Yahoo Finance 5 Best Health Care REITs for a Retirement Portfolio
A health care real estate investment trust, known as REIT, could be a smart move if you want to capitalize on aging trends by including senior housing, medical and nursing facilities in their retirement portfolios.
"The most promising thing about health care REITs right now is their external growth outlook," says Omotayo Okusanya, managing director of equity research (REITs) at Mizuho Securities. Dividend yields have held steady across the sector, despite a low interest rate environment, and health care REITs continue to trade at meaningful premiums to net asset values.
Growth hasn't come as quickly as anticipated in the past but the prognosis for real estate related to health care remains strong.
"The story, for a long time, is that health care REITs would benefit from the giant baby boomer generation transitioning into retirement," says Daniel Milan, a managing partner of Cornerstone Financial Services in Southfield, Michigan. "That hasn't really played out as expected in this space, mostly because new construction has outstripped demand."
Milan says that trend may soon begin to reverse if it hasn't already, creating a window of opportunity for investors.
[See: 9 REITs Ideal for Beginning Real Estate Investors.]
"There's strong data being provided from some of the major players in this space that indicate starting in 2020 and 2021 that demand will begin to be stronger than supply," he says.
Investing in a hospital REIT or nursing home REITs could add stability to a portfolio over the long term.
"Health care REITs provide investors with a useful diversification tool with a robust long-term performance that will typically reduce the volatility of a portfolio because of how much returns differ from those of the S&P 500," says Andrew Latham, managing editor of SuperMoney.
The question for investors: Where to put your money? These medical REIT options could prove the healthiest for generating dividends for retirement.
Sabra Healthcare REIT (ticker: SBRA)
SBRA invests in more than 430 properties across the U.S. and Canada, including skilled nursing facilities, senior housing and specialty hospitals. The current dividend yield is 8.13%, making it one of the highest-yielding health care REITs in the sector.
Share prices dipped in the fourth quarter of 2019, which could present a buying opportunity for bargain-seeking investors. Overall, Sabra currently has a "hold" rating from Argus Research. Revenues remained consistent between the second and third quarters of 2019, while earnings dipped slightly. But growth prospects over the next five years outstrip many of the top medical REITs in the market.
Ventas (VTR)
Ventas features a portfolio of more than 1,200 properties in the U.S., Canada and the United Kingdom. This REIT focuses on investments in senior housing communities, medical office buildings, medical research and innovation centers, inpatient rehabilitation and long-term acute care facilities and health systems.
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VTR currently has a "buy" rating from Argus Research but the outlook for this REIT is bearish overall, thanks to lower growth estimates. In terms of dividend yield, retirement investors may appreciate the 5.47% payout Ventas offers.
Welltower (WELL )
One of the largest health care REITs, WELL invests heavily in health care infrastructure. The REIT's holdings include senior housing operators, post-acute care providers and outpatient medical facilities in the U.S., Canada and the United Kingdom.
Latham says it's worth noting that Welltower recently signed a 15-year lease agreement with ProMedica, which happens to be one of the largest health care providers in the U.S. That could bode well for the future if the need for senior health care and housing tracks according to expectations.
WELL currently has a buy recommendation from Argus and pays a dividend yield of 4.12% to investors. A potential downside to factor in is that demand for shares of this medical REIT has pushed share prices well above many of its competitor health care REIT stocks.
National Health Investors (NHI)
NHI is a standout health care REIT for a variety of reasons.
Its portfolio includes a mix of independent living, assisted living and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals. That's a mark in its favor for retirement investors, says Okusanya, since having a diversified portfolio across different health care property types is a plus.
National Health Investors also utilizes long-term leases and is more insulated against changes to the government reimbursement landscape for Medicare and Medicaid. The current dividend yield is a robust 4.98%. Like Welltower, NHI is a more expensive buy compared with other nursing home REITs.
The Long-Term Care ETF (OLD)
While this isn't exactly a REIT stock, this exchange-traded fund option is focused on long-term care. The fund holds some of the top health care REIT options, including Ventas and Welltower as well as Healthpeak Properties ( PEAK), another major health care REIT stock.
Though it's a newer health care ETF option, this nondiversified fund has proven itself as a solid performance. Year-to-date, OLD has delivered a 24.63% average annualized return, with an expense ratio of 0.35%. [See: 9 Must-Have REITs for Sustainable Investing.] Know the Risks of Health Care REITs Like other REIT sectors, health care isn't foolproof and retirement investors should know what they're getting into. Latham says health care REITs are best used as one part of a well-diversified portfolio since short-term performance can be highly volatile. Investing in medical REITs also carries certain tax implications to be mindful of. Since REITs are treated as pass-through entities, REIT investors can avoid the double taxation associated with corporate profits. Latham says that it can be problematic. For investors in higher tax brackets, it might make more sense to hold health care REITs in a tax-deferred account. OLD would be an exception since ETFs, as a rule, are generally more tax-efficient than other investments due to their lower turnover rate. Interest rate changes can also pose a threat to the well-being of nursing home REITs and medical REITs. "A rising rate environment would be negative for the group as higher cost of capital impedes acquisitions and also creates an opportunity for yield in other asset classes," Okusanya says. Lastly, there's the question of finding a balance between supply and demand. If the predictions for senior housing needs fall short, then health care REITs may have a bumpier outlook for the near future, Milan says. All of that should be factored in when banking on medical REITs to secure retirement income.
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