Ventas Is Trading at a Discount to Peers


Feb. 9 2018, Updated 10:32 a.m. ET

Peer group price to FFO multiple

Funds from operation (or FFO) for Ventas (VTR) for 3Q17 stood at $1.04 per share. FFO per share for 2017 is expected to be in the range of $4.13 to $4.16. In comparison, the midpoint range is from the previous estimate of $4.12 to $4.18. The $0.04 reduction is due to the earnings accelerated from SNF sales. The company is expected to grow at a rate of 1.3% in 2018 and 4.1% in 2019, which would keep the five-year annual growth rate at 3.6%.

VTR has a price-to-FFO multiple of 11.9x, while the peer group average is 25.3x. The peer group median is close to 13.7x. The peer group consists of Welltower (HCN), Healthcare Trust of America (HTA), and HCP (HCP). VTR trades at a discount in comparison to its peer group.

VTR improved its revenue through various dispositions, and it will continue doing so in the next quarters. It expects to invest $300 million in development and redevelopment projects, which includes a new ground-up medical office and life science projects.

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Peer group’s fixed-charge coverage ratio

A fixed-charge coverage ratio measures a firm’s ability to cover its fixed charges like interest expenses and lease expenses. It is calculated by dividing EBIT (earnings before interest and taxes) added to all the fixed charges divided by fixed charges plus interest expenses.

Since REITs rely on debt borrowing for working capital, this ratio is a vital metric for the lenders to judge a company’s ability to take on additional debt.

VTR has the highest ratio among its peers at 4.6x. HCN has a ratio of 3.5x, HCP has a ratio of 3.8x, and Equity Residential (EQR) has a ratio of 2.5x. VTR forms 2.4% of the iShares Core U.S. REIT ETF (USRT).

Peers’ earnings per share

VTR has a TTM (trailing-12-month) EPS (earning per share) of $1.68 and a TTM PE (price-to-earnings) of $33.25. HCN has a TTM EPS of $1.15 and a TTM PE of $52.36. HCP has a TTM EPS of $1.11 and a TTM PE of $21.62, and HTA has a TTM EPS of $0.24 and a TTM PE of $115.04.


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