Recent Buy – Ventas Inc

Ventas Inc

A new purchase and a new addition to my portfolio! Over the last few weeks, I have been re-evaluating my overall portfolio to see where I can tweak things to shed positions that do not make sense for my investing needs anymore, and re-allocating those funds where good opportunities exist. While the overall market is at lofty levels, it is important to remember that it is market of stocks and not a stock market. Yes, the indexes point to the fact that the overall market (measured according to these indexes – which simply includes the valuation of the index components) are stretched, but some companies have already gone close to correction or attained technical correction territory (fallen atleast 10% from the peaks). So, looking at these pockets of opportunity, I have decided to initiate a new position.

With the turmoils in the bond market and the US Fed on the verge of raising interest rates, the bond-substitute sectors such as REITs and Utilities have undergone significant correction. One subsector of the economy that I am bullish on and has fantastic prospects for the future is the healthcare REIT sector. I have been evaluating the largest companies in this space over the course of last month and sharing the articles – links provided at the end of the article in the Further Reading section.

I have initiate a new position in Ventas Inc (VTR) with 25 shares @ $65.17. The company yields 4.86% adding $79 to my annual dividend income.

Corporate Profile

From Yahoo! Finance

Ventas, Inc. is a publicly owned real estate investment trust. The firm engages in investment, management, financing, and leasing of properties in the healthcare industry. It invests in the real estate markets of the United States and Canada. The firm primarily invests in healthcare-related facilities including hospitals, skilled nursing facilities, senior housing facilities, medical office buildings, and other healthcare related facilities. Ventas, Inc. was founded in 1983 and is based in Chicago, Illinois with additional offices in Irvine, California; Louisville, Kentucky; Charlotte, North Carolina; and Dallas, Texas.

Recent Buy Decision

  • The second largest healthcare REIT company by market cap at $21.5B. My only exposure in the space was in Omega Healthcare (OHI) which is focused only on the Skilled Nursing Facilities (SNF). With Ventas, I get exposure to the whole gamut including hospitals, SNFs, senior housing, medical offices etc.
  • A spin off has been announced that will create a new company – Care Capital Properties focusing on the SNFs. This is expected to complete in second half of 2015. Shareholders of Ventas will be awarded 1 share in new company for every 4 shares of VTR. With this transaction – I will be rewarded 6 shares in the new company after spinoff.
  • The stock is attractively valued and is down 9.5% YTD due to the interest rate jitters
  • Current yield of 4.86%
  • Ventas is a Dividend Challenger, having grown dividends for 5 consecutive years. The 1-, 3-, 5-, and 10-year dividend growth rates are 8.4%, 8.8%, 7.7%, and 8.6%. The dividend growth rates are second only to OHI.
  • Post spinoff, the combined dividends from the two companies is expected to be 10% higher than the current $3.16.
  • Cash flow and FFOs have grown handsomely over the years. Following charts provide more detail.
  • My Dividend Stock Analysis on Ventas Inc outlines all the reasons to own this fantastic company. Be sure to check it out.
VTR - Q12015

(Source: Ventas Citigroup Presentation March 2015)

Risks

I see three main risks: competition, interest rate moves and changes in payment plans from Medicaid/Medicare.

  • Overall, Ventas faces competition from giants such as HCN, HCP, and more intense competition on the SNF front from OHI. However, the market is still very fragmented, and each of these still has plenty of room to grow.
  • Interest rate moves can provide with some short-term volatility. However, this is something most investors cannot control and will simply have to live with the volatility when it occurs and use the opportunity to initiate and add to position.
  • Legislative changes to Medicaid and Medicare are always possible, which could provide some headwinds.

Conclusion

Summary of Ventas Inc

  • Symbol: VTR
  • Quote: $65.19
  • 52-week range: $60.63 – $81.93
  • P/FFO: 14.2
  • Yield: 4.86%
  • 5-yr DGR: 7.7%

VTR FastGraphs

Further Reading:

Full Disclosure: Long OHI, VTR. My full list of holdings is available here.

 

11 thoughts on “Recent Buy – Ventas Inc

    • I was debating about HCP and I think theres more questions there that need to be answered by the management – and I was just not comfortable with the company. HCP has not been able to communicate with the shareholders…its ridiculous – the issue of CEO being fired last year, HCR Manor issues (although there was some transparency there), and now the CIO quitting. I figured that it doesnt fit my personal risk-reward spectrum and went with VTR instead.

      HCP might as well turn out to be ok and turn into a good opportunity for investors…but I am willing to take that risk in my portfolio.

      Best wishes
      R2R

  1. R2R,

    Seems like a lot of DGI bloggers are picking up on the REIT sector. Good job on rounding out your healthcare REIT’s. This should prove to be a smart move, congrats!

    – HMB

    • The interest rate jitters have sent the bond-substitutes falling. Close to a 10% fall in prices definitely warrants a close look at the industry and I dont mind initiating here and adding more over the coming quarters.

      Best wishes
      R2R

  2. Awesome Purchase R2R. Solid company. You can’t go wrong adding to the health sector plus REIT as well. People will always need healthcare. I’ll own Healthcare stocks over oil stocks any day which I’m gonna start doing from here on out. I believe I’m all oiled out now 🙂 Thanks for sharing and happy for your purchase. Keep hustling hard my friend.

    • Hi DH,
      Yes, Healthcare REITs are a hot sector and I think its still very fragmented and the demographics provide the growth in the industry. I will be looking to add to the position in the future.
      I had too much energy exposure, but now its a bit more balanced – I am thinking of returning and adding some energy positions sometime in the coming months.

      Best
      R2R

  3. No need to convince me of REIT buys and especially the large health REITs. Like VTR, HCP and HCN though HCN might not have the Medicaid and Medicare payment issues as most of its clientele are private individuals. Still, the REITs are looking good, though they seem to have stabilized a bit in the last week or so after the Fed rate hike was a ‘no show.’ I know we’ll have great buying opps down the road as those fears make the headlines once again.

    • I was thinking about your purchases recently, DH and I think you are doing a great job adding small position in HCP, HCN and VTR regularly. The healthcare REITs sure are looking attractive after falling 10% YTD. Good to be a fellow shareholder with you.

      cheers
      R2R

  4. Great buy. We recently picked up a few shares of Ventas and will probably go back for me with the recent drop in prices. I think the health REITs are all solid and we have shares in three (HCP, OHI, VTR). Happy to have you as a fellow shareholder. Many happy returns to come.

    • Thanks for stopping by and the comment, DE. I will have to check out your blog.

      Healthcare REITs are a great investment. Looks like you are well on your way to collect some huge rental checks in the future with those holdings.
      R2R

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