Archive for 'Health Care REIT'

Solid Dividend Yields from Senior Housing

There’s probably no bigger trend right now than the baby boomers reaching the 65 mark. It’s estimated that about 10,000 a day are turning 65 years old and with a myriad of medical issues. Here’s a huge opportunity to cash in to the tune of an 8% yield from assisted senior living centers and senior housing.

I just bought another health care REIT for my income portfolio, Senior Housing Properties Trust (SNH). Like other health care REITs riding the megatrend of growing senior-related health care expenditures, Senior Housing Properties Trust faces attractive long term demand dynamics. The REIT’s shares have dropped off lately which I think is a good opportunity to gobble up shares for an income portfolio.

Senior Housing Properties Trust is not the only health care REIT that made it into my income portfolio this year, but it is the newest addition. Considering that the REIT’s shares are reasonably priced and yield more than eight percent, I think Senior Housing Properties is worthy of a closer look.

Senior Housing Properties Trust – A Snapshot

The health care REIT runs an $8.6 billion property investment portfolio consisting of medical office buildings, or MOBs, and independent and assisted-living facilities. Though skilled-nursing facilities and wellness centers are also represented in Senior Housing Properties’ real estate portfolio, the REIT largely depends on MOBs.

The health care REIT’s portfolio includes 434 properties that are located in 42 states and in Washington, D.C. While widely diversified in terms of geography, medical office buildings account for more than 40 percent of Senior Housing Properties’ net operating income.

Positive Long-Term Trends In Assisted-Living And MOB Segments

Health care REITs such as Senior Housing Properties Trust capitalize on one of the biggest trends of our time: Rising senior-related health care costs tied to an aging population.

As a matter of fact, the 85+ age cohort is one of the fastest growing demographics in the country, and their share of the U.S. population is forecast to increase greatly over the next several decades. Senior Housing Properties Trust is in a good position to capture associated demand growth through its portfolio of assisted-living and MOB facilities.

The MOB segment, the trust’s largest segment in terms of NOI contributions, is set to benefit from a projected rise in health care expenditures which tend to rise with longer average life expectancy rates.

Fortress Balance Sheet

In addition to favorable long-term demand trends, another attractive property of an investment in Senior Housing Properties Trust is that the health care REIT has an investment grade-rated balance sheet. Standard & Poor’s assigned a BBB- credit rating to the health care REIT and Moody’s rates Senior Housing Properties Trust Baa3 due to its low level of debt in the capital structure.

Valuation And Yield

Senior Housing Properties Trust affords income investors with an 8.41 percent covered dividend, and the valuation is sensible. The price for Senior Housing Properties Trust’s dividend stream is 10.5x Q2-2017 run-rate normalized FFO and 1.39x book value.

SNH is one of the most competitively priced health care REITs in the sector.

Your Takeaway

I am comfortable owning Senior Housing Properties Trust in my high-yield income portfolio. An eight percent yield is usually far from being safe, but I can sleep well with SNH in my portfolio thanks to the health care REIT’s strong balance sheet. Favorable industry projections also support an investment in Senior Housing Properties Trust. Since shares are reasonably valued and the REIT covers its dividend quite easily with cash flow, the odds are in favor of sustainable long-term dividend income. Buy for income and capital appreciation.

 

More on Health Care REIT

SNL Financial data shows what these companies are worth in today’s market and how this growing sector stacks-up against other US REITs right now.

With the growing number of aging baby boomers and the nation’s health care reform offering insurance to more citizens, the health care sector is seeing an increase in demand for medical care facilities, thus creating attractive investment opportunities.

Health care continues to be a shining star in the U.S. Real Estate Investment Trust (REIT) world, and with recently announced or closed transactions, public companies’ hold on the ever-growing market will continue to soar. Among all REITs, the health care sector has traded at the largest premium to net asset value (NAV) for the past 12 months, with a current average premium to NAV of 30.8% as of April 7. As of the same date, the only health care REIT trading at a discount to NAV was Cogdell Spencer Inc., while Omega Healthcare Investors Inc. topped the list of premiums to NAV at 55.1%.

With the growing number of aging baby boomers and the nation’s health care reform offering insurance to more citizens, the health care sector is seeing an increase in demand for medical care facilities, thus creating attractive investment opportunities.

  • Overall transaction activity involving medical office buildings grew 118% year over year in 2010 to $4.2 billion, and publicly traded REITs claimed a larger share of the volume, according to the market research firm Real Capital Analytics.
  • Publicly traded REITs accounted for 43% of the activity in 2010, up from 21% in 2009. The numbers in part reflect Ventas Inc.’s acquisition of Lillibridge Healthcare Services Inc.
  • Year-to-date through April 6, publicly traded REITs have accounted for 25% of the total transaction activity for medical office buildings, according to RCA data.
  • With regard to total debt to total capitalization, health care REITs have posted lower ratios than all equity REITs for the past five years. In 2010, health care REITs had a leverage ratio of 26.95%, compared to 38.71% for all REITs.
  • In the context of how health care REITs stack-up against other sectors, as of April 12, 2011, health care REITs were at 26.3% premiums to NAV, with retail following behind at 14.8%, and self-storage taking third place with 11.4%.

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