Ventas Tops Q1 FFO on Revs, Guides Same

Zacks

Aided by higher revenues, Ventas Inc.’s (VTR) first-quarter 2014 normalized funds from operations (:FFO) of $1.09 per share, came nearly 2% ahead of the Zacks Consensus Estimate of $1.07 per share and 6% above the year ago quarter figure of $1.03 per share.

Quarterly results at this healthcare real estate investment trust (:REIT) were driven by strategic investments made 2013 and solid growth in same-store seniors housing operating and triple-net leased portfolios. Results also reflect the receipt of fees and other payments. These positives were partly dwarfed by higher debt balances, rise in general and administrative expenses, asset sales and loan repayments.

Total revenue during the quarter reached $741.5 million, escalating nearly 9% year over year. Revenues also exceeded the Zacks Consensus Estimate of $726 million.

Behind the Headline Numbers

As of March 31, 2014, Ventas had an operating portfolio of 142 seniors housing communities managed by Atria and 95 seniors housing communities managed by Sunrise, leading to a total of 237 seniors housing operating portfolio. Net Operating Income (:NOI) for this portfolio after management fees stood at $122.7 million with average unit occupancy of 90.6% for the first quarter.

Notably, first quarter 2014 same-store NOI increased 5.5% sequentially (REVPOR – revenue per occupied room – moved north 1.8%) and 4.6% from the prior year quarter (REVPOR grew 2.5%). Also, same-store cash NOI for its total portfolio registered a year over year growth of 3.7% in 2013.

Notable Activities

During the first quarter, Ventas made investments worth $208 million, excluding development and redevelopment projects. On the other hand, the company sold 6 properties for around $26 million in total proceeds, reflecting a yield of 9%. Moreover, there are more than $100 million of other investments under contract and the company anticipates closing them in the second quarter.
Liquidity

Ventas has considerably all $2 of liquidity under its revolver currently and its cash on hand stood at approximately $260 million. Moreover, the company’s debt to total capitalization is 34% at present.

Reaffirmed 2014 Outlook

Ventas has reaffirmed its outlook for 2014. Excluding the effect of undisclosed acquisitions, divestitures and capital deals, the company projects normalized FFO per share in the range $4.31 – $4.37 for full year 2014. This reflects around 5.5% to 7% per share year over year increase in normalized FFO, excluding non-cash items.The Zacks Consensus Estimate of $4.36 per share for 2014 also lies within this range.

Notably, NOI for its total Atria- and Sunrise-managed seniors housing operating portfolio is projected to lie between $488 million – $500 million for 2014. This reflects around 4% – 6% growth in same-store NOI.

Our Take

Going forward, we expect Ventas to benefit from its diversified portfolio, growing healthcare spending and aging population. Strategic acquisitions and decent cash flows would add momentum to the company’s growth.

In recent times, the company has also enhanced its international presence through the purchase of 3 high-quality, private hospitals in the U.K. Yet, an expected rise in interest rate in the long run and the company’s substantial exposure to long-term leased assets remains our concern.


Ventas currently has a Zacks Rank #3 (Hold). We now look forward to the results of other REITs such as Healthcare Realty Trust Inc. (HR), HCP, Inc. (HCP) and Health Care REIT, Inc. (HCN) which are scheduled to report in the upcoming weeks.

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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