Additionally, staffing challenges are beginning to ease, according to Fitch. Combined, the agency noted, those factors signal that “recovery has been continual if slow.”  

Fitch observed that, operationally, healthcare REITs seem to be past the worst headwinds, which also should lead to improved occupancy. 

“Additionally, most healthcare REITs have had success managing their balance sheets in order to maintain investment-grade credit profiles, either with sufficient headroom prior to the pandemic to navigate operational shocks or with capital allocation post-pandemic,” according to Fitch.

With pandemic-era supplemental government funding in the rearview window, transaction volume also has declined among healthcare REITs, “making more proactive steps necessary to maintain credit profiles,” Fitch said, adding, however, that “[t]he pace of recovery is slower than expected.”

Fitch noted that some companies “with less leverage headroom,” such as Omega Healthcare Investors, have had to “sell equity and assets in order to maintain investment-grade credit metrics.” In November, the credit rating agency revised Omega’s ratings outlook from negative to stable. Fitch noted that Omega sold 35 SNFs, one independent living community and one medical office building over the first nine months of 2023.

Meanwhile, Ventas’ outlook rating was revised in March from stable to negative, where it remains, “as Fitch believes similar deleveraging capital allocation will be necessary to return leverage within its sensitivities,” the agency said.

“Other companies presently maintain sufficient headroom such that additional actions likely will not be necessary,” Fitch said.