A great way to profit from the approximately 78 million American baby boomers who will eventually create overwhelming demand for senior living facilities and medical care is Senior Housing Properties Trust REIT (NYSE:SNH).
Kudos to Adam Fischbaum for a marvelous article on SNH, a REIT that owns and leases out senior citizen independent living communities, assisted living communities and medical office buildings.
A real estate investment trust, or REIT, is a company that owns and, in some cases, operates income producing real estate such as offices, hotels, healthcare facilities, apartments, shopping centers, etc. In order to qualify to be a REIT under the United States Internal Revenue Code, a company generally must distribute annually at least 90% of its taxable income to its shareholders.
As with any business, Senior Housing has challenges such as being early (baby boomers are roughly 48 - 68 years old and not yet in mass need of these services), stock dilutions from issuing new debt and equity to pay for property acquisitions and improvements to existing properties. There are costs to renovate/remodel newly acquired properties e.g. replace the carpet, painting, plumbing etc. before leasing to long-term tenant. In their 2012 10K, Senior Housing is open about potential conflicts of interest in dealing with other Portnoy managed/influenced REITs like RMR and publicly traded senior independent/assisted living operator Five Star Senior Living (NYSE:FVE) which Senior Housing owns 8.8% of. Per 5/9/2013 Statement of Changes of Beneficial Ownership - 4, SNH founder and REIT magnate Barry Portnoy owns 242,000+ shares, his son who also serves as a managing trustee, Adam Portnoy owns 127,000+ shares and COO David Hegarty owns 86,000+ shares. Common sense tells me the father & son Portnoys who are major shareholders want SNH to succeed and have more to lose.
A key advantage Senior Housing Properties Trust has is 94% of its NOI (net operating income) comes from private pay properties which is the highest in the senior living/healthcare REIT industry. Leasing to tenants that cater to affluent seniors is their competitive advantage. Check out this video of one of their 'resort style living' properties that is leased to Five Star Senior Living which is the kind of place I want to be able to afford living at in my golden years from the profits of my SNH investment.
After reading the 10K, Investor presentation, financials and performing my due diligence, I visited two of their properties in metro Charlotte, NC where I live and became even more convinced of exactly "What makes this 'stock to hold for 30+ years' special?"
Senior Housing Properties Trust high quality land & building assets are in predominately wealthy areas and have excellent market appreciating potential!
Examine the SNH 2012 10K section SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION and you will find most of their properties are in affluent zip codes. I am familiar with their properties where I live in metro Charlotte, NC and where I used to live in metro Nashville, TN. I visited the Senior Housing property in prestigious South Park area of Charlotte assisted living community and was impressed at the prime location within one of the richest zip codes in North Carolina. I walked inside main area of the all-brick facility which looked like luxury condos or apartments and probably could easily be converted into. The residents I saw seemed happy inside the well appointed main area. I drove around their Mooresville, NC property which is also in an affluent area. The other properties SNH owns in metro Charlotte are also in affluent areas. Two of the four properties they own in metro Nashville, TN are in the richest county in Tennessee.
I have full confidence Senior Housing Properties REIT strategy of acquiring high quality real estate in affluent areas after the 2008 market crash and financing at low interest rates will turn out very well. For example, they own 4 properties in Boca Raton, FL, 21 properties in affluent Texas areas and 0 properties in metro Detroit, MI , Buffalo, NY or St. Louis, MO. And most of their properties are triple net lease agreements which is a fabulous deal where they own the high quality appreciating real estate and collect rent while the tenant pays the property taxes, insurance and most maintenance.
I am long on SNH planning to re-invest dividends in buying additional shares expecting to hold & reap for 30+ years because of their excellent real estate assets in wealthy zip codes and business strategy of collecting rents from tenants who service predominately affluent private pay seniors.