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2 Undervalued Healthcare REITs

Ventas and Welltower hold Exemplary stewardship ratings that we believe will create value.

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Kevin Brown: We are lowering our moat rating for the big three healthcare REITs--HCP, Ventas, and Welltower--to no moat from narrow moat. However, we maintain our Exemplary stewardship for Ventas and Welltower and believe there is significant value to be found in these companies' high-quality, well-diversified portfolios. Of these three companies, Welltower is currently our favorite name in the space.

The first baby boomers will turn 75 in three years and the 80-plus population will double over the next decade, increasing demand when they first start to move into these properties. High current supply and a severe flu season are causing senior housing fundamentals to turn negative in 2018. However, construction start data suggests that we are currently at peak supply, the severity of the flu season is a one-time event, and these issues are more than offset by long-term baby boomer demand. We remain confident that these companies are well-positioned to benefit from the increasing healthcare needs of an aging population.

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Kevin Brown does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.