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. REITs generally pay little or no corporate income taxes because they are able to deduct dividends they pay from their taxable .
The United States Congress created REITs in 1960 to make investments in large scale, income producing real estate accessible to smaller investors. Investors in REITs may benefit from greater diversification through investing in a portfolio of properties, rather than a single building, and by having their investment managed by experienced real estate professionals.
REITs are total return investments and they typically provide high dividends plus the potential for moderate, long term capital appreciation. Generally, long term total returns which can be realized by ownership of REIT stocks are likely to be somewhat less than the returns of higher risk high growth stocks and somewhat more than the returns of lower risk bonds.
SNH is well-positioned to benefit from America’s rapidly aging populace. Currently, 55% of Senior Housing’s property is senior housing, while the other 45% is mostly in medical office buildings. Having said that the age 65+ population is growing more rapidly than the rest of the country in USA (and will require increasing numbers of healthcare and assisted living facilities), SNH should be in good shape.
Soon, more than 20% of the country will be above the age of 65 – and that number has more than doubled since 1970. Indeed, with a two-headed business that encompasses both healthcare and senior housing, SNH should be able to capitalize as more and more people enter their golden years. Plus, SNH is the industry leader in private pay assets, meaning the firm should be able to weather the uncertainties surrounding Obamacare and Medicare.
Bottom line: With a juicy yield (SNH’s dividend – which, at just shy of 7%, is quite attractive), relatively cheap valuation, and a well-positioned business, SNH is one of the more intriguing income opportunities out there today.
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