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What's in the Offing for Ventas (VTR) This Earnings Season?

Zacks Equity Research
·5-min read

Ventas, Inc. VTR is scheduled to report third-quarter 2022 earnings on Nov 3, after market close. Its quarterly results will likely highlight year-over-year growth in revenues and funds from operations (FFO) per share.

In the previous quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered normalized FFO per share of 72 cents, in line with the Zacks Consensus Estimate. The quarterly results reflected growth in occupancy and improvement in pricing power for the senior housing operating portfolio (SHOP). Additionally, the office portfolio witnessed growth in same-store net operating income (NOI), while there was weakness in the triple-net leased portfolio.

Ventas’ normalized FFO per share surpassed the Zacks Consensus Estimate in two of the trailing four quarters and met the same in the other two, the average beat being 1.36%. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

Ventas, Inc. price-eps-surprise | Ventas, Inc. Quote

Factors at Play

Ventas’ SHOP portfolio, which refers to its senior housing communities in the United States, Canada and the United Kingdom, has been witnessing improvement in the occupancy levels as net-move ins are on the rise.

Per the company’s latest investor presentation, the SHOP portfolio’s preliminary average occupancy from the beginning of the third quarter through Sep 12, 2022, totaled 84.5%. This implied a rise of 80 basis points (bps) from the second quarter and a 240 bps growth from the prior-year period.

The increase was mainly led by the U.S. portfolio, which rose 100 bps from the previous quarter and 280 bps from the year-ago quarter. Canada’s growth was muted compared to the United States due to ongoing COVID-19 restrictions and grew only 170 bps year over year.

The net move-in and move-out improved in August from July, primarily due to more move-ins and lower move-outs compared with the prior month.

In addition, senior citizens constitute a major customer base of healthcare services and incur higher healthcare expenditures compared with the average population. Ventas’ SHOP portfolio is likely to have continued to capitalize on this positive trend during the quarter.

The Zacks Consensus Estimate for third-quarter resident fees and services is pegged at $664 million, suggesting an increase from $658 million reported in the prior quarter and $558 million in the year-ago period.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $1.03 billion, implying a 5.8% increase from the prior-year quarter’s reported figure.

In addition, in its second-quarter earnings release, VTR had estimated the SHOP segment same-store cash NOI to lie between 9% and 15% based on revenue growth driven by an expected rise in occupancy of 250 bps to 300 bps and improved rates for the third quarter.  

Ventas’ life-science research & innovation portfolio is anticipated to have witnessed solid demand during the quarter to be reported on the back of the growing need for drug research and innovation. As a result, this portfolio is likely to have experienced healthy leasing activity during the quarter.

Also, the company’s strong balance sheet is expected to have aided its acquisition and development initiatives. Further, it received an outlook upgrade from Fitch Ratings during the quarter.

However, per its latest presentation, VTR anticipated operating expenses for the third quarter to remain elevated.

Further, per its second-quarter earnings release, the company expects normalized FFO is to be reduced by around 2 cents per share sequentially due to higher interest rates on floating rate debt and the strengthening of the U.S. dollar.

The consensus mark for the third-quarter rental income from its office buildings stands at $198 million, indicating a decline from the prior-year quarter’s reading of $202 million. Rental income from its triple-net leased portfolio is pegged at $150 million, suggesting a fall from the $181 million reported in the year-ago quarter.

Ventas projected third-quarter 2022 normalized FFO per share in the range of 73-78 cents. The Zacks Consensus Estimate for the same has been unchanged at 76 cents in the past month. It implies an increase of 4.1% from the year-ago quarter’s figure.

What Our Quantitative Model Predicts

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

Earnings ESP: Ventas has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: VTR currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks that are worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:

Public Storage PSA is slated to report quarterly numbers on Nov 1. PSA has an Earnings ESP of +1.34% and carries a Zacks Rank of 3.

Extra Space Storage EXR is scheduled to report quarterly figures on Nov 1. EXR has an Earnings ESP of +1.31% and a Zacks Rank of 3 presently.

Host Hotels & Resorts HST is scheduled to report quarterly figures on Nov 2. HST has an Earnings ESP of +0.71% and a Zacks Rank of 3 currently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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


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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
 
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