Best Healthcare REITs

Healthcare real estate investment trusts (REITs) have gained popularity among investors seeking stable and long-term returns, particularly amidst the increasing demand for healthcare services. These REITs own and manage a diversified portfolio of properties such as medical office buildings, hospitals, senior housing facilities, and healthcare-related facilities.

By investing in healthcare REITs, investors can gain exposure to the growing healthcare industry without directly managing the properties. Investors should carefully evaluate healthcare REITs based on factors such as property quality, tenant creditworthiness, geographic diversification, and the overall strength of the healthcare industry.

What are Healthcare REITs?

Healthcare REITs operate in the same fashion as traditional residential REITs, but instead of buying and operating apartment buildings, they operate medical facilities. The REIT and its shareholders make money by renting that space to various healthcare providers.

Healthcare is not only a fast-growing sector of the economy, it’s one that is absolutely essential. That’s why healthcare REITs have so much potential to generate wealth for investors. Examples of the kind of assets you might find in a healthcare REIT include:

• Hospitals
• Medical office buildings
• Senior living facilities
• Skilled-nursing homes
• Outpatient care facilities
• Surgical centers
• Drug treatment centers

Benefits of Healthcare REITs

• Necessity: Healthcare is something that everyone will eventually need in some form or fashion. In addition, there is a wide range of specialized care and medical services, all of which require space to operate. That means the healthcare sector isn’t going anywhere. Regardless of the state of the economy, healthcare facilities will be providing essential services to the populations they serve.
• Institutional Quality Facilities: Another potential benefit of healthcare REITs is that many healthcare facilities, especially hospitals, are not only big but also of institutional quality. That’s one of the reasons REITs are so important to the healthcare sector. Without REITs and their investors, raising the necessary capital to build new healthcare facilities would be extremely difficult. The upside is that a big facility generates a lot of revenue.
• Long-Term Revenue: Healthcare facility lease terms can last for years, sometimes even several decades. Many of them even have scheduled, regular rent increases locked into the lease contracts. This translates into consistent long-term revenue for healthcare REIT investors.
• Reliable Tenants: Most healthcare facilities have high-quality tenants. Whether it’s an entire medical group operating a hospital or a group of doctors in a medical park, the tenants are likely to be well-vetted, licensed, professional operations. Medical groups and doctors generally bill insurance companies or government programs like Medicare, both of which are likely to pay their bills.

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Risks of Healthcare REITs

Healthcare REITs offer a wealth of potential benefits to investors, but that doesn’t mean they are without risk.

• Constantly Changing Technology: The healthcare field is one that is always growing in terms of technology and capabilities. Facilities need to be able to keep up with the times. If a healthcare REIT has older or outdated assets that can’t support modern medical technology, it could have a difficult time securing tenants or lease renewals.
• Difficulty in Finding Tenants: Healthcare facilities also offer specialized services. No matter what area of healthcare a particular facility serves, it won’t be easy to find new tenants if a vacancy comes up. That especially applies to larger facilities like hospitals. If a major healthcare provider opts out of a lease to relocate, a new hospital tenant won’t just be waiting around the corner like a new tenant for an apartment.
• Strict Regulations: Healthcare facilities are also subject to a heavy regulatory structure, with requirements at the local, state and federal levels. It will be incumbent on healthcare REIT providers to stay in accordance with those regulations. Doing so is likely to be very expensive. Failing to do so could result in heavy fines, loss of certification or other punishments that can damage investor returns. The management of the facilities must be done very carefully.

How to Invest in Healthcare REITs

One of the best aspects of healthcare REITs is that a lot of them are publicly traded. Any investor can buy shares without necessarily having to be accredited. Healthcare REIT shares can be purchased online through brokerage websites or mobile apps. If you’re looking for more professional insight or advice for your investment, you can also purchase healthcare REIT shares with the assistance of a stock broker.

Largest Healthcare REITs

Welltower Inc. (NYSE: WELL)

Welltower is one of America’s largest healthcare REITs. This Toledo, Ohio-based REIT primarily owns and operates senior living facilities, rehabilitation facilities and continuing care providers throughout the United States. Most of Welltower’s facilities are newer Class A properties and cater to a client base that is well-insured.

Ventas Inc. (NYSE: VTR)

Ventas Inc. is another one of America’s largest healthcare REITs. This Chicago-based REIT has assets in a number of healthcare fields, including senior housing, medical office buildings and research centers. Its assets are spread throughout the continental U.S. and Canada.

Healthpeak Properties Inc. (NYSE: PEAK)

Healthpeak Properties is a Denver-based REIT that specializes in Class A senior living facilities, medical office buildings and life science research facilities. This healthcare REIT is focused on delivering long-term growth to investors.

Healthcare REIT ETFs

Exchange-traded funds (ETFs) are large diversified investment offerings that have multiple holdings in several different REITs. There isn’t a pure healthcare REIT ETF that only holds healthcare REIT stocks. However, many REIT ETFs have healthcare REITs in their portfolio.

iShares Residential and Multisector Real Estate ETF (NASDAQ: REZ) is a traditional REIT ETF that includes some healthcare REIT stocks in its portfolio. iShares Cohen & Steers REIT ETF (Cboe BZX: ICF) is another ETF from the same firm that is also invested in healthcare REITs.

Industry Overview

Quarterly Performance Data

All Healthcare REITs

Investing in Healthcare REITs

REIT investing has proven itself as a potential tool for helping investors build passive income. Healthcare REITs are definitely a sector worthy of consideration for investors. Healthcare providers offer the public an essential service, so healthcare REITs should generate consistent returns for investors. Although they are not without risks, they are certainly a potential avenue for investors to generate passive income.

Frequently Asked Questions