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Health Care REIT, Inc. (HCN), HCP, Inc. (HCP) – Alzheimer’s: A Growth Market For Healthcare REITs

“Nonpartisan RAND Corp. estimates that by 2040, the number of Americans afflicted [by Alzheimer’s] will have doubled, as will the costs.” Bloomberg’s article laments the sequestration cuts to medical research into this growing issue, but the statistic is a major reason to like healthcare real estate investment trusts (REITs) like HCP, Inc. (NYSE:HCP), Health Care REIT, Inc. (NYSE:HCN), and Omega Healthcare Investors Inc (NYSE:OHI).

Health Care REIT, Inc. (NYSE:HCN)

A Growing Problem

The quote above clearly shows how big an issue Alzheimer’s is becoming. However, some think even that estimate is to rosy a projection. Bloomberg notes that The Alzheimer’s Association believes costs associated with the disease will be more than $1 trillion a year by 2050. That’s a huge expense for a disease associated with aging and exploded by the shear size of the baby boom generation.

There’s no cure, at least not yet. Even if medical funding is fully restored, a cure isn’t at hand. This is a difficult condition to treat and one that often results in patients being placed in specially structured medical facilities. Such institutionalization isn’t an issue of an unloving family, these patients frequently need constant supervision and an environment that removes dangerous everyday items like stoves. That’s hard to do at home.

The Alzheimer’s epidemic will, for better or for worse, result in increased demand for supervised senior housing facilities.

A Leader in Senior Care

Health Care REIT, Inc. (NYSE:HCN) is among the oldest REITs dedicated to healthcare facilities. It owns around 1,000 properties in The United States, Canada, and in the United Kingdom. It’s portfolio includes senior housing communities, skilled nursing facilities, medical office buildings, medical centers, and life science facilities. From the start, however, its main focus has been serving seniors.

The company’s top line has expanded dramatically in recent years as it has aggressively grown via acquisition. A recent purchase was the acquisition of Sunrise Senior Living and subsequent sale of the company’s management division. The complex deal, valued at nearly $850 million, is an example of the type of acquisition this large industry player is capable of executing.

This, however, underscores a big issue. Health Care REIT, Inc. (NYSE:HCN) is so large at this point, that it needs big deals to grow. Still, the healthcare property market is large, so Health Care REIT, Inc. (NYSE:HCN) should be able to continue growing even if the pace slows. That should support the regular annual dividend hikes Health Care REIT, Inc. (NYSE:HCN) is known for.

After the broad REIT sell off, the shares still only yield around 4.5%. However, for conservative investors looking for exposure to the senior care industry, it’s a good option.