Healthcare real estate investment trust Ventas (NYSE:VTR) is a great income stock, with a steadily growing dividend that currently yields 4.5%. However, there's more to Ventas than just income -- the healthcare real estate market is expected to grow rapidly over the next few decades, and there is lots of opportunity for consolidation in the current inventory of properties. These catalysts could translate into an incredible long-term growth opportunity for Ventas and its investors.

Ventas' investment portfolio and strategy

Ventas currently has a portfolio of more than 1,200 properties. The overall strategy is to invest in properties that are more desirable than those its peers own and are operated by top-notch tenants. As of mid-2017, the portfolio breakdown is as follows:

  • Senior housing operating (30% of the portfolio by net operating income): These are senior housing properties operated as partnerships with some of the top operators in the industry. Unlike a typical landlord-tenant relationship, Ventas has a financial interest in the performance of these properties.
  • Senior housing triple-net (25%): These are senior housing properties leased to their operators. Ventas invests in senior housing properties that are located in high-barrier-to-entry coastal markets, in affluent areas.
  • Medical offices (19%): Ventas owns about 20 million square feet of outpatient medical facilities, many of which are affiliated with major universities and health systems and are located on campuses.
  • Life science (6%): Ventas has a 4 million-square-foot portfolio of life-science properties and innovation centers.
  • Health Systems (5%): Ventas owns a variety of health system real estate, including hospitals and cancer centers.
  • Post-acute-care properties (8%): This includes properties such as long-term care and skilled nursing facilities, although the company has been actively reducing its exposure to skilled nursing assets.

In addition to these property types, 6% of Ventas's investment portfolio is made of real estate loans, and another 1% is international hospital properties.

A nurse takes the blood pressure of an older man.

Image source: Getty Images.

Finally, Ventas operates with a solid balance sheet, with a low 32% debt-to-enterprise value ratio. As a result, the company has an investment-grade credit rating (BBB+/Baa1) and has the financial flexibility to pursue attractive investment opportunities as they come up.

The healthcare real estate market is highly fragmented

The U.S. healthcare real estate market is estimated to be a little over $1 trillion in size currently, and no REIT has a market share of more than 3%.

Furthermore, less than 15% of all healthcare real estate is REIT-owned, which is significantly below most other forms of commercial real estate. For example, shopping malls and hotel properties are 40% or more REIT-owned. Many healthcare properties are owned by operating companies, physicians, health systems, or private investors.

Chart of REIT ownership of various types of commercial real estate.

Image source: Ventas investor presentation.

In other words, the industry is in the early stages of REIT consolidation. Large, efficient, and financially flexible market leaders such as Ventas have a competitive advantage as the market starts to shift toward REIT ownership.

A long-tailed growth opportunity

In addition to the opportunity in the existing healthcare real estate market, there's reason to believe the market has a lot of future growth potential as well, specifically when it comes to senior housing and medical office properties.

In a nutshell, the U.S. senior citizen population is expected to grow rapidly over the next several decades, as the massive baby boomer generation ages and life expectancies increase. In fact, the 75-and-older age group is growing seven times faster than the overall population and is expected to grow in size by 70% by 2030.

Senior citizens visit physicians' offices 2.5 times more frequently and spend five times as much per year on healthcare as the average American, so this should translate into greater demand for medical office facilities. And senior housing should benefit from the even more rapid growth in the older age brackets. The 85-and-older age group is expected to roughly double in the next 20 years, and this is the group most likely to need some sort of assisted-living arrangement.

Potential for excellent total returns

Equity REITs such as Ventas are designed as total return investments, meaning they can produce income as well as long-term appreciation. In fact, since 2001 Ventas has grown its funds from operation per share at an 11% annualized rate and has been able to more than triple its dividend since that time. And it's worth pointing out that both of these growth rates significantly outperformed the other leading healthcare REITs.

The growth opportunities discussed here could translate to decades of steadily rising income, as well as excellent stock price appreciation. The combination of these two forces could create lots of wealth for long-term Ventas shareholders.