On Feb 29, 2016, we issued an updated research report on Ventas Inc. VTR, a Chicago-based healthcare real estate investment trust (REIT). The company boasts a diverse portfolio, including properties like seniors housing communities, medical office buildings (MOBs), skilled nursing facilities, specialty hospitals and general acute care hospitals.
Last month, Ventas came up with encouraging fourth-quarter 2015 results. Its normalized funds from operations (“FFO”) of $1.03 per share for the quarter surpassed the Zacks Consensus Estimate of $1.01. On a comparable basis, adjusting the effect of spin-offs, normalized FFO for the quarter grew 7% year over year. The bottom line was driven by better-than-expected revenue growth.
Going forward, demand for healthcare real estates is expected increase substantially on favorable demographics. This is because the senior population is growing at a faster rate than other adults and a significant number of boomers are daily becoming eligible for Medicare. Moreover, senior citizens incur higher medical expenses against the average population. Given its adequate size and scale, Ventas remains well poised to make the most of this favorable market environment.
The company is making concerted efforts to improve its overall portfolio quality. In fact, during 2015, the company invested $5.2 billion in acquisitions and committed to funding around $350 million in new development and redevelopment projects, mainly in seniors housing and medical office buildings. Importantly, Ventas accomplished the strategic spin-off of Care Capital Properties and acquired $1.3 billion of Ardent’s hospital real estate network.
Nevertheless, concentration risks associated with dependence on a few tenants and intense competition with national and local operators remain its concerns. Moreover, a rise in the interest rate can shake the company, particularly considering its substantial exposure to long-term leased assets.
Ventas currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Omega Healthcare Investors Inc. OHI, Sabra Health Care REIT, Inc. SBRA and PS Business Parks Inc. PSB. Each of these stocks holds 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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