Company: Senior Housing Properties
Ticker Symbol: SNH
Action: Buy up to $32
Get a 5.5% Yield While This Company Helps Battle the Senior Housing Crisis
As our population continues to age, the demand for quality care and housing is going to explode. With properties in 40 different states and a yield of 5.5% this real estate company is poised to see its profits explode during these unprecedented times.
By Jay Peroni, CFP®
The significant growth in the U.S. senior population has already begun as aging baby boomers have begun entering their retirement years. Demographic forecasts show the growth of seniors is expected to affect over 25% of the population in the U.S. by 2022. With the aging population, the big question remains “how will we keep up this overwhelming demand”?
The demand for senior housing is not only driven by demographics, but it is also mainly need-driven as there is a significant necessity for those facing the chronic care issues of aging. Unlike discretionary needs that can be postponed, senior care needs often comes on quickly as daily living skills rapidly deteriorate.
For those in the senior care real estate business, trends look quite favorable. The demand for senior housing is expected to continue to increase as more than 10,000 people will turn 65 each day for the next 20 years. So the demand is clearly there, but what about the supply?
By all accounts, the current supply of senior housing that will be available to serve the coming aging boom will be far less than the demand for such services. According to Ziegler, the U.S. market will need to add 3,400 units every year over the next 25 years to maintain current market share. The real challenge for senior housing providers is keeping up with the demand. That is where Senior Housing Properties Trust (NYSE: SNH) is helping prepare for current and future needs.
It is a Maryland real estate investment trust that invests in senior housing income producing real estate, including senior apartments and assisted living, congregate care and nursing home properties. Senior apartments are marketed to residents who are generally capable of caring for themselves. Residence is generally restricted on the basis of age. Purpose built properties may have special function rooms, concierge services, high levels of security and centralized call buttons for emergency use.
5 Reasons I like Senior Living Properties:
1. Well diversified: As of Dec 31 2012, the company owned 392 properties located in 40 states and Washington, D.C. The company’s portfolio includes: 260 senior living communities; 120 properties leased to medical providers or medical related businesses, clinics and biotech laboratory tenants; and 10 wellness centers.
2. Conservative financial approach: It has conservative balance sheet and is investment grade rated (Moody’s: Baa3; S&P: BBB-). Since it was first rated in 2001, its debt has averaged only 35% of total book capital. It has well laddered debt maturities with approximately 96% coming due after 2014.
3. Minimal Medicare exposure: Only 4% of its net operating income (NOI) comes from skilled nursing facilities, which is among the lowest concentration levels of the publicly traded healthcare REITs.
4. Quality properties: It owns high quality assets with low historical per unit, per square foot or per bed costs. Property types include private pay senior living communities, medical office, clinic and biotech lab buildings, private pay wellness centers, skilled nursing facilities and rehabilitation hospitals.
5. Strong, consistent rising dividends: Over the past decade, SNH has achieved consistently solid financial performance and dividend growth. Since inception, SNH has paid out over $1.5 billion in distributions to investors through December 31, 2012, including dividend increases every year since 2002.
Take a look at Senior Housing Properties over the past 6 months:
Risks to consider: Regulatory changes ranging from accounting practices to new state regulations have affected higher care segments of the senior housing industry during the last decade. These changes can impact future profitability of senior care housing providers.
There is also quite a bit of operational risk. The senior housing industry is both an operating service business and a real estate investment and, depending on the level of service provided, may require up to five times the amount of operating personnel than does a multi-family property. It is difficult for management to realize operating efficiencies through the various activities of staffing, catering, administrative expenses and insurance.
Additionally, there are risks associated with the perception that many seniors view these facilities as less desirable than remaining in their own homes. The preference for homeownership and certain lifestyle amenities may significantly undermine market penetration.
However, even given these risks, Senior Housing Properties is an attractive opportunity.
Action to take –> Senior Housing Properties Trust (NYSE: SNH) is a good buy up to $32 a share. It pays a 5.56%. It has raised its dividends every year since 2002. This stock should see a 10-15% increase over the next year, outpacing the broader market.