The U.S. economy has been witnessing significant demographic changes with aging and retiring baby-boomer generation. This should lead to significant increase in demand for healthcare services. As a result, healthcare real estate investment trusts (REIT) could thrive.
The senior citizen population has been growing at a faster rate than any other generation. In fact, according to the Census Bureau, the number of citizens with more than 85 years of age is estimated to reach 8.7 million by 2030. Moreover, as senior citizens end up spending more on healthcare services as compared to the average population, healthcare spending is projected to grow annually at a rate of 5.8% over the 2014-2024 period — according to recently published government data.
As one of the largest generational group in the United States, baby boomers constitute a major customer base of healthcare services. We believe the “silver tsunami” — the rising senior citizens’ population — will offer abundant upside potential for healthcare REITs.
Further, the increasing longevity has encouraged these REITs to invest in hospitals, medical office buildings (MOB) and senior housing facilities. MOBs offer low-cost medical services and are subsequently enjoying impressive top-line growth.
Healthcare REITs are rotating capital out of high-cost hospitals and investing in low-cost facilities. Since skilled nursing facilities (SNFs) are becoming more susceptible to top-line pressure due to changes in medical billing procedure, companies are reducing exposure to this asset class.
The strategy of healthcare companies to emphasize on private-pay models provides ample room for growth in this relatively fragmented market.
Although the healthcare REIT sector has been burdened with oversupply of senior housing assets at present, we expect demand to catch up with an improvement in absorption rates.
As there is ample scope for growth with aging Americans, the following healthcare REITs can be solid bets.
3 Stocks to Consider
Sabra Healthcare REIT, Inc. (SBRA - Free Report) is a healthcare REIT that owns nursing homes, rehabilitation centers, assisted living facilities and independent living centers. The stock currently sports a Zacks Rank #1 (Strong Buy). The company’s year-over-year funds from operation (FFO) and revenue growth are estimated at 163.6% and 49.1%, respectively, for 2017.
Moreover, the company boosts ROE of 8.72%, higher than the industry average of 5.96%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
National Health Investors, Inc. (NHI - Free Report) is a healthcare REIT which invests in healthcare-related facilities, including long-term care facilities, acute care hospitals, medical office buildings, retirement centers and assisted living facilities. It currently carries a Zacks Rank of 2 (Buy). The company’s year-over-year FFO and revenue growth are projected at 36.02% and 12.5%, respectively, for the current year.
Also, its ROE of 12.6% is marginally higher than the industry’s average.
Omega Healthcare Investors, Inc. (OHI - Free Report) is a self-administered REIT which invests in income-producing health care facilities, principally long-term care facilities, with the objective of profitable growth and further diversification of the investment portfolio. The company also holds a Zacks Rank of 2. Its year-over-year FFO and revenue growth are estimated at 81% and 3.5%, respectively, for full-year 2017.
Additionally, the company churns ROE of 8.8%.
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