Is Now a Good Time to Invest in a Medical REIT?

Many real estate investment trusts (REITs) have seen their stock prices plummet over the past year. Rising interest rates hit their finances twice as much as he did, the cost of borrowing money to buy new properties to lease while some of the tenants struggled to raise the money to keep their businesses running. has increased.

of Invesco KBW Premium Yield Equity REIT ETF It has decreased by more than 16% over the past year. Healthcare REITs were no exception, as the average decline of the 15 healthcare REITs listed in the FTSE Nareit US Real Estate Indexes exceeded 22% over the same period.

Healthcare companies may face short-term macroeconomic challenges such as labor shortages and supply chain issues, but an aging population could push US healthcare costs to $6.2 trillion by 2028. expected to reach. As such, medical REITs often remain solid, long-term investments with above-average dividends.

Today we’ll look at three: Physicians Realty Trust (document 1.53%), medical property trust (MPW 2.85%) When national health investor (Pediatrics 0.11%).

Physicians Realty Trust is a stable stock

Physicians Realty Trust stock has fallen more than 18% over the past year, but is up more than 6% over the past three months. This REIT of his, which specializes in medical office buildings, had 290 properties as of the third quarter, 94.9% of which were rentals.

The company posted nine-month revenues of $394 million, up 15.3% year-over-year, and normalized funds under management (NFFO) of $0.26, consistent with the same period last year. was. The company has maintained a quarterly dividend of $0.26 since 2019, yielding about 6% and an NFFO payout rate of 85.8%.

The company’s tenants have an average remaining lease term of six years. The tenant mix is ​​highly diverse, with the largest tenant, CommonSpirit Health, accounting for only 18.8% of the company’s total leasable space, with 66% of its tenants being investment grade.

Medical Properties Trust is on the rise

Medical Properties Trust owns 435 hospital buildings and leases them to 54 companies in the US, UK, Italy, Portugal, Switzerland, Germany, Australia, Spain, Finland and Colombia. The average remaining lease term is 17.6 years.

The company’s stock has fallen more than 45% over the past year, but has risen more than 17% over the past three months. The company was hit hard when Pipeline Health, one of his largest tenants, went through bankruptcy proceedings and withheld rent on some properties.

However, a recent bankruptcy court ruled in favor of Medical Properties Trust on this matter. The decision requires Pipeline Health to pay rent for his four hospitals and two of his medical buildings in the Los Angeles area, while keeping the 17.6-year master lease term, lease rate and annual rent escalator intact. .

With those concerns abated, Medical Property Trust has become a more attractive investment destination, with a solid financial position and a dividend yield of around 9%. The company raised its quarterly dividend last year by 3.5% to his $0.29, marking its eighth consecutive year of dividend increases. The company’s 81% payout rate on its Adjusted Funds From Operations (AFFO) is considered safe for REITs.

In the third quarter, the company reported nine-month revenue of $1,162 million, up 2.3% year-over-year, and NFFO of $829.5 million, up 9.5% in the first nine months of 2021. Between $1.80 and $1.82 and between $1.78 and $1.82. This guidance compares to the 2021 annual NFFO of $1.75.

Short-term concerns of public health investors

National Health Investors stock is down more than 7% over the past year and is up over 3% over the past year.

The company operates more than 200 senior care facilities in 32 states. skilled nursing facilities; clinic buildings; and specialty hospitals.

The long-term outlook for senior living facilities remains strong, but the financial health of many senior living centers is deteriorating thanks to consumer concerns that surfaced during the COVID-19 pandemic, as well as rising labor costs and staffing shortages. doing.

The company has maintained its quarterly dividend at $0.90 since lowering it from $1.1025 in the second quarter of 2021. With a dividend yield of around 6.4%, NFFO’s payout rate is 84.9%, well within the safe margin for a REIT.

In the first nine months of 2022, revenue was $207.5 million, down 9% from the same period in 2021, and NFFO was $155.5 million, down 4% year-over-year.

make the choice for you

Physicians Realty Trust is the safest investment of the three REITs. Revenues are still growing, tenants are investment grade, and rent defaults are unlikely. The company’s average remaining lease term is a little over six years, which is rather short, and its reluctance to increase dividends is a negative, but it is also the best REIT among the three REITs that can respond in the event of a recession.

As last year showed, the Medical Properties Trust has more risks. However, its history of high and increasing dividends, as well as its improving financials, make it a solid choice in the long run. The company is not very diversified, with Seward Health Care responsible for 26% of its estimated total assets as of Sept. 30, while REIT-owned properties (hospitals) are generally stable. , can usually find new tenants with little difficulty.

National Health Investors is also a solid long-term pick, but it’s a stock to avoid for the time being, as senior housing may not recover quickly, and could see further declines in 2023.

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