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Can Vantas (VTR) Maintain Its Beat Streak in Q4 Earnings?

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Ventas, Inc. (VTR - Free Report) is scheduled to report fourth-quarter 2020 earnings on Feb 18, before market open. The company’s resultsareexpectedtoreflect a year-over-year decline in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a positive surprise of 4.2% in terms of normalized FFO per share. Same-store cash net operating income (NOI) growth was supported by a cash consideration of $162 million received from the revised master lease agreement with Brookdale. However, its senior housing operating assets were severely impacted by the coronavirus pandemic.

Ventas outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 5.56%. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise


Ventas, Inc. Price and EPS Surprise

Ventas, Inc. price-eps-surprise | Ventas, Inc. Quote

Factors to Note

While the seniors housing industry beats the pandemic through vaccination, immediate recovery is less likely. In fact, fourth-quarter 2020 senior housing data released by NIC-MAP reiterates these concerns, with data indicating that seniors housing occupancy in the fourth quarter declined 130 basis points sequentially to 80.7%. Occupancy losses also resulted in worsening net absorption. Notably, net absorption was -5.4% in the fourth quarter compared with -3.8% in third-quarter 2020.

Moreover, annual rent growth decelerated to 1.4% in the quarter under review as compared with 1.7% in third-quarter 2020. Moreover, while the current government support has been helpful for senior housing operators, it was not enough to negate the implications of the COVID-19 outbreak.

As for Ventas, we note that 63.7% of its investments are in seniors housing communities (as of the third-quarter end) and hence given the significant exposure, the company’s fourth-quarter performance is expected to have continued to bear the brunt of occupancy pressure and rent growth deceleration.

The surge in COVID-19 cases in the second half of fourth-quarter 2020 exacerbated the seasonal slowdown in move-in activity. This along with unfavorable trends in move-outs is anticipated to have caused occupancy losses. The seasonally weak winter months too have not helped the company’s performance in the fourth quarter. This is expected to have resulted in occupancy loss in the fourth quarter, thereby, affecting revenues from resident fees and services. Notably, the Zacks Consensus Estimate for fourth-quarter resident fees and services is pegged at $538 million, indicating a year-over-year declineof 5.3%.

This is likely to have hindered total revenues for the quarter. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $930.7 million, suggesting a 6.6% decreasefrom the prior-year period.

A decline in income along with high COVID-related expenses is expected tohave dampened Ventas’ total NOI growth for the quarter under review.

Also, rent-collection issues from office tenants are anticipated to have persisted in the December-end quarter. Notably, the consensus mark for fourth-quarter rental income from its office buildings stands at $200 million, indicating a fall of 4.8% from the prior quarter’s reported figure.

Also, there is a lack of any solid catalyst to instill optimism regardingthe company’s prospects prior to the fourth-quarter earnings release. The Zacks Consensus Estimate for quarterly FFO per share has been unchanged at 73 cents over the past month. It also suggests a 21.5% year-over-year decline.

Here is what our quantitative model predicts:

Ventas does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ventas currently has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.29%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:

American Tower Corporation (AMT - Free Report) , set to report quarterly numbers on Feb 25, currently has an Earnings ESP of +7.49% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank(Strong Buy) stocks here.

Hudson Pacific Properties, Inc. (HPP - Free Report) , slated to release quarterly earnings on Feb 17, currently has an Earnings ESP of +0.76% and a Zacks Rank of 2 (Buy).

Public Storage (PSA - Free Report) , scheduled to announce fourth-quarter results on Feb 24, has an Earnings ESP of +0.53% and a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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