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Here's Why Ventas (VTR) Deserves a Place in Your Portfolio

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Zacks Equity Research
·4 min read
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Ventas, Inc.’s VTR office segment, which includes medical office buildings (MOBs), academic medical and research & innovation (R&I) centers, is likely to benefit from biopharma drug development growth opportunities presented amid the pandemic. However, senior housing operating environment remains challenging amid the pandemic and is concerning for the company’s senior housing assets.

Notably, in November, Ventas formed a joint venture (JV) with GIC to own four in-progress university-based R&I development projects, spanning 1.4 million square feet of space. The JV is a strategic fit for Ventas as it diversifies the company’s capital sources, while allowing it to retain a majority stake in its ongoing R&I developments. Moreover, it enables Ventas to capitalize on favorable demographics and growing outpatient trends in the life-science and medical market.

MOBs and R&I centers are essential for the delivery of crucial healthcare services and research related to life-saving vaccines and therapeutics. Hence, the company’s efforts to drive its R&I business forward by capitalizing on the growing healthcare-driven research is a strategic fit. Further, long-lease terms and top-rated, institutional quality tenants assure steady growth in cash flows for Ventas.

Moreover, the national healthcare expenditure is expected to rise in the upcoming years. Also, senior citizens constitute the major customer base of healthcare services and they end up spending more on healthcare services compared with the average population. Hence, with an expectation of a rising senior citizen population in the years ahead, Ventas has strong upside potential, being well-poised to capitalize on this expenditure trend of senior citizens on healthcare services.

Hence, the silver tsunami narrative along with the post-pandemic operational upside demonstrates the long-term viability of the senior housing operating portfolio (“SHOP”) despite near-term challenges posed by the virus outbreak.

The healthcare REIT also has a healthy balance sheet, and has been making efforts to enhance its cost structure, liquidity and financial strength amid these testing times. In fact, as of the third-quarter end, the company’s balance sheet enjoys long-term credit ratings of Baa1 from Moody’s as well as BBB+ from Fitch and S&P Global, providing easy access to debt at favorable costs.

However, amid the pandemic, the company’s senior living operating portfolio has been witnessing an adverse revenue and occupancy trend. Specifically, resident move-ins and leads remain below prior-year levels, while move-outs and higher operating costs are hindering occupancy, revenues and net operating income.

In fact, same-store SHOP occupancy has declined over the trailing five quarters. These lackluster trends are discouraging for Ventas as 63.7% of its investments are in seniors housing communities. Markedly, the SHOP segment is likely to remain challenged until proven treatment and vaccine are established for the coronavirus infection.

Also, the company is making efforts to unlock value of its assets through opportunistic disposals of non-core assets. Although such efforts enable it to optimize its portfolio, better manage financial obligations and reinvest in its attractive development pipeline, dilution in earnings and reduced cash flows in the near term from the sale of assets is unavoidable.

Shares of this Zacks Rank #3 (Hold) company have gained 23.3% over the past three months compared with the industry’s rally of 8.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

Stocks to Consider

CubeSmart’s CUBE Zacks Consensus Estimate for 2020 funds from operations (FFO) per share has moved up marginally to $1.66 over the past week. The company currently carries a Zacks Rank of 2 (Buy).

Rexford Industrial Realty, Inc. REXR FFO per share estimates for the current year have been revised upward by 1.6% to $1.30 over the past two months. The company carries a Zacks Rank of 2, currently.

City Office REIT, Inc.’s CIO Zacks Consensus Estimate for ongoing-year FFO per share has moved 5.3% north to $1.20 in two months’ time. The company has 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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Ventas, Inc. (VTR) : Free Stock Analysis Report
 
CubeSmart (CUBE) : Free Stock Analysis Report
 
Rexford Industrial Realty, Inc. (REXR) : Free Stock Analysis Report
 
City Office REIT, Inc. (CIO) : Free Stock Analysis Report
 
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