Healthcare Trust Of America: 4.8% Yield, Strong Growth, 135% Dividend Coverage, Upside

Summary

• Healthcare Trust of America is a promising long-term dividend vehicle.
• Long-term trends in the health care sector underpin HTA's FFO growth.
• Healthcare Trust of America has 135 percent dividend coverage (last six quarters).
• Shares sell for ~15x Q4-2017 run-rate normalized FFO.
• An investment in HTA yields almost 5 percent.

Healthcare Trust of America, Inc. (HTA) is a long-term income play benefiting from an aging U.S. population and increasing health care expenditures in the coming decades. Healthcare Trust of America faces attractive long-term demand growth, and the real estate investment trust consistently covered its dividend with normalized funds from operations. The risk-reward combination looks attractive on the sell-off. An investment in HTA yields 4.8 percent.

With income investors ditching income vehicles including real estate investment trusts and business development companies, Healthcare Trust of America also has become a lot cheaper lately. Though no longer oversold, I think Healthcare Trust of America is a promising health care REIT to consider for a DGI portfolio.

Source: StockCharts

Attractive Long-Term Growth

The U.S. population is aging, and it is aging at a fast clip. As the population ages, health care expenditures in absolute and relative terms (i.e. measured as a percentage of GDP) are going to rise dramatically in the coming years and decades. Estimates are that health care spending will increase to ~20 percent of GDP within the next seven years.

Source: Healthcare Trust of America Investor Presentation

In addition, outpatient visits have grown dramatically over time while inpatient admissions have decreased. The trend is clear: More dollars will be spend on outpatient care going forward.

Source: Healthcare Trust of America

Healthcare Trust of America benefits from these trends (an aging U.S. population, growing health care expenditures, growth in outpatient visits) through its portfolio of medical office buildings. The REIT's property portfolio comprised of ~$7 billion of gross real estate investments at the end of the December quarter. The lease rate was 92 percent.

Here's a location map.

Source: Healthcare Trust of America

Investment-Grade Balance Sheet

Healthcare Trust of America has a moderate degree of leverage (debt accounts for less than a third of the health care REIT's total capitalization), investment-grade ratings from Standard & Poor's and Moody's, and it has no significant near-term debt maturities.

Source: Healthcare Trust of America

Dividend Coverage

Healthcare Trust of America has leveraged its real estate platform in recent years and added properties to its portfolio mix. As a result, the health care REIT has seen strong FFO per-share growth.

Source: Healthcare Trust of America

Healthcare Trust of America has had no problems covering its dividend payout with (normalized) funds from operations. The health care REIT earned $0.41/share in normalized FFO in the last six quarters, which handsomely exceeded the average dividend rate of ~$0.30/share.

The dividend coverage ratio averaged ~135 percent in the last six quarters.

Source: Achilles Research

How Much?

Healthcare Trust of America's dividend stream costs income investors ~15.0x Q4-2017 run-rate normalized FFO. This is neither a bargain nor particularly expensive in my view.

Your Takeaway

Healthcare Trust of America is a long-term income vehicle as the company capitalizes on long-term trends in the health care sector (aging U.S. population, increasing health care expenditures). Healthcare Trust of America has a strong balance sheet protecting shareholders in the event of a downturn in the sector, and the REIT has rather good dividend coverage stats. Though shares have lost ground lately, the dividend does not appear to be at risk. I see FFO upside due to the long-term nature of the trends discussed in this article. Buy for income and capital appreciation.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.