On Aug 23, we reaffirmed our long-term Neutral recommendation
). The decision is based on the company's diversified portfolio,
growing healthcare spending and aging population. Strategic
acquisitions and a decent cash flow would provide the tempo for
riding on the growth trajectory. Yet, rising rates and the
company's substantial exposure to long-term leased assets remain
our concern. Also, a large portion of its revenue originates from
a few tenants, which exposes it to concentration risk.
Why the Reiteration?
Aided by an uptick in net operating income in its private pay
seniors housing communities, triple-net lease portfolio and
medical office building segment, Ventas reported second-quarter
2013 normalized Funds From Operations (FFO) per share of $1.01,
increasing 6.3% year over year. Including the non-recurring
items, FFO in the reported quarter came in at $1.03 per share, up
27.2% from the year-ago quarter.
Backed by its strategic efforts and accretive acquisitions,
Ventas, which has one of the largest and most diversified
portfolios in the healthcare sector with exposure to all types of
facilities, raised its outlook for full-year 2013.
Going forward, we believe that its adequate size and scale would
help it capitalize on the acquisition opportunities that the huge
healthcare real estate market is offering. Growth in healthcare
spending along with the aging population will drive the demand
for Ventas' properties. The company has a strong balance sheet
with ample liquidity to support its strategic measures and make
steady dividend payouts.
Yet, rising rates are a concern for Ventas. With the fixed rate
nature of a substantial part of the company's revenue on one hand
and rising cost of debt amid an increasing interest rate
environment on the other, the company's profitability gets
Also, a large portion of Ventas' revenues originate from a few
tenants, which exposes it to concentration risks. Moreover, the
cut-throat market and competitive market limits its power to
significantly raise its top line and crack deals at attractive
Over the last 30 days, the Zacks Consensus Estimate for 2013 FFO
per share moved north by a cent to $4.11 while the Zacks
Consensus Estimate for 2014 inched down by a cent to $4.31 per
share. The stock currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other stocks in the related industry that are worth considering
Douglas Emmett Inc.
Highwoods Properties Inc.
SL Green Realty Corp.
), all carrying a Zacks Rank #2 (Buy).
FFO, a widely used metric to gauge the performance of REITs,
is obtained after adding depreciation and amortization and other
non-cash expenses to net income.
DOUGLAS EMMETT (DEI): Free Stock Analysis
HIGHWOODS PPTYS (HIW): Free Stock Analysis
SL GREEN REALTY (SLG): Free Stock Analysis
VENTAS INC (VTR): Free Stock Analysis Report
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