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Ventas (VTR) to Report Q2 Earnings: What's in the Cards?

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Ventas, Inc. (VTR - Free Report) is scheduled to report second-quarter 2022 earnings on Aug 4, after market close. While the company’s revenues are likely to have witnessed year-over-year growth, FFO per share is expected to have declined.

In the previous quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a surprise of 2.60% in terms of normalized FFO per share. The quarterly results reflected an improvement in occupancy and pricing power for the senior housing operating portfolio (SHOP) segment.

Ventas’ normalized FFO per share surpassed the Zacks Consensus Estimate in three of the trailing four quarters and met the same in one, the average beat being 1.70%. 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 at Play

Ventas’ SHOP portfolio, which refers to its senior housing communities in the United States, Canada and the United Kingdom, has been witnessing improvement in the occupancy levels as net move-in rates are on the rise. Per its June Investor Presentation, the preliminary May average occupancy reached 83.8%, up 70 basis points (bps) from the first quarter, mainly led by the U.S. portfolio, which rose 90 bps from the previous quarter.

Additionally, the healthcare sector is necessity-driven by nature. Moreover, the senior citizen population has risen in the past few years. This age cohort constitutes a major customer base of healthcare services and ends up spending more on healthcare services than the average population.

Ventas is likely to have capitalized on this trend during the quarter. This is expected to have played a key role in its SHOP segment revenue growth.

The Zacks Consensus Estimate for second-quarter resident fees and services is pegged at $673.2 million, suggesting an increase from $651.1 million reported in the prior quarter and $535.9 million in the year-ago period.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $1.04 billion, implying a 13.5% increase from the prior-year quarter’s reported figure.

In addition, for the second quarter, VTR had estimated the SHOP segment same-store cash NOI to lie between 2% and 10% based on expected growth in occupancy of 400 bps and improved rates.

Also, Ventas is expected to have maintained adequate financial flexibility.
Further, it received an outlook upgrade from S&P Global Ratings during the quarter.

However, Ventas anticipated that for the office segment, the normalized FFO will be reduced by 1 cent per share sequentially for the to-be-reported quarter. This is mainly due to its proposed redevelopment of two of its R&I properties into a high-demand lab space after the move-out of two of its tenants.

Likewise, the normalized FFO for the triple-net leased portfolio is projected to be lowered by 1 cent per share sequentially for the quarter. This is due to the lease resolutions with senior housing triple-net tenants who were materially affected by the pandemic.

The consensus mark for the second-quarter rental income from its office buildings stands at $193.6 million, indicating a decline from the prior quarter’s reading of $200.5 million and $200.4 million in the year-ago period. Rental income from its triple-net leased portfolio is pegged at $149.6 million, suggesting a fall from the $151.6 million reported in the prior quarter and $159.2 million in the year-ago quarter.

The company’s capital-recycling strategy to dispose of non-core assets is anticipated to have led to a dilution in earnings and affected cash flows in the to-be-reported quarter.

Ventas projected second-quarter 2022 normalized FFO per share in the range of 69-73 cents. The Zacks Consensus Estimate for the same has been revised a cent downward to 72 cents in the past month, suggesting a fall of 1.4% from the year-ago quarter’s figure.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict a surprise in terms of FFO per share for Ventas this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — increases the odds of an FFO beat. However, that’s not the case here.

Earnings ESP: Ventas has an Earnings ESP of -1.22%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: VTR currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks that are worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:

Regency Centers (REG - Free Report) is scheduled to report quarterly figures on Aug 4. REG has an Earnings ESP of +0.13% and a Zacks Rank of 3 currently.

CubeSmart (CUBE - Free Report) is scheduled to report quarterly numbers on Aug 4. CUBE has an Earnings ESP of +0.08% and carries a Zacks Rank of 3.

KE Holdings (BEKE - Free Report) is slated to report quarterly figures on Aug 10. BEKE has an Earnings ESP of +7.69% and a Zacks Rank of 2 (Buy) currently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.