Ventas, Inc. (VTR Quick QuoteVTR ) is likely to capitalize on the senior housing industry recovery, aided by a high-quality portfolio. However, reduced cash flow from the sale of assets, and competition from national and local operators might act as deterrents for the company.
In light of effective vaccine roll-outs, the company is seeing emerging positive senior living operations trends in the United States, with move-ins exceeding the pre-pandemic levels, while move-outs remain steady. In addition, the market for seniors housing and healthcare real estate is large and fragmented, offering a huge scope of consolidation. This, along with the ownership of top-quality senior housing assets in strategic markets, which enjoy stronger demographic trends, creates a solid opportunity for Ventas.
The company’s office segment, which includes medical office buildings (MOBs), academic medical and research & innovation (R&I) centers, is poised to gain from favorable demographics and growing outpatient trends. The R&I centers are essential for the delivery of crucial healthcare services and research related to life-saving vaccines and therapeutics. Ventas is driving its R&I business forward aided by ground-up developments and asset acquisitions, in a bid to capitalize on the growing healthcare-driven research. It owns R&I centers in notable life-science clusters of Cambridge, San Francisco and Maryland, with presence in more than 16 top-tier research university campuses.
The healthcare REIT also enjoys a healthy balance sheet, and has been making efforts to enhance its liquidity and financial strength amid these testing times. As of the end of second-quarter 2021, its balance sheet enjoyed long-term credit ratings of Baa1 from Moody’s as well as BBB+ from Fitch and S&P Global, providing easy access to debt at favorable costs.
However, Ventas operates in a cut-throat market, and competes with national and local healthcare operators. Also, the company’s operators contend with peers for occupancy and to manage labor costs. This significantly limits its power to boost profitability as well as crack deals at attractive rates.
While the company is making efforts to unlock the value of its assets through opportunistic disposals of non-core assets, dilution in earnings and reduced cash flows in the near term from the sale of assets is unavoidable.
Shares of this Zacks Rank #3 (Hold) company have declined 1.1% over the past three months compared with the industry’s growth of 7.2%. However, the trend in estimate revisions for Ventas’ 2021 FFO per share indicates a favorable outlook for the company as the Zacks Consensus Estimate has moved marginally upward over the past month.
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A few better-ranked REIT stocks are mentioned below:
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The Zacks Consensus Estimate for CubeSmart’s (CUBE Quick QuoteCUBE ) 2021 FFO per share has moved up 2.6% in the past week. The stock currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Geo Group Inc’s (GEO Quick QuoteGEO ) current-year FFO per share has moved 12.2% north in a month’s time. The stock currently carries a Zacks Rank of 2.
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.