Is there a doctor in the house? We hope so. The shortage of doctors in the U.S. will likely get worse as the country’s demographics shift to an older population. People 65 and over, for example, have four times as many physician visits as younger people.
Health care delivery continues to shift to outpatient settings, driven by technological advances, evolving consumer preferences, and lower costs. Medical office building (MOB) real estate is a significant beneficiary of this trend.
Real estate investment trusts (REITs) that own the real estate that medical practices rent, often on or near hospital campuses, are appealing. Tenants typically sign long-term leases with modest, fixed rent increases that ensure stable cash flows that enable high dividend income for investors. The stocks have historically been among the least volatile relative to the overall stock market, which is especially important considering the elevated likelihood of a bear market in the near future. Over the last year, during periods when the stock market has declined significantly, MOB REITs have fallen much less than the overall stock market.
Our favorite MOB stock is Healthcare Trust of America (HTA), the largest dedicated owner and operator of medical office buildings in the U.S., with $6.8 billion of investments. HTA was founded in 2006 and became publicly traded in 2012. The company is based in Scottsdale, Arizona.
HTA has grown and enhanced its property portfolio over the past five years, doubling in size and building scale in more attractive markets. Its top markets are Dallas, at 13% of total value, Houston (6%), Boston (6%), Tampa (5%), and Atlanta (5%).
The company’s focus is on markets with high growth and a dense patient base, markets which typically have a strong academic university concentration. This translates to superior demographics, high-quality graduates, intellectual talent, and job growth. HTA tries to align its properties with strong hospital systems that are interested in growing and investing in their campus.
HTA is at the beginning of the journey toward improved environmental and social management practices, which may not be such a bad thing. Academic research indicates that there can be a stock market performance boost associated with a company elevating its environmental and social profile. The company has some LEED-certified green buildings and has undertaken some energy and water efficiency efforts but does not yet have a comprehensive sustainability strategy. HTA has told Clean Yield that it plans to begin reporting quantitative environmental and social data in the coming year. Rest assured that Clean Yield will be there to encourage the company in this direction.
At a time of high stock-market risk, we think that HTA offers an attractive combination of current income, modest growth, and relatively less risk.