Two plays on the senior housing boom can rally more than 20%, Goldman says
Goldman Sachs sees big opportunities in two real estate stocks that it says will benefit from the booming senior population. On Friday, the firm initiated coverage of Ventas, whose portfolio includes senior housing communities, skilled nursing facilities and medical office buildings, with a buy rating and $94 price target. That target implies 25% upside from Thursday’s close. Ventas currently has a 2.56% dividend yield. It also initiated coverage on Omega Healthcare Investors , which focuses largely on skilled nursing facilities and assisted living facilities, with a buy rating. Its price target of $54 suggests nearly 21% upside ahead. Omega Healthcare yields 6%. The new research coverage comes after Goldman identified “significant” investment opportunities in the aging population theme last year, including health care, entertainment and experiences. The number of people in the U.S. aged 80 and older is expected to soar in coming years, with the nation’s first baby boomers entering their eighth decade this year. VTR 1Y mountain Ventas one-year performance An estimated 524,000 people turned — or will turn — 80 every year from 2024 through 2026, up from 151,000 annually from 2014 through 2023, analyst Julien Blouin said in a note to clients. That is expected to hit 868,000 every year between 2027 and 2030, he said. “We believe this growth in the number of primary users of Senior Housing and Skilled Nursing will support increased occupancy growth and should drive occupancy well above the prior peaks in 2015, creating the best demand environment for OHI and VTR since their inception,” Blouin wrote, using the two stocks’ trading symbols. On top of the aging population, there is also a decline in the number of family caregivers, which will shift seniors into senior housing facilities, he noted. In addition, the lack of new supply to the market can help drive occupancy rates to record levels, he said. ‘Meaningful’ upside for Ventas’ senior housing Ventas should see “meaningful” upside in its same-store senior housing operating properties’ (SHOP) occupancy and margins, Blouin believes. He anticipates occupancy can reach 96% by the end of 2028. In addition, the real estate investment trust’s “Ventas OI” data platform can help optimize occupancy and pricing, improve labor utilization and capital spending decisions, he added. Ventas is also continuing to deploy capital, closing on more than $2 billion in acquisitions last year, the analyst noted. “The company has demonstrated a disciplined approach to acquisitions, focusing on high-quality assets in growing markets and partnering with best-in-class local operators to enhance portfolio performance and drive long-term value creation.” Blouin wrote. “With a strong balance sheet, access to multiple sources of capital, and an experienced management team with a proven track record of identifying accretive opportunities, VTR is well-positioned to continue its acquisition activity,” he added. Omega tenancy boost Omega Healthcare has about 61% of its portfolio focused on skilled nursing facilities and 39% on senior housing through triple-net-lease structures, Blouin said. That means the tenant is required to pay rent plus necessary property expenses. Many of its operators, such as Brookdale, were hit during the Covid pandemic and Omega has worked through the disruptions, he noted. Moreover, fundamentals have improved and tenant profitability has risen to the best levels in more than a decade, he said. With tenants stronger, “it reduces the likelihood of credit default events and raises the probability of tenant renewals upon lease expiration and for rental rate increases, which could help drive earnings growth in the out-years,” Blouin said. OHI 1Y mountain Omega Healthcare Investors one-year performance Omega also has a strong acquisition pipeline and, as peers have shifted away from triple-net-lease senior housing and skilled nursing investments, it is operating with more limited competition, he said. “The company has focused on acquiring high-quality assets and providing sale-leaseback financing to established operators, which has allowed OHI to grow its asset base while generating stable rental income through long-term triple-net lease structures,” he added. He expects materially more acquisition activity in coming years.
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