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Ventas Inc. (VTR - Analyst Report) has yet again come up with impressive first-quarter 2013 results. Its normalized funds from operations (FFO) reached $1.03 per share in the first quarter, 4 cents ahead of the Zacks Consensus Estimate of 99 cents and 13% ahead of the year-ago FFO of 91 cents per share.

The results at this real estate investment trust (REIT) were primarily driven by the strategic investments in 2012. Ventas experienced an increase in net operating income in its private pay seniors housing communities managed by Atria and Sunrise, its triple-net lease portfolio and in its medical office building segment. Yet, a rise in expenses, elevated debt levels and asset sales, and loan repayments acted as headwinds.

Including the non-recurring items, FFO in the reported quarter stood at $295.3 million or $1.00 per share, up from $214.8 million or 74 cents per share in the year-ago quarter.

Total revenue during the quarter reached $684.9 million, escalating 20.9% year over year. Revenue also exceeded the Zacks Consensus Estimate of $663 million.

Behind the Headline Numbers

As of Mar 31, 2013, Ventas had an operating portfolio of 95 seniors housing communities managed by Sunrise and 125 seniors housing communities managed by Atria, leading to a total of 220 seniors housing operating portfolio. Net Operating Income (NOI) for this portfolio after management fees stood at $108.1 million.

During the first quarter of 2013, same-store NOI after management fees escalated 7.3% while REVPOR (revenue per occupied room) increased 3.2% year over year. Average unit occupancy in the same-store communities surged 270 basis points year over year to 91.1% in the quarter under review.

Notable Activities During 1Q13

Ventas made investments worth around $200 million in 10 assets. In these assets, the company previously had a non-controlling interest or was the tenant under a capital lease prior to the purchase. Such investments were on-campus and 100% leased to medical office buildings (MOBs) and private pay seniors housing communities with a yield of around 6.5%.

In addition, Ventas disposed assets, including loans, and got final repayment on outstanding loans, totaling $156 million in proceeds.

Liquidity

As of Mar 31, 2013, Ventas had $165 million of borrowings outstanding under its unsecured revolving credit facility and $58 million of cash and cash equivalents. Moreover, 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 5.3x.

Notably, in Apr 2013, Standard & Poor’s Rating Services improved its outlook on the company’s corporate credit rating to “positive”. Currently, Ventas’s senior unsecured debt is rated BBB+ (stable) by Fitch Ratings, Baa2 (positive) by Moody’s Investors Service and BBB (positive) by S&P.

Outlook

Ventas has reiterated its normalized FFO per share guidance 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.

Dividend Update

Ventas increased its first-quarter 2013 cash dividend by 8% to 67 cents per share. The increased dividend was paid on Mar 28, 2013 to stockholders of record as on Mar 8, 2013.

Our Take

We are encouraged with the decent result at Ventas. Being one of the largest healthcare REITs in the U.S., Ventas boasts a significantly diversified portfolio and exposure to nearly all types of facilities. Moreover, the company’s strategic move in Atria Senior Living and other opportunistic acquisitions are expected to provide significant upside potential to the stock going forward.

Ventas also has a strong balance sheet, which provides its adequate financial flexibility to aim at high-yielding acquisitions, high ROI (return on investments) capital projects and steady dividend payouts.

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.

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.

Ventas currently has a Zacks Rank #3 (Hold).

Other REITs

A number of other REITs have reported this week. Of them, Taubman Centers Inc. (TCO - Analyst Report) has come up with decent first-quarter 2013 results, with FFO of 90 cents per share, comfortably surpassing the Zacks Consensus Estimate of 84 cents. The better-than-expected results were primarily driven by increase in rents and solid recoveries.

Also, Liberty Property Trust reported first-quarter 2013 FFO of 65 cents per share, beating the Zacks Consensus Estimate by 2 cents. The results were attributable to consistent performance of the overall portfolio as well as strong leasing and development activities.

We now look forward to the results of another REIT, Plum Creek Timber Co. Inc. (PCL - Analyst Report), which is scheduled to release its first-quarter 2013 results on Monday (Apr 29), after the market closes.

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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