Senior housing stocks are set to take off as the American population ages, according to Bank of America. Ventas is one of those names poised to benefit, analyst Joshua Dennerlein said in a note Monday. As a real estate investment trust, it also returns income to investors. It currently has a dividend yield of about 3.4%. Dennerlein reiterated his buy rating on the stock and raised his price target to $66 from $54, suggesting 25.8% upside from Friday’s close. Shares are up more than 5% year to date. “The COVID 19 occupancy recovery in senior housing will continue to be faster than the market expects and demographic trends have shifted from a headwind to a tailwind,” he wrote. The industry was hit hard during the pandemic , but has been on the road to recovery as occupancy improves. Demand is increasing, while new construction slowed due to the health crisis. At the same time, Americans are growing grayer . By 2030, all baby boomers, which includes those born between 1946 and 1964, will be 65 or older, according to the U.S. Census Bureau . Ventas’ portfolio includes senior housing communities, medical office buildings and other health-care facilities. Bank of America sees “significant” senior housing operating margins upside ahead, driven by cyclical and secular growth. The bank projects margins to hit 31.7% in 2028, but an analysis shows Ventas could achieve senior housing operating margins of 35.8% given its current portfolio mix, Dennerlein said. In comparison, those margins were 25.1% in 2023 and hit a pre-pandemic high of 33.8% in 2016, he pointed out. VTR 1Y mountain Ventas’ one-year performance The company should also see growth with its leases to Brookdale Senior Living, which operates independent living, assisted living, memory care and continuing care retirement communities, he said. Brookdale operates a portfolio of 121 properties in Ventas’ net lease structure, making up 7.4% of total net operating income, he noted. Dennerlein thinks Brookdale, whose lease with Ventas expires in 2025, could exercise its renewal option and cash rent may increase as much as 10%. However, a nonrenewal and a conversion of the properties to Ventas’ senior housing operating portfolio would provide an additional 1.2% boost to net operating income, he said. That said, Ventas is not the only senior housing REIT that Bank of America likes. Welltower and American Healthcare REIT are also on its buy list. Both names are dividend payers, with Welltower posting a yield of 2.3%, and American Healthcare REIT touting a yield of more than 6%.
