Ventas Inc. (VTR); Increases Dividend 6% & Improves Diversification

Ventas’ (NYSE:VTR) dividend was increased by a solid 6%. Its overall yield is 4.91%. The firm started paying a dividend in 1999.

Ventas is a publicly owned healthcare real estate investment trust or REIT. Ventas owns over 1200 healthcare real estate locations including senior housing, medical office, skilled nursing, and hospitals. Its primary business is owning and operating senior housing, which accounts for over half of revenue. It operates primarily in the United States, with additional operations in Canada. The firm spun off its skilled nursing facility operations in 2015, becoming more focused upon senior housing.  Founded in 1983, the firm is headquartered in Chicago, Illinois.

Ventas has maintained a three-year growth rate of dividends of 2.3 percent. Ventas currently ranks 3rd in yield within the large cap REIT-Healthcare Facilities category. The quarterly dividend for the December payment will be $0.775 versus the prior year rate of $0.73 per share. Ventas Inc. is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on December 30, 2016, to shareholders of record at close of business on December 20, 2016. Ventas is currently priced at $63.08. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
12/20/2016 0.775
9/13/2016 0.73
6/2/2016 0.73
3/3/2016 0.73
12/17/2015 0.73
9/11/2015 0.73
8/18/2015 8.895
6/3/2015 0.79
3/4/2015 0.579
1/20/2015 0.211
12/18/2014 0.79
9/10/2014 0.725
6/4/2014 0.725
3/5/2014 0.725
12/12/2013 0.725
9/11/2013 0.67
6/3/2013 0.67
3/6/2013 0.67
12/13/2012 0.62
9/7/2012 0.62
6/6/2012 0.62
3/7/2012 0.62
12/13/2011 0.575
9/9/2011 0.449
7/5/2011 0.126
6/8/2011 0.575
3/9/2011 0.575
12/15/2010 0.535
9/15/2010 0.535
6/9/2010 0.535
3/10/2010 0.535


We examine Ventas upon our five key criteria, which include; 
Quantitative Analysis:

Category Value Score
Dividend Yield 4.91% 36
Dividend Growth (3 to 6 year avg) 3.88% 322
Forward P/E 14.99 156
S&P Financial Rating BBB+ 160
Beta  0.75 50
Total Score   724

Additional quantitative information on P/FFO ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate 10 yr P/FFO Low 10 yr P/FFO High 5 yr lowest Yield % 5 yr max Yield %
4.91% 2.30% 5.45% 9.4 20.4 3.53% 6.19%

Positives;

  • Ventas maintains an investment grade credit rating and a current dividend yield (4.91%) above its five-year average of 4.86%.
  • Ventas has initiated a new dividend with an increase of 6%, higher than its prior three-year growth rate of dividends of 2.3 percent.
  • Ventas is trading below its ten-year average price/FFO ratio at 14.2.
  • Ventas maintains a beta of 0.75, much lower than the average company.

Negatives;

  • Ventas’ forward P/E ratio is higher than the average company.

Latest Earnings & Overall Analysis:

Ventas issued its earnings data on October 28th. Ventas 3Q results for FFO were $1.03 a share, two cents above analyst expectations.  These results represented a solid 5% year-over-year comparable growth. Same-store cash net operating income, or NOI, was up 2.5% on a year-over-year basis.   Triple net same-store cash NOI grew 4.2%, higher than expected.  The senior housing operating portfolio decelerated in Q3 as occupancy declined by nearly 1% from last year’s Q3 results. But revenue per occupied room rose by just over 4%.  But the bottom line was effected in the senior housing operating division by higher costs. During the quarter,  Ventas finalized the acquisition of Wexford’s life science portfolio for $1.5B.  Ventas also earmarked approximately $150 million for redevelopment. This adds to the redevelopment budget, which is now near $375 million. The firm’s management also pointed out the Sunrise amendment with Sunrise Senior Living will allow Ventas to reduce fees by over $1 million. The firm currently maintains $1.8 billion in credit line and $134 million in cash. Ventas also maintains a solid return on equity of 5.6%. As for guidance, Ventas increased 2016 FFO to $4.10-4.13, about 3 cents above prior expectations. The healthcare REIT should produce revenue of nearly $3.5 billion for full fiscal year 2016.

The transition out of skilled nursing and into more diverse areas of the real estate market has made the firm’s revenue more predictable and allows for a higher growth rate going forward. The new office operations segment will now account for nearly a quarter of total revenue in 2017. Ventas has a pipeline of new developments of over 600 senior housing units and continued medical office space expansion. Ventas also maintains nearly half of its revenue from a triple-net leased portfolio. Most of these contracts are long-term in nature, with lease periods of over a decade. These long-term contacts have price escalators will allow Ventas to continue increasing FFO at a steady mid single-digit pace. The REIT has a near 5% average dividend yield, low beta, and investment grade rating. It maintains a modest valuation based upon historical price/FFO as well as a limited exposure to skilled nursing versus its peers. Combined with its aggressive stance on acquisitions in new areas like academic, medical, and hospital industries, Ventas should continue to be a top selection within the REIT sector.

Ventas is in an enviable position after spinning off the majority of the firm’s skilled nursing facilities into a publicly traded REIT; Care Capital Properties (NYSE:CCP). The skilled nursing business for all players within the healthcare sector has been very challenging with low margins. The industry is moving towards a “bundle” based compensation system and the transition will not be easy for those firm’s that hold assets in this industry. Ventas competitors Welltower (NYSE:HCN) and big rival HCP Incorporated (NYSE:HCP) have also reduced exposure to the precarious industry. In addition to spinning off Capital Care Properties, Ventas recently agreed to sell 36 skilled nursing facilities it owns to Kindred Healthcare for $700 million. As part of the deal, if Kindred decides to operate, but not buy all 36 facilities from Ventas by April 30, 2018, the leases will be automatically renewed at current rates. The cap rate on the sale is at 7%, above consensus. Ventas is also working with Brookdale to exit 11 senior living assets.

With the spinoff and sales of skilled nursing facilities, the REIT will now only have 4% of revenue coming from the industry. Most of its revenue will continue to come from guaranteed triple-net leases along with revenue from its new fore into higher growth areas.

The Wexford Science & Technology acquisition from Blackstone Real Estate Partners is a key element of the firm’s commitment to enter more profitable business lines and transition away from skilled nursing. The Wexford acquisition brought in 25 pristine properties in the academic, medical, and research fields. The $1.5 billion acquisition of science and medical real estate included top tenants like University of Pennsylvania and Yale. The acquisition provides Ventas with new properties into the more lucrative medical research and healthcare R&D arena. Ventas also has nine additional development sites for future growth in this promising real estate area. The Wexford transaction is estimated to be $0.07-$0.09 accretive to FFO per share in 2017.

Ventas acquisition of Ardent Medical Services for $1.75 billion last year moves the firm further into the hospital industry. Based in Nashville, Ardent was a top ten private hospital operators in America. With the acquisition, Ventas added 10 hospitals and real estate in Oklahoma, Texas, and New Mexico. Ventas also chose to separate Ardent’s hospital operations from its real estate and a long-term lease was negotiated. Ardent then agreed to merge with Texas-based LHP Hospital Group. The combined entity will now become the second largest private hospital operator by revenue in the U.S. The new company will have 19 hospitals with revenue of over $3 billion. Ventas will provide a $700 million secured loan to allow Ardent to make the acquisition. The floating interest rate of approximately 8% will make the loan accretive to Ventas’ earnings in 2017.

Based on the firm’s higher than average dividend yield, low beta and investment grade rating, Ventas qualifies as a member of our  Top 100 Dividend Stocks.  It maintains a modest valuation based upon historical price/FFO as well as a limited exposure to skilled nursing versus its peers. Combined with its aggressive stance on acquisitions in new areas like academic, medical, and hospital industries, Ventas should continue to be a leading player within the REIT sector. If you want to find out if a stock is in our model portfolio please subscribe to our monthly newsletter.  

Ventas Inc. Dividend Yield Chart (Click to enlarge)

vtr2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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