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To get in before November 4th, see everything you need to do HERE now. Click Here... | | | | Four health care REITs to buy as rates fall give investors ways to pursue the twin targets of dividend payouts and share-price appreciation.
The real estate market is showing signs of ascending from inflation, recession fears and the headwinds of high interest rates. With the Federal Open Market Committee (FOMC) cutting the federal funds rate on Sept. 18 by 50 basis point, or 0.50%, REITs are becoming an enticing investment with additional interest rate cuts expected during the next 18 months.
That cut in the target rate at which commercial banks borrow and lend their excess reserves to each other overnight is expected by forecasters to be followed by a further reduction of 50 basis points between the remaining two FOMC meetings this year. Additional cuts of 100 basis points in 2025 and 50 basis points in 2026 currently are anticipated to reach a rate of 2.9% that may hold through 2027.
Four Health Care REITs to Buy as Rates Fall Avoid Risks of Direct Real Estate Ownership
A key appeal to owning shares in real estate investment trusts (REITs) is that the responsibility to take care of property by oneself is non-existent. A shareholder does not need to personally fix any plugged toilets, leaky roofs, holes in the walls, mold problems or faulty heating and cooling systems.
Instead, REITs offer a passive investment opportunity to gain exposure to the real estate market and collect dividend payouts, while leaving maintenance duties to others.
If the Federal Reserve can keep inflation under control to stop the economy from sliding into a recession, REITs should benefit. The following health care REITs are among the best available right now.
Four Health Care REITs to Buy as Rates Fall: Omega Healthcare Investors (NYSE: OHI)
Annual Dividend Yield: 6.50%
Hunt Valley, Maryland-based Omega Healthcare Investors (NYSE: OHI), a real estate investment trust (REIT) that invests predominantly in skilled nursing and assisted living facilities with highly positive triple-net leases, owns assets across the United States and the United Kingdom. A triple net lease is an agreement on a property in which the tenant promises to pay all expenses, including real estate taxes, building insurance and maintenance. These expenses are in addition to the cost of rent and utilities.
Mark Skousen has recommended OHI twice in his Forecasts & Strategies investment newsletter. I have held the position for several years, largely due to a high dividend yield that has approached 10% at times.
Skousen, who also teams up with Jim Woods to lead the Fast Money Alert advisory service, sent me an email on Thursday, March 19, 2020, at 2:35 p.m., when OHI had notched a 46.50% gain in less than a day. The share price had jumped 46.50%, rising $6.91 per share to reach $21.78 more than an hour before the market closed.
Ben Franklin scion Mark Skousen, who heads Fast Money Alert and Forecasts & Strategies, talks to Paul Dykewicz.
OHI is rated by Citigroup analyst Michael Griffin, CFA, as a "buy." The REIT mainly owns net leased skilled nursing facilities, accounting for about 75% of its assets, while net leased senior housing assets largely compose the remaining properties.
Skilled nursing fundamentals continue to recover, with both occupancy and rent coverage continuing to increase, Griffin wrote in a recent research note. In addition, OHI's favorable cost of capital could help to seize external growth opportunities.
Four Health Care REITs to Buy as Rates Fall: Analysis of OHI
Longer term, Citigroup forecasts further improvement primarily driven by positive demographic trends and a strong supply picture. The stock's price just below $42 implies an approximately 15x multiple to 2024 earnings adjusted funds from operations (AFFO), marking a discount to health care peers but a premium to the investment bank's estimate of Omega Healthcare's net asset value (NAV).
"While the skilled nursing environment still faces risks, we believe improving fundamentals and sentiment could lead to multiple expansion above historical levels," Citigroup wrote in its recent research note.
Beware that risk still exists. For example, if government reimbursement rates are not strong enough, the operating environment for skilled nursing operators will remain challenged with coverage levels and occupancy under pressure, Citigroup cautioned. In such a climate, OHI could underperform Citigroup's target price, the investment bank warned.
Conversely, if OHI can acquire more assets than expected and the regulatory environment improves, the stock could outperform Citigroup's target price. If private market cap rates expand or compress more than anticipated, the stock could underperform or outperform Citigroup's price objective, Griffin wrote.
Chart courtesy of www.stockcharts.com
Four Health Care REITs to Buy as Rates Fall: Perry's Perspective
Regulations require REITs to pay their shareholders at least 90% of taxable income, own properties that typically produce reliable rent payments and offer enhanced appeal because they have limited correlation to the stock market. A big fan of REITs as interest rates retreat is Bryan Perry, who leads the Cash Machine investment newsletter.
Perry wrote in his October 2024 issue of Cash Machine that real estate investment trusts, consumer staples and utilities were among those seeing strong inflows of investment capital. He now recommends three REITs in his Cash Machine newsletter, but Perry has yet to pick a pure-play in the health care industry.
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Annual Dividend Yield: 2.59%
Cohen & Steers Realty Shares (MUTF: CSRSX) recently became a new recommendation of Bob Carlson, who heads the Retirement Watch investment newsletter. He described CSRSX as a way for his subscribers to profit from the budding recovery of REITs.
Clearly, REITs are bouncing back, helped by reduced interest rates and solid growth, Carlson wrote to his Retirement Watch subscribers. In addition, REITs sell at discounts to privately owned real estate and the stock market in general, he added.
CSRSX always has had a focused portfolio and now is seizing opportunities in key sectors, such as telecommunications, data centers and health care, Carlson continued. It is really the most sensible way to invest in artificial intelligence because it concentrates on the infrastructure, he added.
Bob Carlson, head of Retirement Watch, meets with Paul Dykewicz.
Four Health Care REITs to Buy as Rates Fall: Carlson's Counsel
Traditional commercial real estate is a small part of the fund, including hotels, shopping centers and office buildings. CSRSX dipped 2.73% in the last month, but rose 9.56% in the past three months, 13.84% for the year to date and 33.67% during the last year.
"A big advantage of CSRSX is that it doesn't track an index," Carlson wrote to his newsletter subscribers. "It determines which sectors of commercial real estate are likely to do well in the current economic environment and buys the highest-quality REITs in those sectors. That enables the fund to downplay office buildings, malls, shopping centers, and other lagging sectors in favor of data centers, telecommunications towers, health care and more."
CSRSX also buys relatively few REITs, focusing instead on its managers' best ideas, Carlson continued. Recently, CSRSX held 34 securities with the 10 largest positions, including Welltower, composing 63% of the fund. It offers a current dividend yield of 2.59%.
Chart courtesy of www.stockcharts.com | | | The stock market feels like a volatile game of tug-of-war.
Prices are climbing, but the volatility and mixed signals make it feel like we're heading toward an "up-crash," where sudden surges lead to unexpected drops.
Navigating this market requires precise timing, as making a safe exit before the next "up-crash" could mean the difference between significant losses and confident gains.
Want to learn how to trade the 'up-crash'?
Watch and learn FREE how A.I. can give you the edge in volatile markets. Click Here... | | | | Four Health Care REITs to Buy as Rates Fall: Welltower Inc. (NYSE: WELL)
Annual Dividend Yield: 2.06%
One of my late grandmother's favorite expressions was "Holy Toledo!" It seems like an apt way to start discussing Welltower Inc., a Toledo, Ohio-based based real estate investment trust that works with seniors housing operators, post-acute providers and health systems to fund the real estate infrastructure needed to scale "innovative care delivery models" and improve people's wellness and overall health care experience. Welltower owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom. Those properties consist of seniors housing, post-acute communities and outpatient medical facilities.
BofA Global Research rates WELL as a buy and gives it a $129 price objective that is derived by running a five-year forward analysis of the REIT's growth prospects under various scenarios. The investment firm's base case implies a share price of $152 in 2028. Then BofA uses a discount rate of 4.28% (based on the 10-year Treasury rate as of February 26, 2024) to calculate its price target.
WELL might be able to top that price target with better-than-expected senior housing or medical office building performance, higher-than-forecast dividend growth and lower interest rates, BofA wrote. Reasons why the price objective might be missed include further public-pay reimbursement cuts, a more competitive acquisitions environment, weaker-than-expected senior housing fundamentals, increased tenant credit risk and a rise in interest rates instead of the current cutting environment.
Keys to WellTower's Success Include New Operating Platform
BofA's main focus is on WELL's operating platform roll out. The operating platform went live with WELL's first operator in the third quarter.
"We are looking for signs of the uplift at the operator level," BofA analysts wrote in a recent research note. "A qualitative update during the earnings call will help us get a gauge of whether or not 2025 Street estimates are too low."
Anytime an investment firm ranks an equity as a buy and then wonders aloud whether Wall Street consensus earnings estimates are too low, investors can take that as good news that may not be fully reflected in the current share price. Optimism reigns about the soaring prospects for Welltower.
Chart courtesy of www.stockcharts.com
Four Health Care REITs to Buy as Rates Fall: American Healthcare REIT Inc. (NYSE: AHR)
Annual Dividend Yield: 4.02%
BofA Global Research rates American Healthcare REIT Inc. (NYSE: AHR) as a buy and put the REIT on its elite "US1 list." The investment firm was so impressed with AHR that it wrote that there is room for heightened financial guidance from the REIT's management.
"We believe the exercise of the Trilogy purchase option offers benefits beyond the initial accretion," BofA wrote. "Further education on how Trilogy can drive earnings growth will drive a re-rating higher in the stock, in our view. Across the sector, acquisition volumes and cap rates were ahead of our expectations last quarter."
American Healthcare REIT Inc. received a $31 price objective from BofA, which applied a 24.5x adjusted funds from operations (AFFO) multiple to the investment firm's 2025 AFFO estimate.
"Our applied multiple is based on AHR's relative mix of health care real estate exposure and our view on its portfolio quality relative to publicly traded peers," BofA explained. "For AHR, our main focus is on reimbursement dynamics following CMS [Centers for Medicare and Medicaid] star rating print of Medicare Advantage plans and if this shifts Trilogy's payor mix going forward (shifting towards more Medicare vs Medicare Advantage). We are also focused on how Trilogy offers benefits to AHR beyond just initial accretion."
AHR recently acquired the remaining minority interest in Trilogy Holdings, becoming the sole owner of Trilogy Holdings and its Integrated Senior Health Campuses. However, BofA wrote that AHR's reliance on Trilogy and government reimbursement adds risk due to exposure to the skilled nursing facility sector.
Chart courtesy of www.stockcharts.com
Four Health Care REITs to Buy as Rates Fall: Beware of Geopolitical Risk
Geopolitical risk is rising with the conflict in the Middle East expanding and Russia intensifying its military attacks against neighboring Ukraine. The murderous rampage of Hamas terrorists on October 7, 2023, included raping and decapitating innocent civilians who were attacked at a music concert and in their homes in Israel.
"More than 1,200 men, women and children, including 46 Americans and citizens of more than 30 countries, were slaughtered by Hamas – the largest massacre of Jews since the Holocaust," said U.S. Secretary of State Antony Blinken in a statement on the one-year anniversary of the massacre. "Girls and women were sexually assaulted. The depravity of Hamas's crimes is almost unspeakable.
"Hamas also took 254 people hostage that day, including 12 Americans. Four of those Americans – Hersh Goldberg-Polin, Itay Chen, Judy Weinstein, and Gad Haggai – were murdered by Hamas. Four were released through an agreement the United States negotiated last November, but four remain in captivity in Gaza: Edan Alexander, Keith Siegel, Sagui Dekel-Chen, and Omer Neutra. There are also an estimated 97 other hostages who remain held in Gaza today. They include men, women, young boys, young girls, two babies, and elderly people from more than 25 nations. Hamas should release these hostages immediately. Every single one of them, including all seven American hostages, must be returned to their families, and the United States will continue to work tirelessly to bring them home."
Russia's abuse of Ukrainians also includes inhumane treatment, sexual assaults against both men and women, torture and gruesome murders. The Ukrainian people continue to fight to defend their freedom, but recent news reports indicate that Russia is recruiting North Koreans to join their side in a war in which it already outnumbers those from the much smaller country it invaded on February 24, 2022.
The four health-care REITs to buy as rates fall offer opportunities to profit from the Fed's starting to ease its monetary policy, amid ongoing wars in Ukraine and the Middle East. The high likelihood of multiple rate cuts for the next 12-18 months puts these positions in a favorable position for investors seeking to pump up their portfolios with rising share prices and dividend payouts. | | | Sincerely,
Paul Dykewicz, Editor
StockInvestor.com
| | About Paul Dykewicz: Paul Dykewicz is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul also is the author of an inspirational book, "Holy Smokes! Golden Guidance from Notre Dame's Championship Chaplain", with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz. | | | | | |
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