2022 will long be remembered as the year when real estate investment trusts (REITs) were clobbered by inflation and fears of recession. But since mid-October, many of these stocks have bounced back. Yields have risen, and many REITs have surpassed analysts’ expectations with improved third-quarter operating results. But with so many REITs to choose from, how do investors know which REITs are the best buys?
Here are two of the leading healthcare REITs, compared by eight different measures to help determine which is the better buy:
LTC Properties Inc. LTC is a Westlake, California-based healthcare REIT that owns and leases senior housing and skilled nursing facilities. LTC Properties’ revenue is derived from triple-net leases, mortgages and mezzanine loans on its 32 operators.
Healthpeak Properties Inc. PEAK is a Denver-based REIT that owns and operates private-pay facilities such as life science centers, medical offices and senior housing. The company was added to the S&P 500 in 2008.
Size and Diversity
LTC Properties has about $1.65 billion in assets from 210 properties across 29 states. Prestige Healthcare is its largest tenant.
Healthpeak Properties currently owns more than $20 billion in healthcare real estate in 464 properties in Colorado, Tennessee and California. Its diversification of property types helps Healthpeak reduce the risks associated with a recession. Many of Healthpeak Properties’ life science tenants are large, well-known pharmaceuticals, such as Amgen Inc, Pfizer Inc and Bristol Myers Squibb Co.
Although LTC’s properties are more spread out across the country, Healthpeak Properties has far more properties and total assets as well as a diversity of property types. Give this edge to Healthpeak Properties.
Performance Over Time
Over the past five years, without reinvesting dividends, LTC Properties has a total return of 6.62%, while during that same period, Healthpeak Properties has a total return of 17.7%. Longer term (starting in 1999), Healthpeak Properties’ total return is 679% compared to 594% for LTC Properties. Another edge goes to Healthpeak Properties.
LTC Properties has an annual dividend of $2.29, yielding 5.9%. Healthpeak Properties has an annual dividend of $1.20 per share, yielding 4.8%. Edge to LTC Properties.
Dividend Growth and Stability
LTC Properties’ monthly dividend payment of $0.19 has remained flat over the past five years, with no cuts to its dividend. Healthpeak Properties’ quarterly dividend payment of $0.30 has decreased by over 18% as a result of cutting its dividend from $0.37 to $0.30 in 2021. Another edge goes to LTC Properties.
Dividend Coverage by FFO
LTC Properties’ ratio of dividend payout to forward funds from operation (FFO) is 89%. Healthpeak Properties' ratio of dividend payout to FFO is 69%. Healthpeak Properties wins this category easily.
FFO Multiple (Price/FFO)
The FFO Multiple (P/FFO) for LTC Properties is 14.96, while the P/FFO for Healthpeak Properties is 14.35. Slight edge to Healthpeak Properties.
LTC Properties’ total debt is $793.76 million, and its ratio of debt to equity is 96.19. Healthpeak Properties’ total debt is $6.79 billion and the ratio of debt to equity is 95.31. One would expect Healthpeak Properties’ debt to be much greater because it has more than twice the number of properties, but the debt-to-equity ratios are very close. No edge here.
Most Recent Operating Results
LTC Properties’ third-quarter FFO was $0.60 per share, a 33% increase over its third-quarter 2021 FFO of $0.45 per share. Revenue of $43.5 million was 16.1% above its third-quarter 2021 mark.
Healthpeak Properties’ FFO of $0.40 was 11.1% above the $0.36 FFO achieved in the third quarter of 2021. Revenue of $520.4 million was up 8.1% from the third quarter of 2021. Edge on growth to LTC Properties, but note the large contrast in revenue.
Summing it up, LTC Properties gets the edge on dividend yield, dividend growth/safety and most recent operating results.
Healthpeak Properties has the edge on size/diversity, dividend coverage by FFO, FFO Multiple and performance over time. The debt ratio was basically a draw.
Score it 4-3 in favor of Healthpeak Properties, with one draw. While LTC has a slightly higher dividend yield and record, Healthpeak Properties looks vastly superior on dividend coverage by FFO and overall performance over time. Healthpeak Properties seems to be the slightly better buy right now.
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