In the REIT arena one of the sectors we like the best at the moment is the Healthcare REIT sector. This sector deals with the ownership of everything health care related, from small medical office buildings to senior housing units (whether it be skilled nursing facilities or assisted living). Historically these types of REITs have been somewhat buffered from economic downturns, although we are headed toward somewhat uncharted waters as the economy stumbles and the federal and state governments look for ways to save money.
To battle potential macro economic issues ahead we specifically looked for some of the strongest issues in the sector that also offer high yields.
In our search we looked for healthcare REITs with Debt/Equity ratios under 1, current yields over 5% and revenue growth of over 10%. We think that these metrics help to assure some level of safety. Obviously there are other important factors, but these give us a good start toward weeding down the choices within the sector.
The 3 Healthcare REIT's that we believe have the best potential are LTC Properties Trust (ticker: LTC), Medical Properties Trust (ticker: MPW) and Senior Housing Properties Trust (ticker: SNH).
|Company||Ticker||Current Price||Current Yield||Debt/Equity||Revenue Growth|
|Medical Properties Trust||MPW||$12.00||6.7%||.53||15.7%|
|Senior Housing Properties Trust||SNH||$23.41||6.3%||.63||22%|
Note that the revenue growth shown is the most recent quarter (3/31/2011) compared to the same quarter of 2010.
LTC Properties Inc. is primarily involved in skilled nursing facilities (what we used to be called nursing homes) and assisted and independent living facilities. Obviously the demographics are good for this business in the future.
Medical Properties Trust is an owner of facilities such as hospitals and various types of treatment centers. The company has been continuously active in the acquisition market--and successfully so for the last number of years.
Senior Housing Properties Trust is a large owner of various types of senior living facilities--but additionally has made a number of Medical Office Building acquisitions in the last year.
Each of these REITs generates strong net income and Funds From Operations (FFO) and generally they pay out around 80% of available cash.
Additionally, it should be noted that each REIT has been in the capital markets numerous times in the last year, taking advantage of their ability to sell common shares as well as refinancing debt at very low levels. Of course, the key to successfully selling common shares is to get the money redeployed where it can generate cash (versus leaving it on the balance sheet where it generates little)--if this can't be accomplished you simply end up with diluted shares which leads to stagnant (or reduced) payouts per share.
With the conservative financing, relatively high yields and potential for future capital gains and rising payouts, these shares should be of interest to income investors.
We do not currently have a position in any of these issues, but anticipate taking a position in SNH in the next 30 days. We scale in on REITs and would likely make 2-3 separate purchases of this security.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SNH over the next 72 hours.