Ventas Beats in 2Q, Ups Outlook

Ventas, Inc ( VTR - Analyst Report ) , a real estate investment trust (REIT), reported second quarter 2012 funds from operations (FFO) of $236.0 million or 81 cents per share compared with $100.6 million or 57 cents in the year-earlier quarter.

Excluding the non-recurring items, FFO in the reported quarter stood at $277.8 million or 95 cents per share, compared with $141.5 million or 80 cents in the year-ago quarter. Recurring FFO per share in the quarter beat the Zacks Consensus Estimate by 3 cents.

The massive 135%year-over-year upside in FFO was primarily on the back of accretive acquisitions like Nationwide Health Properties Inc., Atria Senior Living Group, Inc., Cogdell Spencer , and rental increases from the company’s triple lease portfolio, partially offset by higher administrative expenses and high weighted average diluted shares outstanding during the quarter.

Total revenue during the quarter was $616.4 million compared with $359.5 million in the year-earlier quarter. Total revenue also beat the Zacks Consensus Estimate of $592.0 million.

As of June 30, 2012, Ventas had an operating portfolio of 95 private pay seniors housing communities managed by Sunrise and 119 private pay seniors housing communities managed by Atria.

During the second quarter of 2012, total net operating income (NOI) before management fees for the same-store communities increased 2.0% sequentially to $107.9 million. Same-store occupancy increased 80 basis points to 89.2 %.

Ventas completed acquisitions worth $1.2 billion in the reported quarter and has commitments to acquire additional assets worth more than $300 million in the second half of 2012.

During the quarter, Ventas completed the acquisition of 72 high quality medical office buildings (MOBs) from Cogdell Spencer Inc. (Cogdell) to emerge as the largest owner of MOBs in the U.S. with over 21 million square feet of owned properties. Additionally, the company also acquired 16 premium quality, private pay senior living communities managed by Sunrise for $362 million.

Ventas invested over $98 million during the reported quarter, including an assumption of $18.2 million debt in senior housing communities. Also, Ventas sold 13 assets for $121.9 million. To further increase its liquidity, Ventas sold approximately 6 million shares generating proceeds of $342.5 million.

As of June 30, 2012, the company had $367 million of debt under its unsecured revolving credit facility, $500 million under its unsecured term loan facility, and $52.8 million in cash and cash equivalents.

At quarter end, debt to total capitalization stood at 28% and net-debt-to-adjusted-pro-forma-EBITDA (earnings before interest, tax, depreciation and amortization) was 4.9x.

With superior quarterly results, Ventas increased its recurring FFO guidance from the range of $3.63-$3.69 to $3.70-$3.74 per share for 2012.

Ventas currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, HCP, Inc. ( HCP - Analyst Report ) holds a Zacks#2 Rank, which implies a short-term Buy rating.

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.