Healthcare REITs Showing Strong Performance In February

Investors looking to own winning stocks need to know which sectors are outperforming other sectors when making purchase decisions. With real estate investment trusts (REITs), subsectors go in and out of favor based on economic news, earnings and technical indicators such as being overbought or oversold.

A few months ago, office REITs were trouncing other subsectors. However, over the last week, healthcare REITs have emerged as the new leader among REITs. The healthcare REIT sub sector was not a great overall performer in 2023, but things may be turning around in 2024.

Take a look at four healthcare REITs that have shown strong performance since the close of trading on Feb. 5.

Medical Properties Trust Inc. MPW is a Birmingham, Alabama-based healthcare REIT that owns and operates 441 general acute care and other properties across the U.S. and in nine other countries, including locations in Europe and Australia. It has a portfolio valued at $19 billion, of which about 64% are general acute care hospitals. About two-thirds of its properties are in the United States. 

Medical Properties Trust was one of the worst performing of all REITs in January, following its update on its largest tenant, Steward Health Care System. The share price fell more than 30% after Medical Properties said it's accelerating its efforts to recover uncollected rents from the fourth quarter of 2023 and outstanding loan obligations from Steward. Medical Properties also agreed to fund a new $60 million bridge loan to Steward, secured by preexisting collateral plus a new second lien on Steward's managed care business.

In addition, Steward said it would explore the possible sale or re-tenanting of certain hospital operations along with the divestiture of non-core operations. At the end of 2023, Steward still owed approximately $50 million to Medical Properties Trust.

Lately, Medical Properties Trust has been a hot stock, up 10.73% since Feb. 5. There has been no news or analyst upgrades, and its fourth-quarter earnings don't come out until Feb. 21, so perhaps it's just an oversold bounce.

Omega Healthcare Investors Inc. OHI is a Hunt Valley, Maryland-based triple-net equity healthcare REIT that provides financing, capital and leasing to 69 operators of 862 senior housing, skilled nursing and assisted living facilities across 42 states throughout the U.S. and the United Kingdom. Omega Healthcare Investors has no part in the day-to-day management of these facilities, which are run by the operators.

On Jan. 30, Deutsch bank analyst Omotayo Okusanya initiated coverage on Omega Healthcare Investors with a Buy rating and announced a price target of $36.

On Feb. 7, Omega Healthcare reported its fourth-quarter operating results. Funds from operations (FFO) of $0.68 per share beat the analysts' estimate of $0.67 per share but was below FFO of $0.73 in the fourth quarter of 2022. Revenue of $239.32 million beat the estimates of $233.82 million and the fourth-quarter 2022 revenue of $144.85 million by 65.22%.

On the strength of its earnings report, Omega Healthcare is up 10.3% since Feb. 5.

Caretrust REIT Inc. CTRE is a San Clemente, California-based healthcare REIT, founded in 2013, that owns and leases senior housing, skilled nursing facilities (SNF) and assisted living facilities (ALF). As of Dec. 31, its long-term net-lease portfolio consisted of 207 properties across 25 states with 23 property operators. Skilled nursing facilities account for 71.5% of its portfolio, 8.8% is senior housing and the remaining 19.7% is multiservice campus.

On Jan. 31, RBC Capital Markets analyst Michael Carroll maintained an Outperform rating on Caretrust and lowered the price target from $25 to $24.

On Feb. 8, Caretrust reported fourth-quarter operating results. FFO of $0.36 was in line with estimates but a decrease from FFO of $0.38 in the same quarter a year ago. But revenue of $59.73 million was 11.61% above analyst estimates of $53.52 million and a 15.29% increase over revenue of $51.81 million in the fourth quarter of 2022.

Since Feb. 5, Caretrust has risen 10.32%. Investors were impressed with the fourth-quarter results.

Sabra Health Care REIT Inc. SBRA is an Irvine, California-based healthcare REIT that as of Sept. 30 has 410 investments across the U.S. Its portfolio consists of senior nursing facilities (SNF), senior housing, behavioral health and specialty hospitals with eight-year weighted average lease terms (WALT). Signature Healthcare is its largest tenant, with a rent concentration of 9%.

Sabra CEO Rick Matros recently told analysts that occupancy gains and easing labor pressures are driving rent coverage higher and Medicaid reimbursements have also been increasing. Sabra sold 13 SNFs and two senior housing facilities during the third quarter with net proceeds used to reduce the outstanding balance on Sabra's revolving credit facility.

On Jan. 30, Deutsch bank analyst Omotayo Okusanya initiated coverage on Sabra Health Care with a Buy rating and announced a price target of $21. The following day, Jenny Harrington of Gilman Hill Asset Management also recommended it on CNBC.

Sabra Health Care has climbed 7% since Feb. 5.

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