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Ventas Inc.’s VTR efforts to capture the demographics and growing outpatient trends in its office segment bode well. Yet, the coronavirus crisis continues to impact the company’s senior living operating and triple-net (NNN) portfolios.
Moreover, the company’s better-than-expected normalized funds from operations (FFO) per share of 97 cents in first-quarter 2020 were supported by year-over-year growth in revenues. Additionally, same-store cash net operating income (NOI) for the NNN leased portfolio grew 3.9% and the office portfolio rose 5.8%.
As a result of liquidity enhancing moves, the company had $3.2 billion in cash and cash equivalents on hand as of May 6. This along with manageable debt maturities in 2020, Ventas has decent financial flexibility to pursue its growth endeavors.
In fact, the company has a robust development pipeline and expects to spend $340 million in the ongoing year for development and redevelopment activities. Investments in academic medical and research and innovation businesses offer Ventas the opportunity to capitalize on the growing healthcare-driven research and development, supported by top-tier research universities.
Moreover, in March, the company completed the initial closing of the Ventas Life Science and Healthcare Real Estate Fund, L.P, a perpetual life vehicle, which will focus on investments in core and core plus life-science, medical office, and senior housing real estate asset classes. The initial closing of the fund generated net proceeds of $620 million to Ventas and it recognized $223 million in gains from the sale of assets to the fund.
However, due to the COVID-19 pandemic, the company’s senior living operating and NNN portfolios experienced negative revenue and cost trends in first-quarter 2020. Further, a large New York and New Jersey footprint exacerbated the negative impact. Specifically, the company also noted limited new move-ins, stable move-outs and lower occupancy at its senior housing operating portfolio (SHOP). The trends are expected to continue through May, and impact rent coverage and revenues. Moreover, SHOP operating expenses are expected to increase.
The company also provided a rent deferral program for its NNN senior housing tenants. Also, new leasing across its office segment slowed due to the virus outbreak. With anticipations of the continuation of the trend, the company withdrew its 2020 guidance.
Apart from the coronavirus outbreak-led occupancy woes, the seniors housing market has been reeling with high-supply conditions in certain markets. This is concerning for Ventas because elevated supply usually curtails landlords’ pricing power and limits growth in occupancy level.
Shares of this Zacks Rank #3 (Hold) company have plunged 55.2% compared with its industry’s decline of 25.5% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Better-Ranked Stocks to Consider
Innovative Industrial Properties, Inc.’s IIPR Zacks Consensus Estimate for 2020 FFO per share moved marginally upward to $5.34 over the past week. The stock currently flaunts a Zacks Rank of 1.
Gladstone Land Corporation’s LAND FFO per share estimate for 2020 has remained unchanged at 62 cents over the past month. Further, it currently carries a Zacks Rank of 2 (Buy).
Farmland Partners Inc.’s FPI FFO per share estimate for the ongoing year has been unchanged at 25 cents over the past 30 days. Additionally, it carries a Zacks Rank of 2 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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