While Treasury debt is the “least dirty shirt” in the global bond market right now, that doesn’t mean we have to settle for dirty laundry, states Todd Shaver, editor of Bull Market Report.
As always, we urge you to lock in at least 3% from your income-producing investments to maintain at least a fighting chance of preserving purchasing power and ideally earning at least a token return. Here are two healthcare related real estate investment trusts that offer attractive yields.
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Omega Healthcare Investors (OHI) released its first quarter earnings during the first week of May, reporting revenues of $235 million, up 5.6% YoY, and Funds From Operations of $0.85 per share, against $0.79 during the same period last year.
The REIT is structured to finance the sale, leaseback, construction, and renovation of skilled nursing facilities, and senior housing facilities, with investments totaling $10.2 billion across the two sectors, on which the company employs further leverage to improve returns.
FFOs represent total cash flows from rent, interest, leases, etc., and are a key figure for REITs. OHI’s funds available for distribution stood at $0.81, with quarterly dividends of $0.67 per share — a payout ratio of 83% of funds available for distribution. The company has managed to collect 99% of its rent, mortgage and interest payments during the quarter, despite the challenging environment.
During the quarter, OHI issued $700 million worth of 3.25% senior notes maturing in 2023, to repurchase $350 million worth of 4.375% senior notes with the same maturity, and to repay certain LIBOR-based borrowings. The low interest rate environment will benefit the company over the next few years.
The pandemic made for a tough year in 2020, but the company powered through and maintained its dividend throughout the pandemic, which is a testament to its financial strength, and with vaccination rates among residents at 81%, it is witnessing a steady growth in occupancy rates, with the worst impacts of the pandemic behind it.
With strong financials, consistent dividends, and demographic trends favoring its business model, Omega will remain a key part of our long-term portfolios. We have a Target Price of $45 and Sell Price of $31.
Healthcare real estate investment trust Ventas (VTR) released its first quarter earnings two months ago, reporting revenues of $910 million, a drop of 10% compared to the same period last year, with a loss of $0.15 per share, against a profit of $1.26 during the first quarter of last year.
The uninspiring performance of the firm was mainly driven by the impacts of the pandemic, with its Senior Housing Operating Portfolio having witnessed a significant drop in occupancies since the spring of 2020.
This resulted in a near 14% drop in funds from operations, compared to that of 2019. The other core portfolio categories didn’t fare any better — medical offices, research and innovation centers.
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Ventas, however, successfully thwarted the initial impacts of the pandemic with successful disposals of assets, resulting in proceeds worth $1 billion, ensuring strong cash balances and consistent FFOs and dividends, despite slowdowns in its core business.
With vaccinations reaching critical mass, and most of its core markets moving back to normal, Ventas expects occupancy rates to return to pre-pandemic rates, with increased move-ins witnessed during the first quarter itself.
The REIT also expects to benefit from removal of restrictions on non-essential visits at senior housing centers, which had a significant impact on senior housing facilities throughout the past year.
A favorable macro-environment, along with a diverse portfolio of assets, should help the company win the recovery in this senior housing segment. In the long run, Ventas should also benefit from significant demographic tailwinds as boomers reach retirement age. All of which make the company a must-have in your portfolio.
Ending the quarter with a strong pipeline of new deals, Ventas is well positioned to provide strong yields and capital appreciation. Despite already breaching our Target Price of $57, we hereby raise the Target to $69, with a Sell Price raised from $42 to $51.
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