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Long-Term Care as an Investment

July 13, 2014 | About:

LTC Properties, Inc. (LTC) is a real estate investment trust that invests primarily in the long-term care sector of the health care industry, including long-term care provider properties, skilled nursing properties, assisted living properties, independent living properties and memory care properties. LTC also invests in first-lien mortgages secured by long-term care properties.

A little over 80% of LTC’s portfolio is invested in properties with the remainder in mortgages. And among properties, skilled nursing is the biggest single segment, at 55%. Assisted living comes in second at 37%.

LTC is backed by absolutely fantastic macro trends. As the Baby Boomers age, there will be unprecedented demand for long-term services—and thus unprecedented demand for long-term care facilities.

But then, of course, there is Medicare. It’s no secret that the U.S. government is short of funds these days, and Medicare cutbacks have been an unfortunate outcome. But that is what makes LTC such an attractive way to play the trend of Boomer aging. LTC is a landlord, not a care provider, so Medicare cutbacks will have little impact on revenues. And even better, as with Realty Income (O) and American Capital Realty Properties (ARCP)–two other popular monthly-pay dividend stocks–most of LTC’s properties are leased under triple-net leases, meaning the tenant covers taxes, insurance and maintenance.

LTC’s monthly dividend works out to a current yield of 5.2%, making it competitive with other medical REITs. LTC is also a relatively small REIT with a market cap of just $1.37 billion. I like that, as smaller REITs can generally grow their portfolios—and their dividends—at a faster rate than their lumbering large-cap cohorts. And with a debt-to-equity ratio of only 46%, which is half the level of many of its peers, LTC has a lot of room to borrow. This too gives it flexibility to grow that its competitors do not have.

Action to take: Buy LTC Properties at market. Plan to hold indefinitely for total returns of about 15% per year (I expect the S&P 500 to return no more than 5% annually over the next 5-7 years). Use a 25% stop loss as risk management.

About the author:

Charles Sizemore
Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management. Please contact our offices today for a portfolio consultation.

Mr. Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron’s Magazine and the Wall Street Journal, and has been published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures, and Options Magazine and The Daily Reckoning.

Visit Charles Sizemore's Website


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