The demographic and industry trends are encouraging
I'm a fan of REITs of all varieties, but I can't think of a more compelling long-term opportunity than healthcare real estate -- especially when it comes to an industry leader like Welltower. There are three reasons I say this: demographics, cost increases, and acquisition opportunities.
First of all, the majority of Welltower's portfolio is made up of senior housing properties. The rest consists of long-term care and outpatient medical facilities, both of which serve a disproportionately high number of senior citizens. In the U.S., U.K., and Canada, Welltower's three markets, the 75-and-older population is projected to double between now and 2050 -- about 10 times the growth rate of the overall population.
Second, healthcare costs have been rising at a rate faster than inflation for some time. If this continues, it means healthcare facilities' income will grow, and property owners can collect more rent. And, property values will rise, since commercial properties get most of their value from their ability to generate income.
Finally, the healthcare real estate market is extremely fragmented. The market size is estimated to be about $1 trillion in the U.S. alone, and Welltower, the largest healthcare REIT, has just 2.6% of it. So, not only will the market grow rapidly because of the demographic trends, but there are lots of opportunities to hunt for attractive acquisitions among the existing inventory.
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