Aging Population Will Drive Up Future Value Of Healthcare Real Estate

Key Takeaways

• Aging demographics and limited new construction bolster demand and value for Sila's healthcare real estate, positively impacting future revenue and asset valuation.
  
• Strong liquidity and strategic property acquisitions position Sila to capitalize on market opportunities, enhancing potential earnings and asset base diversification.
  
• Financial challenges from bankruptcies, failed property sale, reduced occupancy, and interest rate hikes threaten earnings stability and future revenue streams.

Catalysts

A net lease real estate investment trust headquartered in Tampa, Florida, with a strategic focus on investing in the significant, growing, and resilient healthcare sector of the U.S.

• Sila Realty Trust is benefiting from the silver tsunami, where the aging population is expected to increase the demand for healthcare services, leading to higher revenues for healthcare operators and possibly higher rent income for their healthcare properties. This is expected to positively impact revenue.
  
• Limited new construction in the market makes existing healthcare real estate, like Sila's portfolio, more valuable. This should support future revenue and asset valuation growth.
  
• The company's recent listing on the New York Stock Exchange and its focus on triple net lease healthcare properties could improve investor sentiment, driving higher stock valuation and potentially impacting earnings.
  
• The financing of new inpatient rehabilitation and behavioral healthcare facilities, with options to acquire them post-construction, provides potential future earning growth and diversification in the asset base.
  
• Their low leverage and ample liquidity position them well to capitalize on opportunistic acquisitions in a market where acquisition volumes and competition are down, potentially enhancing future revenue and earnings.

Sila Realty Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sila Realty Trust's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.1% today to 20.2% in 3 years time.
• Analysts expect earnings to reach $47.0 million (and earnings per share of $1.18) by about January 2028, up from $22.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $56.6 million in earnings, and the most bearish expecting $40.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.4x on those 2028 earnings, down from 60.0x today. This future PE is lower than the current PE for the US Health Care REITs industry at 41.4x.
• Analysts expect the number of shares outstanding to decline by 10.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.35%, as per the Simply Wall St company report.

Sila Realty Trust Future Earnings Per Share Growth

Risks

• The company's overall GAAP net income and cash NOI decreased compared to previous periods due to several factors, including negative income effects from the GenesisCare and Steward Health Care bankruptcies, potentially impacting earnings stability.
  
• The failed sale of the property previously leased to Steward Health Care creates uncertainty and the potential for extended revenue loss until the asset is either sold or re-leased, which may impact net margins.
  
• The material reduction in lease rate from 97.5% to 95.5% suggests potential challenges in maintaining high occupancy levels, affecting future revenue streams.
  
• Interest rate increases have significantly impacted the cost of swap replacement, creating potential pressure on future operating margins by raising financing costs.
  
• Approximately 10 properties under coverage exhibit less than 1x EBITDARM coverage, indicating financial vulnerability in the tenant base, which could affect cash flow stability.

Valuation

• The analysts have a consensus price target of $27.67 for Sila Realty Trust based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $232.5 million, earnings will come to $47.0 million, and it would be trading on a PE ratio of 28.4x, assuming you use a discount rate of 7.3%.
• Given the current share price of $24.59, the analyst's price target of $27.67 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.