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Factors Setting the Tone for Ventas (VTR) Q1 Earnings

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Ventas, Inc. (VTR - Free Report) is scheduled to report first-quarter 2020 earnings on May 8, before the market opens. While results will likely reflect year-over-year growth in revenues, the funds from operations (FFO) per share might display a decline.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a positive surprise of 1.09%. Results reflected solid performance of its medical office, healthcare and research and innovation (R&I) portfolios, though the Senior Housing business faced a choppy market environment.

Over the preceding four quarters, Ventas outpaced the Zacks Consensus Estimate on all occasions, the average beat being 1.85%. 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

Let’s see how things have shaped up prior to the first-quarter earnings release.

Factors at Play

According to the data from the National Investment Center for Seniors Housing & Care (NIC), senior housing occupancy decreased slightly to 87.7% in first-quarter 2020 from the prior quarter’s 87.9%, suggesting a relative stability of occupancy leading up to the coronavirus outbreak in March. However, with the pandemic, occupancy and construction starts remain challenged. The senior housing’s annual rent growth fell to 2.4% from the prior quarter’s 2.9%.

In the first quarter, San Jose (95.0%) and San Francisco (91.5%) recorded the highest occupancy rates, while Houston (82.1%) and Atlanta (82.7%) witnessed the lowest.

As for Ventas, amid favorable demographics and growing outpatient trends, the company is focusing to capture the upside with its office segment, which includes MOBs, academic medical and R&I businesses. Particularly, the increasing longevity of the aging U.S. population, along with biopharma drug development growth opportunities, has boosted the institutional life-science and medical-market fundamentals. This is anticipated to have aided Ventas’ office operations during the period under discussion.

However, performance of the company’s seniors housing portfolio is likely to have been challenging amid the choppy market conditions, a dynamic and competitive market and lower occupancy levels. High supply is expected to have intensified competition for new residents.

In addition, the company withdrew its guidance for the ongoing year on Mar 17 in light of the coronavirus pandemic. Ventas noted that its results in the first two months of the current-year were in line with the previously-issued projections.

Regarding its senior housing business, the company noted that through February 2020, the senior housing operating business delivered results in line with the company’s expectations, and as of Mar 17, Ventas received significantly all of its triple net lease (NNN) rent payments, as expected. Nevertheless, it noted that there are solid signals that tours and move-ins have started to slow down, while the pandemic increases the risk of a high level of move-outs. Also, operating costs of the company’s partners have been rising.

The Zacks Consensus Estimate for first-quarter rental income from the office segment is pegged at $212 million, suggesting 5.5% year-over-year growth. The rental income estimate from triple-net leased assets is pinned at $191 million, indicating a 4.5% decrease year on year. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $967.6 million, suggesting a 2.6% increase from the prior-year period.

Nevertheless, there is lack of any solid catalyst for becoming optimistic about the company’s prospects prior to the first-quarter earnings release. The Zacks Consensus Estimate for the quarterly FFO per share moved 2.2% south to 87 cents, over the past month. It also suggests a 12.1% decline year over year.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Ventas this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. 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 -3.99%.

Stocks That Warrant a Look

Arbor Realty Trust (ABR - Free Report) , scheduled to release earnings on May 8, has an Earnings ESP of +1.59% and a Zacks Rank of 3 at present.You can see the complete list of today’s Zacks #1 Rank stocks here.

CBL Properties (CBL - Free Report) , slated to release earnings results on May 18, currently has an Earnings ESP of +11.11% and a Zacks Rank #3.

VEREIT, Inc. (VER - Free Report) , set to report quarterly numbers on May 20, currently has an Earnings ESP of +5.15% and a Zacks Rank of 3.

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