Stepping in For a Bargain
By: Tim McPartland,
We stepped up today and added a high yielding REIT to our Blended Income portfolio. We purchased 1,000 shares of New Senior Investment Group (NYSE:SNR) for the model.
SNR was previously a part of Newcastle Investment which was spun off in November, 2014.
SNR is a large owner of senior living properties and the most attractive part of the company is that these are mostly independent living facilities and rents are “private pay” (versus being paid by government programs). This lends a degree of certainty to the revenue flow which can never be fully accomplished with government pay programs where you are dependent upon budget allocations and the possibility of reduced payments at the whim of polititians.
SNR has a total of 154 properties of which the majority are leased on a triple net lease basis with the balance being managed. A large chunk of the properties are leased to Holiday Retirement a very large senior property operator which is owned by Fortress Investment Group. The concentration of leases with Holiday is somewhat discerning, but the current yield of over 10% would seem to compensate an investor for the added risk found in this concentration.
We note that Brad Thomas had a piece on Seeking Alpha today touting SNR and while many times we disagree with Brad this time we do agree that SNR looks cheap at this moment. Shares are trading down from the $12.25 area a couple of months ago as REITs were pounded lower. Please note that while shares may seem cheap here they can always get cheaper–there is no guarantee that the bottom is in. We would consider further purchases if the price should drop further.
This purchase leaves us with a 18% cash position, so we maintain a large “dry powder” reserve for further bargains that may appear. It is disappointing to have this much cash, but given the high redemption rates in preferreds and the lack of attractive yields it has been tough for income investors to get fully invested, thus we have foregone plenty of dividend and interest income this year. As always we will plow ahead and do the best we can do.