Consider Equity REITs For Your Next Investment

VTR and HCN – Ventas (VTR) and Welltower (HCN) both invest in senior housing and other healthcare properties. With our shifting population demographics, the over 85 year old crowd will increase from about 8 million in the US today to 20 million by 2050, a two and a half fold increase. That aging population will require more medical care facilities and more senior housing over the next 30 years. There will be plenty of clients for VTR’s and HCN’s facilities.

DOC – Physicians Realty Trust (DOC) is a relatively new eREIT that specializes in medical office buildings (MOB).With the passage of the Affordable Care Act (ACA) andour aging population, demand for MOB space is up and continues to rise.DOC takes a very conservative approach to acquiring MOB assets and its accumulation of debt.For the first 3 years after its IPO, DOC froze its dividend distribution preferring to use its increasing cash flow for acquiring new properties rather than increasing its dividend distribution.DOC has just recently increased the dividend it pays. With growth continuing, DOC should be able to maintain steady dividend distribution increases going forward.

OHI – Omega Healthcare Investors (OHI) is a well established eREIT that is heavily invested in skilled nursing facilities (SNFs) and does rely significantly on Federal Medicaid payments. This is the main reason that OHI offers a high yield of 10%. Investors perceive that OHI has a higher risk as a result of its significant reliance on Medicaid payments. OHI has a number of positive attributes that I believe outweigh that risk.Seniors are heavy users of SNFs and with the growth of senior citizens in the US and globally, there will be no shortage of clients for OHI’s facilities for the next 30 years. OHI also carries an investment grade credit rating and maintains a solid balance sheet.

SBRA – Sabra Healthcare (SBRA) is similar to OHI and offers a similar yield of 10.2% and has a similar risk profile as OHI. SBRA recently received an upgrade in its credit rating to investment grade and its dividend has even better coverage than does OHI. One item to note on SBRA is that most of the financial sites are incorrectly reporting SBRA’s dividend and yield. The error stems from SBRA’s acquisition of Capital Care Properties (CCP) this last summer.SBRA, in August, paid out a prorated dividend shortly before completing the acquisition. The balance of the third quarter dividend ($0.07) was paid in November along with an increase of the regular quarterly dividend to $0.45. The financial sites are incorrectly reporting SBRA’s quarterly dividend as $0.52 per quarter versus the correct $0.45. This will be fully corrected after the next dividend payment.The data in the table above is correct.

O – Realty Income (O) (The Monthly Dividend Company) has been in existence since October 1994. An investment in Realty Income at IPO would be worth roughly 3100% more today considering price appreciation and dividend payments. Realty Income has paid a steadily rising dividend for more than 48 years having been founded in 1969.Realty Income has diversity in tenants and geography, carries an investment grade credit rating, and a solid balance sheet.With economic growth picking up speed, Realty Income’s tenants will be looking to expand into additional space and occupancy should improve. With most of Realty Income’s debt being financed under fixed rate terms, increases in interest rates will have a muted impact on operations.As icing on the cake, Realty Income pays a monthly dividend.

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