The allure of retirement ... homes, that is

Amid several favorable tailwinds, the stage may be set for a recovery in senior-housing stocks, according to Fidelity's Sam Wald.

  • When COVID-19 hit, senior-housing property owners were uniquely vulnerable and had some of the hardest-hit stocks within the real estate securities market, but as the pandemic recedes, these stocks have started to bounce back and may be poised to benefit even further from a favorable industry backdrop, says Fidelity Portfolio Manager Sam Wald.
  • "Rising demand and constrained supply should boost occupancy rates and ultimately rents in the industry," notes Wald, who manages Fidelity Advisor® Real Estate Fund. "Meanwhile, the opportunity for cost reductions should further improve these REITs' cash flow over time."
  • In helming the fund since 2004, Wald invests in securities of companies that own and, in most cases, operate commercial real estate properties, including data centers. He employs a bottom-up, or stock-by-stock, investment approach to determine the relative appeal of individual REITs, seeking to take advantage of significant pricing discrepancies.
  • Strong demand for senior housing has been driven by a demographic tailwind in the form of a rapidly growing cohort of older individuals, he explains.
  • "Many of these people already need the specialized care that senior-housing communities provide, and an aging population means that more of them are likely to need that care in the fairly near future," Wald points out.
  • Shifting to supply, he notes that the onset of the pandemic largely caused new construction to come to a halt, given the uncertainty of demand and difficulty with sourcing building materials.
  • Furthermore, Wald believes there is a lack of properties available to keep up with current and anticipated demand, a dynamic that will likely take some time to resolve.
  • He cites Ventas and Welltower as the two main players in the senior-housing industry best-positioned to thrive in this environment. Both were sizable fund holdings as of April 30.
  • Welltower is a high-quality operator, with many properties in large, desirable geographic markets, according to Wald. Ventas, on the other hand, is the slightly larger of the two positions, due to its meaningful growth potential, along with what he considers a compelling valuation.
  • "With an advantageous balance between supply and demand and valuations that are attractive relative to other segments of the real estate market, I'm optimistic about the long-term prospects for senior-housing REITs," concludes Wald.
  • For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.

There was an issue with your input


Please confirm