Healthcare Realty Trust Inc. (NYSE: HR) has been one of the most successful of my recommended REITs in the past year. HR is a real estate investment trust, which is a corporate structure that provides the public with an easy way to invest in real property. To qualify as an REIT, a company must serve as pass-through investment vehicle by distributing 90% of its taxable profits as dividends. It must also have 75% of its investment in real estate. If it meets these criteria, it does not have to pay federal income tax.
Based in Tennessee, HR operates 204 health-care properties in 28 states that are worth an estimated $2.3 billion. This is a great niche purely on demographic level as it provides us with exposure to the rising cost of caring for America’s aging population at hospitals and outpatient clinics like the very attractive one shown above in Round Rock, Texas.
The company exploited opportunities of the recent credit crisis by buying new facilities on the cheap. It managed to increase revenue by 18.4% at a time when its two largest competitors, Ventas Inc. (NYSE: VTR) and HCP Inc. (NYSE: HCP), were only able to boost sales by 1.72% and 0.33%, respectively.
Management has also taken advantage of low interest rates and issued $300 million in bonds at an interest rate of 6.5%. This move helped reduce its unsecured credit line from $500 million to $50 million. HR’s balance sheet remains strong and relatively clean; it has no debt maturing until the second quarter of next year.
Acquisitions drive growth for REITs as internal growth is somewhat limited by the leases signed with tenants. Ventas, the second largest REIT in the industry, has been mentioned as a potential suitor for HR because the smaller company’s medical office buildings would diversify Ventas’ holdings. As you can see in the chart above, HR’s returns were very strong coming out of the 2000 bear market, and it looks like we could see the same going forward now. With a REIT you really aren’t looking for major capital appreciation — just slow, steady growth to supplement the dividend yield of 5%.
Even if Healthcare Realty is not purchased, rising lease rates and smart management of costs should make it a steady hold, especially with an annual dividend yield of 5%. Earnings will be reported at the week of May 10.
For more ideas along these lines, check out my Trader’s Advantage and Strategic Advantage newsletters.
Related Articles:
- Emerging Markets Power Uranium Stocks (CCJ, URRE, UEC)
- Retail Stock Upgrades, Downgrades (M, KSS, HD, JWN, URBN, RL, GPS)
- How to Invest in Bonds – Avoid Municipal Bond Investments Now
Every one of these stocks carries a huge risk of cutting or even completely eliminating their cash dividends. Sell these 30 losers now — and buy the six top picks that are handing investors huge, safe dividend payments instead. — download their names in your FREE profit guide here.
