Healthcare Trust of America CEO: On-Campus MOBs Have ‘Limitations’
In 2017, off-campus medical office buildings could be all the rage. They’ll be acquisition targets, at least, for medical office building owner/operator Healthcare Trust of America (NYSE: HTA).
“I think there are limitations on campus,” HTA Chairman and CEO Scott Peters explained during the Scottsdale, Arizona-based company’s fourth-quarter 2016 earnings call on Feb. 16. Consequently, HTA is looking to invest in off-campus, core community outpatient medical office buildings, or medical office buildings that have multiple tenants and “significant visibility,” are situated near attractive patient populations, and are located in a health care cluster of assets.
Medical office properties located on hospital campuses tend to have specific downfalls.
“The hospital by itself is most expensive place you can be as a physician or a health care system, and populations don’t grow around hospitals—they grow in suburbs, they grow in locations that that have infrastructure that really services the millennials or the families that are growing in those locations,” Peters said.
That’s not to say HTA won’t be purchasing any on-campus buildings in 2017. In fact, HTA likes “assets that are core critical and located in the best position for health care delivery,” Peters said.
“These MOBs are surely on or around hospital campuses,” he explained.
All the while, off-campus medical office properties simply offer more opportunities.
“If I have a chance to buy a building across the street without a ground lease versus a building next to the hospital with a ground lease, the longer term value in the building across the street, if it’s the same sort of energy, the same sort of tenants, the same sort of synergies within that location will always be better because I have a better ability to move the folks into that building that want to be there,” Peters said.
HTA’s fourth-quarter 2016 FFO was in-line with analysts’ expectations at 41 cents; its fourth-quarter 2016 rental income of $121.92 million beat analysts’ expectations by $2.72 million.
‘Very, very selective’ Midwestern investments
Last year, HTA invested more than $700 million in 55 medical office buildings totaling 2.5 million square feet. In 2017, HTA plans to drive growth through new investments in 20 or 25 markets with attractive real estate and health care demographics, Peters said during the earnings call. It’s possible the company will expand into new, smaller Midwestern markets—but they’ll be careful in doing so.
“We probably would be very, very selective in secondary markets in the Midwest,” Peters said. “I don’t see a continued population inflow in secondary markets in the Midwest.”
Peters did hint at markets currently under consideration.
“We like the gateway cities—we’ve looked at several—and I think in 2017 we will continue to start investing in and getting critical mass in certain locations that we’re excited about,” he said.
Despite the company’s stated goal of achieving a total occupancy in the mid-90% range, HTA’s total occupancy was 91.9% at year-end. This is due, in part, to HTA reducing concessions and pushing rates, according to HTA CFO Robert Milligan.
“Our goal as a company and our goal is an asset management platform is to be in that 94%, 95% range, and I think we’re going to continue to strive for that,” Milligan said during the earnings call.
Company leaders know this is possible—especially when they consider their competition.
“You look at some of our peers, they’re in the mid 90s, and I think that that’s a huge compliment to them,” Milligan said. “A strongly positioned asset or a community core asset that is a campus with synergies to it fundamentally should be in that mid 94%, 95% range. We see it, we see it in our stronger assets, we certainly see it in our stronger markets, our multi-tenanted assets.”
HTA has a plan in place to boost occupancy over time, Peters said.
“If a building isn’t in the 90s, that’s something that management should understand why,” he said. “Whether it’s an issue with location, whether it’s an issue with type of tenancy, whether it’s an issue with price. What is it?”
Written by Mary Kate Nelson