The future looks bright for healthcare Real Estate Investment Trusts (REITs), driven by an aging population, rising healthcare spending, and advancements in medical technology. As the need for healthcare services increases, so does the demand for healthcare-related real estate.
Investors looking to capitalize on these trends might consider fundamentally strong healthcare REITs like Omega Healthcare Investors, Inc. (OHI), National Health Investors, Inc. (NHI), and LTC Properties, Inc. (LTC), which offer attractive yields.
Healthcare REITs are vital to the healthcare industry, as they own, manage, and develop properties such as hospitals, senior living communities, and medical office buildings. They generate income by leasing these properties to healthcare providers.
As the U.S. population ages, the need for healthcare services is expanding, presenting healthcare REITs with opportunities to benefit from this market growth. Healthcare spending is on the rise due to technological advancements, higher rates of chronic diseases, and broader healthcare coverage, necessitating more healthcare facilities.
In the first quarter of 2024, healthcare REITs reported strong leasing activity and favorable lease terms, especially in the medical office sector, with an FFO of $667 million. The market for healthcare REITs shows signs of stability, with high investor demand tightening cap rates for prime medical office properties.
The healthcare real estate sector has long been underpinned by solid fundamentals, including high occupancy rates and long-term leases that ensure consistent rental income. Moreover, healthcare REITs have historically been reliable dividend payers as they are required to distribute 90% of taxable income to shareholders annually as dividends.
Furthermore, the REIT market is poised to reach $333.01 billion by 2027, growing at a CAGR of 2.8%.
Considering these factors, let’s examine the fundamentals of the three REITs - Healthcare stocks, starting with the third in line.
Stock#3: Omega Healthcare Investors, Inc. (OHI)
OHI is a healthcare facility real estate investment trust that invests in the long-term healthcare industry, primarily in skilled nursing and assisted living facilities. Its portfolio of assets is operated by a diverse group of healthcare companies, predominantly in a triple-net lease structure.
On May 15, the company paid its shareholders a dividend of $0.67 per share on its common stock. OHI’s annualized dividend of $2.68 per share translates to a dividend yield of 7.91% on the current share price.
During the March quarter, OHI made significant investments to enhance its real estate portfolio. The company completed two separate acquisitions, purchasing two facilities for a total of $13.3 million. These facilities have been leased to existing operators in the U.S. and U.K., offering a weighted average initial annual cash yield of 9.8% with 2.5% annual escalators.
Additionally, OHI funded $41.2 million in real estate loans across four transactions. With a weighted average interest rate of 9.6%, these loans are set to mature between January 31, 2027, and March 1, 2029.
OHI’s trailing-12-month AFFO payout ratio of 100.37% is 36.2% higher than the industry average of 73.69%. Also, its 69.47% trailing-12-month AFFO/total revenue is 70.1% higher than the 40.83% industry average.
OHI’s total revenue for the fiscal first quarter that ended March 31, 2024, increased 11.5% year over year to $243.30 million. The company’s net income and earnings per share for the quarter rose 87.4% and 80% from the prior year to $67.36 million and $0.27, respectively.
Its adjusted funds from operations grew 10.2% from the year-ago value to $176.12 million, while its Nareit funds from operations increased 4.8% year-over-year to $153.12 million. OHI had $167.92 million in funds available for distribution, up 14.2% year-over-year
The consensus revenue estimate of $836.90 million for the fiscal year (ending December 2024) reflects a 3.3% year-over-year increase. Also, analysts expect OHI’s revenue and FFO for the fiscal year 2025 to grow 5.9% and 6% year-over-year to $886.42 million and $2.92, respectively.
Over the past six months, the stock has gained 11.5%, closing the last trading session at $33.87.
OHI’s stance is apparent in its POWR Ratings. The stock has a B grade for Value. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It is ranked #3 out of 14 stocks in the REITs - Healthcare industry. Click here to see OHI’s Growth, Value, Momentum, Stability, and Sentiment ratings.
Stock#2: National Health Investors, Inc. (NHI)
NHI is a real estate investment trust specializing in sales, leasebacks, joint ventures (JVs), senior housing operating partnerships, and mortgage and mezzanine financing of discretionary senior housing and medical investments. The company’s portfolio comprises independent living, assisted living and memory care communities, skilled nursing facilities, and specialty hospitals.
On May 6, the company announced its second dividend of $0.90 per common share, payable to its stockholders on August 2, 2024. NHI pays a $3.60 per share dividend annually, translating to a 5.21% yield on the current share price.
NHI’s trailing-12-month AFFO/Total Revenue of 59.78% is 46.4% higher than the industry average of 40.83%. Also, its trailing-12-month cash dividend payout ratio of 81.90% is 29.1% higher than the 63.47% industry average.
For the first quarter that ended March 31, 2024, NHI’s revenues amounted to $81.51 million, while its net income and EPS came in at $30.92 million and $0.71, respectively. Its normalized FAD stood at $50.97 million, up 6.8% year-over-year. Also, Normalized FFO attributable to common stockholders was $48.50 million or $1.12 per share, reflecting an increase of 0.9% year-over-year.
NHI updated its 2024 annual guidance range for Normalized FFO per share to $4.37-$4.43 from $4.31-$4.37. The company also raised its guidance for Normalized FAD to $196.7 million-$199.2 million from $191.3 million-$194.1 million.
Analysts expect NHI’s revenue for the second quarter (ended June 2024) to decrease marginally year-over-year to $77.63 million. However, the company’s FFO is expected to grow 3.8% from the previous year to $1.10. Nonetheless, the company has topped the consensus revenue and FFO estimates in three of the trailing quarters, which is impressive.
Shares of NHI have gained 33.5% over the past nine months and 24.5% year-to-date to close the last trading session at $68.47.
NHI’s POWR Ratings reflect this positive outlook. The stock has a B grade for Stability, Sentiment, and Quality. Within the same industry, it is ranked #2.
Beyond what I have stated above, we have also given NHI grades for Growth, Value, and Momentum. Get all NHI ratings here.
Stock#1: LTC Properties, Inc. (LTC)
LTC invests in senior housing and healthcare properties. Its operations include sale-leasebacks, mortgage financing, joint ventures, and structured financing solutions, including preferred equity and mezzanine lending.
On July 1, the company declared a monthly dividend of $0.19 per common share for the third quarter of 2024. The distribution dates are July 31, August 30, and September 30, 2024. LTC pays a $2.28 per share dividend annually, translating to a 6.60% yield on the current share price. Also, its dividend payout has grown at a CAGR of 3.7% over the past five years.
LTC’s trailing-12-month AFFO/Total Revenue of 59.75% is 46.3% higher than the industry average of 40.83%. Likewise, its trailing-12-month cash dividend payout ratio of 89.29% is 40.7% higher than the 63.47% industry average.
LTC’s total revenues increased 3.8% year-over-year to $51.37 million in the first quarter ended March 31, 2024. Its NAREIT funds from operations came in at $29.91 million and $0.69 per share, up 9.9% and 4.5% year-over-year, respectively. FFO attributable to common shareholders, excluding non-recurring items, increased marginally from the prior year’s quarter to $27.53 million. Also, it had $21.27 million in funds available for distribution, up 3.9% year-over-year.
The consensus FFO estimate of $0.66 for the second quarter (ended June 2024) represents a marginal improvement year-over-year. The consensus revenue estimate of $49.28 million for the to-be-reported represents a 2.1% increase from the previous year. The company has an excellent surprise history; it surpassed the consensus revenue estimates in each of the trailing four quarters.
LTC has gained 9.2% over the past six months and 8% year-to-date to close the last trading session at $34.52.
LTC’s POWR Ratings reflect these prospects. The REIT has a B grade for Quality and is ranked first among the 14 stocks in the REITs - Healthcare industry.
To see additional POWR Ratings for Growth, Value, Momentum, Stability, and Sentiment for LTC, click here.
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OHI shares were trading at $33.79 per share on Monday afternoon, down $0.08 (-0.24%). Year-to-date, OHI has gained 15.25%, versus a 17.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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