As we have noted before, the United States has an aging population, and one that is growing older, faster. The demand for medical services, assisted living, Alzheimer’s care and many other health care related services continues to skyrocket. In addition, the demand seems to be very solid for facilities that cater to this aging population and their needs.
A new RBC research report takes an in-depth look at the health care real estate investment trusts (REITs) and dissects the growth prospects versus concerns that some have voiced over too much supply developing.
RBC has 10 companies in its research coverage and five are rated Buy. Here we focus on the four with the highest distribution rate. It is important to remember the REIT distributions can contain return of principal.
CareTrust
This smaller cap company made a strong move off the February lows, but it is still trading below levels printed last year. CareTrust REIT Inc. (NASDAQ: CTRE) is a self-administered, publicly traded REIT engaged in the ownership, acquisition and leasing of seniors housing and health care related properties. With 136 net-leased health care properties and three operated seniors housing properties in 18 states, CareTrust is pursuing opportunities nationwide to acquire additional properties that will be leased to a diverse group of local, regional and national seniors housing operators, health care services providers and other health care related businesses.
The company recently announced that it has acquired Victory Park Nursing Home, a 55-bed skilled nursing facility, and Victoria Retirement Community, a skilled nursing and assisted living campus with 90 skilled nursing beds and 69 assisted living units. Both facilities are located in Cincinnati, Ohio.
Care Trust investors receive a very solid 5.4% distribution. The RBC price objective is $13, and the Thomson/First Call consensus price target is $13.60. The stock closed most recently at $12.67.
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LTC Properties
This has been an RBC favorite for some time. LTC Properties, Inc. (NYSE: LTC) is a self-administered REIT that primarily invests in seniors housing and health care properties through lease transactions, mortgage loans and other investments.
At December 31, 2015, LTC had 224 investments located in 30 states, comprising 104 assisted living properties, 100 skilled nursing properties, seven range of care properties, one school, one behavioral health care hospital, seven parcels of land under development and four parcels of land held-for-use. Assisted living properties, independent living properties, memory care properties and combinations thereof are included in the assisted living property type. Range of care properties consist of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services.
The company continues to make accretive acquisitions, and while the stock can prove volatile, management has delivered reasonably consistent and solid earnings. Fourth-quarter numbers were good, and Wall Street seems confident they LTC continue to deliver.
Shareholders receive a 4.75% distribution. RBC has a $47 price target, but the consensus target is $48. The shares closed Thursday at $45.52.
Physicians Realty Trust
This company also has acted very good and makes the Buy list at RBC. Physicians Realty Trust (NYSE: DOC) is a self-managed health care real estate company, focusing on the acquisition, development, ownership and management of health care properties that are leased to physicians, hospitals and health care delivery systems. Its portfolio consists of 19 medical office buildings with approximately 528,048 net leasable square feet located in 10 states.
The company recently announced a planned $724.9 million purchase of 52 medical office buildings occupied by Catholic Health Initiatives. In a crazy twist for a real estate acquisition, the Vatican will have to sign off on the deal. The properties are spread across 10 states, including Nebraska, Kentucky, Washington, North Dakota and Arkansas, according to a filing with the U.S. Securities and Exchange Commission. Catholic Health, based in the Denver area, is the fifth-largest nonprofit health system in the country, according to the trust.
Shareholders receive a 4.92% distribution. The RBC price target is $20, and the consensus target is $18.69. The stock closed Thursday at $18.30.
Ventas
This one of the top companies in the sector, and it may be one of the safest plays for more conservative accounts. Ventas Inc. (NYSE: VTR) is a leading REIT. Its diverse portfolio of approximately 1,300 assets in the United States, Canada and the United Kingdom consists of seniors housing communities, medical office buildings, skilled nursing facilities, specialty hospitals and general acute care hospitals. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.
The company announced recently that it and Kindred Healthcare have entered into several agreements to improve the quality and productivity of the long-term acute care hospital (LTAC) portfolio leased by Ventas to Kindred. Separately, Ventas has agreed to sell the seven LTACs, but closing remains subject to conditions, including the receipt of all licensure, regulatory and other approvals. Ventas expects to receive $6.5 million in connection with the sale transactions.
Ventas shareholders receive a 4.68% distribution. The $62 RBC price target is higher than the consensus target of $58. Shares closed way above that level Thursday at $62.38.
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While these may not be the world’s most exciting investments, they offer steady growth and income in a sector that should continue to see demand. All four make sense for total return accounts.
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