Nursing homes often elicit images of downtrodden institutions straight out of One Flew Over the Cuckoo's Nest. But, today's nursing homes are not forgotten, beaten down institutions. Instead, they're more boccie balls and sprawling landscapes than drab hallways and high school cafeterias. And as our population ages, stocks closely tied to healthcare real estate stand to benefit, including Health Care REIT Inc. (HCN).
The demographics for medical real estate have never been better. New treatments for chronic disease are allowing us to live longer. While our overall population is estimated rising 20.4% by 2030, the population of over 65 seniors is expected to climb 79.2%. A bigger, increasingly insured population means more spending on healthcare. Through 2019, growth in healthcare spending is expected to increase 6.3% annually. And, this increase in healthcare spending means bigger profits and dividend payouts from healthcare REITs.
Health Care REITs $13 billion portfolio is well diversified. It owns over 21,000 units of triple net senior housing, accounting for 33% of its portfolio. It operates senior housing and owns medical offices, both accounting for another 21.8% each, respectively. Skilled nursing accounts for 12% with some 24,000 beds. And hospitals account for 8%. Given the special nature of construction, medical buildings command higher rents and have higher occupancy rates, which is important for revenue and dividend stability.
The company's facilities are spread across the United States. While well represented in states associated with retirees, such as Florida and Texas, no state accounts for more than 10% of its portfolio.
And the company keeps spending for future growth. In 2010 and 2011, the company entered into $7 billion in new partnerships. Just last quarter, they spent $1.4 billion, bringing 2011 investments to $3.9 billion. To fund future deals the company raised $3.5 billion in the equity and debt markets in March.
In the most recent quarter, rental income, resident fees and services and interest income represented 67%, 28% and 5%, respectively, of total gross revenues. This year, the company expects 8-10% earnings growth. And, it boosted its Funds from Operations ("FFO") guidance last quarter by $0.07, thanks to closing early on two acquisitions.
Analysts expect HCN to earn $3.82 a share in 2012, up 13% from 2011. The current yield is 5.1% and its last dividend announcement was 5.1% higher than the comparable quarter last year. There are 5 days to cover short, suggesting future dividend increases could force shorts to cover; driving the stock higher and making this a good time to buy.Disclosure:
I have no positions in any stocks mentioned, but may initiate a long position in HCN
over the next 72 hours.