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Ventas (VTR) to Report Q3 Earnings: What's in the Offing?

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Ventas, Inc. (VTR - Free Report) is scheduled to report third-quarter 2021 earnings on Nov 5, before market open. While the company’s quarterly results are expected to highlight year-over-year growth in revenues, it might display a decline in the funds from operations (FFO) per share.

In the previous quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a surprise of 1.4% in terms of normalized FFO per share. The result reflected sequential occupancy improvement in its senior housing operating portfolio segment as well as growth in the Office segment.

Ventas surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 5.53%. 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

With rapid vaccination, the COVID-19 case counts have gradually come down leading to occupancy revival in the third quarter. Slowdown in inventory growth also acted as tailwind. Per the NIC-MAP’s senior housing data, amid improving demand, seniors housing occupancy increased to 80.1% in the third quarter from the second quarter’s 78.7%.

During the third quarter, annual rent growth expanded 20 basis points sequentially to 1.5% and annual absorption advanced 410 bps to 0.2%.

This is likely to have been a breather for healthcare REITs like Ventas, Welltower, Inc. (WELL - Free Report) and Healthpeak (PEAK - Free Report) , which have seniors housing exposures.

As the situation has improved since the initial pandemic days, Ventas is witnessing higher number of move-ins, which is likely to have led to revenue and net operating income growth in the quarter under consideration.

Such occupancy gain is expected to have supported revenues from resident fees and services. The Zacks Consensus Estimate for third-quarter resident fees and services is pegged at $549 million, indicating a sequential rise of 2.4%.

Management expects third-quarter 2021 spot occupancy in its sequential same-store SHOP business to advance 150-250 bps from June end to September end.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $937.5 million, suggesting a 2% increase from the prior-year quarter.

The consensus mark for third-quarter rental income from its office buildings is pinned at $205 million, up 2.5% from the prior quarter.

In addition, the market for seniors housing real estate is large and fragmented, offering a huge scope of consolidation. This, along with the ownership of top-quality senior housing assets in strategic markets, which enjoy stronger demographic trends, creates a solid opportunity for Ventas.

Capitalizing on the senior housing industry recovery, in September, the company announced the completion of its acquisition of New Senior Investment Group Inc. in an all-stock $2.3-billion transaction.

Ventas has been making efforts to unlock the value of its assets through the disposals of non-core assets, primarily across the senior housing and MOBs verticals.

Although such efforts enable it to optimize its portfolio, better manage financial obligations and reinvest in attractive opportunities; the dilution in earnings and reduced cash flows from the sale of assets are expected to have been unavoidable.

Prior to the third-quarter earnings release, there is a lack of any solid catalyst for becoming optimistic about the company’s prospects. The Zacks Consensus Estimate for the quarterly FFO per share has been revised 1.4% downward to 73 cents over the past month and suggests a 2.7% year-over-year decline.

Management projects the third-quarter normalized FFO per share at 70-74 cents.

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 carries a Zacks Rank #3 and has an Earnings ESP of -0.30%. You can see the complete list of today’s Zacks #1 Rank(Strong Buy) stocks here.

A Stock That Warrants a Look

Here is a stock in the REIT sector that you may want to consider, as our model shows that this have the right combination of elements to report surprises this quarter:

Apple Hospitality REIT (APLE - Free Report) , slated to release third-quarter earnings on Nov 4, has an Earnings ESP of +26.67% and sports a Zacks Rank of 1, 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.