Infrastructure

3 Data Center and 3 Medical REITs With Massive Total Return Potential

During the massive selling back in the spring, one area that was hit very hard was the real estate investment trust group. Some of the segments within the REIT silo were tagged especially hard due to the shutdowns seen across the country. With interest rates at close to all-time lows, the REITs offer not only incredible income potential but also the potential for some big upside in the share prices.

A new Jefferies research report previews the top companies in the firm’s REIT coverage. While the analysts are positive on five of the segments, two look extremely tempting now. They said this in the report:

The second quarter of 2020 is the first quarter where we can better understand the COVID lockdown’s damage on earnings. Results will vary widely. Retail, Hotels, and Senior Housing will be impacted the worst, while Data Centers and Industrial should report strong results. As expectations for a weak second quarter are mostly priced in, commentary and indicators guiding longer-term outlooks should drive relative performance.


While Jefferies also cites industrial REITs as a solid area, here we look at the two areas they favored, and both have had big runs off the lows printed in March. First are three medical office building REITs as strong income and total return plays. With elective surgeries back on in most states, most of the tenant problems in the second quarter of this year should be remedied by year’s end. Three data center REITS follow and are perhaps the optimal place to be for strong alpha potential and respectable dividends.

All six stocks are rated Buy and make sense for investors looking to move capital for second-half positioning. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Healthcare Realty Trust

This medical REIT has been hit extremely hard and is trading just above its 52-week low. Healthcare Realty Trust Inc. (NYSE: HR) integrates owning, managing, financing and developing income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States.

As of March 31, 2020, the company owned 212 real estate properties in 25 states, totaling 15.8 million square feet, and was valued at approximately $5.3 billion. The company provided leasing and property management services to 12.0 million square feet nationwide.

Investors receive a 4.14% distribution. Jefferies has a $30 price target on the shares, and the Wall Street consensus target is $30.90. Thursday’s closing price was $29.02 a share.

Healthcare Trust of America

This stock rebounded nicely off the March lows but has backed up over the past month and is offering a solid buy-in level. Healthcare Trust of America Inc. (NYSE: HTA) is the largest dedicated owner and operator of medical office buildings in the United States, comprising approximately 24.9 million square feet of gross leasable area, with $7.3 billion invested primarily in medical office buildings, as of March 31, 2020.

The company provides real estate infrastructure for the integrated delivery of health care services in highly desirable locations. Investments are targeted to build critical mass in 20 to 25 leading gateway markets that generally have leading university and medical institutions, which translates to superior demographics, high-quality graduates, intellectual talent and job growth.

The strategic markets Healthcare Trust of America invests in support a strong, long-term demand for quality medical office space. They utilize an integrated asset management platform consisting of on-site leasing, property management, engineering and building services, and development capabilities to create complete, state of the art facilities in each market.

Investors receive a 4.7% distribution. Jefferies has set a $31 price target. The consensus target is $29.00, and shares were last seen trading at $26.83.