On Nov 21, 2013, we reaffirmed our Neutral recommendation on
healthcare real estate investment trust (REIT),
). The decision was based on its bottom-line growth, strong
liquidity, improved guidance and strategic acquisitions. Yet its
substantial exposure to long-term leased assets and major revenue
origination from few tenants remain our concerns.
CHATHAM LODGING (CLDT): Free Stock Analysis
GEO GRP INC/THE (GEO): Free Stock Analysis
SABRA HEALTHCR (SBRA): Free Stock Analysis
VENTAS INC (VTR): Free Stock Analysis Report
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Ventas Inc.'s third-quarter 2013 normalized FFO per share of
$1.04 exceeded the Zacks Consensus Estimate by 1.96% and the
year-ago quarter figure by 8.3%. Including the non-recurring
items, FFO in the reported quarter came in at $1.03 per share, up
6.2% from 97 cents in the year-ago quarter.
Quarterly results were driven by strategic investments made this
year and last year. In particular, the company experienced an
uptick in net operating income (NOI) in its private pay seniors
housing communities, triple-net lease portfolio and medical
office building segment. Ventas also increased its guidance and
now projects normalized FFO per share in the range $4.12 - $4.14
compared to the prior range of $4.06 - $4.10.
For Ventas, over the last 30 days, the Zacks Consensus Estimate
for both 2013 and 2014 advanced nearly 1% to $4.14 and $4.34,
respectively. Therefore, the stock currently carries a Zacks Rank
Ventas has one of the largest and most diversified portfolios in
the healthcare sector that allows it to capitalize on
opportunities in different markets based on individual market
dynamics. The company usually leases its healthcare facilities
under "triple net" leases, where the tenant pays for taxes,
insurance and maintenance of the properties, in addition to rent,
which ensures a steady and increasing cash flow.
Moreover, the healthcare sector is relatively immune to the
economic headwinds faced by office, retail and apartment
companies and therefore offers stability to the company amid
market volatility. Going forward, we expect the company to
benefit from growing healthcare spending and aging population in
Nevertheless, we notice that a large portion of Ventas' revenues
originate from a few tenants, which exposes it to concentration
risks. Moreover, rising rates are a concern for Ventas and
particularly for its substantial exposure to long-term leased
assets that bear fixed rental rate, while the company's debt
obligations bear floating rates with interest and related
payments rates. This discrepancy in rates tends to affect the
profitability of the company.
Other Stocks to Consider
Other better-ranked REIT -equity trust stocks include
The GEO Group, Inc.
Sabra Health Care REIT, Inc.
Chatham Lodging Trust
). Both GEO Group and Sabra Health Care carry a Zacks Rank #1
(Strong Buy), while Chatham Lodging carries a Zacks Rank #2 (Buy)
Funds from operations, a widely accepted and reported measure
of REITs performance, are derived by adding depreciation,
amortization and other non-cash expenses to net income.