This REIT is Entering Its Golden Years - Along With 90 Million Americans

The United States is getting old and staying old longer. The first Baby Boomers just hit the age of 65 back in 2011 and are expected to be sicker and live longer than any other generation before them. While there are several ways to play this demographic trend, Health Care REIT (NYSE: HCN  )  has decided to concentrate on the affluent realm of senior housing and real estate, which should produce stable and high profits for decades to come.

The Federal Government's numbers on our aging population
Here's the U.S. Census forecast for the period between 2010 and 2060 (projections based from the 2010 Census):

  • The number of U.S. citizens aged 65 and older is expected to more than double from 43 million to 92 million, making them about 20% of the overall population.
  • The number of U.S. residents aged 85 and over will triple from just under 6 million to a little above 18 million, accounting for nearly 4 % of the total population. 

This growing elderly population will consume a large amount of health care for a long period of time. Most importantly, the vast majority of health care expenses consumed during one's lifetime usually occurs in the later years.

 

Two major ways Health Care REIT differentiates itself from it's competitors
As one of the top three health care related REITs, this company has created a portfolio that specializes in high-end, high barrier to entry markets, partnering itself with the leading operators in the industry. By focusing on the affluent market, Health Care REIT is generating high levels of same-store income growth. In addition with about 80% of the REIT's holdings located in the top 31 major metropolitan statistical areas, the company will also benefit from rising asset values. 

Health Care REIT is also growing in these strong markets. Earlier in February, Health Care REIT and Revera, one of Canada's top providers of senior living facilities, came together to buy and recapitalize Sunrise Senior Living, LLC from affiliates of Kohlberg Kravis Roberts & Co. Sunrise Senior Living operates 290 senior communities with around 26,400 units in the United States, Canada and the U.K. These are private-pay properties located in high-end, high-barrier-to-entry markets like New York, Los Angeles, Washington D.C., Boston, Chicago, San Francisco, and London. 

The second big competitive advantage of this company is built off of these strong markets. Unlike many of its other major competitors in the sector, such as Omega Healthcare Investors (NYSE: OMI  ) and HCP (NYSE: HCP  ) , the company derives 82% if its revenue from private pay sources -- affluent customers that are able to pay without government assistance. HCP and Omega Healthcare derive only about 32% and 10% from private pay, respectively. 

Remember, it's a REIT
Obviously, the goal of any REIT is to bring in investors through a consistent, stable distribution of profits through dividends. In January, the company marked its 171st consecutive quarterly dividend payment of $0.80 per share - a consistent 3.1% yearly growth in the past ten years. Currently, its paying about a 5.6% yield and the dividend prospects should continue to look favorable with the company's ever-expanding portfolio. 

Investing in senior health care is a long-term play, and health care REITs will be a major factor for decades to come. Health Care REIT's combination of strong geography and private pay sources should make them a key player in making the most of this long-term demographic trend.

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