Shopping malls and retail strip centers have been declining for many years. How many empty spaces did you see in your local mall the last time you visited? Have you seen any new malls or strip centers being constructed recently? Main streets across America have also had vacant storefronts for a long period of time. Because of pandemic lockdowns and the ease of shopping online, the death of brick-and-mortar retail has accelerated.
Also, because of recent COVID restrictions, folks have become used to working remotely. It's a wonderful thing to do your job from your home office, your kitchen table, next to a swimming pool or on a deck overlooking the ocean. Companies that don't offer remote or hybrid employment opportunities are having difficulties filling job positions and retaining good employees. Keeping all this in mind, a growing number of forward-thinking investors question the wisdom of investing their money in commercial real estate such as retail or office buildings, either directly or in real estate investment trusts (REITs).
Alternatives to Brick and Mortar Retail and Office Buildings
There are alternatives to investing in retail and office buildings. Newly constructed multi-family apartment complexes are opening all over the country. The cost of single-family homes has been rising so dramatically the past few years - especially in certain markets - that average middle-class folks can only afford to rent. The need for rental properties just seems to be going up and up.
Opportunities are also opening up for investors to take advantage of expanding healthcare needs, especially due to the aging Baby-Boom generation. New hospitals, medical clinics and assisted-living facilities are sprouting up all over the place. It's estimated that by the year 2050, 15 million seniors will need long-term care.
But there's a need for that now. On average, patients who enter long-term care facilities for rehab will be 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 are usually there for an average of 835 days before they pass away. There is a tremendous need for such facilities.
Current Challenges with Healthcare Properties
Unfortunately, few can afford the expense of lengthy stays in nursing homes or memory care facilities, so they end up depending on Medicare and Medicaid. But these government programs have been reducing their reimbursement levels for the past several years. Healthcare workers have also been leaving the field because of low pay. Several states have e recognized the low-salary problem and have mandated higher wages. In response to such difficulties, if they can afford it, many seniors remain at their residence or in assisted-living facilities longer than they have in the past before going to a nursing home. Personal home care, senior centers for meals and adult day cares have helped take up the slack.
Healthcare REITs that May Benefit Investors
The need for healthcare facilities will only increase as our population ages and more and more seniors need assistance for their health and living needs. This offers an opportunity for REIT investors who want a stake in healthcare properties, but don't want the headaches that often go along with limited partnerships or other forms of real estate investing that require large outlays of cash.
The website of The National Association of Real Estate Investment Trusts-Nareit-shares information on 15 healthcare REITs. Of those 15, only three show positive total returns for the past year, although there are four that show positive returns for a longer time frame. The 3 REITs that show positive returns for the past 12 months are LTC Properties, Inc., Omega Healthcare Investors, Inc. and National Health Investors, Inc.
The 4 REITs that show positive returns for longer time frames that should be considered in greater detail in another article are Community Healthcare Trust, Inc. (NYSE: CHCT), Healthpeak Properties, Inc. (NYSE: PEAK), Medical Properties Trust, Inc. (NYSE: MPW) and Global Medical REIT (NYSE: GMRE).
So let's take a look at the three healthcare REITs that have shown a positive total return for the past 12 months:
LTC Properties, Inc. (NYSE: LTC) Nov. 25, 2022 closing price: $38.65. 52-week price range: $31.36-$45.49.
LTC Properties has experienced a total return for the past 12 months of 24.16%. This REIT's current dividend yield is 6%, with a 5-year dividend yield average 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 appears to be a solid company that will be able to offer consistent dividends for many years to come.
LTC Properties holds investments in senior housing facilities and other types of healthcare properties. Its portfolio is balanced in that 50% is in senior housing and the other 50% is in skilled nursing facilities. LTC Properties holds 181 investments in 27 different states. It works with 29 various operating partners.
Omega Healthcare Investors, Inc. (NYSE: OHI) Nov. 25, 2022 closing price: $30.70. 52-week price range: $24.81-$33.71.
Omega Healthcare Investors has had a total return of 16.46% in 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. The AFFO payout ratio is what some 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 in skilled nursing and assisted living properties. Omega's portfolio is operated by several healthcare companies in both the United States and the United Kingdom.
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. The AFFO payout ratio sits at about 81%, which is fairly in-line with the company's historical payout ratio.
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 gives its attention to independent and assisted living as well as memory care facilities. It also invests in entrance-fee 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 working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for Benzinga's Weekly REIT Report.
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