As of September 2014, health care REITs include Ventas, Omega Healthcare Investors, Healthcare Trust of America and National Health Investors, states Investopedia. Historically, the dividend yield of health care REITs has been larger than that of the majority of other sectors, while its free cash flow multiples have been smaller.
Most health care REITs tend to focus strongly on a particular subsector, according to Investopedia. The niches occupied by health care REITs include skilled nursing, housing for seniors, and hospitals and laboratories. Highly focused specialization allows REITs to remain within their “circle of competence,” leading to consistently high returns. Three large health care REITs hold diversified portfolios of health care-related real estate, and these three have a total market capitalization of approximately $57 billion.
Demand for health care is highly robust and rising, which is causing an increase in the demand for health care-related real estate, explains Investopedia. Because the demand for health care is not strongly sensitive to the price of health care, the sector is relatively robust to recessions. Increased coverage made available by the Affordable Care Act increases demand for all aspects of health care. The proportion of the U.S. population over 75 is growing more than six times as fast as the general population, leading to a strong expected rise in demand for health care. Thanks to their historically low volatility, health care REITs have been highly favored by institutional and retail investors.