One of my favorite times of year is the opening day of football season. Fall is in the air, burgers are on the grill, and the teams are ready to play. It is a day of excitement for many fans across the country, especially in the South where I live.
Living in South Carolina, I have experienced my fair share of opening day games - be they University of South Carolina, University of North Carolina, Georgia, or Clemson (I promise to be a-political here). For me, the best way to watch the game is in the stadium, up close to the action. The experience is generally the same. Thousands of people meet up around the stadium, hours before kickoff to tailgate and eat barbecue and join together with other fans. When it gets close to game time, the lines start to form and fans rush to their seats as they get through the ticket takers.
In the healthcare space, yesterday was the equivalent of opening day. After months of planning and discussion, the Affordable Care Act's healthcare exchanges are finally set to open. According the Obama Administration, Internet traffic at the healthcare.gov portal was extremely high with 2.8 million people that logged in from Monday at midnight to Tuesday at 3 p.m. An additional 81,000 consumers called the 800-318-2596 help line (where delays stretched for as long as 30 minutes on Tuesday).
These healthcare exchanges are at the center of the Affordable Care Act (or ACA) , and are designed to make it easy for uninsured individuals to get health insurance coverage that is affordable and often-time subsidized by the government. The health insurance gates are now open and the people are expected to stream into the fold.
According to the experts in the Congressional Budget Office, these exchanges are the first part of the ACA that is expected to add an additional 25 to 35 million new insured individuals in the U.S. This additional coverage will dramatically increase the demand for health services, a significant positive for real estate owners in this space. It's also in addition to several other tailwinds for the sector, including the aging demographics and the strong healthcare employment growth that is expected.
What Does the Affordable Care Act Mean for Healthcare REITs?
So what does this mean for me as a REIT investor? I often listen to the advice of Warren Buffet and Benjamin Graham and look for underappreciated investments - away from the crowds. However, with this next step in the roll-out of the Affordable Care Act, I am actually going to follow the crowds - the crowds that are now getting access to affordable healthcare that will be provided in medical office buildings (MOBs) and hospitals.
I've written about the Healthcare REITs before, as a way to obtain a solid, stable and growing stream of dividends. Many investors focus on the large, diversified healthcare REITs such as HCP Inc. (NYSE:HCP), Ventas (NYSE:VTR), and Health Care REIT (NYSE:HCN). While these are generally good companies, they invest in multiple asset classes that distort an investors' ability to focus and create their own diversification.
To really invest in the growing demand for clinical healthcare, I am looking for focused companies that specialize in medical office buildings (or MOBs) and hospitals. Focused companies tend to be more nimble and closer to the markets, creating better performance in the long run. On the MOB side, this includes Healthcare Trust of America (NYSE:HTA) and Healthcare Realty Trust (NYSE:HR). For hospitals, this is primarily Medical Properties Trust (NYSE:MPW). Both of these sectors should benefit from the Affordable Care Act. However, hospitals are a little too risky for me to "sleep well at night", so I will stick with the MOBs and my favorite investment there - HTA.
HTA is a pure-play, medical office REIT that went public just over a year ago. They have proven their mettle in their short tenor on the public stage, demonstrating solid portfolio operating performance (over 3% same store growth in 2013 alone) and a knack for acquiring high quality buildings that will fuel future growth ($242 million in YTD acquisitions). On top of that, they sport an attractive dividend (5.5%) and have a fortress like balance sheet with investment grade ratings (S&P BBB-). With an attractive yield, conservative balance sheet, and macro-economic tailwinds, Healthcare Trust of America is a sound way to play the opening day for the Affordable Care Act.
Source: SNL Financial
Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am long O, ARCP, HTA, VTR, HCP, GPT, UMH, STAG, CSG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.