Aided by higher revenues, Ventas Inc.’s (VTR) fourth-quarter 2013 normalized funds from operations (FFO) of $1.06 per share came at par with the Zacks Consensus Estimate and up 7% year over year.
Including the non-recurring items, FFO in the reported quarter stood at $1.03 per share, up 7% from 96 cents in the year-ago quarter.
Quarterly results at this healthcare real estate investment trust (REIT) were driven by strategic investments made in the past 2 years. In particular, the company experienced solid growth in same-store cash flow in its seniors housing communities managed by Atria and Sunrise as well as rental hikes in its triple-net lease portfolio.
Also, the company benefited from a decline in weighted average interest rates. These positives were partly dwarfed by higher debt balances, asset sales and loan repayments.
Total revenue during the quarter reached $732.9 million, escalating nearly 12% year over year. Revenues also exceeded the Zacks Consensus Estimate of $713 million.
For full-year 2013, Ventas’ normalized FFO per share came in at $4.14 on revenues of $2.8 billion. This was higher than the prior-year normalized FFO per share of $3.80 on revenues of $2.5 billion.
Behind the Headline Numbers
As of Dec 31, 2013, Ventas had an operating portfolio of 142 seniors housing communities managed by Atria and 95 seniors housing communities managed by Sunrise, leading to a total of 237 seniors housing operating portfolio (2 of them acquired in Q4). Net Operating Income (NOI) for this portfolio after management fees stood at $115.9 million for the fourth quarter and $449.0 million for full year 2013.
Moreover, annual NOI for the 195 same-store private pay seniors housing communities increased 5.6% while occupancy climbed 130 basis points year over year to 91.3% and REVPOR (revenue per occupied room) moved north 3.5%.
Cash flows from operations grew over 20% from the prior year to around $1.2 billion. Also, same-store cash NOI for its total portfolio registered a year over year growth of 5% in 2013.
Notable Activities
During 2013, Ventas made investments worth $1.9 billion. This included $1.8 billion of acquisitions (47% – Triple-Net Leased Assets; 43% – Seniors Housing Operating Communities Managed by Atria; and 10% – Medical Office Buildings), having an projected first-year NOI yield over 7%.
Furthermore, Ventas invested $96 million in development and redevelopment activities. On the other hand, the company vended 22 properties and obtained final repayment on loans receivable for around $358 million in total proceeds.
Liquidity
Ventas has $1.8 billion of liquidity under its revolver currently. The company’s cash and cash equivalents increased to $94.8 million, up from $54.7 million at the prior quarter end and $67.9 million at the prior year end. Moreover, the company’s current debt to total capitalization is 33%.
Dividend Update
Ventas announced a cash dividend of 72.5 cents per share for the first quarter 2013. This represents a hike of 8% year over and year and flat sequentially. The dividend will be paid on Mar 28, 2014 to stockholders of record on Mar 7.
Outlook 2014
Excluding the effect of undisclosed acquisitions, divestitures and capital transactions, Ventas now projects normalized FFO per share in the range $4.31 – $4.37 for full year 2014. This reflects around 5.5% to 7% per share year over year increase in normalized FFO, excluding non-cash items. But the range is slightly below the Zacks Consensus Estimate of $4.38 per share for 2014.
Notably, NOI for its total Atria- and Sunrise-managed seniors housing operating portfolio is projected to lie between $488 million – $500 million for 2014. This reflects around 4% – 6% growth in same-store NOI.
Our Take
Going forward, we expect the company to benefit from its diversified portfolio, growing healthcare spending and aging population. Strategic acquisitions and decent cash flows would add momentum to the company’s growth.
Ventas currently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the REIT industry include Sabra Health Care REIT, Inc. (SBRA), Healthcare Trust of America, Inc. (HTA) and Omega Healthcare Investors Inc. (OHI). While Sabra Health Care holds a Zacks Rank #1 (Strong Buy), Healthcare Trust and Omega Healthcare carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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