Ventas (VTR) Beats Q2 FFO Estimates By 6 Cents, Guides Up - Analyst Blog
Backed by strong top-line growth, Ventas, Inc.’s VTR second-quarter 2015 normalized funds from operations (“FFO”) of $1.18 per share came in 6 cents higher than the Zacks Consensus Estimate of $1.12. The figure comfortably surpassed the year-ago quarter figure of $1.16.
Total revenue during the quarter amounted to $891.3 million, surging 18.6% year over year. The figure also surpassed the Zacks Consensus Estimate of $863 million.
Further, Ventas increased its 2015 normalized FFO per share outlook to $4.70 – $4.76 from $4.67 – $4.75 guided earlier. The new outlook marks 5–6% growth in normalized FFO per share from the 2014 level. The Zacks Consensus Estimate currently stands at $4.74 for 2015.
Quarter in Detail
For its total portfolio, same-store cash net operating income (“NOI”) grew 2.4% (in constant currency) from the prior-year comparable period. Same-store seniors housing operating portfolio NOI climbed 4% (in constant currency).
During second-quarter 2015, Ventas made investments worth $222 million. These involved an investment in the UK with an existing customer, as well as in development and redevelopment funding of about $29 million.
Recent Developments
Importantly, in July, Ventas struck a deal with Equity Group Investments (EGI) in order to capitalize Ardent’s hospital operating company at an implied valuation of $475 million. Under the terms of the deal, a consortium of EGI, Ardent’s existing management and Ventas (9.9%) will own Ardent’s equity.
The company estimates that around $1.4 billion will have been invested at closing, while Ardent will go for long-term triple net leases with Ventas at an expected going in cash yield of around 7.5%. Notably, financing for the Ardent deal is expected to involve a five-year unsecured term loan, proceeds of fixed-income securities, asset sales and equity.
Moreover, spin-off of majority of its skilled nursing facility portfolio into an independent, publicly traded REIT named Care Capital Properties, Inc. is well on track and is expected to be accomplished in Aug 2015, upon required approvals.
Liquidity
Ventas currently has around $1.7 billion available under its revolving credit facility and $410 million cash in hand.
Raised 2015 Outlook
Ventas’ increased 2015 normalized FFO per share outlook range of $4.70 – $4.76 marks 5–6% growth in normalized FFO per share from 2014 level. While the guidance includes the pending acquisition of Ardent, it does not consider any impact from the spin-off of Care Capital Properties. Same-store cash NOI growth projections of 2.5–3.5% for 2015 remains unchanged from the prior outlook.
Our Take
Ventas’ better-than-expected performance is encouraging. Going forward, we believe that the company’s adequate size and scale would help it capitalize on opportunities such as increasing healthcare spending, aging population and a rise in insured individuals. The Ardent deal would further boost its platform, while the spin-off marks its persistent efforts on enhancing shareholders’ value by setting up two separate and focused firms with distinct strategies.
Ventas currently has a Zacks Rank #2 (Buy). We presently await the results of other healthcare REITs like HCP, Inc. HCP, Health Care REIT, Inc. HCN and Healthcare Realty Trust Inc. HR, all of which are scheduled to release in the upcoming days.
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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