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Top 3 Healthcare REITs
Despite a challenging past couple of years in most property sectors, healthcare real estate is thriving.
Hospital exterior. Image by Graham Ruttan from Unsplash.
While the multifamily and industrial commercial real estate sectors have been the stars of the show during the past year, they aren’t the only ones who have seen an unprecedented rise in terms of market fundamentals. While far smaller and significantly more niche, healthcare commercial real estate has also realized strong gains.
While it may seem obvious — especially as we look back on more than two years of pandemic-influenced market dynamics — healthcare properties are in more demand now than ever before. PwC’s 2022 report on emerging trends in real estate highlights as much, pointing to near-certain future growth in niche sectors like lab space and healthcare real estate.
In 2019, Revista estimated the size of the medical office building, or MOB, sector at 1.5 billion square feet across the country, with inpatient hospitals accounting for another 1.5 billion square feet, totaling $1 trillion in value. While this may be small compared to the multifamily, industrial, and office sectors, healthcare properties are nevertheless on the rise and can represent a strong part of an investment portfolio.
The Top 3 Healthcare REITS of 2022
So, who is investing? The largest players in the game are healthcare-focused real estate investment trusts, or REITs. These organizations predominantly own medical office space and hospitals, though many are also involved in the senior housing and skilled nursing sectors as well. Check out the largest three below. The top three REITs were selected based on portfolio size, market value, and asset diversity.
3. CareTrust REIT
At the end of the first quarter, San Clemente, Calif.-based CareTrust REIT had 226 properties in its portfolio, with an enterprise value of $2.6 billion. The investor works with 22 different operators in 28 states. The REIT, founded in 2014 after spinning off from post-acute care provider The Ensign Group, has diversified its portfolio in the past seven years to expand beyond the skilled nursing sector. Initially listed on the Nasdaq stock exchange, the REIT transitioned to trading on the New York Stock Exchange in May 2022.
2. American Healthcare REIT
Following the close of its acquisition of American Healthcare Investors late last year, American Healthcare REIT handily comes in second place on our list, with a 19 million-square-foot portfolio valued at $4.2 billion. The investor’s holdings are divided between medical office buildings, senior housing properties, and skilled nursing facilities, though the REIT also owns a surgical hospital in southwestern Colorado. The self-managed REIT has stated plans to go public by the end of 2022, Skilled Nursing News reported.
1. Healthcare Realty
Healthcare Realty made major headlines earlier this year when it agreed to purchase Healthcare Trust of America, itself a major medical office building owner, for $18 billion. While this deal has not yet closed — that’s expected to happen in the third quarter this year — we are comfortable placing them at the top of our list, owing to a huge combined portfolio of 727 properties totaling 44 million square feet. What’s more, about 65% of its medical office space is located on or next to major hospital campuses.
Related Questions
What are the top three healthcare real estate investment trusts (REITs)?
The top three healthcare REITs of 2022 are:
- Ventas, Inc.
- HCP, Inc.
- CareTrust REIT
Ventas, Inc. is a real estate investment trust (REIT) based in Chicago, Illinois. It is the largest healthcare REIT in the United States, with a portfolio of over 1,200 properties in the United States, Canada, and the United Kingdom. HCP, Inc. is a REIT based in Irvine, California. It is the second largest healthcare REIT in the United States, with a portfolio of over 800 properties in the United States and the United Kingdom. CareTrust REIT is a REIT based in San Clemente, California. It is the third largest healthcare REIT in the United States, with a portfolio of over 226 properties in 28 states.
What are the advantages of investing in healthcare REITs?
Investing in healthcare REITs can provide many advantages. For starters, they are a relatively easy starting point in commercial real estate investment. Because most REITs can be traded on public exchanges and are substantially liquid in nature, they are simple to buy and sell — easily removing one of the biggest drawbacks of traditional commercial real estate investing. This of course lends to their popularity as a means of diversifying an investment portfolio that may be weak in the real estate sector.
In terms of performance, REITs have actually managed to outperform the S&P 500 and the rate of inflation over the course of the last 20 years. Beyond the stability of the cash flow REITs can provide, many investors simply enjoy the attractive risk-adjusted returns. And, while it may not always be the case, the dividends that can be earned from them are often much higher than any dividends that can be achieved through most other investment vehicles.
What are the risks associated with investing in healthcare REITs?
Investing in healthcare REITs carries the same risks as any other real estate investment. These include market risk, tenant risk, and interest rate risk. Market risk is the risk that the value of the property will decrease due to changes in the real estate market. Tenant risk is the risk that the tenant will not pay rent or will vacate the property. Interest rate risk is the risk that interest rates will increase, resulting in higher borrowing costs for the REIT.
In addition, healthcare REITs are subject to additional risks due to the nature of their investments. These include regulatory risk, reimbursement risk, and occupancy risk. Regulatory risk is the risk that changes in healthcare regulations will affect the REIT's investments. Reimbursement risk is the risk that changes in reimbursement rates will affect the REIT's investments. Occupancy risk is the risk that occupancy rates will decrease, resulting in lower rental income for the REIT.
What are the best strategies for investing in healthcare REITs?
The best strategies for investing in healthcare REITs include diversifying your portfolio, researching the REITs you are considering, and understanding the risks associated with investing in REITs. Diversifying your portfolio is important because it helps to spread out your risk and can help you to achieve better returns. Researching the REITs you are considering is important because it will help you to understand the company's financials, management team, and other factors that can affect the performance of the REIT. Understanding the risks associated with investing in REITs is also important because it will help you to make informed decisions about your investments. Additionally, it is important to consider the fees associated with investing in REITs, as well as the liquidity of the REITs you are considering.
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What are the most important factors to consider when investing in healthcare REITs?
When investing in healthcare REITs, the most important factors to consider are portfolio size, market value, and asset diversity. Additionally, investors should consider the REIT's track record, the quality of its management team, and the stability of its tenant base.
For example, CareTrust REIT, one of the top three healthcare REITs of 2022, has an enterprise value of $2.6 billion and a portfolio of 226 properties. It works with 22 different operators in 28 states and has diversified its portfolio in the past seven years to expand beyond the skilled nursing sector.