Whenever I need inspiration for a new stock idea, I think about Levi Strauss.
Yes, Levi Strauss — the man who invented blue jeans.
As a scrappy European immigrant to the land of opportunity, Strauss went West during the California Gold Rush in the mid-1800s seeking his fortune. But he didn’t go as a prospector. Instead, Strauss made his first fortune selling pickaxes, shovels and other supplies to 49ers in search of gold. His second and much larger fortune was made when he decided to make pants out of tent canvas, dye them blue with indigo and sell the durable outerwear to would-be gold miners.
Simply put, Strauss was an expert in finding trends and profiting from them.
This kind of savvy reminds me of a company I’ve followed for more than a decade now. I’m talking about Senior Housing Properties Trust (NYSE:SNH), a real estate investment trust (REIT).
And I like this company particularly now, because it’s seizing a huge opportunity to make a lot of money.
Let me explain.
Every day in the United States, 10,000 people turn 65. As those people get older and need more care, they’ll need somewhere to go. Senior Housing Properties Trust (NYSE:SNH) manages a $5.3 billion portfolio consisting of nearly 400 properties that include senior-living centers, skilled-nursing facilities, medical office buildings and wellness centers across 40 U.S. states.
Obamacare Headwinds? Fuggedaboutit
Considering the rapidly changing landscape of U.S. health care, it’s easy to see why Senior Housing Properties Trust (NYSE:SNH) could face significant headwinds at first glance. After all, the largest portion of the nation’s aging population still heavily relies on government subsidies such as Social Security and Medicare to help pay for senior lifestyle and care facilities. In this sense, a health care REIT would likely be negatively affected by slow government pay and the fiscal uncertainty of federal entitlements.
But that’s not the case with Senior Housing Properties Trust (NYSE:SNH). About 94% of Senior Housing’s net operating income comes from private-pay properties. This means tenants pay out of their own pockets, rather than relying on a government subsidy or voucher system. So the company’s dependence to government reimbursement (and the uncertainty that comes with it) is extremely limited. In addition, about 32% of the properties are multi-discipline medical office buildings with blue-chip health care tenants such as Stryker Corporation (NYSE:SYK), Boston Scientific Corporation (NYSE:BSX) and Quest Diagnostics Inc (NYSE:DGX).
Strike Gold With The Golden Years
The U.S. population of 85-plus is growing at a much faster rate than the rest of the country’s population, according to the U.S. Census Bureau. By 2025, the population of 85-plus is projected to grow by 25%. By comparison, the under-85 population should grow just 15% over the same period. Over the next four years, the 85-plus population is expected to grow 10% larger than it is today — twice as fast as the under-85 population.
These undeniable demographic trends and the stock’s consistent performance make Senior Housing Properties Trust (NYSE:SNH) a great addition to any retirement portfolio. It’s already a core holding in many of my clients’ portfolios.
The company has been expanding quickly. This past year, Senior Housing Properties Trust (NYSE:SNH) raised more than $650 million in capital market transactions and gained access to a $750 million unsecured credit facility. Despite this fast growth, it’s been able to keep its balance sheet less leveraged than many REITs’, with a debt-to-capital ratio of just 37%.
