There is growing specialization in income yielding real estate securities that provides new vehicles for income investors to participate in attractive niche sectors such as senior housing opportunities.
Particularly interesting are senior medical facility operators that are possibly preparing to spin off REIT subsidiaries, an innovation that is gaining acceptance.
The basic economics are now being supported by the approval of the Affordable Care Act by the Supreme Court of the United States. Over the next four years, this new law will lower budget pressures for medical facilities while long term care will benefit not only from that medium term trend, but also from long term demographic trends.
NIC MAP data provides a trends analysis for nursing home and assisted living facilities. Daniel Bernstein, an expert analyst with Stifel Nicolaus uses this data to make a positive call on the sector in a August 6, 2012 interview: "...if you look at the NIC MAP data, occupancy is up almost 100 basis points in the last 12 months."
This growing demand creates a rise in value for this real estate sector. The enhanced valuations are supporting a number of publicly traded securities shown in the chart below, ranked by value from largest to smallest:
|Senior Housing Properties Trust||SNH||$22.28||27||6.7%||$5.9 bn.|
|Brookdale Senior Living||BKD||$18.33||n.a.||none||$4.35 bn.|
|Omega Healthcare Investors||OHI||$23.72||26||7%||$4.2 bn.|
|Sabra Health Care REIT||SBRA||$19||35||7%||$1.13 bn.|
|Capital Senior Living||CSU||$11.41||100+||none||$614 mln.|
|Sun Healthcare Group||SUNH||$8.38||n.a.||none||$262 mln.|
The increasing demand for yield among investors is creating pressure on the non-yielding stocks in the above chart to convert to higher yielding securities. Executives from Capital Senior Living and Brookdale are all looking at new structures, while Sun Healthcare is in the midst of being taken over by Genesis Healthcare at a reported $8.50 per share. Genesis itself crafted a sale/leaseback of its owned by the enormous Health Care REIT (HCN).
The variety and complicated real estate transactions in this sector point to the cash flows being generated and the investment communities realization of the stability of these cash flows. In an August 6 interview with the Wall Street Transcript, an experienced healthcare analyst advocates an increase in exposure to either the high yielding stocks in the chart above, or developing a more aggressive approach through the purchase of Brookdale or Capital Senior shares, as a way to gain liquid real estate exposure in a market where flexibility in the midst of uncertainty is itself an investment goal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.