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Ventas (VTR) Q2 FFO & Revenues Miss Estimates, NOI Decline

Zacks Equity Research

Ventas, Inc. VTR reported second-quarter 2020 normalized funds from operations (FFO) per share of 77 cents, missing the Zacks Consensus Estimate of 73 cents. Moreover, the figure was 21% lower than the year-ago quarter’s 97 cents.

The company generated revenues of $943.2 million in the second quarter, which lagged the Zacks Consensus Estimate of $974.8 million. The top line also compared unfavorably with the year-ago number of $950.7 million.

Results reflect a decline in same-store cash net operating income (NOI). Moreover, the company’s senior housing operating properties (SHOP) portfolio was severely impacted by the coronavirus pandemic.

Quarter in Detail

For the second quarter, same-store cash net operating income NOI growth for the total property portfolio (1,074 assets) declined 13.6% year over year primarily due to the impacts of the pandemic. Segment wise, though same-store cash NOI for the triple-net (NNN) leased portfolio grew 1.4% and the office portfolio rose 2.7%, the SHOP portfolio reported a plunge of 42.7% year over year.

Balance Sheet Position

Ventas exited second-quarter 2020 with cash and cash equivalents of $992.8 million, up from the $106.4 million recorded as of 2019 end. Further, as of Jun 30, 2020, its annualized adjusted net debt to EBITDA ratio was 6.3.

To strengthen its balance sheet position amid the virus outbreak, the company raised $0.5 billion in March 2020 through a senior notes offering. In June and July, proceeds from the offering were used to repay primarily all of Ventas’ borrowing under its $3-billion revolving credit facility.

As a result of the efforts, the company had $3.5 billion of liquidity, consisting of 0.6 billion of cash and cash equivalents, $2.9 billion of available capacity on hand, and no commercial paper outstanding as of Aug 5.

Conclusion

In light of the pandemic, Ventas is making efforts to reduce it operating expense on the back of reductions in corporate positions, dividend cuts and lower planned capital expenditure. In fact, the company eliminated 25% of its corporate positions and reduced senior executive compensation for the year. This is expected to reduce third-quarter 2020 annualized G&A expenses by $25-$30 million as compared with that reported in 2019.

It also announced a 43% sequential decline in the second-quarter dividend to 45 cents per share. The dividend cut can be viewed as a prudent move to conserve around $130 million of cash per quarter. Lastly, planned 2020 capital expenditure has been reduced by $0.3 billion to $0.5 billion.

Although these are encouraging, softness in the company’s SHOP portfolio is worrisome.

Ventas, Inc. Price, Consensus and EPS Surprise

 

Ventas, Inc. Price, Consensus and EPS Surprise
Ventas, Inc. Price, Consensus and EPS Surprise

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

Ventas currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

American Tower Corporation AMT reported second-quarter 2020 FFO per share of $2.07, beating the Zacks Consensus Estimate of $2.05. Further, the reported figure improved 1.5% year over year.

Host Hotels & Resorts, Inc. HST reported second-quarter 2020 loss in terms of adjusted FFO per share of 26 cents, meeting the Zacks Consensus Estimate. Notably, the company reported adjusted FFO per share of 53 cents in the prior-year quarter.

SL Green Realty Corp. SLG reported second-quarter 2020 FFO per share of $1.70, surpassing the Zacks Consensus Estimate of $1.55. The figure, however, compares unfavorably with the year-ago quarter’s $1.82.

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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