Ventas Beats Estimates - Analyst Blog

Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported third quarter 2010 funds from operations (FFO) of $108.9 million or 69 cents per share, compared to $98.3 million or 63 cents in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income.
 
Excluding the non-recurring items, adjusted FFO for third quarter 2010 was $115.4 million or 73 cents per share compared to $103.4 million or 66 cents in the year-ago quarter. The recurring FFO per share for the quarter beat the Zacks Consensus Estimate by 2 cents.

The increase in year-over-year FFO was primarily due to rental increases from its triple-net lease portfolio, and higher Net Operating Income (NOI) from its senior living and medical office building (MOB) operating portfolios, partially offset by higher weighted average diluted shares outstanding during the quarter.
 
Total revenues during the quarter were $264.7 million compared to $234.6 million in the year-earlier quarter. Revenues during the reported quarter were well ahead of the Zacks Consensus Estimate of $254.0 million.

Ventas currently has an operating portfolio of 79 senior housing communities in North Americathat are managed by Sunrise Senior Living Inc. (SRZ). In about 21 of these, Ventas has 100% ownership stake, while in the remaining 58 communities Ventas has a partnership share of 75% to 85% with the balance being owned by Sunrise.

Subsequent to the quarter-end, Ventas acquired full ownership of all the 58 senior living communities from Sunrise, who would continue to manage all 79 communities. With the deal, Ventas has strengthened its position in the senior living segment. The transaction is expected to be completed by fourth quarter 2010. Ventas expects the transaction to be accretive to its fiscal 2011 earnings.
 
NOI from all 79 properties was $39.0 million during the quarter, compared to $33.4 million in the year-ago period. The year-over-year increase was primarily due to a 2.9% rise in average daily rate, a 180 bps increase in occupancy and a $2.0 million cash payment from Sunrise for expense overages. Same-store NOI for all the 393 triple-net leased healthcare and seniors housing assets owned by the company increased 2.6% during the quarter on a year-over-year basis.

During the quarter, Lillibridge Healthcare Services Inc., the wholly-owned subsidiary of Ventas began construction on a 250,000 square foot MOB in Baton Rouge, Louisiana. The facility is built on the campus of the new $350 million Woman's Hospital and is expected to cost approximately $40 million.

Subsequent to the quarter-end, Ventas acquired full ownership of all the real estate assets of Atria Senior Living Group, the fourth largest operator of assisted living properties in the U.S., for $3.1 billion. The purchase price included the assumption of $1.6 billion in debt, $1.35 billion worth of common stock of Ventas, and $150 million in cash.

With the deal, Ventas will own 118 high-quality seniors housing assets in the premium markets of the New York metropolitan area, New England, Boston, and California. The portfolio includes approximately 13,500 units, with a median community age of 12 years and a current average occupancy rate of over 87%.
 
During the quarter, Ventas obtained a $200.0 million three-year unsecured term-loan. The company utilized the proceeds from the loan to repay debt under its revolving credit facilities. At quarter-end, Ventas had $244.3 million available under its revolving credit facility, $747.8 million additional undrawn availability, and $33.8 million of cash and short-term cash investments. The company's debt to total capitalization at quarter-end was approximately 26% with net-debt-to-adjusted-EBITDA (earnings before interest, tax, depreciation, and amortization) being 4.3x.

For full year 2010, Ventas has increased its recurring FFO guidance in the range of $2.84 – $2.86 per share from $2.75 – $2.80. The company has also increased its NOI guidance from Sunrise-owned properties to $150 million – $154 million from $139 million – $145 million. We maintain our Neutral recommendation on the stock, which presently has a Zacks #2 Rank translating into a short-term “Buy” rating.