Health Care REITs Looking Up But Carry Some Risks


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Two real estate investment trusts in the health and senior housing space are benefiting from upward revisions in funds from operations estimates for this year and 2014.

Omega Healthcare ( OHI ) is a REIT that focuses on skilled nursing facilities in the United States. As of June, the company had 477 facilities and specialty hospitals in 33 states.

Recently the company announced a dividend increase of a penny a share to 48 cents. The dividend will be paid Nov. 15 to shareholders of record Oct. 31. The annualized yield is 5.8%.

Early this month, Omega announced and priced an offering of 2.5 million shares at $30 a share. The company will use the proceeds for general corporate purposes.

The Street expects funds from operations to grow 15% this year, which would be the fourth straight year of 15% to 18% growth. Sales grew 31%, 13% and 20% in the past three years; 8% sales growth is expected this year.

However, analysts expect FFO growth to slow to 6% in 2014 on a 10% revenue pop.

The REIT is working on a double-bottom base. The pattern is second stage, according to MarketSmith .

Health Care REIT ( HCN ) focuses on senior housing, medical office buildings, hospitals and life science facilities. As of June, the company had 1,183 properties in 46 states, the United Kingdom and Canada.

The company last declared a dividend increase in January, bumping the quarterly payout from 74 cents a share to 76.5 cents. The annualized yield is 4.7%.

FFO growth of 7% is seen this year and next year on revenue growth of 55% and 11%, respectively. The REIT wrapped up the acquisition of Sunrise Senior Living in July.

The REIT is working on a stage-two consolidation.

One risk for health-related REITs is government. Rules and reimbursements under Medicare, Medicaid and the Affordable Care Act can and do change. Because of that, some investors will limit their exposure to these type of investments.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Investing Ideas
Referenced Stocks: HCN , OHI

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