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%.
Tag: Ventas Inc
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BMO is buying the real estate dip. These dividend-yielding stocks are on its buy list
Real estate stocks have become oversold and that has presented an opportunity for investors, according to BMO. In fact, since the group has been a part of the S & P 500 , there have only been a handful of other times where the stocks have performed worse relative to the index on a year-over-year basis, chief investment strategist Brian Belski wrote in a note Tuesday. Real estate is the only S & P 500 sector that is in the red this year, off 6%. “According to our work, this type of abnormal underperformance has typically proved to be an inflection point historically,” Belski said. “[We] believe the sector is poised for a turnaround in the coming months and are recommending that investors use its current weakness as a dip buying opportunity,” he added. .SPLRCR YTD mountain S & P 500 Real Estate Sector year to date BMO identified four other periods of this abnormal underperformance. In the year following such troughs, real estate investment trusts outperformed the S & P 500 by about 17%, on average. Belski thinks the stocks have also been unfairly punished in response to interest rate trends. While historically their relative performance has fared somewhat better during periods of falling interest rates, they have also managed to outperform in a higher rate environment, he said. Fundamentals also appear supportive, according to Belski. “Free cash flow yields for REITs continue to go up, with debt going down,” he said in an interview on ” Squawk on the Street ” on Thursday. “Payouts are going up as well.” Here are some of the REITs BMO rates as outperform. They also pay dividends, so investors can earn some income while they wait for a rebound. Investors can snag a 6.4% dividend yield with Boston Properties . The company develops, owns and manages workspaces across the country, including in New York and San Francisco. Office REITs suffered from the Covid-19 pandemic work-from-home trend and a slow return to the office. However, that is now shifting, Belski pointed out. “Everyone is working. We are coming back to work again,” he told CNBC. “The death of commercial real estate is way, way precluded. I think people predicted that way too early.” Shares are down nearly 13% year to date and have about 27% upside to BMO’s price target. Meanwhile, data center REIT Equinix just saw its stock rally more than 11% on Thursday, fueled by an earnings beat. “The rapidly evolving AI landscape continues to serve as a catalyst for economic expansion, creating immense potential for Equinix as our customers recognize the importance of digital initiatives in driving long-term revenue growth and operational efficiency,” Equinix president and CEO Charles Meyers said in a statement. Shares have lost about 6% so far this year and have about 25% upside to BMO’s price target. It has a 2.3% dividend yield. Ventas is also down about 4% year to date. The company’s portfolio includes senior housing communities, which stand to benefit from the aging population . The last of the baby boomers will turn 65 in 2030 , according to the U.S. Census Bureau. The stock, which yields 3.8%, has roughly 7% upside to BMO’s price target. Lastly, Host Hotels & Resorts , which owns luxury and upper-upscale hotels, has a 4.4% dividend yield and is down nearly 6% so far this year. It also has about 25% upside to BMO’s price target. Earlier this month, the company reported adjusted funds from operations for the first quarter that topped estimates. It also posted a revenue beat and upped its full-year funds-from-operations and revenue guidance.
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‘Opportune time to invest in real estate’: Pros name 5 REITs to buy right now
Mounting inflation and interest rates have put significant pressure on several sectors â especially real estate. But some market watchers think things could be about to turn around. “I think it would be an opportune time to invest in real estate especially given that we are forecasting interest rates to decline over the next 12 months,” according to Kevin Brown, senior equities analyst at financial services firm Morningstar. He suggests that investors look to have 10% of their portfolio exposed to “real estate in some form, as a good rule of thumb.” “That exposure can come from REITs [real estate investment trusts] or direct ownership, or other real estate investments if you are a large investor. But REITs present a great and easy opportunity to the asset class which is otherwise difficult to invest in. With rate cuts anticipated, I expect REITs to outperform the broader U.S. market this year,” Brown told CNBC Pro on Feb. 14. Rick Romano, Head of Global Real Estate Securities at PGIM Real Estate, agrees, saying that REITs offer investors “a unique and fantastic” opportunity to invest across geographies and segments right now. Commercial property pick One segment Brown likes is commercial properties occupied by tenants such as drugstores, retailers, food outlets and gas stations. The diversity â and the fact that tenants are selling necessities â mean they are not overly sensitive to economic conditions and can post gains even if a recession hits, Brown said, naming Realty Income as a REIT to consider. Realty Incomes says its portfolio includes over 13,000 commercial properties with a 98.8% occupancy rate. “Realty Income has a triple net lease structure, which means their tenants are responsible for everything, [namely] all expenses that can be generated by the property. They are also a conservative tenant with low rents relative to the revenues generated by tenants so there’s a very low risk of it not receiving rent,” Brown said. He also flagged that the company is part of the S & P 500 Dividend Aristocrat index and has raised its dividend payout for 25 consecutive years. The REIT has a 5-year average dividend yield of 4.5% and is trading at around a 10% discount to net asset value â a key measure of a REIT’s value â according to FactSet data. Boom in data centers Aside from commercial spaces, PGIM’s Romano sees opportunities in data centers. He expects a shortage of supply in 2023-2024, “in conjunction with this very severe demand spike due to AI right now.” “It’s an area that we see some of the best growth rates within the real estate space,” he added. Among the data center-focused REITs that Romano’s PGIM Global Real Estate Fund is invested in are Prologis (8.1% of the fund as of Dec. 2023) and Equinix (5.3% of the fund). Prologis â which owns almost 800 properties globally, including a number of data centers â is trading at a premium of around 4% to net asset value. Equinix, with 250 data centers, is trading at a premium of around 17% according to FactSet data. Senior housing buys? Morningstar’s Brown highlighted the senior housing market as a segment to watch, particularly in the U.S. as the baby boomer generation ages. “We’re going to have very high demand growth,” he said, highlighting that the Covid pandemic reduced building activity and, as such, supply is not keeping up with occupancy levels. REITs he likes include Ventas â which has over 1,400 properties including senior housing facilities and outpatient medical buildings across the U.S., U.K and Canada â as well as Welltower , which has exposure to senior housing, outpatient care facilities and care spaces. “Ventas, in particular, is trading at a very big discount,” Brown noted. “Both names are buys into the bigger senior housing theme.” Ventas is trading at discount of around 3% to its net asset value, according to FactSet, while Welltower is trading at premium of around 55%.