Look Past Near Term for Healthcare REITs' Value
We see long-term tailwinds and attractive dividend yields.
We have lowered our economic moat ratings for the healthcare real estate investment trusts we cover-- HCP (HCP), Ventas (VTR), and Welltower (WELL)--to none from narrow. However, we believe there is significant value to be found in these companies’ high-quality, well-diversified portfolios. All three have sold off in the past few months because of factors that are either short term or already baked into our long-term views, and we believe the market is ignoring long-term industry tailwinds. We see Welltower and Ventas as the most attractive names, given their management teams’ exemplary stewardship, and we have a slight preference for Welltower, as we believe its strategy of smaller-scale acquisitions is more viable. All three companies currently have a dividend yield over 6%, and we see their dividends as well covered.
After transferring coverage, we have lowered our fair value estimates for Ventas to $65 per share from $67 and for HCP to $25 per share from $26. We are maintaining our $74 fair value estimate for Welltower. These changes are the net result of some offsetting changes in our near- and long-term assumptions. While we had previously recognized that 2018 would be a down year for senior housing fundamentals and the next two years would also see slower growth in net operating income, we’ve lowered our near-term expectations further based on how the situation has developed.
Kevin Brown does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.