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Is Ventas a Millionaire-Maker REIT?

Dec 05, 2020 by Liz Brumer
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Ventas (NYSE: VTR), a healthcare-focused real estate investment trust (REIT), has done fairly well for investors since the company first became public in 1994. Those who invested $10,000 into its IPO that year would have seen that investment grow into $62,067 today. With demand for senior housing, medical care facilities, and other healthcare-related properties on the rise, Ventas appears well-poised for future growth, but is it a millionaire-maker REIT? Let's take a look at where the company stands and see whether it could be a millionaire maker in the long run.

Where Ventas is today

Ventas is one of the largest healthcare REITs, with a $28 billion enterprise value and about 1,200 properties across a diverse range of medical properties. While the bulk of its portfolio is in senior housing, the company also owns medical offices, medical research facilities, in-patient rehab centers, and long-term care facilities, in addition to providing medical loans. Recessions, current and past, have been hard on the company. The recent pandemic and global recession have been exceptionally hard on senior housing, which makes up 47% of Ventas' portfolio.

Concern over the potentially higher risk for residents in senior housing settings to catch COVID-19 has caused many families to reconsider other senior housing alternatives. Occupancy rates for all of Ventas' senior housing properties at the end of September was 79.6%, a decline from June 2020's average occupancy of 80.9%. Q3 2020 normalized funds from operation (FFO) are down 22% from the same quarter the previous year. However, its medical triple net leases and office portfolio have remained relatively stable, at a 99% and 100% collection rate for quarter's end from tenants.

The initial onset of the pandemic resulted in share prices plummeting 73% in March, with share prices now hovering around 22% below February highs. While current conditions aren't ideal for Ventas, it does have plenty of cash -- $3.2 billion to be exact -- to help ride out financial challenges and is positioning itself for further diversification to reduce continued risk exposure now and in the future.

Does Ventas have millionaire-maker potential?

Low share prices and tough economic conditions mean investors can potentially purchase shares at a discounted price for a company that has potential to grow. The company is selling some senior facilities and rewriting lease terms with others, in addition to applying for $35 million in grant assistance under Phase II of the HHS Provider Relief Fund. It's also expanding its research and innovation footprint through strategic joint ventures, adding 1.4 million additional square feet to its portfolio, while growing its fund and third-party management platform.

All in all, Ventas has provided a relatively safe return of 8.13% since it first went public in 1994. I expect the company to have a rough few quarters ahead until a vaccine is released and made available to its key tenant demographics but expect a nice rebound once business stabilizes again. If Ventas is able to maintain an average return of around 8%, investors putting in $10,000 as an investment today would need to hold on to this stock for 58 years or more for it to make it to the million-dollar mark. While there surely have been periods in the past that provided much higher returns for investors, it's unlikely, even for patient investors, that this will be a millionaire-maker REIT.

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Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.