Can Favorable Demographics Drive Ventas' (VTR) Q1 Earnings?

Ventas, Inc. (NYSE:VTR) is scheduled to report first-quarter 2019 results on Apr 26, before the market opens. The company’s results will likely reflect year-over-year (y/y) decline in revenues, while its funds from operations (FFO) per share are expected to be flat.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a positive surprise of 1.05%. The company witnessed higher rental income from its office portfolio. However, lower rental income from triple net leased portfolio impacted top-line growth.

In addition, Ventas posted average positive surprise of 1.01% in the trailing four quarters, surpassing estimates thrice and missing in the other occasion. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

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

Factors at Play

Data from the National Investment Center for Seniors Housing & Care (NIC) indicates that the fundamentals of the seniors housing industry remained soft during the first quarter. In fact, the industry seems to still tide through excess supply as indicated by the y/y decline in occupancy rates.

Specifically, the first-quarter occupancy rate of 88.1% indicates a y/y decline of 20 basis points (bps) and an expansion of 10 bps on a sequential basis. Also, seniors housing’s average rate of annual asking rent growth was 3%, unchanged from fourth-quarter 2018.

Amid these, rental income from the company’s triple-net leased seniors housing properties is pegged at $189 million, indicating a decline on a y/y basis.

Nonetheless, the investment thesis related to the silver tsunami is no secret. In fact, going by a presentation, nearly 10,000 baby boomers will turn 65 every day through 2030. As this long-awaited demographic boom is being realized, absorption rate for seniors housing units went up 30 bps from the prior quarter to 3% as of first-quarter 2019.

Further, in February, Ventas announced the expansion of its university-based Research & Innovation (R&I) investment, with a development pipeline of more than $1.5 billion in new investments. With this, the company’s university-based R&I investments has increased twofold to pro forma investment of more than $3.5 billion as compared with its initial investment in 2016.

Notably, increasing longevity of the aging U.S. population, along with biopharma drug development growth opportunities, has promoted the institutional life-science and medical-market fundamentals. Hence, we anticipate the company to have witnessed sold demand in its office operations portfolio.

In fact, the Zacks Consensus Estimate for rental income from medical office building is currently pegged at $197 million, indicating a marginal y/y increase. Also, the Zacks Consensus Estimate for medical office building and other services revenues is $2.52 million, reflecting a slight sequential improvement.

Earnings Whispers

Here is what our quantitative model predicts:

Ventas has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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

Earnings ESP: Ventas’ Earnings ESP is +0.79%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Stocks That Warrant a Look

Alexandria Real Estate Equities, Inc. (NYSE:ARE) , scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and a Zacks Rank of 2.

Mack-Cali Realty Corporation (NYSE:CLI) , slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and a Zacks Rank of 3.

Duke Realty Corporation (NYSE:DRE) , set to release its quarterly numbers on Apr 25, has an Earnings ESP of +3.94% and carries a Zacks Rank of 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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