Prudent Investments To Aid Ventas Amid Senior Housing Woes

Ventas, Inc. (NYSE:VTR) has been making strategic investments in targeted assets to enhance and reshape its portfolio. This will likely position the company for long-term growth. However, elevated new openings in senior housing assets in certain markets are concerns.

In fact, in early September, Ventas completed its investment in a portfolio of Class-A apartment-like senior housing assets in the thriving Quebec senior-housing market through an equity partnership with Le Groupe Maurice (“LGM”). The transaction will help strengthen Ventas’ foothold in Canada.

Further, the investment is a strategic fit as it will help Ventas diversify its assets, business model and operator base.Moreover, the deal is expected to be neutral to 2019 normalized funds from operations (FFO) per share and accretive to 2020 normalized FFO by around 3 cents per share.

Also, favorable demographics and robust outpatient trends are spurring demand for Ventas’ office portfolio. With a preeminent medical office building (MOB), medical office and university-based research and innovation (R&I) footprint, the company is well poised to capture the upside in these businesses.

In fact, in February, the company announced a $1.5-billion near-term R&I, of which it has announced five specific projects in the year-to-date period, aggregating roughly $0.9 billion. Such investments offer Ventas the opportunity to capitalize on the growing healthcare-driven research and development, supported by top-tier research universities.

Despite making accretive investments, Ventas has maintained its financial strength. As of Jun 30, 2019, the company had $81.9 million of cash and cash equivalents, and liquidity of $2.6 billion. A solid balance sheet and well-staggered long-term maturity schedule are also positives.

However, high supply of senior housing properties is expected to intensify competition for new residents, thereby escalating chances for negative releasing spreads. Further, it curtails landlords’ pricing power and limits growth in occupancy level.

Additionally, capital recycling will likely weigh on the company’s near-term earnings. Specifically, Ventas is disposing non-core senior housing operating assets and using proceeds to retire debt and invest in growth opportunities. Although such efforts enable the company to optimize its portfolio and better manage financial obligations, near-term dilution in earnings cannot be bypassed.

The company carries a Zacks Rank #3 (Hold), currently. Over the past three months, its shares have rallied 4.8%, outperforming the industry’s growth of 0.7%.

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