Buy the Dip of 2 Healthcare REITs: MPW Offers Value, DOC Has Less Risk

The real estate investment trust (REITs) sector has been hurt by rising interest rates, and healthcare REITs are no exception.

According to data from the National Association of REITs in the United States, medical REITs plummeted by 22.2% in 2022 and continued to fall by 5.2% in March 2023. However, under the background of long-term continuous growth of medical expenditure, many medical REITs also have opportunities to buy the dip.

Shares of $Medical Properties(MPW)$ have down more than 21% this year, while $Physicians(DOC)$ is down less than 1%. Are these two medical REITs ushered in a buying opportunity?

$Medical Properties(MPW)$ may offers value

Shares of Medical Properties rose nearly 6% last week after the quarterly report, but are still down more than 54% over the past 12 months.

There are many reasons to buy this healthcare REIT, but the most obvious is its dividend. During Thursday's earnings call, the company announced it was maintaining its quarterly dividend of $0.29 per share, which yields a whopping 13.5%. Additionally, the company has raised its dividend for 10 consecutive years. The normalized funds from operations (NFFO) payout ratio is about 78%, and while that's enough to cover the payout, it's not a guarantee that the company won't cut its dividend in the future.

Medical Properties Trust's debt/EBITDA of 7.7 is high but manageable. With the improving environment in the hospital system, the company's financials are also more stable than a quarter ago, reporting funds from operations (FFO) per share of $0.21 in the fourth quarter, rising to $0.31 in the first quarter.

$Physicians(DOC)$ is more expensive but less risky

Physicians Realty posted strong financial results for 2022, with annual revenue up 13.3% year-over-year to $371.7 million and quarterly revenue up 11.7% to $93.5 million.

Additionally, quarterly FFO of $61.5 million was flat year-over-year, and annual FFO increased 7.3% to $250 million. With financial support, the company reduced its debt by 4.5% to $1.9 million, with a debt/EBITDA ratio of only 5.8, and its safety is better than that of Medical Properties.

However, Physicians Realty's $0.23 quarterly dividend yields 6.38%, which is higher than inflation and the average for medical REITs (5.20%), but less than half that of $Medical Properties(MPW)$ . In addition, the company has not raised its dividend since 2017, and the NFFO payout ratio is 89%, which is higher than that of Medical Properties Trust.

However, compared with $Medical Properties(MPW)$ , $Physicians(DOC)$ has more diversified tenants, and the top ten tenants only account for about 30% of the company's annualized rental income. Thanks to its stability, the REIT's dynamic share price/FFO ratio (2023 est.) of 14.3 is more than double that of Medical Properties .