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Ventas (VTR) to Post Q1 Earnings: What's in the Offing?

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Ventas, Inc. VTR is scheduled to report first-quarter 2018 results on Apr 27, before the market opens. The company’s revenues and funds from operations (FFO) are anticipated to witness a year-over-year decline.

Last quarter, this Chicago, IL-based healthcare REIT delivered in-line results. The results reflected improved property performance and accretive investments.

Further, Ventas posted an average positive surprise of 0.73% in the trailing four quarters, surpassing estimates twice and posting in-line results in the other occasions. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

Ventas, Inc. Price and EPS Surprise | Ventas, Inc. Quote

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

Factors That Might Influence Q1 Results

Ventas is anticipated to benefit in the to-be-reported quarter from increasing healthcare spending and aging population. In fact, according to the Census Bureau, the number of citizens with more than 85 years of age is estimated to reach 8.7 million by 2030.

In addition, Ventas is focusing on achieving an optimum mix of healthcare real estate assets. The company has made sound efforts to expand its portfolio in the university-based life science and medical office businesses. Such investments will likely help the company capitalize on the growing health-care-driven research and development, supported by top-tier research universities.

Also, Ventas accomplished the sale of its 36 skilled nursing facilities (SNF), which were operated by Kindred Health care. The move helped it reap $700 million in proceeds. The move is in sync with Ventas’ strategy of “de-emphasis” of this particular healthcare real estate category. Notably, though seniors housing, medical office buildings and hospitals have been able to record solid revenue growth in recent years, amid healthcare reforms, SNFs are becoming more susceptible to top-line pressure due to the change in medical billing procedure. The company efficiently spun-off majority of its SNF business in 2015 and following the sale of the aforementioned 36 SNFs, Ventas successfully brought down its net operating income from SNFs. Thus, such moves are anticipated to support the company’s operating margin in the quarter under review.

Nonetheless, oversupply in some markets is likely to burden the performance of Ventas’ senior housing assets. Since this curtails landlords’ pricing power and limits growth in occupancy level, we expect the prevalent oversupply situation to impact the company’s first-quarter numbers.

The Zacks Consensus Estimate of $204 million for triple net-leased rental income reflects a sequential decline from the prior-quarter figure of $205 million. Further, the Zacks Consensus Estimate for office building and other services revenues is $3.83 million, reflecting a 1.8% decline sequentially.

However, the Zacks Consensus Estimate for rental income from office building is currently pegged at $193 million, indicating a rise from $192 million recorded in the prior-quarter.

Amid these, prior to the first-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share in the soon-to-be-reported quarter remained unchanged at $1.01, over the past month. Also, this indicates a year-over-year decline of 2.9%.

The Zacks Consensus Estimate for the first-quarter revenues is pegged at $850.6 million, indicating a year-over-year fall of 3.7%.

Moreover, shares of Ventas have underperformed the industry in the past three months. While the company’s shares have lost 16%, the industry has witnessed a decline of 7.7%.

Earnings Whispers

Our proven model cannot conclusively predict if Ventas will likely beat the Zacks Consensus Estimate this time. That’s because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase 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.

Zacks ESP: The company has an Earnings ESP of -0.87%.

Zacks Rank: Ventas carries a Zacks Rank #3 that increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider as our model shows that these have the right combination of elements to report a positive surprise this quarter:

PS Business Parks, Inc. PSB, slated to release first-quarter results on Apr 24, has an Earnings ESP of +0.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Taubman Centers, Inc. TCO, scheduled to release earnings on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3.

Simon Property Group, Inc. SPG, slated to release quarterly numbers on Apr 27, has an Earnings ESP of +0.50% and 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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