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Is It Wise to Retain Ventas (VTR) Stock in Your Portfolio?
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Ventas, Inc.’s (VTR - Free Report) senior housing operations portfolio (SHOP), which refers to its senior housing communities in the United States, Canada and the United Kingdom, is well-positioned for growth due to rising healthcare spending by senior citizens and an aging population.
Senior citizens constitute a major customer base of healthcare services and incur higher healthcare expenditures compared with the average population. Therefore, given the pent-up demand and favorable demographic trend for senior housing, Ventas’ SHOP portfolio is likely to continue to capitalize on this positive trend in the upcoming period.
In addition, the senior housing industry is presently experiencing a recovery, which has aided move-in rates, with move-outs remaining manageable. The Chicago, IL-based healthcare real estate investment trust (REIT) witnessed third-quarter 2022 same-store SHOP average occupancy growth of 260 basis points year over year to 84.7%.
Amid favorable demographics and growing outpatient trends, Ventas is well-poised to capitalize on this upside within its office segment, which includes MOBs, academic medical and R&I businesses. Also, to capitalize on the growing need for research related to life-saving vaccines and therapeutics, VTR has been making accretive investments and acquisitions in its R&I business.
Per its November NAREIT REITworld Investor Presentation, Ventas has $2.3 billion of life science and R&I developments recently delivered or in progress. Also, 75% of the company’s rent from this segment comes from high-credit tenants, thereby assuring steady cash flows.
On the balance-sheet front, VTR exited the third quarter of 2022 with $2.5 billion of liquidity and a net debt to adjusted pro forma EBITDA of 6.9X. In addition, the long-term credit ratings of Baa2 from Moody’s and BBB+ from Fitch and S&P Global render the company easy access to the debt market at favorable costs.
With enough financial flexibility, Ventas is well-positioned to capitalize on growth opportunities. Shares of Ventas have risen 10.3% in the past three months against the industry’s decline of 1.9%.
Image Source: Zacks Investment Research
However, intense competition from other industry players in the healthcare service sector is a key concern for Ventas. Also, the company’s operators contend with peers for occupancy and to manage expenses. This could hurt VTR’s revenues and limit profitability to a certain extent.
Ventas’ triple-net-leased property segment is exposed to tenant concentration risk. Hence, in case of no lease renewal, a change in lease agreements or any adverse development concerning these three tenants could lead to a deterioration in the company’s financial condition and results.
Further, rising interest rates are likely to increase the company's borrowing costs. This could affect its ability to purchase or develop real estate.
Analysts seem bearish on this Zacks Rank #4 (Sell) company. The Zacks Consensus Estimate for Ventas’ 2022 funds from operations (FFO) per share has been unchanged over the past month, indicating an unfavorable outlook.
Image: Shutterstock
Is It Wise to Retain Ventas (VTR) Stock in Your Portfolio?
Ventas, Inc.’s (VTR - Free Report) senior housing operations portfolio (SHOP), which refers to its senior housing communities in the United States, Canada and the United Kingdom, is well-positioned for growth due to rising healthcare spending by senior citizens and an aging population.
Senior citizens constitute a major customer base of healthcare services and incur higher healthcare expenditures compared with the average population. Therefore, given the pent-up demand and favorable demographic trend for senior housing, Ventas’ SHOP portfolio is likely to continue to capitalize on this positive trend in the upcoming period.
In addition, the senior housing industry is presently experiencing a recovery, which has aided move-in rates, with move-outs remaining manageable. The Chicago, IL-based healthcare real estate investment trust (REIT) witnessed third-quarter 2022 same-store SHOP average occupancy growth of 260 basis points year over year to 84.7%.
Amid favorable demographics and growing outpatient trends, Ventas is well-poised to capitalize on this upside within its office segment, which includes MOBs, academic medical and R&I businesses. Also, to capitalize on the growing need for research related to life-saving vaccines and therapeutics, VTR has been making accretive investments and acquisitions in its R&I business.
Per its November NAREIT REITworld Investor Presentation, Ventas has $2.3 billion of life science and R&I developments recently delivered or in progress. Also, 75% of the company’s rent from this segment comes from high-credit tenants, thereby assuring steady cash flows.
On the balance-sheet front, VTR exited the third quarter of 2022 with $2.5 billion of liquidity and a net debt to adjusted pro forma EBITDA of 6.9X. In addition, the long-term credit ratings of Baa2 from Moody’s and BBB+ from Fitch and S&P Global render the company easy access to the debt market at favorable costs.
With enough financial flexibility, Ventas is well-positioned to capitalize on growth opportunities. Shares of Ventas have risen 10.3% in the past three months against the industry’s decline of 1.9%.
Image Source: Zacks Investment Research
However, intense competition from other industry players in the healthcare service sector is a key concern for Ventas. Also, the company’s operators contend with peers for occupancy and to manage expenses. This could hurt VTR’s revenues and limit profitability to a certain extent.
Ventas’ triple-net-leased property segment is exposed to tenant concentration risk. Hence, in case of no lease renewal, a change in lease agreements or any adverse development concerning these three tenants could lead to a deterioration in the company’s financial condition and results.
Further, rising interest rates are likely to increase the company's borrowing costs. This could affect its ability to purchase or develop real estate.
Analysts seem bearish on this Zacks Rank #4 (Sell) company. The Zacks Consensus Estimate for Ventas’ 2022 funds from operations (FFO) per share has been unchanged over the past month, indicating an unfavorable outlook.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties (VICI - Free Report) , Lamar Advertising (LAMR - Free Report) and Service Properties Trust (SVC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share stands at $7.34.
The Zacks Consensus Estimate for Service Properties Trust’s ongoing year’s FFO per share is pegged at $1.44.
Note: Anything related to earnings presented in this write-up represent FFO — a widely used metric to gauge the performance of REITs.