Ventas Inc.’s (VTR) second-quarter 2013 normalized funds from operations (FFO) per share of $1.01 missed the Zacks Consensus Estimate by a penny but rose 6.3% year over year from 95 cents.
Including the non-recurring items, FFO in the reported quarter stood at $1.03 per share, up 27.2% from 81 cents in the year-ago quarter.
While a rise in share count, elevated debt levels and an increase in net cash balances acted as dampeners for the quarter, Ventas’ results benefited from strategic investments made in 2012.
In particular, the company experienced an uptick in net operating income in its private pay seniors housing communities, triple-net lease portfolio and medical office building segment. Also, the company benefited from a decline in weighted average interest rates.
Ventas has raised it outlook for full-year 2013, backed by its solid business model, strategic efforts and accretive acquisitions.
Total revenue during the quarter reached $685.8 million, escalating 12.1% year over year. Revenues also exceeded the Zacks Consensus Estimate of $677 million.
Behind the Headline Numbers
As of Jun 30, 2013, Ventas had an operating portfolio of 132 seniors housing communities managed by Atria (7 of them acquired in Q2) and 95 seniors housing communities managed by Sunrise, leading to a total of 227 seniors housing operating portfolio. Net Operating Income (NOI) for this portfolio after management fees stood at $110.1 million.
Total same-store cash flow grew 3% and the company renewed or transitioned all 89 healthcare assets whose leases expired during the quarter.
Average unit occupancy for the 196 private pay seniors housing communities climbed 160 basis points year over year to 90.8% in the quarter under review. Same-store NOI after management fees escalated 6.9% while REVPOR (revenue per occupied room) increased 3.7% year over year.
Notable Activities
Since the beginning of the second quarter, Ventas made investments worth around $419 million (of which $96 million was made in Q3). It disposed assets, received final repayments on outstanding loans and investments aggregating $160 million ($70 million of this in Q3). Moreover, around $400 million of additional investments are under contract for Ventas.
Liquidity
As of Jun 30, 2013, Ventas had $260 million of borrowings outstanding under its unsecured revolving credit facility and $62 million of cash and cash equivalents. During the reported quarter, Ventas generated $77.4 million as proceeds from its “at-the-market” equity offering program.
Moreover, at quarter-end, debt to total capitalization stood at 29% and net-debt-to-adjusted-pro-forma-EBITDA (earnings before interest, tax, depreciation and amortization) was 5.3x.
Guides High
Ventas now projects normalized FFO per share in the range $4.06 – $4.10, up from the prior range of $3.99 – $4.07. The current projections include the impact of around $400 million worth of acquisitions.
NOI for its total Sunrise- and Atria-managed seniors housing operating portfolio are expected in the range of $430 million – $440 million for 2013, reflecting around 5% – 8% same-store NOI growth.
Our Take
We believe that going forward, the company’s diversified portfolio, strategic acquisitions and decent balance sheet would provide the tempo for riding on the growth trajectory. Yet, a large portion of its revenue originates from a few tenants, which exposes it to concentration risk.
Ventas currently has a Zacks Rank #3 (Hold).
Other REITs
Similar to Ventas, Taubman Centers Inc.’s (TCO) FFO per share of 75 cents rose 2.7% year over year but the figure came 5.1% short of the Zacks Consensus Estimate. The miss is mainly due to the lower-than-expected revenues generated in the quarter.
We now look forward to the results of the other healthcare REITs – HCP, Inc. (HCP) and Healthcare Realty Trust Inc. (HR) that are scheduled to report next week.
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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