Mid-Cap REITs With A Dividend Yield Over 5%

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Includes: CXW, EPR, OHI
by: TopYields

Summary

Analysis of 3 mid-cap REITs that trade in the REIT - Healthcare Facilities Industry.

Corrections Corp Of America has an estimated rise of 6% from current EPS; estimated dividend per share up 6% from current DPS.

EPR Properties has an estimated rise of 6% from current EPS; estimated dividend per share up 6% from current DPS.

Omega Healthcare Investors has an estimated rise of 45% from current EPS; estimated dividend per share up 6% from current DPS.

Real Estate Investment Trusts (REITs) allow you to invest in portfolios of large-scale properties by purchasing the relevant stocks. As a REIT stockholder, you can benefit from income investing in the real estate market, without actually owning a finance property.
In fact, owning and operating real estate requires thorough knowledge and patience, along with the danger of being highly leveraged and illiquid. This means that you cannot sell your property immediately for cash, plus you have to be able to evaluate your property and know how to calculated an annual return on investment. On the other hand, REITs offer you the benefits of owning equity through purchasing on the stock market.

This article discusses three mid-cap REITs that trade in the REIT - Healthcare Facilities Industry. All three stocks trade on the NYSE, on average 5% lower than their 52w-high (EPR Properties is currently trading at its 52w highest price). Their average dividend yield is 6.19% at an average payout ratio of 144%. REITs are forced by the law to distribute at least 90% of their retained earnings to their shareholders, therefore, high payout ratios are normal for this particular industry. Their average debt-to-equity ratio is 1.01 and their average beta is 0.72, representing low-risk stocks.

Corrections Corp Of America (NYSE:CXW) is a Nashville, Tennessee-based company that owns and operates privatized correctional and detention facilities on a federal, state, and local level in the United States. CCA provides inmate residential and prisoner transportation services for governmental agencies as well as a range of rehabilitation and educational programs, including basic education, religious services, employment training, and substance abuse treatment, among others.

Q1 2016 Results: CCA's first quarter 2016 results are mainly affected by the decline in inmate California population, the startup expenses at the Trousdale facility, and the short-term debt refinancing with long-term debt in Q3 2015. Revenues reached $447.4 million, up 5.0% YoY from $426.0 million, generating a gross profit margin of 29.8%, 1.4% higher than 29.4% in the same quarter last year. Total operating expenses grew 7.1% YoY to $382.5 million from $357.2 million. Operating income declined 5.7% YoY to $64.9 million from $68.8 million, generating a net income of $46.3 million, down 19.2% YoY from $57.3 million. On the upside, operating cash flow for the quarter grew 2.7% YoY to $120.3 million from $117.2 million.

Dividend Growth: On May 13, CCA declared a quarterly dividend of $0.54 per share, thereby reaching an annualized dividend of $2.16, yielding 6.42% at a payout ratio 121%. The payout ratio is in line with the average payout ratio 127.2% of the Real Estate Investment Trusts Industry in the fourth quarter of 2015, and lower than the average payout ratio 204.6% of the first quarter of 2016. CCA's dividend growth since 2002 is 170.0% or 42.5% annually.

The Bottom Line: CCA's balance sheet remains strong with 3.6 times leverage and 6.2 times fixed charge coverage. In the end of the third quarter of 2016, the company had free cash flow $55 million and no debt maturities through 2020. CCA will continue to identify and pursue acquisition targets that could boost its growth and complement its company's existing platform. In addition, CCA focuses on returning shareholder value through accretive acquisitions that offer a competitive edge in regards to available capacity - currently over 9,000 beds. Through 2017, analysts estimate an average EPS of $1.89, up 5.9% from current EPS of $1.78, and an average DPS of $2.16. The expected payout ratio is 114%. Average earnings growth is estimated at 6% annually through 2020.

EPR Properties (NYSE:EPR) is a Kansas City, Missouri-based real estate investment trust that runs its operations in the real estate markets of the United States and Canada. EPR Properties engages in the development, ownership, leasing and financing of properties in selected market segments, primarily in the entertainment, education and recreation industries.

Q1 2016 Results: In the first quarter of 2016, ERP Properties delivered strong results, maintaining strong operational performance. The company's funds from operations (FFO) grew 130% to $73.8 million from $32.1 million in the first quarter of 2015, thereby generating an FFO per share of $1.17 compared to $0.56 in the prior quarter, an increase of 109%. More specifically, compared to the first quarter of 2015, EPR's results are as follows:

  • Revenues up 19.4% YoY to $118.8 million from $99.4 million
  • Gross profit margin up 1.9% YoY to 95.4% from 93.6%
  • Total operating expenses down 22.4% YoY to $41.7 million from $53.7 million
  • Operating income up 68.5% YoY to $77.1 million from $45.8 million
  • Net income up 26.5% YoY to $54.2 million from $42.8 million
  • Operating cash flow $69.1 million from $57.5 million, 20.1% growth

Dividend Growth & Prospects: On May 19, ERP Properties declared a monthly dividend of $0.32 per share, thereby reaching an annualized dividend of $3.84 per share, yielding 5.18% at a payout ratio of 126%. The dividend of $0.32 per share represents an increase of 5.8% from the previous year. In addition, dividend growth since 2013 is 21.5% or 7.2% annually.

The Bottom Line: ERP Properties is expected to capitalize on improved customer service in the markets it serves and especially in the education and recreation sectors. Solid demand for properties is expected to drive the company's profitability in the coming quarters and generate shareholder value. Through 2017, average EPS is estimated at $3.23, 6.0% higher than current EPS of $3.05 and average DPS is estimated at $4.06, 5.7% higher than current DPS of $3.84. The expected payout ratio is 126%. The 5-year earnings growth is estimated at 6.24% annually.

Omega Healthcare Investors (NYSE:OHI) is a Maryland-headquartered real estate investment firm that operates in the real estate markets of United States. Omega Healthcare Investors invests primarily in long-term healthcare facilities and maintains a strong investment portfolio.

Q1 2016 Results: In the first quarter of 2016, Omega Healthcare Investors indicated strong operational performance and profitability. The company's FFO grew 93% to $153.6 million from $79.6 million in the same quarter last year, generating an FFO per share $0.77 compared to $0.59 per share in the first quarter of 2015, a 31% increase. Revenues reached $212.9 million from $133.4 million, a 59.6% YoY increase. Operating income grew 12.3% YoY to $96.5 million from $86.0 million, generating a net income of $55.6 million, up 29.0% YoY from $43.1 million. On the downside, total operating expenses grew 145.1% YoY to $116.3 million from $47.5 million, but operating cash flow was strong, up 23.1% YoY to $127.2 million from $123.3 million in the same quarter last year.

Dividend Growth & Prospects: On April 14, Omega Healthcare Investors declared a quarterly dividend of $0.58 per share, thereby reaching an annualized dividend of $2.32 per share. The dividend yield is 7.06% and the payout ratio 184%. The stock's dividend growth since 2000 is 132.0% or 8.3%, indicating a company that sustainably returns value to its shareholders.

The Bottom Line: Omega Healthcare Investors is expected to continue investing in new assets. In the first quarter of 2016, the company completed $31 million of capital expenditures and $494 million of new investments - five separate purchase lease transactions of $437 million and two mezzanine loan investments of $57 million. Through 2017, analysts estimate an average EPS of $1.83, up 44.8% from current EPS of $1.23 and an average dividend per share of $2.46, increased 5.9% from current DPS of $2.32. The expected payout ratio is estimated at 134%, whereas the average earnings growth through 2020 is estimated at 2.93% annually.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.