BMO Downgrades Ventas Citing 'The Donald Effect'

The surprise victory of Donald Trump as U.S. president has led to the downgrade of Ventas, Inc. VTR to Underperform at BMO Capital Markets, which believes Trump’s opposition to the Affordable Care Act ("Obamacare") is bad for the sector.

Trump has vowed to "immediately deliver a full repeal of Obamacare." However, despite its backlash, the Affordable Care Act has greatly expanded health insurance coverage for many Americans, which allows more people to visit hospitals and MOBs.

Major ACA Changes 'Unfavorable'

“While the logistics of this may be challenging, we view a major change in the ACA as unfavorable to hospital operators, and secondarily, medical office buildings,” analyst John Kim wrote in a note.

Ventas, being a healthcare real estate investment trust (REIT), is exposed to both hospitals as well as medical office buildings (MOBs). Kim estimate 15 percent of Ventas’ NOI are in hospitals, the second highest in the healthcare REIT sector.

Ventas also has 19 percent exposure to MOBs, which has been a solid performer to date. However, the analyst raised his MOB cap rate for Ventas by 25bp to 5.97 percent due to this uncertainty.

Further, the decision of Kindred Healthcare, Inc. KND to exit the skilled nursing business is negative for Ventas as the business accounts for 4 percent of Ventas' NOI out of the 9 percent from Kindred Healthcare.

“Ventas also has lower same-store growth than its peers, and faces rising supply in senior housing,” Kim added.

Kim cut the price target on Ventas shares to $55 from $65.

At time of writing, shares of Ventas fell 4.11 percent to $58.03.