04-26-2014, 04:47 PM
I have a 3% target allocation for Ventas and wondering if it deserves higher.
Bull case: Ventas is a diversified healthcare REIT with the secular tailwind of the aging population. They aren't pure play MOB or senior living, so they can take advantage of growing into whichever sector makes the most sense at the moment. This makes me tempted to use them as my sole healthcare REIT, and not have to pay too much attention to the space. They are international, with presence in Canada and the UK. They operate in upmarket urban areas (i.e. where customers can afford services) and their tenants are 82% private pay, with only 18% coming from government programs. They have a 5-year DGR CAGR of 6%, which is higher than the other blue chip healthcare REITs. They have long term lease visibility with 85% of leases expiring in 2021 or later. Brad Thomas considers them a core holding. They delivered a slight earnings beat last week.
Bear case: Morningstar points out that healthcare inflation has been more than twice the rate of general economic inflation, and says this is probably not sustainable, which means that tenants may be reluctant to renew lease contracts with 3% escalators. This could put dividend growth at risk. The yield is slightly lower than other healthcare REITs at 4.5%, and I would have little interest if the DGR moved to low single digits.
Thoughts?
Bull case: Ventas is a diversified healthcare REIT with the secular tailwind of the aging population. They aren't pure play MOB or senior living, so they can take advantage of growing into whichever sector makes the most sense at the moment. This makes me tempted to use them as my sole healthcare REIT, and not have to pay too much attention to the space. They are international, with presence in Canada and the UK. They operate in upmarket urban areas (i.e. where customers can afford services) and their tenants are 82% private pay, with only 18% coming from government programs. They have a 5-year DGR CAGR of 6%, which is higher than the other blue chip healthcare REITs. They have long term lease visibility with 85% of leases expiring in 2021 or later. Brad Thomas considers them a core holding. They delivered a slight earnings beat last week.
Bear case: Morningstar points out that healthcare inflation has been more than twice the rate of general economic inflation, and says this is probably not sustainable, which means that tenants may be reluctant to renew lease contracts with 3% escalators. This could put dividend growth at risk. The yield is slightly lower than other healthcare REITs at 4.5%, and I would have little interest if the DGR moved to low single digits.
Thoughts?