Tags: REIT | HCN | boomers | stocks

Health Care REIT a Play on Two Sectors

By Dan Weil   |   Thursday, 15 Sep 2011 07:23 AM

Health Care REIT (HCN) offers investors exposure to two industries. It’s a real estate investment trust made up of properties related to healthcare and the third-biggest healthcare REIT in the country. Given the continued increase in demand for healthcare, particularly from aging Baby Boomers, demand will also likely increase for healthcare real estate.

Health Care REIT has a $13 billion portfolio of properties that range across all areas of the healthcare sector, including senior living communities, medical office buildings, inpatient and outpatient medical centers, and life science facilities.

The company is expanding through shrewd acquisitions. In April, it purchased substantially all the properties of Genesis HealthCare for $2.4 billion. That includes 147 post-acute, skilled nursing, and assisted living properties in 11 states.

About 80 percent of Health Care REIT’s properties are rented with triple-net leases, which means tenants pay for property insurance, taxes, and maintenance. Passing expenses on to tenants is obviously good for property owners’ profits.

In the second quarter, Health Care REIT saw its funds from operations, a key indicator for REITs, rise 13 percent from a year earlier to 90 cents a share. Revenue more than doubled to $381.1 million.

Analyst positives

Standard & Poor’s analyst Royal Shepard has a four-star buy rating on Health Care REIT shares. “We like the predictable nature of HCN's long-term triple-net lease revenue stream, and we
believe the stock correlates less with macroeconomic trends than most other REITs in our coverage,” he writes.

“In addition, the trust has assembled a portfolio of properties likely to benefit from increased demand from an aging U.S. population. We view positively management's strategy to make accretive acquisitions, such as the Genesis transaction, while also attempting to reduce leverage through select dispositions and newly raised capital.”

Shepard also is impressed with the fact that HCN has few leases expiring soon, a healthy balance sheet, and a secure dividend. The stock recently offered a yield of 5.82 percent. The company next reports around Nov. 4.

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Health Care REIT (HCN) offers investors exposure to two industries. It s a real estate investment trust made up of properties related to healthcare and the third-biggest healthcare REIT in the country. Given the continued increase in demand for healthcare, particularly from...
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