If there has been one consistent trend over the past 30 years, it has been one of an aging U.S. population. In fact, the number of Americans ages 65 and older is projected to more than double from 46 million today to over 98 million by 2060, and the 65-and-older age group’s share of the total population will rise to nearly 24% from 15%. One thing’s for sure, an aging population will require more health care personnel and facilities.
A new SunTrust Robinson Humphrey research report notes that while there has been a rocky start for the health care real estate investment trusts (REITs) in 2018, the firm also feels that most of the bad news and headwinds for the segment have been factored in, leaving some special situations that could offer some outstanding value.
The SunTrust team keeps a Neutral rating on the segment and has four stocks rated Buy that could offer solid total return prospects for investors looking for income.
This top company trades in line with its peers and offers solid risk-reward fundamentals. Community Healthcare Trust Inc. (NYSE: CHCT) owns and acquires, or finances, real estate properties that are leased to hospitals, doctors, health care systems or other health care service providers in non-urban markets. It has investments in health care real estate, including mortgages and other loans.
The company’s medical office buildings are located in areas such as Florida, Georgia, Illinois, Kentucky, Ohio and Texas. Its physician clinics are located in Alabama, Florida, Kansas, Pennsylvania and Wisconsin. Its surgical centers and hospitals are located in areas such as Louisiana, Michigan and Arizona. Its behavioral facilities are located in Indiana and Illinois. Its specialty centers are located in Texas, Colorado and Alabama, among others.
Investors receive a 6.08% distribution. The SunTrust price target for the REIT is $30, and the Wall Street consensus target is $29.70. Shares closed Monday at $26.
Healthcare Trust of America
This top REIT is one of the highly rated companies serving the medical community. Healthcare Trust of America Inc. (NYSE; HTA) acquires, owns and operates medical office buildings. Since its formation in 2006, HTA has invested billions in medical office buildings and other health care assets comprising 15.5 million square feet across 28 states.
The company invests in key markets with above-average growth and health care infrastructure that are capable of servicing long-term patient demand. Within each key market, the company focuses on acquiring medical office buildings on health system campuses, in community-core locations or near university medical centers.
The portfolio consists of medical office buildings that are core-critical, a key part of the integrated delivery of health care, and that continue to complement the institutional asset management and leasing platform.
Healthcare Trust investors receive a 4.4% distribution. SunTrust has a $33 price target, and the consensus target is $34.13. Shares closed Monday at $27.79.
Medical Properties Trust
This stock may be offering investors the best value at current price levels. Medical Properties Trust Inc. (NYSE: MPW) acquires, develops and invests in health care facilities, and it leases health care facilities to health care operating companies and health care providers. The company also provides mortgage loans to health care operators, as well as working capital and other term loans to its tenants and borrowers.
With a growing portfolio and a versatile business model, the company continues to rank highly across Wall Street. The analysts noted that the company’s acute care hospitals rent coverage increased nicely, and the company attributed the increase to better cost controls and higher patient admissions.
Investors receive a 7.34% distribution. The $15 SunTrust price target compares with the consensus target of $13.58. Shares closed Monday at $13.08.
This is one of the larger companies in the industry and pays a huge distribution. Sabra Healthcare REIT Inc. (NASDAQ: SBRA) is an internally managed health care REIT that invests in skilled nursing and senior housing.
As of June 30, 2017, Sabra’s investment portfolio included 96 skilled nursing and 86 senior housing facilities, one Acute Care Hospital and eight investments in loans receivable (four mortgage loans, two construction loans, one mezzanine loan and one pre-development loan) and 12 preferred equity investments.
The analysts cite the company’s modest valuation discount to peers, and also they are positive on the repositioning of the firm’s portfolio and a very positive proprietary development pipeline.
Investors receive a 10.08% distribution. SunTrust has set its price target at $22. The consensus target is $22.50, and shares closed Monday at $18.
Out of favor and facing some headwinds, the medical REITs are offering some outstanding value at current levels. For investors looking for reasonably safe and secure income, and a modicum of growth, these stocks may be a great place to start. It’s important to remember that REIT distributions may contain return of principal.