Ventas’ VTR senior housing operating portfolio (SHOP) is likely to benefit from the aging population and the rising healthcare expenditures by senior citizens. Its outpatient medical and research (OM&R) portfolio is expected to gain from the favorable demographics and outpatient visit trends. Efforts to enhance its liquidity position are likely to support its growth endeavors.

However, competition from national and local healthcare operators and dependence on few tenants add to this healthcare real estate investment trust (REIT) company’s concerns.

What’s Aiding Ventas?

The senior citizens’ population is expected to rise in the years ahead. As a result, the national healthcare expenditure by senior citizens, who constitute a major customer base of healthcare services and incur higher healthcare expenditures than the average population, will likely increase in the upcoming period. Hence, Ventas’ SHOP portfolio is well-poised to capitalize on this positive trend.

Ventas is focused on its "Right Market, Right Asset, Right Operator" strategy, enhancing its portfolio quality and operator diversification and increasing its SHOP scale. The company expects favorable supply-demand fundamentals, its well-invested properties and operators supported by its Ventas OI platform to drive growth. In 2024, Ventas expects its SHOP segment's same-store cash NOI to grow between 14-16%, up from the previous guided range of 13-16%.

Ventas is carrying out accretive investments to enhance its research portfolio that is essential for the delivery of crucial healthcare services and research related to life-saving vaccines and therapeutics. Its OM&R assets are aligned with institutional demand with several top-tier research universities and credit tenancy.

With top-rated tenants and long-lease terms, its high-quality portfolio assures steady growth in cash flows. In the OM&R portfolio, Ventas generated 2.1% same-store cash NOI growth in the third quarter of 2024. The company expects the OM&R portfolio's same-store cash NOI to grow in the range of 2.75-3.25% in 2024.

Ventas has been making efforts to enhance its liquidity position and financial strength. As of Sept. 30, 2024, the company had approximately $4 billion of liquidity. Its net debt to further adjusted EBITDA of 6.3X improved sequentially from 6.4X. It has also substantially cleared 2024 debt maturities and proactively refinanced a portion of its 2025 debt maturities. Its access to diverse capital sources through capital recycling, third party (VIM), on-balance sheet financing and internal cash flow provides ample financial flexibility and is likely to support its growth endeavors.

Shares of this Zacks Rank #3 (Hold) company have rallied 17.3% over the past six months, outperforming the industry's upside of 8.4%.

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What’s Hurting Ventas?

Ventas operates in a competitive market and competes with national and local healthcare operators on a number of factors, including quality, price and range of services provided, reputation, location and demographics of the population in the surrounding area, as well as the financial condition of its tenants and operators. Also, the company’s operators contend with peers for occupancy. This significantly limits its power to raise rents and drive profitability, as well as crack deals at attractive rates.

Ventas also faces tenant concentration risk in its triple-net leased properties and OM&R segments. The properties leased to Brookdale Senior Living, Ardent and Kindred accounted for 7.3%, 6.7% and 6.8% of Ventas’ total NOI, respectively, in the third quarter of 2024. In case of no lease renewal, change in lease agreements or any adverse development for these three tenants, Ventas’ financial condition and results are likely to be impacted.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Highwoods Properties HIW and Alexander’s ALX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Highwoods Properties’ 2024 FFO per share has been raised marginally over the past month to $3.62.

The Zacks Consensus Estimate for Alexander’s current-year FFO per share has moved 8.7% northward over the past two months to $14.84.

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

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