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5 Health Care REITs to Consider in 4th Quarter

GuruFocus.com
·4 mins read

- By James Li

In light of the coronavirus pandemic accelerating demand in life sciences real estate, five health care REITs with good dividend yields and low debt-to-Ebitda ratios are Community Healthcare Trust Inc. (NYSE:CHCT), CareTrust REIT Inc. (NASDAQ:CTRE), Physicians Realty Trust (NYSE:DOC), Healthcare Realty Trust Inc. (NYSE:HR) and National Health Investors Inc. (NYSE:NHI) according to the All-in-One Screener, a Premium feature of GuruFocus.


Coronavirus cases continue surging, boosting health care real estate demand

The U.S. recorded on Thursday new coronavirus cases of over 56,000, an eight-week high according to CNBC analysis of data compiled by Johns Hopkins University. Johns Hopkins data shows that global cases topped 36.5 million, with over 7.6 million cases in the U.S.

CNBC added that "all of the fundamentals" are aligning for the life sciences industry as Covid-19 accelerates demand for lab space, resulting in vacancies below 8% according to a report from CBRE Group Inc. (CBRE). Spencer Levy, chairman of the Americas Research and senior economic advisor for CBRE, added that health care REITs could present attractive opportunities on the heels of "mega trends" like an aging demographic and the importance of personalized medicine.

As such, GuruFocus users can seek opportunities in health care REITs that have good dividend yields, low price-to-FFO valuations and low debt-to-Ebitda ratios. According to Joel Tillinghast, a safe debt-to-Ebitda ratio is a ratio of approximately 4 or less.

Community Healthcare Trust

Shares of Community Healthcare Trust closed at $50.73, resulting in a price-to-FFO ratio of 28.39.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

GuruFocus ranks the Franklin, Tennessee-based REIT's financial strength 5 out of 10: Interest coverage ratios are underperforming 62.42% of global competitors despite debt ratios outperforming over 75% of global REITs.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

While Community Healthcare Trust's dividend yield of 3.31% underperforms over 85.95% of global competitors, the dividend yield is about 2% lower than the historical median of 5.15%.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

Gurus with holdings in Community Healthcare Trust include Chuck Royce (Trades, Portfolio)'s Royce & Associates and Pioneer Investments (Trades, Portfolio).

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

CareTrust

Shares of CareTrust closed at $18.56, resulting in a price-to-FFO ratio of 15.18.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

GuruFocus ranks the San Clemente, California-based REIT's financial strength 4 out of 10: Although the company's debt-to-Ebitda ratio of 3.86 outperforms 85.45% of global competitors, CareTrust's cash-to-debt ratio of 0.01 underperforms over 80% of global REITs.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

CareTrust's dividend yield of 5.26% is above its historical median of 4.39% albeit underperforming 58.31% of global competitors.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

Physicians Realty Trust

Shares of Physicians Realty Trust closed at $18.24, resulting in a price-to-FFO ratio of 17.26.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

GuruFocus ranks the Milwaukee-based REIT's financial strength 4 out of 10: Although the company's debt ratios outperform over 73% of global competitors, Physicians Realty Trust's interest coverage of 1.78 underperforms 77.65% of global REITs.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

Physicians Realty Trust's dividend yield of 5.04% is close to the historical median, but underperforms 61.78% of global competitors.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

Healthcare Realty Trust

Shares of Healthcare Realty Trust closed at $30.34, resulting in a price-to-FFO ratio of 18.92.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

GuruFocus ranks the Nashville-based REIT's financial strength 4 out of 10: Although the company's debt-to-Ebitda ratio of 4.73 outperforms 76.99% of global competitors, interest coverage ratios are underperforming over 80% of global REITs.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

National Health Advisors

Shares of National Health Advisors closed at $61.13, resulting in a price-to-FFO ratio of 10.86.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

GuruFocus ranks the Tennessee-based REIT's financial strength 4 out of 10: Although the company's interest coverage and debt-to-Ebitda ratio outperform over 63% of global competitors, the company has a weak Altman Z-score of 1.51. Despite this, National Health Advisor's profitability ranks 8 out of 10, driven by a three-star business predictability rank and returns that are outperforming over 87% of global REITs.

5 Health Care REITs to Consider in 4th Quarter
5 Health Care REITs to Consider in 4th Quarter

Disclosure: The author has no positions in the stocks mentioned. Investors should conduct their own careful research before investing in the stocks mentioned.

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This article first appeared on GuruFocus.