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Ventas (VTR) to Report Q3 Earnings: What's in the Offing?

Zacks Equity Research

Ventas, Inc. VTR is scheduled to report third-quarter 2019 results on Oct 25, before the market opens. While the company’s revenues are expected to reflect year-over-year (y/y) growth, its funds from operations (FFO) per share might display a decline.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a positive surprise of 1.04%. The company witnessed growth in same-store cash net operating income, which aided results. Results also reflected higher rental income from its office and triple net leased portfolio.

In addition, Ventas posted an average positive surprise of 1.82% 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 strengthened nationwide during the third quarter, supported by decent occupancy and demand.

In fact, seniors housing occupancy rate in the United States registered a sequential expansion of 30 basis points (bps) to 88% during the quarter. This was driven by increase in occupancy at independent living (IL) properties and assisted living (AL) properties. As compared with the prior quarter, third-quarter occupancy at IL properties advanced 20 bps to 90.2%, while the same at AL properties climbed 30 bps to 85.4%.   

Although developers have been adding seniors housing properties to the market, in a bid to gain from the upcoming silver tsunami, rising construction costs and lower development yields have cooled down the construction pipeline. The 30-basis point sequential decline in annual inventory growth during the quarter under review highlights the decline in construction starts for new seniors housing units.

Sluggish growth in development activity, along with favorable demand trends, sets the perfect stage for improving healthcare REITS performance in third-quarter 2019.

Nonetheless, annual rent growth shrunk 30 bps sequentially to 2.7%.

As for Ventas, the company’s solid portfolio of seniors housing properties in elite, high-barrier-to entry coastal markets will likely have helped it witness high occupancy at its properties during the July-September quarter.

Moreover, the Zacks Consensus estimate for third-quarter 2019 rental income from triple-net leased properties is pegged at $196 million and indicates y/y growth of 3%. 

Additionally, 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. This is expected to have benefited Ventas’ office operations.

In fact, the Zacks Consensus Estimate for third-quarter rental income from its office segment is pegged at $204 million. Further, this indicates 5% y/y growth.

Nonetheless, prior to the third-quarter earnings release, there is 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 remained unchanged at 94 cents, over the past 30 days. Further, it calls for a year-over-year decline of roughly 5%.

Earnings Whispers

Our proven model predicts an earnings beat for Ventas this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ventas has Earnings ESP of +0.96% and carries a Zacks Rank of 3, currently.

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

Other 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:

Digital Realty Trust, Inc. DLR, scheduled to release earnings on Oct 29, has an Earnings ESP of +2.61% and carries a Zacks Rank of 3, at present.

Senior Housing Properties Trust SNH, slated to report July-September quarter results on Nov 7, has an Earnings ESP of +3.23% and currently holds a Zacks Rank of 2.

Stag Industrial, Inc. STAG, set to release quarterly figures on Oct 30, has an Earnings ESP of +1.1% and carries a Zacks Rank of 3, at present.

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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