Ventas Beats Q3 FFO on Revenue Growth, Ups 2014 Outlook

Helped by growth in revenues and accretive investments, Ventas Inc.’s (VTR) third-quarter 2014 normalized funds from operations (:FFO) of $1.12 per share came nearly 1% ahead of the Zacks Consensus Estimate of $1.11 per share. The figure also came 8% above the year-ago quarter figure of $1.04.

Total revenue during the quarter amounted to $779.0 million, rising nearly 10% year over year. The company has also increased its full-year 2014 normalized FFO per share outlook.

Behind the Headline Numbers

As of Sep 30, 2014, Ventas had seniors housing operating portfolio of 270 communities managed by Atria, Sunrise or Brookdale. Net operating income (:NOI) for this portfolio after management fees (in local currency) came in at $132.2 million, denoting a 15% rise from the year-ago period, with average unit occupancy of 91.4% for the third quarter.

Notably, same-store NOI (in local currency) after management fees from the 217 stabilized private pay seniors housing communities that the company owned, climbed 4.4% year over year while REVPOR – revenue per occupied room – moved north 2.5%.

Notable Activities

Ventas closed $1.1 billion of acquisitions in the third quarter. On the other hand, the company had disposed 7 properties for $60 million since Jul 1. Moreover, the company currently has $188 million worth of development and redevelopment projects underway.

Notably, in August, Ventas completed the acquisition of 29 Canadian independent living communities from Holiday Retirement for $957 million Canadian dollars. Management of these communities has been assumed by Atria.

The company is also slated to acquire American Realty Capital Healthcare Trust Inc. (HCT) in a stock and cash deal worth $2.9 billion. The deal is expected to close by this year-end.

Liquidity

Ventas currently has an availability of $1.8 billion under its revolving credit facility and $70 million of cash in hand. As of Sep 30, 2014, the company’s debt to total capitalization was 34%.

Raises 2014 Outlook

Ventas has increased its 2014 normalized FFO per share guidance to $4.44 – $4.47 from the prior projection of $4.39 – $4.43, reflecting around 8% – 9% per share growth in 2014, excluding non-cash items. The Zacks Consensus Estimate of $4.44 per share for 2014 also lies within this range.

Our Take

Better-than-expected third-quarter performance from Ventas is surely encouraging. We believe the company would benefit from its diversified portfolio, increasing healthcare spending, aging population and a rise in insured individuals in the U.S. Further, strategic acquisitions and decent cash flows would add momentum to the company’s growth.

Particularly, the deals with American Realty Capital Healthcare and Holiday would enhance Ventas’ already sturdy presence in the healthcare REIT sector. These deals, in sync with the company’s strategy of focusing on the private pay properties, will also serve to strengthen its medical-office buildings footprint as well as international existence.

Ventas currently has a Zacks Rank #3 (Hold).

We presently look forward to the results of other healthcare REITs like HCP, Inc. (HCP) and Health Care REIT, Inc. (HCN), which are scheduled to report their earnings over the next fortnight.

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

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