Ventas: 5-Star Buy among Healthcare REITs

10/10/2016 8:00 am EST

Focus: REITS

Kenneth Leon

Global Director of Industry & Equity Research, CFRA Research

Our latest Focus Stock -- which carries S&P Global Market Intelligence’s highest investment ranking of 5-STARS, or “strong buy”—holds a premier position in the healthcare REIT property category, asserts states Ken Leon, editor of S&P Global.  

Demographics of an aging population should favor the long-term trend for this REIT category, but a closer look at individual company’s geographic footprint for owned properties will usually determine winners from losers, in our opinion.

We think Ventas (VTR) has a well-diversified portfolio of healthcare properties by property type and geography. We also like the predictable nature of its long-term, triple-net lease revenue stream.

We are positive on 70% of its properties in high barrier-to-entry areas such as New York City, Los Angeles, Boston, and other supply constrained markets.

We are positive on the $1.5 billion cash acquisition of Wexford Science and Technology that closed in September. The 25 Class-A Wexford properties are tied to attractive life science and medical assets affiliated with leading universities.

We view life science and academic labs as some of the most attractive sub-markets within the healthcare property market.

While life sciences is expected to become a fourth category, we expect future growth to be driven by continued strong performance in VTR’s three major business units.

Seniors housing communities including independent and assisted living communities, and communities that provide care for individuals with Alzheimer’s disease and other forms of dementia or memory loss.

Hospitals are generally operated as long-term acute care hospitals; they serve medically complex, chronically ill patients who require a high level of monitoring and specialized care.

Medical office buildings provide office space primarily for physicians and other healthcare businesses.

While these properties are similar to commercial office buildings, they require more plumbing, electrical, and mechanical systems to accommodate multiple physicians’ offices and examination rooms that may have sinks in every room, brighter lights, and specialized medical equipment.

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By Ken Leon, Editor of S&P Global

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