Higher interest rates are making business more difficult for healthcare real estate investment trusts (REITs) because higher rates narrow the spread between the interest REITs pay on their loans to buy properties and the rental rates they charge their tenants. It also makes it more expensive to grow their businesses.

Healthcare REITs are more stable than some other REITs because their tenants' businesses are less sensitive to an economic downturn. In general, healthcare is something people need, and there's only so much of it that consumers can go without. If you're looking to invest in real estate or are just looking for higher-yielding dividend stocks, healthcare REITs provide more security than some other REITs these days, such as office building REITs or cannabis REITs.

Among the top healthcare REITs, Physicians Realty Trust (DOC) and Healthpeak Properties (DOC 0.98%) appear to be better investments now than Medical Properties Trust (MPW), even though the former two haven't had the type of dividend growth that Medical Properties Trust has shown. 

1. The case for Physicians Realty Trust

Physicians Realty Trust owns 290 properties that it leases to physician groups, hospitals, and healthcare delivery systems.  As of Dec. 31, 94.9% of its buildings were leased.

Physicians Realty Trust's share prices are down a little more than 2% so far this year. The company's quarterly per-share dividend of $0.23, which hasn't changed since 2017, provides a yield of around 6.23%, with a normalized funds from operation (NFFO) payout ratio of 88.4%. That's not particularly high for a REIT, which is expected to return at least 90% of taxable income to investors. 

The company reported fourth-quarter and full-year 2022 earnings on Feb. 22. Fourth-quarter revenue was up 14.2% year over year to $132.6 million, while full-year revenue was $526.6 million, up 15%.

In the quarter, the company reported NFFO per share of $0.26, and for the year, NFFO per share of $1.04, both of which were equal to the same period last year. What I like about Physicians is that it has prudently paid down its net debt, which is only $1.85 million, down 4.5% from 2021.

2. The case for Healthpeak

Healthpeak Properties owns and develops healthcare properties for life science companies, medical office buildings, and continuing care retirement communities (CCRC). 

Healthpeak's shares are down more than 16% so far this year and hit its 52-week low on March 15. The company's quarterly per-share dividend has stayed the same at $0.30 since 2021, giving it a yield of around 5.76% and an adjusted funds from operation (AFFO) payout ratio of 83.3%, well within the safety profile for a REIT.

The company reported fourth-quarter and year-end earnings on Feb. 7. Revenue for the quarter was up 8.5% year over year to $524.5 million, while yearly revenue was up 8.7% to 2.06 billion. 

Quarterly FFO per share was $0.44, up from $0.41 in the same period last year, while AFFO per share was $0.36, up from $0.32 in the fourth quarter of 2021. Full-year FFO per share was $1.74, compared to $1.61 in 2021, and full-year AFFO per share was $1.45, up from $1.35 in the prior year.

The company's guidance points to continued growth, with AFFO per share expected to be between $1.70 and $1.76 per share.

Healthpeak, as of Dec. 31, had $6.4 million in net debt, down from $6.02 at the end of 2021.

While Healthpeak has gone through a number of reorganizations and it cut its dividend in 2021, I still like the stock because of its diversity, which allows it to seek out growth in several areas that are on the upswing. 

For example, its life sciences holdings are campuses designed for the expansion of biotech companies in growing markets of San Diego, Boston, and San Francisco. This past year, the company saw 5.1% growth in cash from the same stores (facilities), and its buildings were 99% occupied. Their medical office buildings tend to be on campuses connected with the No. 1 or No. 2 hospital in a particular area where physicians want to be located, and that segment saw same-store growth of 4% in cash. The company's CCRC holdings are designed to tap into the growing trend of allowing seniors to stay in the same community as they age but with different levels of care. Its facilities are seeing occupancy rates return to pre-pandemic levels. In January, the company said its CCRC facilities' average daily census was 82.6%, up 30 basis points over the prior month. 

PEAK Financial Debt to Equity (Quarterly) Chart.

PEAK Financial Debt to Equity (Quarterly) data by YCharts.

Medical Properties Trust could be a dividend trap

Medical Properties Trust owns 444 hospital properties across 10 countries, including 202 general acute care hospitals. Its share prices have fallen more than 29% this year and more than 61% over the past 12 months.

The company has raised its quarterly dividend for eight consecutive years, including a boost of 3.5% last year to $0.29 per share, giving it a yield of 14.73%. The AFFO payout ratio is a reasonable 85.2%, but my concern is the company's declining numbers.

In the fourth quarter, the company reported AFFO per share of $0.34, down from $0.36 in the same period last year, and revenue of $380.4 million, down 7% year over year. Annual revenue dropped to $1.542 billion, compared to $1.544 billion in the prior year.

The other worry is the company's debt, which, while it is down from last year, is still $10.3 billion. However, the biggest short-term concern is one of its biggest tenants, Prospect Health, has had difficulty paying rent, and other expenses, which Medical Properties Trust briefly alluded to in its fourth-quarter earnings call. 

Which healthcare REIT to choose?

Physicians Realty Trust and Healthpeak Holdings are better investment plays right now because their businesses are stronger.

They each have less debt weighing them down than Medical Properties Trust, with debt-to-equity ratios about one-third of that of Medical Properties Trust, and their FFO growth rate over the past year has been stronger as well.