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Here's How Ventas (VTR) Looks Just Ahead of Q2 Earnings

Ventas, Inc. VTR is scheduled to report second-quarter 2020 earnings on Aug 7, before market open. While results are expected to reflect year-over-year growth in funds from operations (FFO) per share, while revenues are anticipated to display a decline.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a surprise of 11.49% in terms of FFO per share. Results reflected decent performance in its medical office and triple-net lease segment.

Over the preceding four quarters, Ventas outpaced the Zacks Consensus Estimate on all occasions, the average beat being 3.94%. 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 second-quarter earnings release.

Factors at Play

The second quarter of 2020 is the first quarter wherein the full impact of the coronavirus pandemic and its related lockdown-induced damage to the period’s earnings are expected to have been visible. As for the seniors housing industry is concerned, it continued to grapple with the rampant pandemic that resulted in occupancy and rental rate erosions. In fact, seniors housing occupancy in the second quarter declined 280 basis points (bps) sequentially to 84.9%, per the National Investment Center for Seniors Housing & Care (NIC) data. This was the maximum quarterly decrease in 14 years, making the occupancy rate the lowest on record.

Moreover, the annual absorption rate was -0.5% during the quarter against 3% growth registered in first-quarter 2020. The decline in occupancy and absorption is expected to have decelerated rent growth. In fact, annual rent growth for the quarter was 84.9%, down from 87.7% observed in the March-end quarter. This is concerning for REITs like Welltower Inc. WELL, Healthpeak Properties, Inc. PEAK and LTC Properties, Inc. LTC, which have significant senior housing exposure.

In fact, Ventas’ seniors housing operating portfolio (SHOP) and triple-net lease segment too have not been immune to the industry setbacks. In fact, occupancy at its owned SHOP assets (395 as of the first-quarter end) witnessed a continued decline from 85.5% as of Apr 2 to 80.7% as of Jun 11.

The downside is expected to have affected resident fees and services. Notably, the Zacks Consensus Estimate for second-quarter resident fees and services is pinned at $542 million, indicating a 6.1% decline from the prior quarter’s reported figure.

Additionally, average monthly total operating expenses for April and May were around 5% higher than first-quarter 2020 to combat the pandemic. The sequential increase in monthly average operating expenses along with unfavorable revenue trends is anticipated to have dampened net operating income (NOI) growth.

The company also offered its triple-net lease tenants a 25% rent deferral program in April. This is expected to have resulted in lower rental income. Notably, the Zacks Consensus Estimate for second-quarter rental income from its triple-net lease tenants is pinned at $185 million, indicating a decline of 5.1% from the prior quarter’s reported figure.

Nevertheless, outpatient medical facilities are anticipated to have reopened for elective procedures in the second quarter, supporting revenues from the medical office portfolio. In fact, spot occupancy for its office business improved 10 basis points from the first-quarter end to 91.8% as of May 31st. Further, the consensus estimate for second-quarter rental income from its office buildings is pinned at $208 million, remaining stable sequentially.

This is likely to have supported total revenue growth for the quarter. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $974.8 million, suggesting a 2.5% increase from the prior-year period.

Nevertheless, there is a lack of any solid catalyst for becoming optimistic about the company’s prospects prior to the second-quarter earnings release. The Zacks Consensus Estimate for quarterly FFO per share moved 5.2% south to 72 cents over the past month. It also suggests a 25.8% year-over-year decline.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a beat 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 -3.05%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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