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Can Ventas (VTR) Maintain its Beat Streak in Q2 Earnings?

Zacks Equity Research

Ventas, Inc. VTR is scheduled to report second-quarter 2019 results on Jul 26, before the market opens. The company’s results will likely reflect year-over-year (y/y) decline in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a positive surprise of 3.13%. The company witnessed higher rental income from its office and triple net leased portfolio.

In addition, Ventas posted an average positive surprise of 3.03% over the trailing four quarters, surpassing estimates on all occasions. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

Ventas, Inc. Price and EPS Surprise

Ventas, Inc. price-eps-surprise | Ventas, Inc. Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

Data from the National Investment Center for Seniors Housing & Care (NIC) indicates that the fundamentals of the seniors housing industry weakened nationwide during the second quarter, with occupancy rates dropping to the lowest level occupancy level since second-quarter 2011.

In fact, senior housing occupancy rate in the United States decreased to 87.8% during the quarter under review, indicating a sequential decline of 20 basis points (bps). Additionally, annual rent growth also shrunk 20 bps sequentially to 2.9%.

Notably, excess speculative supply of seniors housing properties has likely dampened the performance of the seniors housing market.

Although developers have been adding senior housing properties to the market at a furious pace since 2014, rising construction costs and lower development yields have cooled down the construction pipeline recently. This downward trend in construction starts for new senior housing units is evident from the 10-bps decline in annual inventory growth during the quarter.

For Ventas, this decline in construction activity will enable it to enjoy the demographic driven boom in demand from aging baby boomers. In fact, capitalizing on this trend, in June, the company announced a definitive deal to acquire a portfolio of 31 purpose-built seniors housing communities and four in-progress developments in the growing Quebec market.               

Additionally, in first-quarter 2019, Ventas unveiled a trophy medical office building (MOB) in downtown San Francisco. This property too is expected to boost second-quarter revenues from MOBs. In fact, services revenues from MOBs and rental revenues for the second quarter are pinned at $2.56 million and $202 million, respectively, up marginally from the prior quarter. 

Moreover, increasing longevity of the aging U.S. population, along with biopharma drug development growth opportunities, has promoted the institutional life-science and medical-market fundamentals. Amid this, the company announced four new developments in June, totaling approximately $0.8 billion in its university-based research and innovation (R&I) segment. These investments are part of the $1.5-billion R&I investment pipeline announced by Ventas this February.

Nonetheless, prior to the April-June quarter earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the quarter remained unchanged at 96 cents, over the past 30 days. Further, it calls for a year-over-year decline of 11.1%.

Earnings Whispers

Here is what our quantitative model predicts:

Ventas has the right combination of two key ingredients — a positive Earnings ESPand Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Ventas’ Earnings ESP is +0.12%.

Zacks Rank: The company currently carries a Zacks Rank of 2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Boston Properties, Inc. BXP, scheduled to release earnings on Jul 30, has an Earnings ESP of +0.06% and carries a Zacks Rank #3, at present.

Corporate Office Properties Trust OFC, slated to report quarterly figures on Jul 29, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3, currently.

Healthcare Realty Trust Incorporated HR set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #3.

 Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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