Invest in Healthcare Real Estate Investment Trusts (REITs)

Can Serve Free LLC encourages Clients to consider buying healthcare real estate investment trusts (REITs) as long-term assets in their investment portfolios. The exploding growth in hospital and non-hospital healthcare facilities related to cancer diagnosis and treatment has spurred the rocket rise in opportunities to invest in healthcare REITs. 

There are two types of publicly traded REITs to consider: Equity REITs and Mortgage REITs.  

Equity REITs pool investors' funds to buy, manage, renovate, maintain, and sell real estate properties. They derive most of their income from rents paid by tenants and long-term capital appreciation from sale of properties. Equity REITs buy healthcare properties and lease them back to healthcare providers. Once they have covered their operating expenses related to running their properties, equity REITs are required to pay at least 90% of the taxable income they collect to their shareholders as dividends.

Mortgage REITs, as highlighted by the real estate advocacy organization Nareit, purchase mortgages and mortgage-backed securities related to properties (including healthcare facilities that fight cancer) and fund these investments with equity and debt capital. Their general objective is to earn a profit from their net interest margin, or the spread between interest income on their mortgage assets and their funding costs. Similar to equity REITs, mortgage REITs are required to pay at least 90% of the taxable income they collect to their shareholders as dividends.

ADVANTAGES?

Healthcare REITs Benefits:

  1. Strong Industry: The massive and growing healthcare industry is on track to top $6 trillion by 2028.
  2. Solid Cashflow Opportunities: REITs are likely to benefit from steadily rising rental rates on existing properties.
  3. Demographics: The increase in the elderly population could drive higher demand for healthcare facilities. Such growth would likely to benefit healthcare REITs.
  4. Dividend Payouts: Because of their tax-exemption status if they comply with certain IRS requirements, they generally make consistent and growing dividend payouts to investors.

RISKS?

Healthcare REITs Risks:

  1. Leverage Risk: REITs borrow heavily to acquire and develop real estate which reduces their financial flexibility during economic recessions.
  2. Interest Rate Risk: REITs are highly sensitive to changes in interest rates. Higher rates increase their cost of debt.
  3. Oversupply Risk: Given the highly specialized nature of most healthcare facilities, REITs need to be careful not to build too much supply or it might sit vacant.
  4. Tenant Risk: Healthcare REITs rely on their tenants to pay rent and manage senior living facilities effectively. However, healthcare margins are relatively thin, which could cause operators to run into financial trouble.

THINGS TO CONSIDER

Healthcare REITs - Top Performers Exhibit:

  1. Diversified Portfolio: Healthcare facilities that span across tenant, geography, healthcare facility type, and industry segments, including acute inpatient behavioral facilities, physician clinics, behavioral health centers, specialty centers, inpatient rehabilitation facilities, long-term acute care hospitals, medical office buildings, and surgical centers and hospitals.
  2. Periodic Increases in Dividend Payout and Conservative Balance Sheet: This gives a company the financial flexibility to acquire a diverse array of healthcare properties.
  3. A Steady Stream of Acquisitions: Such actions create shareholder value.

REITs MARKET CAPITALIZATION

A comprehensive listing of publicly traded cancer-fighting REITs is included in the Can Serve Free LLC database for Client use.  REITs have been grouped into four subsections based on the market capitalization (“cap”) (stock price multiplied by the number stock shares outstanding).

  • Micro Cap - up to $300 million
  • Small Cap - greater than $300 million, up to $2 billion
  • Mid Cap - greater than $2 billion, up to $10 billion
  • Large Cap - greater than $10 billion, up to $200 billion

HEALTHCARE REIT EXCHANGE-TRADED FUNDS (ETFS)

Along with the robust listing of Healthcare REITs in the database, Can Serve Free LLC offers Clients the option of evaluating and purchasing a few exchange-traded funds (ETFs) that allows investors to purchase an index or bundle of REITs in a single investment that approximates the returns of the broad-based stock market index.