KBRA releases research examining the strengthening credit profile of U.S. senior housing real estate investment trusts (REIT), which are benefiting from a favorable combination of accelerating demographic demand, constrained new supply, and strong capital markets access.

Rapid growth in the 80+ population and a multiyear decline in senior housing construction have supported occupancy gains and rental rate growth. In addition, health care REITs’ increasing exposure to senior housing operating portfolios (SHOP) through REIT Investment Diversification and Empowerment Act (RIDEA) structures has amplified these trends. In concert with strong operating performance, favorable equity valuations have fueled significant external growth. Total enterprise value (EV) for the group has nearly tripled over the past four years and projected 2026 investment activity totals approximately $28 billion.

Key leverage metrics within the group have shown steady improvement. Average net debt/EBITDA has declined to 3.6x from 5.6x in 2022, while net debt has fallen to approximately 20% of EV. Potential long-term pressures still exist from eventual supply growth, affordability, and greater operating exposure, which could moderate REIT earnings growth. However, today's lower financial leverage provides meaningful capacity to absorb a normalization in senior housing fundamentals while maintaining strong credit profiles.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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