Key Factors to Impact Ventas' (VTR) Earnings This Season

Ventas, Inc. VTR is scheduled to report third-quarter 2018 results on Oct 26, before the market opens. The company’s results will likely reflect year-over-year growth in revenues, while its funds from operations (FFO) per share are expected to have witnessed a decline.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a positive surprise of 5.88%. Further, the company witnessed same-store cash net operating income (NOI) growth for the triple net leased and medical office building portfolio.

Further, Ventas posted an average negative surprise of 0.23% in the trailing four quarters, surpassing estimates once, posting in-line results twice, and missing estimate in the other occasion. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise
 

Ventas, Inc. Price and EPS Surprise | Ventas, Inc. Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

Healthcare REITs are well poised to benefit from increasing healthcare spending and the demographic boom that is being fueled by the aging baby boomers. Amid these, Ventas is currently focusing to fortify its position as a medical office and senior housing provider.

In fact, this August, the company announced plans to acquire an independent seniors housing community — Battery Park — for nearly $194 million. This buyout positions the company to better serve in the prime Manhattan market as a market leader in senior housing.

Amid these, the Zacks Consensus Estimate for rental income from medical office building is currently pegged at $193 million, indicating a moderate increase from the previous quarter. The Zacks Consensus Estimate of $176 million for triple net-leased rental income reflects a sequential increase from the prior-quarter figure of $168 million.

Nonetheless, increase in supply of senior housing assets in some markets may burden the performance of Ventas’ senior housing assets. Since this curtails landlords’ pricing power and limits growth in occupancy level, we expect the prevalent oversupply situation to have impacted the company’s third-quarter numbers.

Also, the Zacks Consensus Estimate for medical office building and other services revenues is $4.24 million, reflecting a marginal decline sequentially.

Further, rising interest rates is another unfavorable development for the company. Since healthcare REITs have substantial exposure to long-term leased assets that are subject to annual escalations, this REIT sector is the most sensitive to interest rate hikes.

Notably, many of the company’s debt obligations bear floating rates with interest and related payments rates varying with the movement of LIBOR, bankers’ acceptance or other indexes. Therefore, the higher interest rate is likely to have raised the cost of debt, which in turn, is expected to have affected the company’s profitability in the Sep-end quarter.

Also, the Zacks Consensus Estimate for third-quarter 2018 FFO per share was revised downward by a cent to 97 cents over the past month, reflecting analysts’ bearish sentiments. This also indicates a 6.73% decline as compared to the year-ago tally.

Earnings Whispers

Our proven model does not conclusively show that Ventas is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Ventas’ Earnings ESP is -1.77%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Iron Mountain Incorporated IRM, scheduled to release earnings on Oct 25, has an Earnings ESP of +0.62% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Welltower Inc. WELL, slated to report Sep-end quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

Public Storage PSA, set to release quarterly figures on Oct 30, has an Earnings ESP of +0.27% and a Zacks Rank #3.

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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