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Is it Wise to Retain Ventas (VTR) Stock in Your Portfolio?

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Ventas, Inc. (VTR - Free Report) is likely to benefit from the positive operating trend in its senior housing operations portfolio (SHOP), life-science space and office segment. This healthcare real estate investment trust (REIT) based in Chicago, IL, is primarily engaged in the acquisition, ownership and leasing of senior housing, life science, research & innovation (R&I) and healthcare properties.

Ventas’ SHO portfolio is well-poised to gain from the recovery of the senior housing industry and its occupancy gains, favorable demographics and the rise in healthcare expenditure by senior citizens.

Effective vaccine roll-outs have led to a rise in move-ins, which now exceed the pre-pandemic levels, while move-outs remain manageable. Its first-quarter 2022 same-store SHOP average occupancy grew 420 basis points to 83% year over year. The momentum in occupancy gains is likely to continue given the pent-up demand and resilient demographic demand for senior housing.

In addition, the increasing longevity of the aging U.S. population and biopharma drug development opportunities are supporting VTR’s life-science segment growth.

The office segment, which includes medical office buildings (MOBs), academic medical and R&I businesses, is benefiting from the rising need for healthcare services and growing outpatient trends. Ventas owns R&I centers in notable life science clusters of Cambridge, San Francisco, Maryland, Raleigh and Philadelphia and has a presence in more than 17 top-tier research university campuses. Subsequent to the March quarter, it acquired one R&I center in Philadelphia, PA, for $46.1 million.

Ventas maintains a healthy balance sheet position and takes appropriate measures to enhance its liquidity position and financial strength. It exited first-quarter 2022 with $2.2 billion of liquidity. As of Mar 31, 2022, net debt to adjusted pro-forma EBITDA improved from 7.2X to 6.9X sequentially. In May, S&P Global Ratings upgraded Ventas’ rating outlook to stable from negative, further boosting its creditworthiness. This gives the company enough financial flexibility to continue with its expansion efforts.

However, Ventas’ triple-net leased property segment is vulnerable to tenant concentration risk as most of its segmental revenues and net operating income (NOI) are generated from properties leased to Brookdale Senior Living, Ardent and Kindred. So, in case of no lease renewal, change in lease agreements or any adverse development with respect to these three tenants could lead to a deterioration in the company’s financial condition and results.

Also, a hike in interest rates is a major concern for this healthcare REIT as it might increase its borrowing costs. This would affect the company’s ability to purchase or develop real estate. As of Mar 31, 2022, VTR’s total consolidated debt balance was approximately $12.4 billion. The dividend payout might also become less attractive than the yields on fixed income and money market accounts.

Further, analysts seem bearish on this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company, as the same has marginally moved downward over the past month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Ventas have depreciated 1.4% in the past six months compared with the industry’s decline of 21.7%.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks in the REIT sector are Host Hotels & Resorts (HST - Free Report) , Rexford Industrial Realty (REXR - Free Report) and OUTFRONT Media (OUT - Free Report) .

The Zacks Consensus Estimate for Host Hotels & Resorts’ 2022 FFO per share has moved 5.1% upward in the past month to $1.65. HST presently carries a Zacks Rank of 1.

The Zacks Consensus Estimate for Rexford Industrial Realty’s current-year FFO per share has moved 1% northward in the past two months to $1.93. REXR carries a Zacks Rank of 2 (Buy) at present.

The Zacks Consensus Estimate for OUTFRONT Media’s ongoing year’s FFO per share has been raised 7.7% over the past two months to $2.09. OUT carries a Zacks Rank #1, currently.

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.