Ventas FFO Up 29% in Q2, Not Concerned About Construction Activity

Chicago-based Ventas, Inc. (NYSE:VTR) reported funds from operations (FFO) of $304.4 million for the second quarter ended June 30, 2013, up nearly 29% from the $236 million reported one year prior. Per diluted common share, FFO increased to $1.03 from 2012’s $0.81.

Normalized FFO increased 7% to $298.4 million in the quarter, compared to last year’s $278 million. Ventas attributed the increase in FFO to its last four quarters’ investments of more than $1.8 billion and 2012’s $2.7 billion of investments. 

Revenue increased 12% in 2013’s second quarter to $685.8 million. Net income attributable to common stockholders was $114.6 million, or $0.39 per diluted common share, compared to $74 million, or $0.25 per diluted common share, in 2012’s second quarter.

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The real estate investment trust’s same-store portfolio experienced a 3% cash flow growth along with accretive investments and new developments in the second quarter, during which Ventas generated cash flow from operations at an annual rate of $1.1 billion. 

Ventas’ cash flows from operations were $277 million in the period, up 29% from the second quarter of 2012. 

During the second quarter, Ventas completed about $419 million of investments and currently has about the same amount under contract. Most of these investments are in senior housing or medical office building sectors, with expected unleveled yields averaging 6.5%.

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Going forward, Ventas has raised its full year normalized FFO guidance to $4.06 to $4.10 per share.

“The midpoint of our guidance range is increasing $0.05 mostly because of acquisitions and expected portfolio performance in the second half,” said Debbie Cafaro, CEO of Ventas, during the REIT’s second quarter earnings call with investors. 

Achieving the $4.08 midpoint would represent a 10% growth in full-year normalized FFO per share, excluding non-cash items. 

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Ventas’ 227-property portfolio of senior housing assets delivered $110 million of net operating income in the second quarter, representing a 14.4% growth above the previous year. Occupancy across the portfolio was 90.9% by the end of the quarter, comparable to the industry average of 89%, according to the National Investment Center (NIC) for the Seniors Housing & Care Industry. 

On a yearly basis, occupancy in the second quarter for Ventas’ same-store portfolio increased 160 basis points. However, for the overall portfolio, occupancy decreased 10 basis points, termed consistent with historical seasonal patterns and industry trends as as whole. 

“What typically happens is occupancy declines through the first quarter due to the flu season and coming out of the holidays and kind of reaches its bottom around the April, early May time frame and starts to grow, heading into the third quarter,” said CFO Richard Schweinhart during the earnings call. “And we’ve seen that pattern repeat in our portfolio this year.” 

Ventas management remains unconcerned about the higher levels of construction activity across the board reported by NIC despite the decline in occupancy. About a quarter of the REIT’s NOI comes from the New York metropolitan statistical area (MSA) where construction as a percentage of inventory is a “modest” 2.3%, approximately, said said Ray Lewis, Ventas president. 

“When we look at the rest of our portfolio, there’s no other MSA that accounts for more than 5% of our total portfolio NOI,” Lewis said. “So we’re very diversified across the markets. But as we look forward on the growth, I would say it’s pretty consistent in that 4% to 5% range long-term [NOI] growth rates, and near term, we see a pretty consistent with what we’ve been reporting.”

View the second quarter earnings call transcript at Seeking Alpha or access the 8-K filing

Written by Alyssa Gerace

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