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Is it Wise to Retain Ventas (VTR) Stock in Your Portfolio?

Ventas, Inc. VTR is well-positioned to gain from its diverse portfolio of healthcare real estate assets in the key markets of the United States and the U.K. An aging population and the rise in healthcare expenditure by senior citizens are likely to benefit the senior housing operating portfolio (SHOP).

The outpatient medical portfolio is expected to gain from favorable outpatient visit trends. Ventas’ accretive investments to expand its research portfolio are encouraging. A healthy balance sheet is likely to support its growth endeavors. However, competition from other industry players and dependence on a few tenants raise concerns. High interest rates add to its woes.

What’s Aiding VTR?

The senior citizen 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, is likely to increase in the upcoming period.

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With an expectation of a rising senior citizens population in the years ahead and muted new supply in its markets, VTR is well-prepared for a compelling multiyear growth opportunity. We estimate a year-over-year increase of 5.5% in total revenues in 2024.

Ventas expects significant property NOI growth, led by SHOP in 2024, based on favorable demand-supply fundamentals and the company’s advantaged platform. Our estimate indicates a year-over-year rise of 14.1% in the SHOP segment's NOI in 2024.

Amid favorable demographics and growing outpatient trends, Ventas is committed to capitalizing on this upside within its outpatient medical and research portfolio, which includes outpatient medical buildings and research centers.

The same-store NOI growth for this segment was more than 3% in 2022 and 2023. While we estimate a 1% year-over-year increase in 2024, the company’s outpatient medical and research segment’s NOI is expected to grow 3.9% in 2025.

Ventas is carrying out accretive investments to enhance its research portfolio, which is essential for the delivery of crucial healthcare services and research related to life-saving vaccines and therapeutics. Ventas owns research centers in life science clusters, with a presence in some of the top-tier research university campuses.

With top-rated tenants and long-lease terms, its high-quality portfolio assures steady growth in cash flows. Our estimate indicates year-over-year growth of 3.4% in the company’s outpatient medical and research segment’s total revenues in 2024.

Ventas maintains a healthy balance sheet position. It has been making efforts to enhance its liquidity position and financial strength. As of Dec 31, 2023, the company had approximately $3.2 billion of liquidity. It has a manageable near-term debt maturity profile, with a $1.2 billion maturing in 2024 (9% total debt) at an average cash rate of 3.8%. It also enjoys favorable credit ratings from S&P Global Ratings and Moody’s, providing access to the debt market. The company’s decent financial flexibility is likely to support its growth endeavors.

Over the past month, shares of this Zacks Rank #3 (Hold) company have declined 1.7% compared with the industry’s downside of 6%.

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What’s Hurting VTR?

Competition from national and local healthcare operators may weigh on Ventas. The company’s operators contend with peers for occupancy, which could limit its power to raise rents and drive profitability, as well as crack deals at attractive rates.

Ventas’ triple-net-leased property segment is exposed to tenant concentration risk, with properties leased to Brookdale Senior Living, Ardent and Kindred accounting for a significant portion of total net operating income in the three months ended Dec 31, 2023. Hence, in case of no lease renewal, a change in lease agreements or any adverse development concerning these three tenants could lead to a deterioration in the company’s financial condition and results.

Further, a high interest rate environment is a concern for Ventas. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. It has a substantial debt burden, and its total debt, as of Dec 31, 2023, was approximately $13.49 billion. Our estimate indicates a year-over-year increase of 5.1% in interest expenses for 2024.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities ARE and Lamar Advertising LAMR, 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 ARE’s 2024 FFO per share has gained marginally upward over the past two months to $9.45.

The Zacks Consensus Estimate for LAMR’s current year FFO per share has moved marginally upward in the past two months to $7.74.

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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Ventas, Inc. (VTR) : Free Stock Analysis Report

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Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report

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