Monday, February 18, 2013

All in One; Real Estate and Health Care Investment

Investment rationale
There are two types of investments that can be very difficult for the average investor to take advantage of. One is health care stocks and the other is real estate. I am proposing a very simple way one can kill two birds with one stone and if history repeats itself you could see very substantial above average returns.

One of the most popular bench marks for investors to use today is the S&P 500 which currently has over 12% of its investment in the health care sector. With only financials and information technology carrying a higher weighting this sector cannot be ignored. A simple way to invest in this sector is by investing in health care real estate investment trusts (REITS). The way it works is you invest your money in the stock which is then used to buy or construct health care facilities. The REIT then finds health care operators to lease their facilities to; in return they pay you the investor at least 90% of their taxable income.

Omega Healthcare Investors (NYSE: OHI)
OHI is a REIT that focuses on income-producing health care facilities. The majority of their properties are long-term care facilities located throughout the United States. OHI provides lease or mortgage financing options for health care operators for skilled nursing and assisted living facilities.  As of December 31, 2012 the company owned or had financing for 476 skilled nursing facilities, assisted living and other specialty health care facilities.

The Numbers
One of the most impressive facts about Omega is the return it has been able to give its shareholders. As of February 14, 2013 its 10 year annualized returns were 28.5%. The total return was 1,132%. OHI's current dividend yield is 6.50% with a 55.20% five year growth rate. Omega has rewarded its shareholders over that past 10 years with both share price appreciation and increasing income from its strong dividend growth.

Health Care REIT (NYSE: HCN)
HCN, much like the previous stock OHI is also a health care REIT that primarily focuses on senior housing and health care facilities it owns 1,030 properties. One of the main differences between the two is HCN has a more diversified property mix, less concentration in elder care facilities, more hospitals, and general medical offices. The majority of their revenue stream is from long term leases with health care operators.

The Numbers
HCN's 10 year stock performance is just over 150%, its annualized 10 year return is 13.41%, and the current dividend yield is 4.74% with a total 10 year dividend growth rate of 30.77%.

Senior Housing Properties (NYSE: SNH)
SNH is a REIT that owns independent living and assisted living communities, nursing homes, wellness centers and medical offices throughout the United States. As of November 2012 it owned 389 properties. The majority of their properties the health care operator pays rent and are responsible for all the taxes, insurance, and maintenance costs that arise from the use of the property. Like HCN, SNH is less concentrated in the elder care industry and more concentrated in general hospital and medical office buildings. Over 31% of their facilities are medical offices.

The Numbers
SNH is right up there with OHI with a 6.12% dividend yield, its 10 year stock performance is just over 125% and its total 10 year annualized return is 13.28%.

From the pie charts above you can see the property diversification for SNH and HCN and the lack of diversification from OHI. But that isn't necessarily a bad thing because the properties it owns have been very profitable and have yielded huge returns for investors

Summary                            OHI                   HCN                        SNH
Dividend yield----------------- 6.5%                 4.74%                     6.12%
10 year annual return------- 28.5%               13.41%                  13.28%
Total properties--------------- 476                   1,030                      389

According to the US Census it is projected that between 2010 and 2050 the amount of people over the age of 65 is going to nearly triple and the amount of people over the age of 85 is going to double. Because of this increased need for skilled nursing and elder care any three of these investments will provide above average long term growth. But the one stock that has a proven track record of taking advantage of opportunities and rewarding shareholders is OHI. I see the trend continuing in a favorable market and our aging population. For these reasons if one was going to take advantage of this unique investment vehicle both in real estate and health care, they should buy OHI.

This article is also available and published on FOOl

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1 comment:

  1. We have to fulfill every duty that we must face to be successful in real estate. At times, we have to continue even if rough things happen. Real Estate business has to be made right to ensure that our success will be at our hands.

    Property Investing