Strong Tailwinds Boost Ventas & Welltower

10/23/2019 5:00 am EST

Focus: REITS

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

Healthcare REITs are riding strong industry tailwinds, as Baby Boomers retire at the rate of 10,000 per day, every single day for the next 19 years, notes Todd Shaver, a growth and income specialist and the editor of Bull Market Report.

With Americans living longer than ever before and spending more of their income on healthcare costs, healthcare REITs are primed to benefit.

Ventas (VTR) owns and operates a diverse portfolio of healthcare facilities. It also actively manages its portfolio, as opposed to being a passive landlord issuing triple-net leases. So Ventas can invest in CapEx and managerial upgrades to maintain a high quality portfolio.

The company has over 700 senior housing communities, 360 medical office / outpatient facilities, and 34 research centers. And the company just completed a $1.8 billion investment in a Canadian senior housing facility. The deal should represent 8% of Ventas’ net operating income going forward, and provides even more diversification for the company.

Broadly speaking, real estate is a defensive play, and healthcare real estate is an even more specific defensive play. Investors can take advantage of both sectors at once, and at the same time capture the company’s stable 4.4% annual yield. Even though the stock is up 29% year-to-date, we’re expecting more gains throughout 4Q19.

Welltower (WELL) has about 1,400 properties in the United States, Canada, and the United Kingdom with most of the properties in Canada and the United Kingdom located close to Toronto and London respectively. It’s a big firm, tipping the scales at a market cap of $#6 billion.

Like Ventas, Welltower makes CapEx and managerial improvements to its slate of properties. The company is also known for targeting large urban centers with lots of elderly citizens who have disposable income, so that gives the company a strong pipeline of future customers.

Welltower is riding the same industry tailwinds as Ventas. And management is extremely forward-looking. It just announced a partnership with CareMore Health, to integrate CareMore’s clinical programs into its properties.

CareMore offers teams of nurses, doctors, behavioral health specialists, case managers and clinicians which will help improve the health and wellness of Welltower’s customers. All of this means a better product, which will lead to higher customer retention rates and increasing revenue for the company over time.

Earlier this year, the company completed a major acquisition — a $1.25 billion purchase of 55 medical buildings from CNL Health Properties. Like Ventas, management is growing by all means, which is what we want to see in an industry with strong tailwinds.

Both Welltower and Ventas are well-managed, and each has their eye on growth through expansion and product improvement. Welltower is up 37% year-to-date, not counting the 3.9% annual yield. As with Ventas, we’re expecting even more price appreciation by the end of the year.

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