Ventas (VTR) to release first quarter results: what’s next? – May 4, 2021
Ventas, Inc. (Video recorder – Free Report) is expected to release its first quarter 2021 results on May 7, before the market opens. The company’s results are expected to reflect a year-over-year decline in revenue and funds from operations (FFO) per share.
In the last reported quarter, this Chicago, IL-based health real estate investment fund (REIT) delivered a positive surprise of 13.7% in terms of normalized FFO per share. The office portfolio saw a year-over-year increase in comparable store net operating income (NOI) cash growth of 2.9%. However, its senior housing operating assets have been severely affected by the coronavirus pandemic.
Ventas has beaten Zacks’ consensus estimate in each of the past four quarters, the average beat being 8.71%. The graphic below illustrates this story of surprise:
Factors to note
In the first quarter of 2021, the rate of vaccine administration among residents of retirement homes increased. In addition, the majority of senior housing communities have returned to accepting intake and in-person visitation activities. In fact, in March, the Centers for Medicare & Medicaid Services eased restrictions on visits to senior housing, given high vaccination rates among residents of senior housing.
Since the restriction on non-essential visits has been a major disappointment to the occupancy of senior housing facilities, relaxation has likely been a respite for healthcare IVETs like Ventas, Welltower, Inc. (GOOD – Free report), Diverse confidence in healthcare (DHC – Free report) and New senior investment group (SNR – Free report), which expose older people to housing.
This likely supported the prospects and move-out trends at Ventas senior housing properties during the last month of the quarter. In fact, as of February 12, 2021, all senior housing communities have completed at least the first dose of vaccine. In addition, the majority of communities were reopened for moves in February. Also, move-in trends and prospects improved from December to February.
Although the vaccination reduced the number of COVID-19 cases, it did not translate into a resumption of occupancy and it continued to cast a veil on the fundamentals of senior housing in the first quarter of 2021. NIC-MAP’s first quarter 2021 senior housing data reiterates these concerns, with a report indicating that the occupancy rate of senior housing fell to an all-time high of 78.8% in the first quarter of 2021. This is a decrease of around 180 basis points (bps) compared to the previous quarter. It is also the sixth consecutive quarter of decline in occupancy and the fourth since the start of the pandemic.
In addition, annual rent growth and annual absorption fell sequentially from 70bp and 190bp to 0.9% and negative by 7.4%, respectively.
As for Ventas, we note that a significant part of its NOI depends on the housing communities for the elderly. Therefore, given the significant exposure, the pandemic continued to wreak havoc on the company’s senior housing operations, hampering occupancy and financial performance.
In fact, the rampant rise in COVID-19 cases in January is expected to have hampered move-in activity and prospects. While the monthly occupancy declines moderated significantly from January to February, the occupancy rate continued to decline in the first quarter of 2021. In fact, the occupancy rate of the housing operating portfolio for Seniors (SHOP) of comparable stores fell from 79.1% at the end of the fourth quarter of 2020 to 76.4% as of February 28, 2021. Management expects the occupancy rate for the first quarter of 2021 to be “On or above the midpoint of forecast” of a sequential decline of 250 to 325 bps.
Such an erosion of the occupancy rate probably affected the income from the fees and services of the residents. Notably, Zacks’ consensus estimate for Q1 Resident Fees and Services is set at $ 520 million, indicating a sequential decline of 1.9%.
In addition, operating expenses have likely remained high, due to increased expenses for labor and testing for COVID-19. Lower revenues as well as high COVID-related expenses are expected to have dampened Ventas’ total NOI growth for the quarter under review.
In addition, the company has worked to unlock the value of its assets through disposals of non-core assets, primarily in the senior housing and MOB verticals. In fact, in 2020 he made around $ 1 billion in income from selling real estate assets in the healthcare industry and paying off loans.
If such efforts allow it to optimize its portfolio, to better manage its financial obligations and to reinvest in its attractive development portfolio; the dilution of earnings and reduced cash flow in the first quarter resulting from the sale of assets should have been inevitable. In fact, management expects the disposals and transitions of senior housing in the fourth quarter of 2020 to affect the normalized FFO per share by one cent in the first quarter of 2021.
Asset sales are also expected to have resulted in a loss of revenue, hampering revenue growth for the first quarter. Zacks’ consensus estimate for quarterly revenue is currently set at $ 906.3 million, which suggests a 10.5% decrease from the previous year’s figure.
Regarding its office assets segment, the company continued its strategy of increasing the capital allocation in assets including life sciences, medical office buildings (MOB) and medical centers. research and innovation (R&I), thanks to developments and acquisitions. This has probably enabled it to take advantage of the strong fundamentals of these asset classes.
In fact, the company’s perpetual investment vehicle – Ventas Life Science and Healthcare Real Estate Fund, LP (Ventas Fund) – which focuses on investments in R&I centers, MOBs and senior housing communities. in North America, has agreed to acquire two life sciences assets. covering 454,000 square feet for $ 272 million. The properties are strategically placed adjacent to the Johns Hopkins medical campus and the transaction is expected to close in the first quarter of 2021.
The company has seen an increase in leasing activity at recently opened research centers. In addition, the reopening of MOBs led to a gradual rebound in clinical activity, while paid parking and construction activity also improved.
Rent collection from office tenants remained strong at 99% for January and February 2021. Notably, the consensus mark for first quarter rental income from its office buildings stood at $ 200 million, stable by compared to the figure published in the previous quarter.
However, there is no solid catalyst to instill optimism about the company’s outlook ahead of the release of first quarter results. Zacks’ consensus estimate for the quarterly FFO per share was unchanged at 70 cents over the past month. It also suggests a 27.8% year-over-year decline.
In addition, Ventas’ normalized per share FFO forecast for the first quarter of 2021 is 66 to 71 cents.
Here is what our quantitative model predicts:
Ventas doesn’t have the right combination of the two key ingredients – a positive Gains ESP and Zacks Rank # 3 (Hold) or higher – to increase the odds of an FFO beat.
You can discover the best stocks to buy or sell before they are declared with our ESP earnings filter.
Ventas currently has a Zacks # 4 (sell) rank and a gain ESP of + 1.43%.
You can see the complete list of Zacks # 1 Rank of the day(Strong buy) stocks here.
To note: Everything related to profit presented in this article represents funds from operations (FFOs) – a measure widely used to assess the performance of REITs.
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