Publicly traded healthcare REITs have dual exposure to two favorable themes: real estate and healthcare spending.
Exposure to both themes are attractive to investors because:
(1) The real estate market can diverge from the stock market, protecting in some bear markets.
(2) Aging baby boomers and expanded life expectancies are driving higher demands for healthcare spending.
Overview of the Healthcare REIT Industry
As of today, there are roughly 17 publicly traded REITs in the Healthcare Facilities industry (according to finviz):
We can’t possibly hope to cover the whole industry at this point, but I’d like to analyze a few of the top stocks in the space to give a broad overview.
Hopefully looking at some of the top players gives a good reference point for further analysis, either with the same names, some smaller names, or some names in the future.
Analyzing the Top Healthcare REITs and Their Business Models
I decided to eliminate some companies right off the bat due to concerning trends in their Debt to Equity (or total liabilities to assets).
Among the leaders which still seem to have a healthy balance sheet (at least one that is still trending in a decent direction):
WELL—Senior housing and post acute outpatient care
OHI—skilled nursing, assisted living, skilled nursing facilities (SNFs)
HTA—medical office buildings (MOBs) leader
DOC—also an MOBs competitor
I was able to find the synopses of each these REITs based on their Business Overview sections of their 10-k’s.
Keep in mind that many of these healthcare REITs have not outperformed the S&P 500 over the last 10 years, and that was even pre-pandemic with much higher occupancies.
Though the catalysts for growth remain attractive, actual growth is still tough to come by for some of these REITs and could be reflective of an intensely competitive industry (with lots of capital fighting for few properties).
Comparing Healthcare REITs Revenue Growth Rates
Keeping in mind the tough environment for REITs compared to the general prosperity for other parts of the stock market and economy, let’s try to separate the wheat from the chaff in the industry.
In other words, let’s compare how some of these companies were able to grow over the past 10 years, and then evaluate some of the best performers to see if top performance is likely to be sustained.
Here’s the median revenue per share growth for each REIT over the last 10 years.
- WELL: 1.4%
- VTR: 0.9%
- MPW: 6.5%
- OHI: 3.8%
- HTA: 2.6%
- HR: 0.5%
- DOC: 8.2%
I used revenue per share instead of revenue because remember, we have to account for share dilution when looking at REITs. Great revenue growth isn’t that impressive if it doesn’t result in incremental revenue per share (and earnings per share) growth for investors.
Based on the data above, I think it’s safe to eliminate VTR and HR from our list.
Not to say that these companies might not make a comeback later on, but that it’s not a bet I’d be willing to take with my hard-earned money.
Deeper Dive: A Select Few Healthcare REITs
To get a better sense on what really makes each of these REITs different from each other, we’ll want to read the 10-k thoroughly and find places where the companies have unique features.
I’ve done this ground work already, so I’ll highlight some of my observations from my notes.
Feel free to do your own and make your own conclusions as well.
Medical Properties Trust (MPW)
Has some geographic diversification which seems slightly higher than its peers.
- U.S. – 71%
- U.K. – 14%
- Germany – 7%
- Other – 8%
Also draws most of its rents from general acute care hospitals (74%), inpatient rehab hospitals (11%) and mental health facilities (8%). They also specialize in NNN leases, which is a definite plus.
Omega Healthcare Investors (OHI)
Has a higher customer concentration than your regular REIT might, with its top 5 tenants providing 10.8%, 9.6%, 6.5%, 6.0%, and 4.8% of total revenues respectively. It appears that MPW and WELL also have similar higher tenant concentrations compared to other peers like HTA and DOC.
OHI also has a triple net lease structure with its tenants, and has a highly experienced management team with many combined years of service in the healthcare/REIT industry.
Healthcare Trust of America (HTA)
Considers itself the MOBs (Medical Office Buildings) leader. Boasts a portfolio in which 94% is located in the top 75 MSAs (Metropolitan Statistical Area). I like the heavy concentration of Texas (Dallas and Houston driving 9.7% and 6.2% of their total markets, respectively), especially since many people seem to be relocating there in the past few years.
According to the company, the MOBs Industry’s ownership looks close to the following picture:
- 13% = Public REITs
- 52% = Hospital/Health System
- 24% = Private investors
- 10% = Providers/government
HTA sees this fragmentation as a huge TAM (total addressable market) potential, though it’s unclear to me how much REIT investors can count on any REIT acquiring vast amounts of real estate from hospitals.
Especially when you consider that many (if not all) are private or non-profit and generally don’t publicly disclose their financials. These types of hospitals might not have the same capital efficiency needs that a small, medium, or large size business might have as a duty to its shareholders.
Physicians Realty Trust (DOC)
This REIT is a major competitor to HTA in the MOBs space and considers itself the leader in ESG for its industry.
The company also discloses the following pertinent details, among many others:
- 23.9% of portfolio leases are expiring in 2026
- Portfolio leases = 6.8 average weighted years remaining
- Lease terms are generally 5-15 years, with 1.5%-3% lease escalators per year
- Current Portfolio weighted average rent escalator = 2.4%
DOC also has a high exposure to Texas and seems to focus on a similar, location-based strategy as HTA (where its MOBs want to be close to highly trafficked hospital and medical systems). Though, the company might not be as explicitly committed to that as HTA.
Hopefully you now have a launching pad for really diving deep into these healthcare REITs for some thoughtful analysis. As it pertains to learning about any industry, and the world of investing in general, the entire process is a journey.
You won’t become an expert at any industry overnight, but the knowledge you attain does compound over time.
Like investing, commit to learning about these businesses in the same way you’d learn a language. You don’t become fluent overnight.
Best of luck, I hope you find great REITs and great stocks to grow and compound your wealth over time.