NEW YORK (
) -- Real estate investment trusts (REITs) that specialize in senior and healthcare facilities have seen a rebound in 2010 with investors betting that the horde of aging baby boomers will buoy the group's long-term prospects.
Standard & Poor's is fairly bullish as well as it expects the healthcare REITs to be relatively stable over the next 12 months. The ratings agency doesn't expect these owners of healthcare and medical office properties to share in the difficulties of facility operators when it comes to reform. Instead, they should continue to generate huge cash flow from rent payments. Specifically, S&P expects private senior facilities to see growing demand and not be affected by changes in government subsidies.
Recent increases in occupancy at senior care facilities would seem to bode well for the group. According to the National Investment Center for the Seniors Housing & Care Industry (NIC): "The average occupancy rate for assisted living properties in 2Q10 was 88.3%, up from 87.8% in 1Q10 and a year ago, in 2Q09." NIC also determined that 15 out of 31 metropolitan areas recorded an annual occupancy increase in the second quarter of 2010.
The healthcare REITs slid along with most other publicly traded real estate vehicles after the housing bust, but they look to be on the road to recovery now. Here are the top five performing healthcare REITs, according to stock screening Web site
5. HCP Inc.
acquires health care facilities and leases them to health care providers. The stock was up 30.8% over the past year and delivers a 5.4% yield.
Wall Street Equity Research has an outperform rating on the stock, even though the shares trade at a multiple of 89.45 versus the industry average of 24.40. The firm notes that the company's gross profit margin of 82.40% and its net profit margin of 13.10% are both well above industry averages of 27.05% and 4.32%, respectively.
4. Omega Healthcare Investments
invests principally in long-term healthcare facilities. The stock is up 32% for the year and currently yields 6.8%.
, which has a buy rating on the stock, points out that the company's 19.7% revenue growth for the last quarter was higher than the industry average of 9.5%; its debt-to-equity ratio came in at 1.28, also below the industry average; and its gross profit margin stood at a healthy 60.8% in the most recent quarter.
3. Ventas Inc.
finances, owns and leases senior housing facilities. The stock is up 37% for the past 12 months and yields 4.2%.
Wall Street Equity Research has an outperform rating on the stock even though it is trading at a multiple of 38.78 versus the industry average of 24.40.
"Ventas delivered strong quarterly results with healthy cash flows," the firm said in a recent research note. "The company saw growth in
its triple-net lease business and its seniors housing also grew."
2. Medical Properties Trust
Medical Properties Trust
specializes in hospital properties and provides capital to acute care facilities through long-term triple-net leases. The stock is up a whopping 40% over the last year and currently yields 8.3%.
"The company's strengths can be seen in multiple areas, such as its revenue growth,
a largely solid financial position with reasonable debt levels by most measures, solid stock performance and expanding profit margins," says
, which has a buy rating on the stock.
1. Cogdell Spencer
focuses primarily on medical office buildings. The stock shot up to a 52-week high of $8.52 in April from a low of $4.23 last September, but has since pulled back significantly. Still, at Tuesday's close of $6.11, it remained up more than 50% for the past year, and was sporting a yield of more than 6%.
Following the company's second-quarter report on August 5,
lowered its assessment of the stock to sell from hold, citing underperformance compared to its peers. But Daniel Donlan of Janney Montgomery Scott recently reiterated his buy rating on the stock, saying: "It is only a matter of time before healthcare-related construction begins to ramp," and pointing out that Cogdell now trades at a 22.4% discount to its peers.
Written by Debra Borchardt in New York
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.