Healthcare REITs: 5 Stocks Overvalued Amid Aging Population and Shift to Outpatient Care

Healthcare REITs have outperformed the S&P 500 and NASDAQ 100 with a 11.15% total return this year. The aging US population and shift from inpatient to outpatient care are driving growth in the sector. However, five healthcare REITs are considered overvalued: Universal Health Realty, National Health Investors, Ventas, Welltower, and Healthcare Trust of America. These REITs have seen significant stock price growth and may be due for a correction.

Healthcare Real Estate Investment Trusts (REITs) have shown remarkable resilience and growth this year, with a total return of 11.15%, surpassing both the S&P 500 (6.86%) and the NASDAQ 100 (9.25%) [2]. This performance can be attributed to several factors, including the aging U.S. population, the shift from inpatient to outpatient care, and recent increases in Social Security benefits [2]. However, while the sector has enjoyed robust demand, some healthcare REITs have seen their stock prices rise to unsustainable levels, making them potentially overvalued.

Five healthcare REITs, namely Universal Health Realty, National Health Investors, Ventas, Welltower, and Healthcare Trust of America, have been identified as overvalued by iREIT+Hoya Capital [2]. These REITs have experienced significant stock price growth but may be due for a correction. For instance, Welltower (WELL), one of the largest healthcare REITs, has seen its market cap grow to over $100 billion, with a price-to-funds-from-operations (P/FFO) ratio of 31.3, which is more than 50% above the average REIT valuation [2]. Similarly, American Healthcare (AHR) has a premium to net asset value (NAV) of 96.9%, indicating a substantial overvaluation [2].

While these REITs have shown strong financial performance, their high valuations may pose risks to investors. For example, Welltower has a low yield of 1.70%, which is not unusual for high-growth REITs, but its premium to NAV is exceptionally high [2]. Additionally, American Healthcare, while experiencing high double-digit net operating income (NOI) growth, faces a significant debt maturity of $600 million in 2027, which could impact its financial stability [2].

Investors should be cautious when evaluating these REITs. While the sector's long-term growth prospects are promising, the high valuations of some healthcare REITs suggest potential risks. It is essential to conduct thorough due diligence and consider factors such as dividend safety, debt ratios, and forward funds from operations (FFO) growth when making investment decisions.

References:
[1] https://www.ainvest.com/news/sila-realty-trust-q2-2025-earnings-strategic-position-healthcare-real-estate-sector-2507/
[2] https://seekingalpha.com/article/4802113-5-overvalued-healthcare-reits