We have recently downgraded our long-term recommendation on Ventas Inc (VTR) from Outperform to Neutral. Ventas is a leading healthcare real estate investment trust (REIT) in the U.S., primarily engaged in financing, owning and leasing healthcare related and senior housing facilities.
Ventas has one of the largest and most diversified portfolios in the healthcare sector with exposure to all types of facilities. The product diversity of the company allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a competitive advantage over its peers.
A considerable amount of Ventas’ income is determined by government reimbursement rates. If the government cuts reimbursement rates through Medicare or Medicaid, revenue could be hampered going forward
Ventas operates in a cut-throat market and competes with national and local healthcare operators with respect to a number of factors, including quality, price, and range of services provided; reputation; location; and demographics of the population in the surrounding area; and the financial condition of its tenants and operators.
The healthcare sector is relatively immune to the downturn in the economy, and provides a steady source of incomethat insulates the company from short-term market volatility. However, a large portion of Ventas’ revenue originates from a few tenants, which exposes it to concentration risk and undermines its growth potential.Presently, there is uncertainty related to the renewal lease of the Kindred Healthcare Inc, a major tenant of Ventas.
Ventas currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. One of its competitors, HCP, Inc. (HCP) also holds a Zacks #3 Rank.
