Ventas Inc. Stays Neutral - Analyst Blog
19 March 2013 - 2:50AM
Zacks
On Mar 15, 2013, we reiterated our long-term recommendation on
Ventas Inc. (VTR) at Neutral. We are encouraged
with the decent fourth quarter result at Ventas as well as the
dividend hike announcement. We expect the company’s significantly
diversified portfolio, strategic move in Atria and other
opportunistic acquisitions to provide significant upside potential
to the stock going forward. Yet, a large portion of its revenue
originates from a few tenants, which exposes it to concentration
risk and undermines its growth potential to some extent.
Why Neutral?
Ventas has one of the largest and most diversified portfolios in
the healthcare sector with exposure to all types of facilities. The
product diversity of the company allows it to capitalize on
opportunities in different markets based on individual market
dynamics, and provides a hard-to-replicate business model with
sufficient competitive edge over its peers.
Also, the healthcare sector is relatively immune to the economic
problems faced by office, retail and apartment companies and offers
stability to the company amid the volatility in the market.
Consumers will continue to spend on healthcare while cutting out
discretionary purchases.
Its normalized FFO reached 99 cents per share in the fourth quarter
2012, 2 cents ahead of the Zacks Consensus Estimate and 10 cents
above the prior-year quarter figure. The results were aided by the
strategic acquisitions made in 2012 and in the prior year, decent
performance of its seniors housing communities and rental
escalation from its triple-net lease portfolio.
Moreover, Ventas has a strong balance sheet, which provides its
adequate financial flexibility to aim high-yielding acquisitions,
high ROI (return on investments) capital projects and steady
dividend payouts. Ventas increased its first-quarter 2013 cash
dividend by 8% to 67 cents per share.
However, a large portion of Ventas’ revenue originates from a few
tenants, which exposes it to concentration risk. If one of the
company’s larger tenants runs into financial difficulty, earnings
could be negatively affected.
Also, a considerable amount of Ventas’ income is determined by
government reimbursement rates. If the government cuts
reimbursement rates through Medicare or Medicaid, revenue could
fall in the future and adversely affect its long-term growth
potential.
Following the release of the fourth-quarter and full-year 2012
results, the Zacks Consensus Estimate for full year 2013 has gone
up 0.5% to $4.06 per share with 5 estimates going north and 2 going
south in the last 30 days.
Also, the Zacks Consensus Estimate for full year 2014 increased
1.2% to $4.28 per share as 2 estimates were revised upward while
none moved down. With the Zacks Consensus Estimates going up for
both full-year 2013 and 2014, the company now has a Zacks Rank #3
(Hold).
Other Stocks to Consider
REITs that are currently performing well include MHI
Hospitality Corp. (MDH), Ryman Hospitality
Properties Inc. (RHP), both carrying a Zacks Rank #1
(Strong Buy), and Alexandria Real Estate Equities
Inc. (ARE) having 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.
ALEXANDRIA REAL (ARE): Free Stock Analysis Report
MHI HOSPITALITY (MDH): Free Stock Analysis Report
RYMAN HOSPITLTY (RHP): Free Stock Analysis Report
VENTAS INC (VTR): Free Stock Analysis Report
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