Want To Invest In Senior Housing? Check Out These 3 Health Care REITs

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

There’s no question that the demand for senior housing has been growing over the past several years, and that demand will continue to grow over the next two decades. As the percentage of the population aged 65+ increases every day, the need for long-term care and senior housing increases as well. 

One of the best ways for investors to gain exposure to this market is to invest in real estate investment trusts that focus on these properties. Health Care REITs offer the opportunity to invest in portfolios of high-quality senior housing and long-term care real estate assets, and these are the three health care REITs you should consider for yourportfolio.

Omega Healthcare Investors OHI

Omega Healthcare Investors is a health care REIT that primarily invests in skilled nursing and senior housing properties.

The REIT has a total of 954 facilities throughout the United States and the United Kingdom. The company doesn’t operate these facilities itself; instead, it leases them to some of the top operators in the world. These leases are triple-net, meaning the tenants cover all of the property level expenses and maintenance, so Omega’s rental income stays consistent and predictable. With an average remaining lease term of nine years, Omega’s revenue should remain safe. 

The company has increased its dividends each of the past 17 years, and currently has a dividend yield of 7.35%. With its AFFO/share growing over 6.9% year over year, and its AFFO payout ratio improving by 5.5% over the same period, dividends are likely to continue growing.

See Also: Best Real Estate Investments

LTC Properties LTC

LTC Properties is another health care REIT focused on senior housing and skilled nursing. Aside from its real estate holdings, this REIT also receives a significant portion of its income through mortgage financing and structured financing solutions. The REIT owns 180 properties across 27 states, which are leased to the operators that run them. 

LTC Properties took a major hit during 2020 due to the COVID-19 pandemic when the reduced occupancy and increased expenses in their facilities resulted in some of their tenants not being able to cover the rent. While revenue is recovering, some tenants are still having problems. Even though this is a negative in the short term, the properties will most likely recover even if it means replacing the tenants.

Since the reduced revenue and FFO/Share has held their stock price down, it presents an opportunity to pick up this REIT at a discount. Besides, the discounted price means it's currently paying a dividend yield of 5.79%.

Not only does this REIT have the upside potential from their revenue recovering, LTC also finished development and opened two properties in the middle of the pandemic that hasn't been leased up yet. As the industry continues to rebound, LTC Properties should provide investors with a fair amount of growth on top of their attractive dividend yield.

Sabra Health Care REIT SBRA

Sabra Health Care’s portfolio of 426 wholly owned properties includes 378 that are triple-net leased to operators along with 48 properties that have management agreements in place instead of leases. They’re also invested in a joint venture on another 158 managed properties. Since Sabra was spun off from Sun Healthcare in 2010, they’re uniquely qualified to handle this additional exposure in return for the potential upside of having a managed portfolio like this. 

Besides its attractive dividend yield of 6.87%, Sabra is also very attractively priced with an FFO multiple of only 10.3x compared to some of the larger health care REITs that have been seeing multiples of 20x or higher. 

The company’s FFO was down in the first quarter of 2021 vs the same period in 2020 mainly because of their added exposure to lower occupancy and increased expenses in their managed portfolio due to the pandemic. However, the growing demand in the senior housing industry will outweigh any long-term effects from COVID-19. Taking advantage of Sabra’s low price now could pay off big in the long-term. 

Senior Housing Real Estate Outlook

2020 was a brutal year for many senior housing real estate owners, but the light at the end of the tunnel is getting brighter by the day for the ones still standing. A lot of properties changed hands during the second half of 2020 and the first quarter of 2021 as struggling REITs had to clean up their balance sheets and others chose to restructure their portfolio. 

While things are stabilizing for most health care REITs now, there will likely be more turbulence throughout 2021 as the government assistance for struggling operators dries up and REITs have to make decisions on whether to restructure leases or replace tenants. Either way, the keys to senior housing REIT investments in 2021 are to be patient, don’t overreact to the news or a down quarter, and remember how strong of an asset class this is for long-term investment.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.