Shopping malls and malls have been in decline for many years. How many empty spaces did you see in your local mall the last time you visited? Have you seen new malls or strip centers being built recently? Even major streets across America have had empty storefronts for a long time. Due to pandemic-related lockdowns and the ease of shopping online, the death of physical retail has accelerated.
Also, due to the recent COVID restrictions, people have gotten used to working remotely. It’s wonderful to get work done from your home office, the kitchen table, next to a pool, or on a deck overlooking the ocean. Companies that don’t offer remote or hybrid job opportunities struggle to fill jobs and retain good employees. With all of this in mind, a growing number of forward-thinking investors are questioning the wisdom of investing their money in commercial real estate such as commercial or office buildings, either directly or in real estate investment trusts (REITs).
Alternatives to brick and mortar commercial and office buildings
There are alternatives to investing in commercial and office buildings. Newly built multi-family apartment complexes are opening across the country. The cost of single-family homes has risen so dramatically in recent years, especially in some markets, that middle middle-class people can only afford the rent. The need for rental properties seems to be increasing more and more.
Opportunities are also opening up for investors to take advantage of growing healthcare needs, particularly as a result of the aging baby-boomer generation. New hospitals, medical clinics and assisted living facilities are popping up everywhere. It is estimated that by 2050, 15 million older people will need long-term care.
But now there is a need. On average, patients entering long-term care facilities for rehabilitation will remain residents for 270 days until they recover and leave to go home. Those who enter long-term care facilities at the end of their lives usually stay there for an average of 835 days before dying. There is a huge need for such facilities.
Current challenges with sanitary properties
Unfortunately, few can afford the expense of long stays in nursing homes or memory care facilities, so they end up dependent on Medicare and Medicaid. But these government programs have reduced their reimbursement levels in recent years. Healthcare workers also left the field due to low pay. Several states have recognized the problem of low wages and mandated higher wages. In response to such hardships, if they can afford it, many older adults stay in their residence or assisted living facilities longer than they did in the past before going to a nursing home. Personal home care, senior centers for meals, and adult day care have helped bridge the slowdown.
Healthcare REITs that can benefit investors
The need for healthcare facilities will only increase as our population ages and more and more seniors will need assistance for their health and living needs. This presents an opportunity for REIT investors who want a stake in healthcare properties, but don’t want the headaches that often accompany limited partnerships or other forms of real estate investing that require large cash outlays.
The website of the National Association of Real Estate Investment Trusts—Nareit—shares information on 15 healthcare REITs. Of these 15, only three show positive total returns over the past year, although there are four that show positive returns over a longer period of time. The 3 REITs showing positive returns over the past 12 months are LTC, Inc. Properties, Omega Healthcare Investors, Inc. And National Healthcare Investors, Inc.
The 4 REITs showing positive returns over longer timeframes that should be considered in more detail in another article are Community Health Fund, Inc. (New York Stock Exchange: CHCT), Healthpeak Properties, Inc. (NYSE: PEAK), Medical Properties Trust, Inc. (NYSE: MPW) e Global medical REIT (New York Stock Exchange: GMRE).
So let’s take a look at the three healthcare REITs that have shown a positive total return over the past 12 months:
LTC, Inc. Properties (NYSE:LTC) November 25, 2022 Closing Price: $38.65. 52-week price range: $31.36-$45.49.
LTC Properties has posted a total return over the past 12 months of 24.16%. The current dividend yield of this REIT is 6%, with an average 5-year dividend yield of 5.71%. Book value is $19.83 per share and the company has a current ratio of 6.59. With an AFFO payout ratio of 86%, this appears to be a solid company that will be able to deliver consistent dividends for many years to come.
LTC Properties holds investments in senior living and other types of healthcare properties. Its portfolio is balanced as 50% is in aged care accommodation and the remaining 50% in skilled care facilities. LTC Properties holds 181 investments in 27 different states. It works with 29 different operating partners.
Omega Healthcare Investors, Inc. (NYSE: OHI) November 25, 2022 Closing Price: $30.70. 52-week price range: $24.81-$33.71.
Omega Healthcare Investors has recorded a total return of 16.46% over the past 12 months. The current dividend yield is 8.8%, with a five-year average of 8.16%. Book value is $15.98 per share, with a current ratio of 2.57. The AFFO payout ratio is what some consider high at 96.1%, but historically Omega has managed to maintain its dividend at a relatively high payout ratio.
Omega Healthcare Investors focuses its investments on long-term healthcare, particularly in skilled nursing and assisted living properties. Omega’s portfolio is managed by several healthcare companies in both the US and the UK.
National Healthcare Investors, Inc. (NYSE: NHI) October 28, 2022 Closing Price: $54.76. 52-week price range: $50.22-$67.16.
National Health Investors has a healthy dividend yield of 6.5%, with a five-year average of 6.01%. Book value is $31.18 per share and a current ratio of 2.78. The AFFO payout ratio is around 81%, which is pretty in line with the company’s historical payout ratio.
National Health Investors appears to be the most diverse of the three that we’re focusing on, when it comes to the types of properties the firm invests in. National Health Investors pays attention to independent and assisted living as well as memory care facilities. It also invests in fee-paying retirement communities, nursing homes, doctor’s office buildings and specialty hospitals.
REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has worked hard to identify the greatest opportunities in today’s market, which you can access for free by subscribing to Benzinga’s weekly REIT report.
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