Company Reports

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

Ventas reported normalized funds from operations of $0.97 per share and same-store net operating income growth of 10.3% for the second quarter.

Ventas reported normalized funds from operations of $0.94 per share and same-store net operating income growth of 8.7% for the first quarter.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

Ventas reported normalized funds from operations of $0.89 per share and same-store net operating income growth of 7.8% for the fourth quarter.

Ventas reported normalized funds from operations of $0.88 per share and same-store net operating income growth of 7.8% for the third quarter.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

Ventas reported normalized funds from operations of $0.87 per share and same-store net operating income growth of 6.6% for the second quarter.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

Ventas reported normalized funds from operations of $0.84 per share and same-store net operating income growth of 7.1% for the first quarter.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

No-moat Ventas reported fourth-quarter results that were relatively in line with our expectations, leading us to reaffirm our $70 fair value estimate. Senior housing same-store occupancy improved 80 basis points sequentially to 87.4% while average rental rates increased 4.4% year over year. Combined, Ventas reported same-store revenue growth of 8.3% for the senior housing portfolio, in line with our estimate of 8.6% growth. Same-store operating expenses only increased by 4.8%, leading to same-store net operating income growth of 16.9% that was ahead of our 14.2% estimate. Same-store NOI growth was 1.8% for the medical office portfolio, 3.8% for the life science portfolio, and 3.4% for the triple-net senior housing portfolio. Combined, total company same-store NOI grew 8.4% in the fourth quarter, slightly better than our estimate of 8.0% growth. Ventas reported normalized funds from operations of $0.81 per share, below our $0.83 estimate but 7% higher than the $0.76 figure the company reported in the fourth quarter of 2023.

Over the past few years, we have observed an inverse relationship between share prices in the REIT sector and interest-rate movements. We believe a major reason is that all commercial real estate valuations are connected to interest rates. Capitalization rates directly indicate the return expectations for a real estate investment and expectations for risk and growth. Historically, we have observed that commercial real trades at cap rates consistently spread above the 10-year US Treasury. If interest rates rise, investors will require a higher return, and thus a higher cap rate, to accept the risk associated with an investment in a real estate asset. Since return expectations have held relatively steady for most real estate sectors over the past few years, higher cap rates translate to falling prices for real estate.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

Third-quarter results for no-moat Ventas were slightly better than we expected, giving us confidence in our $69 fair value estimate. Senior housing same-store occupancy increased 140 basis points sequentially to 87%, significantly better than our estimate of a 40-basis-point gain. Average rental rates increased 4.4% year over year, leading to same-store revenue growth of 8.7% that was slightly better than our 8.0% estimate. Same-store operating expenses increased 6.0%, resulting in same-store net operating income growth of 15.3% that beat our estimate of 12.5% growth for the senior housing segment. Ventas also reported same-store NOI growth of 3.2% for the triple-net segment, 1.6% for the medical office portfolio, and 4.7% for the life science portfolio. Combined, total same-store NOI growth for the company was 7.6%, slightly better than our 6.8% growth estimate. Ventas reported normalized funds from operations of $0.80 per share for the third quarter, a penny better than our $0.79 estimate and 6.5% higher than the $0.75 the company reported in the third quarter of 2023.

The REIT sector in the US offers many companies that should see relatively stable cashflow growth over the next several years. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years with many reaching historical levels of net operating income growth, the REIT sector underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that is due to the sector’s negative correlation with interest rates, as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. Still, we still view many of companies in the US REIT sector as being undervalued as the companies should continue to produce solid long-term growth.

Despite a rally over the past two months, we still view the US REIT sector as being undervalued. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors led combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years, with many reaching historical levels of net operating income growth, the REIT sector has underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that the cause has been due to the sector's negative correlation with interest rates as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. We believe that US REITs will continue to see share price movements that are inverse of interest rate movements.

No-moat Ventas reported second-quarter results that were in line with our expectations, leading us to reaffirm our $69 fair value estimate. Senior housing same-store occupancy improved sequentially by 90 basis points to 85.6%, slightly better than our estimate of a 60-basis-point gain. Average rental rates increased 3.9% year over year, leading to same-store revenue growth of 8.0%, which was slightly below our estimate of 9.5% revenue growth. However, same-store operating expense growth for senior housing was only 4.9%, below our 7.6% growth estimate, leading to same-store net operating income growth of 15.2%, which was slightly better than our 14.1% estimate for the segment. In the second quarter, same-store NOI growth for the medical office segment was 2.8%. For the life science segment, it was 5.5%, and for the triple-net portfolio, it was 2.6%. Combined, the company reported total same-store NOI growth of 7.8% in the quarter, in line with our 7.5% estimate. Ventas reported normalized funds from operations of $0.80 per share, which matches our second-quarter estimate and is 7% higher than the $0.75 Ventas reported in the second quarter of 2023.

The US REIT sector remains significantly undervalued, in our perspective. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past two years, with many REITs reaching historical levels of net operating income growth, the sector has underperformed the broader equity markets over the past two years. We believe that the cause has been the sector’s negative correlation with interest rates as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, we don’t believe that higher rates significantly change our fair value estimates for the sector. Additionally, interest rates are down from the October 2023 highs, and REIT share prices have generally inversely followed the movements of the US 10-year Treasury.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.