Balanced Risk-Reward for Ventas - Analyst Blog

On Apr 4, 2014, we issued an updated research report on the healthcare real estate investment trust (REIT) Ventas Inc. VTR.

On Feb 14, aided by higher revenues, Ventas reported fourth-quarter 2013 normalized funds from operations (FFO) of $1.06 per share, which came at par with the Zacks Consensus Estimate and rose 7% year over year. Total revenue grew around 12% from the year-ago period and exceeded the Zacks Consensus Estimate.

Results were driven by strategic investments made in the past 2 years. In particular, the company experienced solid growth in same-store cash flow in its senior housing communities managed by Atria and Sunrise as well as rental hikes in its triple-net lease portfolio.

Going forward, we believe that Ventas is well poised for a strong growth trajectory given its diversified portfolio, opportunistic investments and a strong balance sheet position. Moreover, aging population and rising healthcare expenses offer significant growth opportunities to the company.

However, an expected rise in interest rate in the long run and Ventas' substantial exposure to long-term leased assets remain concerns. Also, a large part of its revenues originates from a few tenants, thereby exposing it to concentration risks. Moreover, intense competition and continuous acquisitions on the company's part are expected to raise upfront operating expenses.

Over the last 30 days, the Zacks Consensus Estimate remained unchanged at $4.36 per share for 2014. Conversely, for 2015, it dipped by 2 cents to $4.55. The stock currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked stocks in the REIT space include Cousins Properties Incorporated CUZ, Liberty Property Trust (LPT) and Public Storage PSA. All three stocks have a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.