Malls and retail 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 any new shopping centers or strip centers being built recently? America’s main streets have also had empty storefronts for a long period of time. Due to the pandemic lockdowns and the ease of shopping online, the death of physical stores 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, kitchen table, by a pool, or on a deck overlooking the ocean. Companies that do not offer remote or hybrid employment opportunities have a hard time filling jobs and retaining good employees. With all 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 office and commercial buildings
There are alternatives to investing in commercial and office buildings. Newly built multi-family apartment complexes are opening all over the country. The cost of single-family homes has risen so dramatically in recent years, especially in certain markets, that average middle-class folks can only afford rent. The need for rental properties seems to be increasing and increasing.
Opportunities are also opening up for investors to take advantage of growing healthcare needs, especially due to the aging of the Baby-Boom generation. New hospitals, medical clinics, and assisted living facilities are springing up everywhere. It is estimated that by the year 2050, 15 million older people will need long-term care.
But there is a need for that now. On average, patients who enter long-term care facilities for rehabilitation will be residents for 270 days until they recover and go home. Those who enter long-term care facilities at the end of their lives typically stay there for an average of 835 days before passing away. There is a huge need for such facilities.
Current challenges with healthcare properties
Unfortunately, few can afford extended stays in nursing homes or memory care centers, so they end up dependent on Medicare and Medicaid. But these government programs have been reducing their reimbursement levels for the past few years. Health workers have also left the field due to low wages. Several states have recognized the problem of low wages and have called for higher wages. In response to such hardship, if they can afford it, many seniors stay in their residence or in assisted living facilities longer than in the past before going to a nursing home. Home personal care, senior meal centers, and adult day care centers have helped fill the gap.
Healthcare REITs That Can Benefit Investors
The need for health care facilities will only increase as our population ages and more and more seniors need assistance with their health and living needs. This offers an opportunity for REIT investors who want an interest in healthcare properties, but don’t want the headaches that often accompany limited partnerships or other forms of real estate investment that require large cash outlays.
The National Association of Real Estate Investment Trusts (Nareit) website shares information about 15 healthcare REITs. Of those 15, only three show positive total returns over the last year, although there are four that show positive returns over a longer period of time. The 3 REITs showing positive returns in the last 12 months are LTC Properties, Inc., Omega Healthcare Investors, Inc.. Y National Health Investors, Inc..
The 4 REITs that show positive returns for longer terms that should be considered in more detail in another article are Community Healthcare Trust, Inc. (NYSE: CHCT), Healthpeak Properties, Inc. (NYSE: TOP), Medical Estate Trust, Inc. (NYSE: MPW) Y global medical REIT (NYSE: 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 Properties, Inc. (NYSE: LTC) Closing price on November 25, 2022: $38.65. 52-week price range: $31.36-$45.49.
LTC Properties has experienced a total return over the last 12 months of 24.16%. The current dividend yield for this REIT is 6%, with an average 5-year dividend yield of 5.71%. The 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 looks like a solid company that will be able to deliver consistent dividends for many years to come.
LTC Properties has investments in senior living facilities and other types of healthcare properties. Their portfolio is balanced in that 50% is in senior housing and the other 50% is in skilled nursing facilities. LTC Properties owns 181 investments in 27 different states. It works with 29 different operating partners.
Omega Healthcare Investors, Inc. (NYSE: OHI) Closing price on November 25, 2022: $30.70. 52-week price range: $24.81-$33.71.
Omega Healthcare Investors has earned a total return of 16.46% over the past 12 months. Its current dividend yield is 8.8%, with a five-year average of 8.16%. The book value is $15.98 per share, with a current ratio of 2.57. AFFO’s payout ratio is what some would consider high at 96.1%, but Omega has historically managed to maintain its dividend with a relatively high payout ratio.
Omega Healthcare Investors focuses its investments on long-term healthcare, particularly skilled nursing and assisted living properties. The Omega portfolio is operated by various healthcare companies in both the US and the UK.
National Health 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%. The book value is $31.18 per share and a current ratio of 2.78. AFFO’s pay rate sits at around 81%, which is fairly in line with the company’s historical pay rate.
National Health Investors appears to be the most diverse of the three we are focusing on, when it comes to the types of properties the company invests in. National Health Investors pays attention to independent and assisted living, as well as memory care facilities. It also invests in gated community retirement communities, nursing homes, medical 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 been hard at work identifying the best opportunities in today’s market, which you can access for free by registering at Benzinga REIT Weekly Report.
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