Healthy REITs: 7 Ways to Invest in Medical Facilities (original) (raw)

Healthcare REITs present investors with a market that is supported by strong demographics -- an aging population and advancing medical technologies -- as well as favorable fundamentals, including relatively low valuations and above-average yields.

Several top investment experts and contributors to MoneyShow.com select seven favorite REITs that invest in a variety of medical and healthcare properties.

Bryan Perry, Cash Machine

Global Medical REIT (GMRE) is primarily engaged in the acquisition of licensed, state-of-the-art, all-purpose health care facilities and leasing these facilities to leading clinical operators under the long-term, triple-net lease structure.

The company is taking full advantage of industry trends that are embedded for future growth. U.S. healthcare spending is expected to increase 5.8% per year over the next decade, according to the U.S. Department of Health and Human Services.

In terms of dollars, health care expenditures are projected to grow from 3trillionin2014to3 trillion in 2014 to 3trillionin2014to5.4 trillion by 2024, representing 19.6% of gross domestic product (GDP) four years from now.

The 65-and-over age group is expected to double between 2015 and 2060 and the 85-and-over age group is expected to triple between 2015 and 2060. Plus, changing health care trends are driving new real estate investment trust (REIT) structures like Global Medical.

Outpatient procedures are rapidly on the rise as patients demand this option. Technological advances make it possible, and physician groups are breaking away from hospitals to form their own outpatient solutions.

Global Medical's widely diversified portfolio of properties is comprised substantially of off-campus medical office buildings, specialty hospitals, in-patient rehabilitation facilities and ambulatory surgery centers.

Its acquisition strategy coincides with taking advantage of the aging population and the decentralization of healthcare. The company operates 139 modern facilities with a 100% occupancy rate by 84 high-quality tenants that occupy 2.6 million square feet of space with an average of 8.9 years remaining on outstanding triple-net lease terms.

GMRE came out with quarterly funds from operations (FFO) of 0.24pershare,beatingtheZacksConsensusEstimateof0.24 per share, beating the Zacks Consensus Estimate of 0.24pershare,beatingtheZacksConsensusEstimateof0.22 per share. This compares to an FFO of 0.21pershareayearago.Rentalrevenueforthefourthquarterof2020increased22.10.21 per share a year ago. Rental revenue for the fourth quarter of 2020 increased 22.1% period over period to 0.21pershareayearago.Rentalrevenueforthefourthquarterof2020increased22.124.9 million, reflecting the growth in the company's property portfolio.

This quarterly report represents an FFO surprise of 9.09%. A quarter ago, it was expected that this REIT would post FFO of 0.21pershare,whenitactuallyproducedFFOof0.21 per share, when it actually produced FFO of 0.21pershare,whenitactuallyproducedFFOof0.23, delivering a surprise of 9.52%.

Over the last four quarters, the company has surpassed consensus FFO estimates three times. It declared a quarterly dividend of 0.205,representinganannualizedrateof0.205, representing an annualized rate of 0.205,representinganannualizedrateof0.82 per share that translates to a current yield of 6.06%. Let's put this all-weather REIT to work for us in our Safe Haven Portfolio and collect an incredibly attractive 6.06% dividend yield.

Bob Ciura, Sure Dividend

Omega Healthcare Investors (OHI) is a healthcare REIT that generates the vast majority of its revenues from skilled nursing properties and supplements that income with senior housing development revenue. This REIT weathered COVID-19 quite well as its FFO-per-share increased from 2.88n2019to2.88 n 2019 to 2.88n2019to3.23 in 2020.

Even better, its forward outlook looks positive as well, as the baby boomer population is just now starting to enter the years where their healthcare expenses are expected to surge, average lifespans are increasing, OHI only has a small percentage of its leases expiring in the near future, and the dividend payout ratio is expected to be a very sustainable 83% in 2021.

The valuation also remains attractive here with the 2021 dividend yield standing at 7.1% at current prices and is poised to combine with continued expected dividend and FFO-per-share growth and slight multiple expansion to generate annualized total returns of nearly 10%.

Given the defensive industry in which it operates, the favorable industry dynamics, and OHI's sizable yield and ability to grow with inflation, this REIT looks like a strong pick for an income investor.

Todd Shaver, The Bull Market Report

Ventas (VTR) is a REIT whose real estate is centered on healthcare. Its 1,200 properties are primarily in Senior Housing Communities (730 properties, 68% of 2020 revenue) and Medical Office Buildings (343 properties, 16% of revenue). It also holds Life Science, Research, and Innovation Centers, Inpatient Rehabs and Long-term Acute Care Facilities and Skilled Nursing Facilities.

It organizes the business into three segments: Seniors Housing Operating Properties, Triple-Net, and Office. Fourth-quarter 2020 revenue fell from 995millionto995 million to 995millionto920 million. Occupancy fell during the quarter due to residents moving out and the pandemic limiting new residents.

It will take a while before things get back to normal, but 90% of its senior housing communities are now scheduled to become fully vaccinated, which suggests we could get there sooner than we had thought.

After cutting the quarterly dividend from 0.79to0.79 to 0.79to0.45 last April, the company has held it steady. Ventas has a 3.4% yield, 195 basis points more than the 10-year Treasury. Once things stabilize and improve, we expect the company to raise dividends again. Our target price is $57.

Welltower (WELL) is another REIT that owns Seniors Housing, Post-Acute Communities, and Outpatient Medical Properties. Broken out into three segments, the Seniors Housing Operating business is the largest by revenue.

They own 556 properties that consist of Seniors Apartments, Independent Living, Continuing Care Retirement Communities, Assisted Living, and Alzheimer's/Dementia Care, which accounted for 67% of revenue. Outpatient Medical (16% of revenue, 296 properties) are buildings that provide procedures outside of a hospital.

With the challenging year, occupancy fell at Seniors Operating and Triple-net properties. Both started 2020 at the mid-80% level, which dropped to 77% for the former and 73% for the latter at the end of the year.

The pandemic caused residents to move out, and filling the spots was tough. But demographics are strongly on Welltower's side as the population continues to age. Welltower has maintained a 0.61quarterlydividendaftercuttingitinMayfrom0.61 quarterly dividend after cutting it in May from 0.61quarterlydividendaftercuttingitinMayfrom0.87. It offers a 3.6% yield. Our target price is $71.

Doug Gerlach, SmallCap Informer

Physicians Realty Trust (DOC) announced results for the fourth quarter and fiscal year ended Dec. 31, 2020. While the equity markets were volatile, Physicians Realty Trust ended the year with the best total shareholder return of any public REIT with a significant medical office portfolio.

Fourth-quarter revenue was reported at 111.4million,up3.7111.4 million, up 3.7% over the prior-year period. Funds from operations (FFO) per share were flat at 111.4million,up3.70.26. As of Feb. 22, 2021, 99.6% of fourth quarter rent and 99.3% of January rent had been collected, including 100% of amounts due under deferred agreements. For the full year, revenues were up 5.3% to 437.5million,whileFFO/Swereup2.0437.5 million, while FFO/S were up 2.0% to 437.5million,whileFFO/Swereup2.01.03.

John T. Thomas, President and CEO, commented, "We ended 2020 with the lowest outstanding accounts receivable balance we have ever had as a percentage of revenue and an occupancy rate of 96%, the highest of all public owners of medical office facilities. While the equity market was volatile, we ended the year with the best total shareholder return of any public REIT with a significant medical office portfolio."

During the year, the company took advantage of market conditions to sell shares, adding 19.5 shares to its weighted average share totals compared to 2019. Without the additional dilution, FFO/S would have been up around 13% for the year.

Physicians Realty Trust is an effective utilizer of capital, so proceeds from the additional shares should reap benefits down the road. The 2021 outlook includes closing on between 400millionand400 million and 400millionand600 million of real estate investments. DOC is a buy up to $18.

Rida Morwa, High Dividend Opportunities

Investing in the healthcare medical buildings sector is a great way to generate income in both good and bad times. Perhaps one of the best spaces to find great tenants is the medical field.

Healthcare Trust of America (HTA) has created a very successful business centered around medical office buildings thanks to the high-quality tenants in the sector.

Doctors are very reliable with a high cash flow business that's in very strong and growing demand. Let's face it, most people don't go to the doctor for fun; they go because they have some issue that they really want resolved.

It's one thing to have a theory about how reliable a tenant is, but 2020 gave us a real-world extreme stress test. Many REITs experienced difficulties collecting all of their rent through the COVID-19 shutdowns.

Healthcare Trust of America didn't. There's no doubt about it, medical office tenants are reliable. Doctors also are very attached to their locations -- their customer base usually comes from people who are local and moving a practice any distance risks losing them.

For the landlords, this means a high retention rate. In other words, after an initial 5-10 year rental term, over 80% of tenants renew their lease. This high level of retention provides HTA with a lot of stability.

Medical demand is only going to continue to grow as the Baby Boomer generation ages. Today, there are roughly 56 million people in the U.S. over 65 years old. By 2030, that number will increase by 30% and will account for approximately 20% of the U.S. population.

Medical services and medical office space already is in high demand and that demand is going to continue to climb for several decades. It's a simple truth in life that the older you get, the more doctors you know on a first-name basis.

Medical office buildings have been benefiting from another trend as well. With modern medical technology, it's becoming increasingly common for people to use outpatient services, as opposed to spending significant amounts of time in hospitals. Outpatient services are precisely the types of facilities that Healthcare Trust of America invests in.

At the end of the day, it all comes down to rent. Or in the case of investors, the amount of rent that is transformed into dividends. Healthcare Trust of America is a great pick for those looking for dividend growth. It has a yield of 4.5% and has consistently raised its dividend for the past seven years.

Considering how reliable this REITs proved to be throughout the crisis, it's amazing that it is still trading below their pre-COVID highs. You can take advantage of this discount. Then when you go to see your doctor, you can thank them for being fantastic tenants that pay rent on time. Don't get mad at your medical bills, pay them with dividends!