There are few sectors that have the guaranteed growth that healthcare does.
And Healthcare Trust of America (HTA) is a real estate investment trust that is well positioned to take advantage of this trend.
REITs are set up as “pass through” companies where 90% of taxable profits are mandated to be passed through to shareholders as a dividend.
That means when you’re picking REITs you want to see a consistent trend in past profit growth and reasonable expectation that the REIT is in an industry that has plenty of growth ahead of it moving forward.
HTA meets all that criteria.
Healthcare Trust of America’s (HTA) Strategy
HTA specializes in medical office buildings, as opposed to medical facilities such as hospitals, critical care centers and senior living facilities. The strategy has been to buy office buildings that are located near large medical centers in various locations around the country. The buildings cater to physicians that operate private practices and also have access to a major hospitals’ medical facilities.
In December 2014, HTA underwent a 2-for-1 reverse split in what basically became a stock buyback, halving the amount of shares available in the market and moving up the dividend accordingly.
The company’s strategy has a very long time horizon and is really the core of the movement in the U.S. healthcare system today. The final determination on the constitutionality of the Affordable Care Act by the Supreme Court earlier this year has allowed REITs in this sector to proceed with much more visibility.
And while there is plenty of bluster in an election year about repealing ACA, at this point the real question is this: How will opponents and advocates improve on the act that exists now?
The last few years of limbo regarding ACA have hamstrung a number of firms in the healthcare sector. So, for good or bad, that passage of ACA gives these companies the ability to build for the future. And HTA has a very strong future, as well as present.
Its most recent numbers in late October showed that funds from operations (the most important indicator of a REIT’s profitability) were up 3% per share for the quarter and 10% compared to the same quarter last year. Net operating income was up 3% from the year ago quarter, and same-property rental revenue was also up more than double inflation (around 3% as well). These are all very encouraging signs.
Also, during the quarter HTA added 93,000 square feet of additional office space in Cleveland, of which 100% is leased. It also expanded 20,000 square feet in its Raleigh, NC facility. HTA’s lease rate for all of its facilities also increased from 91.8% to 92% during the quarter.
The stock throws off a solid 4.4% yield at current prices. The year-long drama of when and if the Federal Reserve was going to raise rates has hurt REITs in general, but this isn’t as much a real estate play as a healthcare play on real estate.
And given the fact that property prices in this sector are more immune to rent hikes — since most of the costs can be passed on to insurers or individuals — HTA is well valued for a very bright future.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
