Health REITs Are Stuck In Fog Of Complicated Law


Income investors are naturally attracted to the high yields found in troubled areas, but buying into weakness is a high risk strategy.

Right now, few groups are more beat up than the real estate investment trusts.

While much of the current buzz is about how rising interest rates are affecting REITs, the health-care REITs have an additional factor at work. The Affordable Care Act is steadily moving to full implementation.

Before we consider the ACA, let's look at the fundamentals of the health-related REITs.

Nine stocks in the property REIT group are health-care related and trading above 15.

The stock with the best growth in funds from operations (FFO), which REITs use in lieu of earnings per share, isOmega Healthcare Investors ( OHI ).

FFO grew 16%, 15% and 17% in recent quarters, while revenue popped 25%, 20% and 22%. None of the other eight health REITs comes close to that kind of consistent growth.

Omega's payout growth is outstanding. The payout has been lifted in each of the past four quarters -- yes that's right, quarters. On an annual basis, the payout has slightly more than doubled since early 2006.

The current annualized yield is 6.3%.

Meanwhile, the stock price is up 25% this year, roughly in line with the Nasdaq.

The stock appears to be working on a double-bottom base, but is stuck under its 50-day moving average.

Meanwhile, the ACA remains the elephant in the room. The subject didn't come up at Omega's August call and for good reason.

For individual companies, the immediate impact is hard to gauge, and analysts know it.

In its annual report, Omega pointed to "the complexity of the law and the substantial requirements for regulation," which means the impact of the law "to us is uncertain."

The market despises uncertainty. Until clarity emerges, the health care REITs remain a gamble.

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

This article appears in: Investing , Investing Ideas

Referenced Stocks: OHI

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