7 Healthcare REITs With the Right Prescription for Growth and Income (original) (raw)

Real estate investment trusts have been particularly popular as investors seek growing income in a low interest rate world. Within the sector, healthcare REITs have the added benefit of strong demographics. Leading advisors and MoneyShow.com contributors select seven REITs that should benefit from the aging of the population and the increasing use of medical and healthcare facilities.

John Buckingham, The Prudent Speculator

Physicians Realty Trust (DOC) is a small-cap health care REIT that acquires, owns and manages properties that are leased to physicians, hospitals and health care delivery systems, and other health care providers.

Its properties are typically on a campus with a hospital or strategically located and affiliated with a hospital or physician organization. The stock has held up fairly well thus far in 2019, especially considering that a couple of it tenants filed for bankruptcy.

The issues with these specific operators were known and management has moved to address them with relative speed, reinforcing our view that medical office buildings (which represent 95% of DOC's square footage) are one of the most resilient classes of real estate.

We continue to favor the expertise and experience of the management team, as well as the favorable demographic trends (e.g. 20% of the U.S. population is projected to be older than 64 before 2030).

We also like the continued focus on leveraging its physician and hospital relationships nationwide to invest in off-market assets that maximize shareholder returns. The dividend yield is north of 5%.

Jacob Kilstein, Argus Research

We are upgrading our rating on HCP Inc. (HCP) from a "hold" to a "buy" based on the company's shift in focus to life science and medical office buildings and away from senior housing and skilled nursing.

HCP's recent acquisition and development efforts should generate significantly more revenue than we had previously anticipated and help achieve higher net operating income (NOI).

Management is working to finish selling underperforming senior housing properties run by its largest operator, Brookdale. We are encouraged by growth in same-property NOI from the company's core businesses and by several recent investments.

We are raising our 2019 adjusted FFO estimate per share to 1.75from1.75 from 1.75from1.74, based on better second-quarter results than we had expected and management's higher guidance. We are maintaining our 2020 estimate of $1.82.

On price/AFFO, the shares trade at 19.9-times our forward four-quarter estimate, toward the high end of the five-year historical range of 8.2-20.5 and near the peer median of 19.7. We believe that HCP deserves to trade at a higher multiple given its improved growth prospects.

The high dividend yield of about 4.2% may be attractive to income-oriented investors, especially given the potential for long-term low interest rates. HCP has raised the dividend at an average annual rate of 1.1%. Our dividend estimates are $1.48 per share for both 2019 and 2020.

We also expect HCP to benefit from favorable demographics, a generally high-quality real-estate portfolio, and a healthy balance sheet. Our target price of $39 implies a total return of 15%, including the dividend.

Todd Shaver, Bull Market Report

Ventas (VTR) is a REIT that owns and operates a diverse portfolio of healthcare facilities. The company actively manages its portfolio, as opposed to being a passive landlord issuing triple-net leases. So Ventas can invest in CapEx and managerial upgrades to maintain a high-quality portfolio.

The company has over 700 senior housing communities, 360 medical office and outpatient facilities, and 34 research centers. And the company just completed a $1.8 billion investment in a Canadian senior housing facility. The deal should represent 8% of Ventas' net operating income going forward, and provides even more diversification for the company.

Healthcare REITs are riding strong industry tailwinds, as Baby Boomers retire at the rate of 10,000 per day, every single day for the next 19 years.

With Americans living longer than ever before and spending more of their income on healthcare costs, healthcare REITs like Ventas are primed to benefit. The company's 950millionofsecond−quarterrevenue−−up1950 million of second-quarter revenue -- up 1% year over year -- helps illustrate the growth story. FFO of 950millionofsecond−quarterrevenue−−up10.97 also beat market expectations by two pennies.

Broadly speaking, Real Estate is a defensive play, and Healthcare Real Estate is an even more specific defensive play. Investors can take advantage of both sectors at once, and at the same time capture the company's stable 4.4% annual yield. Even though the stock is up some 23% year-to-date, we're expecting more gains throughout fourth quarter 2019.

Hilary Kramer, Value Authority

Investors who seek yield must balance risk and returns. Due diligence is needed to ensure the dividend flow won't break down under financial pressure.

Omega Healthcare (OHI) pays above 6% and will probably be able to sustain that yield for the foreseeable future. If the landscape shifts, you'll have time to adjust and, in the meantime, you'll cash 6% a year.

An investor also needs to avoid paying huge opportunity costs by locking out bigger upside elsewhere. With OHI, the opportunity cost involves paying 44nowtoget44 now to get 44nowtoget2.64 in the next 12 months. If stocks are not available to beat that return of more than 6% a year from income alone, taking the dividend is an appealing investment.

I love finding those stocks for people every day, but some investors are nervous. That's okay. While I do not give a lot of credence to arguments that a 2008-style credit crash is coming, it may seem to some investors that the market has topped out for now. I'd rather stay patient and earn a dividend yield of above 6% than follow the S&P 500 amid rising uncertainty and risk.

Bernie Schaeffer, Options Advisor

The shares of real estate investment trust Welltower (WELL) have enjoyed an extremely steady rise on the charts over the past 12 months, and a recent pullback to the 80-day moving average could provide a solid entry point for bulls who believe the equity can add to its 31% year-to-date gain.

Based on the sentiment picture, there's certainly room for more upside, from a contrarian viewpoint. Specifically, the analyst community has been slow to get behind Welltower.

Half the firms covering the security still have just "hold" recommendations in place despite the impressive technical performance described above, meaning the stock's overdue for upgrades, which could bring more buyers to the table.

Maybe more important, short interest is beginning to roll over from multi-month highs, and with 6.3 days' worth of buying power still on the sidelines -- based on average trading volumes -- there's plenty of room for short covering to drive the stock price even higher going forward. For those comfortable with buying options, we recommend the December 20, 2019 calls with an $87.50 strike price.

Ned Piplovic, DividendInvestor

Healthcare Trust of America (HTA) is the largest dedicated owner and operator of medical office buildings in the United States with more than 23 million square feet of leasable space.

The current 0.315quarterlydividenddistributionisequivalenttoa0.315 quarterly dividend distribution is equivalent to a 0.315quarterlydividenddistributionisequivalenttoa1.26 annualized distribution and currently yields around 4.36%, which is 2.6% higher than the company's own 4.25% five-year yield average.

Since its formation in 2015, the company boosted its annual dividend distribution and has enhanced its annual payout 8% over the past four years. This advancement corresponds to a 2% average annual growth rate.

Despite moderate volatility, the company's share price advanced nearly 10% and combined with the rising dividend distributions to deliver a total return of nearly 15% over the trailing 12 months. Shareholders gained more than 50% in total returns over the last five years.

Based in Birmingham, Alabama, and founded in 2003, Medical Properties Trust (MPW) focuses exclusively on providing capital to acute health and medical care facilities through long-term leases of multiple facility types.

The REIT boosted quarterly dividend distribution from 0.25lastyeartothecurrent0.25 last year to the current 0.25lastyeartothecurrent0.26 payout amount, which corresponds to a $1.04 annualized payout and a 5.2% forward dividend yield. Robust asset appreciation over the past 12 months has pushed the current yield more than 18% below the REIT's own 6.68% five-year average.

Since resuming annual dividend hikes in 2014, the trust has enhanced its annual dividend payout amount 30%, which is equivalent to an average annual growth rate of 4.5%.

The combination of asset appreciation and rising dividend distributions delivered total returns of 37% over the trailing 12 months. Over the past three years, shareholders enjoyed total returns of more than 56%. Lastly, total returns were nearly 82% over the last five years.