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Here's Why You Should Retain Ventas (VTR) in Your Portfolio

Ventas, Inc. VTR is well-poised to benefit from the positive operating trend in its senior housing operations portfolio (SHOP), accretive investments in the research & innovation (R&I) business and a robust balance-sheet position.

The senior housing industry is presently experiencing a recovery. Effective vaccine roll-outs have led to a rise in move-ins, which are now exceeding the pre-pandemic levels, while move-outs remain manageable. The Chicago, IL, based healthcare real estate investment trust's (REIT) second-quarter 2022 same-store SHOP average witnessed an occupancy growth of 390 basis points year over year to 83.7%.

Moreover, the senior citizen population has risen in the past few years. This age cohort constitutes a major customer base of healthcare services and ends up spending more on healthcare services than the average population. Therefore, given the pent-up demand and favorable demographic trend for senior housing, Ventas’ SHOP segment’s performance is likely to gain pace in the upcoming quarters.  

Ventas’ office segment, which includes medical office buildings, academic medical and R&I businesses, is well-positioned to capitalize on the rising need for healthcare services and growing outpatient trends.

Further, to capture the growing need for research related to life-saving vaccines and therapeutics, Ventas has been making accretive investments and acquisitions in its R&I business. Per its second-quarter business update, it has $1.6 billion of total R&I development in progress. Also, 77% of the company’s rent from this segment comes from high credit tenants, thereby assuring steady cashflows.

Ventas maintains a healthy balance sheet position and has ample liquidity. It exited second-quarter 2022 with $2.5 billion of liquidity. In June, Ventas refinanced its existing $200 million term loan with maturity in 2023 with a new $500 million term loan facility with maturity in 2027. Also, in July, Fitch Ratings upgraded the company’s rating outlook to stable from negative, further boosting its creditworthiness. These encouraging moves boost VTR’s financial flexibility and aid its expansion efforts.

However, Ventas faces stiff competition from national and local healthcare operators. The company’s operators compete with peers on occupancy and managing labor costs, which could limit VTR’s profitability.

Ventas’ triple-net leased property segment is vulnerable to tenant concentration risk as most of its segmental revenues and net operating income (NOI) are generated from properties leased to Brookdale Senior Living, Ardent and Kindred. So, in case of no lease renewal, change in lease agreements or any adverse development with respect to these three tenants could lead to a deterioration in the company’s financial condition and results.

Moreover, higher interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate. As of Jun 30, 2022, VTR’s total debt was approximately $12.3 billion. Also, the dividend payout might become less attractive than the yields on fixed income and money market accounts.

Analysts seem bearish on this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company, as the same has marginally moved downward over the past week to $3.00.

Shares of Ventas have depreciated 12.5% in the past three months against the industry’s growth of 2.6%.

Zacks Investment Research
Zacks Investment Research


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Stocks to Consider

Some better-ranked stocks from the REIT sector are Prologis PLD, Extra Space Storage EXR and Host Hotels & Resorts HST.

The Zacks Consensus Estimate for Prologis’ current-year FFO per share has marginally moved northward in the past month to $5.17. PLD carries a Zacks Rank #2 at present.

The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised 1.9% over the past week to $8.46. EXR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Host Hotels & Resorts’ 2022 FFO per share has moved 6.1% upward in the past month to $1.73. HST currently holds a Zacks Rank of 2.

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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