April 25, 2025
When I compared Healthcare REIT Welltower (WELL) to some of the European REITs I am investigating, I discovered that there are no direct healthcare REIT equivalents at scale in Europe that are similar.
Welltower’s Key Characteristics
- Specialization: Healthcare-focused REIT specializing in senior housing, outpatient medical facilities, and post-acute care properties
- Demographics Play: Strong exposure to aging population trends in the US, UK, and Canada
- Growth Strategy: Mix of acquisitions and development with emphasis on urban, high-barrier-to-entry markets
- Recovery Story: Post-pandemic recovery in senior housing occupancy and rates has been driving recent performance
- Dividend Profile: Historically stable dividend with yield typically in the 3-4% range
Comparison to European REITs
Vonovia (Germany):
- Residential focus vs Welltower’s healthcare specialization
- More stable occupancy through economic cycles than healthcare
- Lower growth potential but potentially more recession-resistant
- Operates in a more regulated environment for rent increases
Segro (UK/Pan-European):
- Industrial/logistics focus vs healthcare
- Stronger e-commerce tailwinds but less demographic support
- More economically sensitive but with structural growth drivers
- Generally lower cap rates (higher valuations) reflecting a premium for logistics assets
Gecina (France):
- Office/residential mix vs healthcare focus
- More exposure to economic cycles and work-from-home trends
- Concentrated in Paris premium locations with high barriers to entry
- Lower demographic tailwinds compared to healthcare
Comparison to US REITs
Ventas (VTR):
- Most direct competitor to Welltower with very similar healthcare property focus
- Slightly more diversified across healthcare property types
- Comparable size and geographic footprint
- Similar demographic thesis and recovery profile
- Higher debt and lower profit margin
Prologis (PLD):
- Industrial/logistics leader vs healthcare focus
- Higher growth profile with stronger e-commerce tailwinds
- Generally trades at a premium valuation to healthcare REITs
- More economically sensitive but with stronger secular growth trends
American Tower (AMT):
- Communications infrastructure vs healthcare
- Higher growth potential from 5G and data demand
- Less directly tied to demographic trends
- Generally commands higher multiples, reflecting a growth profile
Equity Residential (EQR):
- Multifamily residential vs healthcare focus
- More stable occupancy patterns historically
- Less specialized operational expertise is required
- Different demographic drivers (working age vs senior)
Welltower’s Position
Welltower stands out for its:
- Strong demographic tailwinds from aging populations
- Specialized operating expertise in senior housing
- Post-pandemic recovery potential still being realized
- Mixed private-pay and government reimbursement exposure
- Defensive characteristics with healthcare necessity
The European real estate market offers fewer specialized healthcare REITs at scale. European investors seeking healthcare real estate exposure often look to either specialized private real estate funds or large US-listed REITs, such as Welltower and Ventas.
I discovered this while doing a deep dive into European equities, which generally offer superior value and have been attracting more money in the past several months.
Healthcare REITs, Welltower (WELL) and Ventas (VTR), Have Very High PE Multiples
The elevated PE (Price-to-Earnings) multiples for Welltower and Ventas reflect several factors specific to healthcare REITs and their current market positioning:
Key Factors Driving High PE Ratios
1. Recovery Phase Valuation
Both REITs are still in an earnings recovery phase following the pandemic. Senior housing was severely impacted by COVID-19, with occupancy rates dropping substantially. The market is pricing in a full recovery and return to normalized earnings, essentially looking past current earnings to future potential.
2. REIT Structure Considerations
REITs distribute most of their taxable income as dividends, making traditional PE ratios less meaningful for valuation. The substantial depreciation and amortization expenses reduce reported net income (the “E” in P/E) without affecting cash flow. Investors typically focus more on metrics like:
- Funds From Operations (FFO)
- Adjusted Funds From Operations (AFFO)
- Net Asset Value (NAV)
When evaluated on FFO or AFFO multiples, these REITs often appear more reasonably valued.
3. Demographic Growth Thesis
Investors are pricing in the long-term demographic tailwind of an aging population. The 75+ age group is expected to experience significant growth over the next decade, resulting in sustained demand for senior housing and healthcare facilities. This growth narrative supports premium valuations despite current earnings.
4. Interest Rate Environment
Healthcare REITs are particularly sensitive to interest rate expectations. Recent market anticipation of potential rate cuts has benefited these REITs, as lower rates generally make their dividend yields more attractive and reduce borrowing costs.
5. Portfolio Repositioning Value
Both companies have been actively repositioning their portfolios, divesting underperforming assets, and acquiring properties with better growth prospects. The market may be assigning value to this improved portfolio quality that isn’t yet fully reflected in current earnings.
6. Operating Leverage Potential
Senior housing properties, especially those with operating components rather than just triple-net leases, offer significant operating leverage. As occupancy and rates continue to improve, earnings are expected to grow at an accelerated pace, making current PE ratios appear more reasonable on a forward-looking basis.
For investors considering these REITs, focusing on FFO multiples, dividend yields, and projected growth rates would provide a more complete valuation picture than PE ratios alone. The market appears to be valuing the future potential and recovery trajectory rather than current earnings metrics.
