Ventas Inc.’s (VTR - Analyst Report) has reported a better-than-expected result in the fourth quarter 2012 and announced an 8% hike in its quarterly dividend rate. Its normalized funds from operations (FFO) reached 99 cents per share in the fourth quarter, 2 cents ahead of the Zacks Consensus Estimate and 10 cents above the prior-year quarter figure.
For full year 2012, the company’s normalized FFO came in at $3.80 per share, exceeding the Zacks Consensus Estimate by a cent and significantly ahead of the year-ago figure of $3.37 per share. 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 excalation from its triple-net lease portfolio.
Including the non-recurring items, FFO in the reported quarter stood at $284.0 million or 96 cents per share, down from $359.1 million or $1.24 per share in the year-ago quarter. A rise in shares outstanding as well as litigation proceeds that were received in the prior-year quarter accounted for the decline. On the same basis, for full year 2012, reported FFO per share decreased 2.5% to $3.48 from $3.57 in 2011.
Total revenue during the quarter reached $660.7 million, escalating 17.3% year over year. The figure also exceeded the Zacks Consensus Estimate of $642 million. Total revenue for full-year 2012, came in at $2.49 billion, up 42.5% from a year ago and marginally ahead of the Zacks Consensus Estimate of $2.46 billion.
Behind the Headline Numbers
As of Dec 31, 2012, Ventas had an operating portfolio of 95 private pay seniors housing communities managed by Sunrise and 125 private pay seniors housing communities managed by Atria. Net Operating Income (NOI) for this portfolio before management fees stood at $455.8 million.
During the fourth quarter of 2012, same-store NOI before management fees escalated 6.2% from the year-ago quarter to $107.3 million. Average unit occupancy in the same-store communities surged 360 basis points year over year to 91.9% in the quarter under review.
Notable Activities During 2012
During 2012, Ventas completed $2.7 billion in investments, including Cogdell Spencer, Inc. and 16 private pay seniors housing communities managed by Sunrise. Private pay assets comprised 97% of the total investment. Moreover, Ventas made investments worth $1 billion during the fourth quarter and this included seniors housing assets, medical office buildings and secured loans.
Ventas also acquired 100% of several private investment funds which were managed previously by Lazard Frères Real Estate Investors LLC or its affiliates. This helped in gaining 34% interest in Atria and 3.7 million shares of Ventas common stock. The remaining 66% of Atria is being owned by the Atria management team.
In addition, Ventas made dispositions of 43 properties and received final repayment on loans aggregating $422 million in proceeds. These dispositions helped the company in realizing a net gain of $81.0 million. Moreover, during the fourth quarter 2012, Ventas disposed assets and got final repayment on loans totaling $120 million in proceeds as well as recognized a net gain.
As of Dec 31, 2012, Ventas had $541 million of borrowings outstanding under its unsecured revolving credit facility and $68 million of cash and cash equivalents. Moreover, at quarter-end, debt to total capitalization stood at 31% and net-debt-to-adjusted-pro-forma-EBITDA (earnings before interest, tax, depreciation and amortization) was 5.4x.
Ventas currently projects its normalized FFO per share in the range $3.99 – $4.07 for full year 2013. Notably, this excludes the impact of unannounced acquisitions, divestitures and capital transactions.
The company expects NOI for its total Sunrise- and Atria-managed seniors housing operating portfolio to be in the range of $430 million - $440 million for 2013, reflecting around 5% - 8% same-store NOI growth.
Ventas increased its first quarter 2013 cash dividend by 8% to 67 cents per share. The increased dividend will be paid on Mar 28, 2013 to stockholders of record as on Mar 8, 2013.
We are encouraged with the decent result at Ventas as well as the dividend hike announcement. We expect the company’s strategic move in Atria and other opportunistic acquisitions to provide significant upside potential to the stock going forward. Moreover, being one of the largest healthcare REITs in the U.S., Ventas boasts of a significantly diversified portfolio and exposure to nearly all types of facilities.
Also, the healthcare sector is relatively immune to the downturn in the economy, and provides a steady source of income that insulates the company from short-term market volatility.
Ventas currently has a Zacks Rank #2 (Buy). A number of other REITs that are also performing well include Terreno Realty Corp. (TRNO - Snapshot Report), having a Zacks Rank #1 (Strong Buy) as well as Hersha Hospitality Trust (HT - Snapshot Report) and Medical Properties Trust Inc. (MPW - Snapshot Report), both carrying 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.