Five Health Care REITs to Buy Offer Post-Pandemic Profit Potential

Paul Dykewicz

Five health care REITs to buy offer investors an opportunity to receive income through dividend payouts and the pursuit of potent potential profits from capital appreciation as the sector recovers from the COVID-19 global pandemic.

The five health care real estate investment trusts (REITs) to buy are led by Hunt Valley, Maryland-based Omega Healthcare (NYSE:OHI), a health care REIT that I personally purchased less than 11 months ago. Since then, it has soared 49.50%, showing no signs of faltering as the threat from COVID-19 wanes with quickly expanding vaccine distribution, particularly in the United States.

With OHI offering a dividend yield of more than 10% at the time I purchased it, the REIT appeared to be  good income investment in an industry that had demographics on its side, since people in the “baby boomer” cohort born between 1946 and 1964 increasingly will need Omega Healthcare’s skilled nursing and assisted living facilities. Despite the REIT’s many positive performance metrics, investors seemed to panic last spring when the stock market crashed as the global pandemic worsened at such an alarming rate that I began to update the numbers of cases and deaths in the United States and worldwide in every column I wrote.

Five Health Care REITs to Buy Feature Omega Healthcare

Omega Healthcare received negative publicity early last year as it became one of the first health care REITs to report dozens of cases of COVID-19 among its patients and staff. However, I researched Omega Healthcare for a December 2018 column in which I noted that the REIT had been addressing and resolving credit quality problems among its tenants and should be achieving improved financial performance in the next year or so.

That prediction proved prescient as Omega Healthcare reported profit margins of 37% prior to the pandemic. Mark Skousen, PhD, editor of the Forecasts & Strategies investment newsletter, introduced me to Omega Healthcare years ago when he recommended the REIT profitably for income investors. 

Mark Skousen, PhD, a descendant of Benjamin Franklin, meets with Paul Dykewicz in Philadelphia.

Omega Healthcare reached $42 a share in January 2020, then quickly fell in half with many shareholders choosing to sell as COVID-19 cases and deaths climbed. Nonetheless, Omega Healthcare rallied almost 50% in one day on Thursday, March 19, 2020.

Five Health Care REITs to Buy Buoyed by Resilience to Effects of the Pandemic

I regarded the steep drop in Omega Healthcare’s stock as an overreaction by jittery shareholders, so I opted to buy shares in May 2020 at what I considered a discounted price amid a spike in uncertainty caused by the COVID-19 crisis and the risk of what might happen in Omega Healthcare-owned senior facilities. A chart of OHI’s share price volatility during March and April 2020 showed extreme jumps and drops.

Chart courtesy of www.StockCharts.com

So far in 2021, OHI is up 9.17%, while the health care REIT sector has jumped 9.80%. In the past 12 months, the stock has zoomed 56.73%, while the sector has rocketed 62.23%. A current chart shows how the stock has rebounded in the past year.

Chart courtesy of www.StockCharts.com

Skousen, who also leads the Home Run Trader, TNT Trader, Five Star Trader and Fast Money Alert advisory services, has an affinity for dividend-paying investments and wrote to his newsletter subscribers about a 67-cent dividend of Omega Healthcare, whose motto is “Doing Well by Doing Good.” Its management recently announced that more than 90% of people in its facilities have either been vaccinated or are in the process of becoming so as the company tries to restore normal operations, he added. 

Leader of Five Health Care REITs to Buy Acquires Connected Living

Omega Healthcare management showed a willingness to invest for the future with its March 10 announcement that it was acquiring Connected Living, a technology platform that improves communication and connection in senior adult communities. The acquirer’s Chief Executive Officer Taylor Pickett said Connected Living will help senior care centers connect residents with staff, family and friends to provide an “enhanced experience” for everyone.

Even though money manager Hilary Kramer admittedly loves biotech, investors looking for stocks poised to bounce back with the post-pandemic economy should start with medical REITs, which fell under a cloud when non-essential procedures started getting cancelled last year, she commented. Omega Healthcare remains her favorite of the senior housing names, but she also suggested investors check out Bethesda, Maryland-based Global Medical REIT Inc. (NYSE:GMRE).

The Global Medical chief executive officer bought a few thousand shares of the company’s stock for close to $14 apiece for a projected 6% dividend yield, said Kramer, who hosts the nationally aired “Millionaire Maker” radio program and heads the GameChangers and Value Authority advisory services. He knows more than most of us how easy it is to defend that dividend and evidently sees no reason not to benefit himself, she added.

Paul Dykewicz conducts a pre-COVID-19 interview with Hilary Kramer, whose premium advisory services include IPO Edge2-Day TraderTurbo Trader and Inner Circle.

Global Medical REIT Ranks Among Five Health Care REITs to Buy

High-income expert Bryan Perry, who heads the Cash Machine investment newsletter, recommended Global Medical REIT in March. The REIT is offering a current dividend yield of 6.% and should benefit as U.S. health care spending is expected to rise 5.8% per year during the next decade, based on estimates from the Department of Health and Human Services.

Global Medical REIT, primarily engaged in the acquisition of licensed, state-of-the-art, all-purpose health care facilities, also provides use of its properties to clinical operators under long-term, triple-net leases in which the tenant pays not just rent but property taxes, building insurance premiums and maintenance and repairs. The company is taking full advantage of positive industry trends for future growth.

Chart courtesy of www.StockCharts.com

In terms of dollars, health care expenditures are projected to grow from $3 trillion in 2014 to $5.4 trillion by 2024, accounting for 19.6% of gross domestic product (GDP) four years from now, Perry wrote to his Cash Machine subscribers. The 65-and-over age group is expected to double between 2015 and 2060 and the 85-and-over age group is forecast to triple between 2015 and 2060. Plus, changing health care trends are driving new real estate investment trust (REIT) structures like Global Medical, Perry added.

“Outpatient procedures are rapidly on the rise as patients demand this option,” Perry continued. “Technological advances make it possible, and physician groups are breaking away from hospitals to form their own outpatient solutions. Global Medical’s widely diversified portfolio of properties is comprised substantially of off-campus medical office buildings, specialty hospitals, in-patient rehabilitation facilities and ambulatory surgery centers.”

Paul Dykewicz interviews Bryan Perry, whose advisory services feature Premium Income, Quick Income Trader, Breakout Profits Alert and Hi-Tech Trader.

BoA Global Research Identifies Three of the Five Health Care REITs to Buy

Three of the five health care REITs to buy include Healthpeak Properties, Inc. (NYSE:PEAK), Welltower Inc. (NYSE:WELL) and Ventas, Inc. (NYSE:VTR), according to BoA Global Research. The investment firm recently reported on the outlook of health care REITs and specifically recommended PEAK, VTR and WELL.

Each member of the trio offers a dividend yield of at least 3%, but the payouts are only about half what OHI and GMRE offer their shareholders. BoA recently upgraded PEAK and WELL to Buy from Neutral, while reiterating its Buy recommendation on VTR.

Source: Stock Rover. Click here to sign up for a free, two-week trial for Stock Rover charts and analytics.

Healthpeak Properties Gains Place Among Five Health Care REITs to Buy

As for Healthpeak Properties, BoA boosted its rating to Buy and raised its price objective on the stock to $35.50 from $34.00 due to its progress in exiting the senior housing market. BoA wrote that it sees light at the end of the tunnel as Healthpeak Properties has made “significant progress” on its $4 billion exit from the senior housing market by closing on $2.5 billion so far and has the balance under letters of intent or purchase agreements. 

Additionally, BoA assessed the initial 2021 guidance from Healthpeak Properties management as conservative. The investment firm foresees upside, particularly within the company’s life science segment. Longer term, BoA wrote favorably about PEAK’s development pipeline and its potential to create “significant value.”

BoA identified several sources of upside for REITs: (1) additional Health and Human Services (HHS) funds to assisted living facilities, (2) a faster pace of occupancy growth and (3) a quicker return to pre-pandemic margins. Thus, BoA is overweighting health care holdings within REITs.

Chart courtesy of www.StockCharts.com

Welltower Gains Place Among Five Health Care REITs to Buy

Toledo, Ohio-based Welltower gained an upgrade in its rating by BoA to Buy from Neutral that included raising its price objective to $78 from $73 with the REIT expected to become a “net acquirer” in 2021. Previously, BoA listed WELL as Neutral, given its large 2020 disposition program and management comments about looking at broken development deals or senior housing assets in lease up that would be a near-term drag on earnings.

“We were also concerned that WELL would continue to be a net seller in 2021,” BoA wrote in its health care REITs research note.

“Those concerns have now been dispelled given: (1) cap rates on recent acquisitions have been trending well above our prior expectations, and (2) management noted on the 4Q earnings call that they are likely to be net acquirers this year. We now expect acquisitions to be accretive to the bottom line, unlike our prior view that near-term accretion would be very limited given their focus on broken development deals/projects in lease up.”

Chart courtesy of www.StockCharts.com

Ventas Gains Nod from BoA as One of Five Health Care REITs to Buy

BoA also recently reiterated its Buy rating on Ventas, Inc. (VTR) but lowered its price objective slightly to $59.50 from $63 after factoring in higher capital recycling. The continued COVID-19 rollout remains positive for the near-term demand, demographic trends changing from a headwind to a tailwind to stoke medium to long-term demand and a reduced number of new starts for senior housing, according to BoA.

The investment firm’s reduced price target for VTR is driven by an updated outlook on the stock’s external growth. VTR management offered guidance of $1 billion in asset dispositions in the second quarter of 2021. Given elevated leverage and the strong private market demand for health care assets, BoA now predicts a bigger capital recycling program for VTR of $1.1 billion in 2021 and $1.1 billion in 2022. 

The net result is slightly weaker growth in 2022 before a stronger growth profile kicks in, according to BoA. During the next four years, BoA expects VTR to generate annualized funds from operations (FFO) growth of 7.6%, compared to 5.4% for the market.

Chart courtesy of www.StockCharts.com

Pension Fund Chairman Opines About Five Health Care REITs to Buy

“Health care is the second-largest REIT sector in my recommended REIT mutual fund, Cohen & Steers Realty Shares (CSRSX),” said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “The fund’s managers anticipate a recovery in the sector as vaccines are more widely administered. They also believe the sector generally is undervalued after a weak 2020.”

The top holdings in the health care sector for Cohen & Steers Realty Shares are Healthpeak Properties and Veritas, said Carlson, who also leads the Retirement Watch investment newsletter. The fund recently reduced its position in Welltower (WELL), which had been one of its 10 largest positions for some time, he added.

“Healthpeak has been diversifying away from the senior housing sector,” Carlson said. “The sector is crowded and overbuilt in many areas. It also is at risk from advances in technology that could allow more seniors to stay in their homes longer even though they need some assistance with activities of daily living.

Ventas had a tough time in 2020 because of its portfolio of senior housing properties but its medical office business did well, Carlson counseled. The company reported that residents in most of its senior housing properties are fully vaccinated and that it anticipates the sector returning to normal profitability as vaccine administration increases, he added.

Pension fund and Retirement Watch leader Bob Carlson answers questions from Paul Dykewicz prior to COVID-19-related social distancing.

COVID-19 Fails to Ruin Five Health Care REITS to Buy

COVID-19 vaccination inroads in recent weeks offer optimism that new cases and deaths caused by the virus may begin to slow. Further hope comes from the Food and Drug Administration (FDA) recently approving a third COVID-19 vaccine to allow additional people to be vaccinated.

U.S. COVID-19 cases have reached 30,847,168 and led to 556,528 deaths, as of April 7. Worldwide, COVID-19 cases have jumped to 132,456,676, while deaths have claimed 2,873,821, according to Johns Hopkins University. America has the misfortune of becoming the nation with the most COVID-19 cases and deaths.

The five health care REITs to buy provide investors with a handful of choices for profiting from the $1.9 trillion federal stimulus package, increased COVID-19 vaccine availability and the ongoing economic reopening. Those catalysts seem likely to build further momentum for health care REITs in the weeks and months ahead.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.

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