With the expanding healthcare systems, and cutting-edge technologies, the prospects of Healthcare REITs appears robust. The REITs offers diversification, risk mitigation, and stable income source making them sound investment alternate.
Therefore, fundamentally sound healthcare REITs Welltower Inc. (WELL), CareTrust REIT, Inc. (CTRE), and Sabra Health Care REIT, Inc. (SBRA) having strong growth prospects could be ideal watch list additions for diversification and steady income generation.
Healthcare REITs typically own and manage a wide variety of healthcare related real estate like senior living facilities, hospitals, medical office buildings and skilled nursing facilities and collect rent from tenants. Healthcare REITs helps mitigate risk, offer growth opportunities, and provide diversification across different sectors to the investors.
The prospects of the healthcare REITs are rooted in the transformative efforts taken recently in the healthcare industry like adoption of advanced technologies, rising chronic diseases, changing health systems, healthcare services, and pharmacy services. And the industry is likely to grow at a rapid pace in the forthcoming years.
The overall REIT market is anticipated to expand at a CAGR of 2.8%, resulting in a market value of $333.01 billion by 2027 influenced wider access through online purchasing and internet connectivity. The United States has the largest REIT market. The U.S. REITs market had a market cap of nearly $1.4 trillion in 2023.
Thus, with the benefit of gaining exposure, diversifying portfolio, cost effectiveness, and controlled risk, healthcare REITs offer investment stability and growth. Furthermore, REITs provide regular income in the form of dividend to the investors since they required to distribute 90% of taxable income to shareholders annually as dividends.
In light of these encouraging trends, let’s look at the fundamentals of the three best REITs - Healthcare, beginning with number 3.
Stock #3: Welltower Inc. (WELL)
WELL is a REIT and S&P 500 company emphasizing on transforming health care infrastructure. The company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people's wellness and overall health care experience.
WELL’s revenue and EBITDA have grown at respective CAGRs of 16.4% and 19.2% over the past three years. The company’s EBIT has increased 28.7% over the same timeframe, while its tangible book value and total assets have improved at CAGRs of 20.5% and 10.5%, respectively.
On June 3, WELL’s Board of Directors approved an increase in its quarterly common stock dividend to $0.67 per share, beginning with the second quarter of 2024. The dividend increase indicates WELL’s solid financial performance, low payout ratio owing to the outsized levels of cash flow growth, and the Board's confidence in the company's strong growth prospects.
WELL pays an annual dividend of $2.44, which translates to a yield of 2.27% at the current share price. Its four-year average dividend yield is 3.29%.
WELL’s total revenues increased 19.2% year-over-year to $1.86 billion during the first quarter that ended March 31, 2024 and its adjusted EBITDA was $732.37 million. The company’s normalized FFO attributable to common stockholders came in at $585.21 million and $1.01 per share, up 39.5% and 18.8% from the prior year’s quarter, respectively.
Furthermore, the company’s total assets stood at $44.55 billion as of March 31, 2024, compared to $38.49 billion as of March 31, 2023.
The company raised its outlook for the full year 2024. WELL expects net income attributable to common stockholders between $879 million and $957 million raised from previous outlook of $694 million - $785 million. Also, net income attributable to common stockholders per share has been revised to a range of $1.48 to $1.61 from the previous range of $1.21 to $1.37.
Street expects WELL’s revenue for the second quarter (ended June 2024) to increase 14.2% year-over-year to $1.90 billion and its FFO is expected to grow 11.3% year-over-year to $1.00 for the same quarter. Further, the company has surpassed the consensus FFO estimates in each of the trailing four quarters.
WELL’s shares have gained 19.5% over the past six months and 33.6% over the past year to close the last trading session at $107.41.
WELL’s solid outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Stability and Growth. Within the REITs - Healthcare industry, WELL is ranked #9 out of 14 stocks.
In addition to the POWR Ratings highlighted above, you can check WELL’s ratings for Quality, Value, Sentiment, and Momentum here.
Stock #2: CareTrust REIT, Inc. (CTRE)
CTRE is engaged in the business of acquiring, financing, developing and owning real property to be leased to third-party tenants in the healthcare sector. As of March 31, 2024, it owned directly or through a joint venture and leased to independent operators, 228 skilled nursing facilities, multi-service campuses, assisted living facilities and independent living facilities.
CTRE’s revenue and EBITDA have grown at respective CAGRs of 8.6% and 7.4% over the past three years. The company’s EBIT has increased 11.1% over the same timeframe, and its normalized net income and tangible book value have improved at CAGRs of 8.4% and 21.8%, respectively.
On June 3, CTRE acquired a 5-facility, 498 licensed bed, skilled nursing portfolio located in the Southeastern United States for a total investment amount of around $80.9 million. The acquisition was part of a larger transaction closed concurrently in which CTRE provided approximately $99 million in portfolio acquisition financing to a regional owner/operator of skilled nursing facilities.
For the first quarter that ended March 31, 2024, CTRE’s total revenues rose 24.6% year-over-year to $63.07 million. The company’s normalized FFO attributable to CTRE grew 32.9% from the year-ago value to $46.50 million. And its normalized FFO per share attributable to CTRE came in at $0.35.
In addition, the company’s normalized EBITDA attributable to CTRE came in at $56.86 million, indicating growth of 24.2% year-over-year.
According to the company’s full year 2024 guidance, CTRE expects normalized FFO attributable to CTRE between $1.42 and $1.44.
Analysts expect CTRE’s revenue for the second quarter (ended June 2024) to increase 22.6% year-over-year to $63.20 million. For the same quarter, the company’s EPS is expected to grow 3.1% year-over-year to $0.36. Moreover, the company topped the consensus revenue estimates in all of the trailing four quarters.
Over the past six months, the stock has surged 22.5% and 29.5% over the past year to close the last trading session at $26.77.
CTRE’s strong prospects are reflected in its POWR Ratings. CTRE has a B grade for Growth. The stock is ranked #7 among 14 stocks within the REITs - Healthcare industry.
To see the other ratings of CTRE for Stability, Quality, Value, Sentiment, and Momentum, click here.
Stock #1: Sabra Health Care REIT, Inc. (SBRA)
SBRA is a REIT September 30, 2023, whose investment portfolio included 377 real estate properties held for investment which includes 240 Skilled Nursing/Transitional Care facilities, 43 senior housing communities, and 61 senior housing communities operated by third-party property managers.
SBRA’s revenue has grown at a CAGR of 2.7% over the past three years. Also, over the past five years, the company’s revenue and levered free cash flow have improved at CAGRs of 2.1% and 44.8%, respectively.
For the first quarter that ended on March 31, 2024, SBRA’s total revenues increased 3.4% year-over-year to $166.75 million. Its net income was $26.25 million for the quarter, against net loss of $9.49 million during the prior year’s quarter. The company’s normalized FFO came in at $78.44 million and $0.34 per common share, up 2% and 3% year-over-year, respectively.
In addition, the company’s cash and cash equivalents stood at $59.93 million as of March 31, 2024, versus $41.28 million as of December 31, 2023.
As per the company’s 2024 guidance, SBRA net income per share of $0.53 - $0.57. Its normalized AFFO is expected to range from $1.39 to $1.43.
Street expect SBRA’s revenue and EPS for the third quarter (ending September 2024) to increase 5.2% and 4.8% year-over-year to $170.01 million and $0.35, respectively. Furthermore, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
SBRA’s stock has gained 21.5% over the past six months and 27.9% over the past year to close the last trading session at $16.44.
SBRA’s sound fundamentals are reflected in its POWR Ratings. The stock has a B grade for Growth. Within the same industry, SBRA is ranked #4 among the 14 stocks.
Click here to access additional ratings of SBRA (Quality, Momentum, Value, Stability, and Sentiment).
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WELL shares were trading at $108.54 per share on Monday afternoon, up $1.13 (+1.05%). Year-to-date, WELL has gained 21.91%, versus a 17.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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