Ventas Touts Stronger Quarter, Sunrise Contract Changes

Real estate investment trust (REIT) Ventas Inc. (NYSE: VTR) had a good third quarter of 2016—a really good quarter—after entering uncharted territory in health care sectors.

Hot on its earnings streak, the Chicago-based health care REIT has upped its outlook to close out the year after beating earnings expectations by analysts.

Ventas made some big moves in the third quarter, including a $1.5 billion investment in the life science and medical real estate assets of Wexford Science & Technology LLC, which included 25 class-A properties. The acquisition was Ventas’ entry into the space and marked a divergence from its health care REIT peers, Welltower Inc. (NYSE: HCN) and HCP Inc. (NYSE: HCP). 


In addition, Ventas was able to majorly reduce expenditures as a result of a contract amendment with one of its largest senior housing operators, Sunrise Senior Living.  

Sunrise, Brookdale Changes

Income from continuing operations per diluted share rose 223% to $0.42 compared to the third quarter of 2015. Normalized funds from operations (FFO) grew 5% during the quarter to $1.03 per diluted share.


Like many other senior living companies, Ventas benefitted from strong lease escalators this year, with its triple-net leased same-store cash NOI going up 4.2% in the third quarter. Its senior housing operating portfolio (SHOP) same-store cash NOI grew 2%; while its medical office building portfolio same-store cash NOI grew just 0.2%. 

The Sunrise amendment, which took effect July 1, enabled Ventas to save more than $1 million quarterly in lower management fees, executives said Friday. 

“It’s mutually beneficial,” Ventas CEO and Chairman Debra A. Cafaro said during a conference call with investors Friday. “…We were able to provide Sunrise with good stability in its management contracts for the original term, make sure we were aligned for growth going forward and achieve some lower management fees.” 

Cafaro was mum on the specifics of the amendments when questioned by analysts Friday, including a new multi-year development pipeline provision, under which Ventas has the option to fund future development projects. 

The changes “lacked visible substance,” Anderson wrote, noting that this could fluster some investors. 

Ventas is also working with Brookdale to exit 11 senior living assets, in line with the expected $500 million in dispositions for the year. Thus far, $272 million have closed year to date.

On such strong earnings, Ventas’ stock price gained by end of day Friday, trading above $66, after experiencing a dip at the start of the month.  

For its full year guidance, Ventas upped its constant currency cash NOI growth to 2.5% to 3%, up from the previous 2% to 3% range. 

Hospital and Life Science Additions

Ventas is bullish on its newest life science sector, with executives touting the strength of its tenants and future developments. Ventas currently has two additional developments underway with Wake Forest University and Duke University, with 11 potential developments total.  

“As new property type additions to the VTR story, management is most vocal about growing these two platforms,” Rich Anderson of Mizuho Securities wrote in a report Friday. “Life science (aka) Wexford) will grow in large part through an exclusive development pipeline—11 assets including two underway.”

The REIT is also working with its hospital operating partner Ardent in a major acquisition of LHP, which will make Ardent the largest private hospital system in the country.

With an 8% return on its $700 million loan to Ardent for the acquisition, Ventas is making an “effort to immerse itself in the hospital sector (and importantly the not-for-profit segment) to grow its real estate portfolio with a longer-term perspective,” Anderson wrote. 

While Ventas appears to be aggressively pursuing opportunities in these two health care markets, the REIT’s history shows restraint as a health care operating partner. In its most recent actions, Ventas has acted strategically as a capital partner.

“Neither the CEO nor CFO cut their teeth in the health care business,” Anderson says. 

Written by Amy Baxter

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