The World's Biggest Business Can Pay for Your Retirement
By Rob Fannon, editor, Phase 1 Investor
January 9, 2009
One of the biggest problems for today's income investors is the downturn in real estate. And the biggest cloud over the real estate market is the crisis in commercial real estate...
Commercial property values have fallen as much as 20% since the credit crunch began. And publicly traded landlords – known as real estate investment trusts (REITs) – are suffering. Most of the major commercial REIT indexes dropped about 50% last year.
In general, investors should be steering clear of REITs altogether... with one exception. REITs that focus exclusively on medical property, which I call "health care trusts," are the best place to look for retirement income today.
Unlike most commercial real estate landlords, health care trusts have their future practically guaranteed by the U.S. government. Let me explain...
Last year, medical spending expanded faster than the overall economy, wages, and every other cost-of-living benchmark... again. The U.S. spent $2.2 trillion on health care in 2007 – more than $7,000 per person. It's the world's biggest business. What you might not realize is 50% of this money comes straight from the government, making Uncle Sam health care trusts' top client.
And the government is doing everything it can to make things easy for health care trusts and their shareholders. You see, in order to ensure adequate access to medical care, the government prohibited builders from cherry-picking the wealthiest zip codes for new medical businesses... and created significant barriers to entry in the medical real estate market. So established health care REITs enjoy monopoly-like conditions.
Also, because health care trusts are technically REITs, they get huge tax breaks from the government. In exchange, they pay out 90% of their income to shareholders through regular cash distributions.
The majority of America's hospitals, medical office buildings, retirement communities, and nursing homes are owned by just a dozen health care trusts. These tenants continue to pay rent through even the toughest economic downturns...
| 1. |
Medical office buildings, or "MOBs," include administrative offices, rehab facilities, outpatient facilities, dentist offices, substance-abuse treatment centers, and so on. |
| 2. |
Hospitals collect much of their revenue from government-sponsored health care programs, like Medicare and Medicaid. |
| 3. |
Long-term care facilities range from community-based independent living to intensive skilled nursing facilities. With more than 40% of Americans over 60 years old, demand will steadily increase. |
| 4. |
Research and development spaces include the facilities and campuses of large pharmaceutical and biotech companies, as well as the massive number of smaller, start-up life-science companies. |
So health care trusts continue to have a strong demand for their services and government-backed revenues... but the stocks were crushed with the rest of the REIT sector in 2008. That's driven their dividend yields through the roof.
Today, with annual payouts 8% and 10% and solid growth rates for years to come, I can think of no better place for income-seeking investors. Buy a handful and collect growing dividend checks every month.
Good investing,
Rob Fannon
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Commercial Mortgage Delinquencies Double
Delinquencies on mortgages for hotels, shopping malls and office buildings were sharply higher in the fourth quarter, as the weaker economy hit landlords and threatens to cause losses for investors in the $3.4 trillion market.
Commercial real estate has held up better than the housing market, but began to struggle at the end of last year. New data from Deutsche Bank show that delinquencies on commercial mortgages packaged and sold as bonds, which represent nearly a third of the commercial real-estate debt market, nearly doubled during the past three months, to about 1.2%. The figure includes mortgages that are 30 days or more past due and in foreclosure. WSJ ($) Read on...
Fixed Mortgages Below 5%
The largest U.S. banks are starting to offer fixed home loans below 5 percent after the government began buying mortgage securities to bolster the housing market.
JPMorgan Chase & Co. is advertising 30-year mortgages as low as 4.75 percent on its Web site, Wells Fargo & Co. has an offer for 4.875 percent and Bank of America Corp. has rates at 5 percent. The offers are for borrowers with excellent credit who put 20 percent down. Read on... |
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| • |
Biotech company Crucell soars 43% on news of possible Wyeth takeover... hits new high. |
| • |
Solid news from Shaw Group lifts infrastructure shares... Shaw up 22%, Chicago Bridge & Iron up 11%.
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Silver stocks rebounding... most up 100% in past month, hitting new three-month highs. |
| • |
Earnings today... Audiovox, KB Home. |
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Last |
Change |
52-Wk |
| S&P 500 |
920.16 |
+1.87% |
-36.42% |
| Oil (USO) |
35.34 |
+6.77% |
-54.91% |
| Gold (GLD) |
86.26 |
-0.30% |
+0.81% |
| Silver (SLV) |
11.34 |
+1.25% |
-25.81% |
| U.S. Dollar |
81.50 |
+0.43% |
+7.44% |
| Euro |
1.39 |
-0.50% |
-5.67% |
| VIX |
37.67 |
-5.82% |
+67.50% |
| HUI |
305.41 |
+0.99% |
-32.03% |
| 10-Year Yield |
2.30% |
0.06 |
-0.95 |
|
| Company |
Sym |
Industry |
Velcro Industries |
VELC |
Velcro |
Crucell |
CRXL |
biotech |
Applied Signal |
APSG |
surveillance |
NCI |
NCIT |
IT |
|
| Company |
Sym |
Industry |
Varian Medical |
VAR |
medical equip |
CONMED |
CNMD |
medical equip |
M&T Bank Corp |
MTB |
bank |
Hill-Rom |
HRC |
medical equip |
Steelcase |
SCS |
furniture |
Intuitive Surgical |
ISRG |
medical equip |
Symmetry Medical |
SMA |
medical equip |
|
|
