With 10-year US government bonds yielding less than 2%, most similar-duration European sovereign debt yielding less than 1% and Japanese government bond yields in negative territory, investors are increasingly dipping into equity markets to quench their thirst for yield. While many turn to traditional dividend-paying, slow-growth industries, healthcare Real Estate Investment Trusts (REITs) may offer a rare combination of higher yield with a strong growth tailwind.
By design, REITs are required to pass through income to maintain their tax-advantaged status. As of June 30, 2016, healthcare REITs offered a yield of 5.0% versus a 10-year Treasury yield of 1.5%.
Healthcare REITs also benefit from global demographics. A significant portion of developed market populations will be over the age of 75 by 2030. In the US, the senior population is expected to grow seven times faster than any other adult demographic. By 2050, a full 40% of the Japanese population should be over 65 years old. Because of this massive shift, we expect government and household healthcare expenditures and demand for healthcare services to increase and we believe healthcare REITs may be one of the more attractive ways of benefiting from this long-term global trend.
Jim Lydotes – The Boston Company, a BNY Mellon company