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Ventas' (VTR) Q3 FFO In Line With Estimates, Revenues Beat

Ventas, Inc. VTR reported third-quarter 2017 normalized funds from operations (FFO) of $1.04 per share, in line with the Zacks Consensus Estimate. The figure also came in a penny higher than the year-ago quarter tally. Results reflect improved property performance and accretive investments.

Further, the company posted revenues of $895.5 million which beat the Zacks Consensus Estimate of $869.4 million. The figure compared favorably with the year-ago number of $867.1 million.

For the third quarter, same-store cash net operating income (NOI) growth for total portfolio (1,045 assets) climbed 2.1% year over year. Segment wise, same-store cash NOI for the triple net leased portfolio grew 3.8%, seniors housing operating portfolio inched up 0.6% and medical office building portfolio rose 1.5%.

Quarter in Detail

During the third quarter, Ventas funded investments of around $80 million. This included $67 million of funding for its share of development and redevelopment projects for projects presently in progress.

Furthermore, the company disposed properties and obtained final repayments on loans receivable for proceeds of $650 million.

Liquidity

At present, the company enjoys liquidity with $2.9 billion of available borrowing capacity and $100 million of cash on hand.

2017 Outlook

Ventas updated its outlook and estimates 2017 normalized FFO per share in the range of $4.13-$4.16. The mid-point of the guidance remained unchanged from the prior guidance as the Kindred skilled nursing facilities (SNFs) sale offsets improved property performance. The Zacks Consensus Estimate for the same is currently pegged at $4.17. The company anticipates same-store cash NOI growth of 2-2.5% in 2017.

Our Take

We are encouraged with the in-line performance of Ventas in the third quarter. We believe the company’s adequate size and scale would help it capitalize on opportunities such as increasing healthcare spending and aging population.

Also, university-based life science real estate is a new zone of investment which has grabbed attention and Ventas has already committed substantial amount to this segment.  The company acquired a 262,000-square-foot class-A life science building, which is currently 82% occupied. Such investments will likely offer scope to capitalize on growing health-care-driven research and development.

In addition to this, sale of the SNFs enabled the company to realize around $570 million in sale proceeds. Also, the transaction lowered the company’s exposure to this particular healthcare real estate category which is becoming more susceptible to top-line pressure due to the change in medical billing procedure.

However, hike in interest rate is a concern for the company, considering its substantial exposure to long-term leased assets.

Currently, Ventas carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like HCP, Inc. HCP, Federal Realty Investment Trust FRT and Extra Space Storage Inc EXR. HCP, Inc. is slated to report results on Nov 2, while Federal Realty Investment Trust and Extra Space Storage are slated to report results on Nov 2.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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