These Key Macro Drivers Could Drive Growth for Ventas
Attractiveness of the industry
Healthcare spending represented 18% of the GDP (gross domestic product) in 2012. The growing aging population is leading to the projected increase in healthcare spending from 18% to 20% of GDP by 2022.
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Healthcare real estate market
The housing and healthcare real estate market is highly fragmented, and it amounts to about $1 trillion. Out of this total market, only 12% is owned by public REITs. The future consolidation from private to public is a powerful opportunity for Ventas (VTR). Senior housing and healthcare providers will likely sell their real estate to these well-capitalized REITs, freeing up their capital to reinvest in technology, expansions, and working capital.
The US Census Bureau has made the following predictions in regards to age demographics:
- the population under 18 years old is expected to increase by 20% by 2060
- the population from 18 to 74 years old is expected to increase by 25% by 2060
- the population between 75 and 84 years old is expected to increase by 120% by 2060
- the population over 84 years old is expected to increase by 188% by 2060
This expected dramatic increase in the oldest age group could support the senior housing business. Demand for senior housing will likely outpace the supply of new buildings and create a favorable pricing environment. The expected growth could also support growth in MOBs (medical office buildings).
With an anticipated 25 million newly insured individuals and 79 million aging baby boomers, the demand for outpatient services will likely increase. Also, patient visits will likely grow as cost pressures could shift medical services to lower cost outpatient settings.
Ventas has a market cap of $19.5 billion, Welltower (HCN) has a market cap of $21.7 billion, HCP (HCP) has a market cap of $11.1 billion, and the Healthcare Trust of America (HTA) has a market cap of $5.6 billion. VTR forms 2.4% of the iShares Core U.S. REIT ETF (USRT).