The Monumental Health Care REIT Trend

This article published with permission from InvestmentU.com.

Believe it or not, there were other newsworthy stories in December of 2012 than just the fiscal cliff. And this one’s a doozy…

On Dec. 12, 2012, the U.S. Census Bureau put out a press release hyping: “Projections Show a Slower Growing, Older, More Diverse Nation a Half Century from Now.”

As you can probably gather from the title, it essentially predicts our population will be drastically older and more racially and ethnically diverse by 2060. These are the initial population projections constructed from the 2010 Census.

But here’s what really got me thinking:

During this time, the number of U.S. citizens aged 65 and older is expected to more than double from 43.1 million to 92 million. This demographic would represent nearly 20% of U.S. residents by 2060. Residents 65 and older now account for nearly one in seven of the current population or 14%.

What’s even more telling is the number of seniors who are expected to be living longer.

U.S. residents 85 and up are expected to triple by 2060. The 2010 Census saw them numbering around 5.9 million. That number will rise to 18.2 million — roughly 4.3% of the total population.

And we were all worried about the Baby Boomer generation getting old. But think about it. The Boomers were born between the years of 1946 and 1964. Presently, they account for about a quarter of the population. At the end of the projected period, the low end on the generation’s birth-year range would be 96 years old. That would be less than 1% of the total population. 76.4 million of them will have to travel this aging process course before we even get to 2060.

Now, don’t let this get you down. I know talk of “getting old” makes many of us have thoughts of either buying a motorcycle, a very expensive sports car or setting up that initial appointment at the Hair Club for Men. However, there’re more practical plans of action you can take. The first should be taking advantage of the U.S. population’s changing demographics.

The case for health care REITs

I’m talking about health care real estate investment trusts (REITs). Let’s dig a little deeper…

First, I want to break down the components. When you think of the elderly, you think of health care. And the numbers support this assertion. The vast majority of health care expenses usually occur in the latter part of life.

And now we have to revisit November of last year. As our president likes to state, he won. The president’s reelection in 2012 has solidified the Affordable Care Act. The more citizens insured means a bigger windfall for health care. That’s one part of the equation.

But what if you could bundle the needed service for our aging population with an important part of the economy that’s making a comeback — like real estate?

Here’s a refresher on REITs. They are required by the IRS to pay out no less than 90% of their income in dividends. This makes REIT dividends a little more predictable. If you got income, then you get a dividend. So, when you’re out in the market looking for quality REITs, you want those with sweet yields … ones that look like they’ll take advantage of what’s to come in the future economy.

Put it all together and you have to believe that health care REITs are nicely positioned going forward.

If we take all this in, I believe there is an interesting play out there. If you’re looking for a more diversified play on long-term care facilities, Health Care REIT, Inc. (NYSE: HCN) looks pretty tempting right now. HCN gives a yield just below 5% and looks like it’ll be able to take advantage of the changing demographics in this country.

Remember, this change will take place over the next five decades.

About HCN

Health Care REIT, Inc., an S&P 500 company, is — you guessed it — a REIT that invests across a broad array of seniors’ housing and health care real estate.

HCN is the U.S.’s third-largest medical property REIT, and its $16.5 billion medical properties portfolio includes senior living communities, medical office buildings, inpatient and outpatient medical centers and life science facilities. As of the end of the third quarter 2012, HCN’s portfolio consisted of 1,030 properties in 46 of our 50 states, the UK and Canada.

But here’s why you should be specifically high on it:

• HCN is concentrated on expansion and has increased its real estate portfolio 28% annually over the last five years.

• The REIT is close to completing the acquisition of 125 properties from former competitor Sunrise Senior Living.

• The company has acquired $8.9 billion worth of health care real estate since 2011 and still has about $1.4 billion of cash on the balance sheet — and another $2 billion in a line of credit.

• HCN has consistently raised the dividend. The last raise in September of 2012 put it at 5.1%. It expects to increase it another 3.4% in 2013.

So keep all this in mind: demographics, politics, a company with strong revenue growth (and a nice cash flow from operations), increasing net income and a pretty good performance in the market.

These are things you should be thinking about when you hear America is getting older. You can hold off on the mid-life crisis.

Jason Jenkins is a part of the research team at InvestmentU.com. See more articles by Jason here.

Read more:

Projections Show a Slower Growing, Older, More Diverse Nation a Half Century from Now