What happened
Shares of Ventas (NYSE: VTR) jumped 10.8% in April, according to data provided by S&P Global Market Intelligence. The healthcare real estate investment trust's (REIT) rally came despite some mixed views from analysts last month. The REIT also took a step to address some upcoming debt maturities as it works to strengthen its balance sheet.
So what
Several analysts updated their price targets on Ventas last month. RBC Capital analyst Michael Carroll lowered his price target from $56 to $54 per share while keeping his outperform rating on the stock. The driver was the company's plan to take ownership of the full pool of assets serving as collateral on a $486 million loan to Santerre Health Investors. The portfolio includes 88 medical office buildings, 16 senior housing operating properties, and 48 skilled nursing facilities and hospital assets. The RBC analyst believes the conversion will negatively impact Ventas' funds from operations (FFO) by $0.02 per share this year. It will also increase the company's leverage because Ventas will assume a $1 billion loan on the properties that matures this June, but it can extend for a year.
Credit Suisse analyst Tayo Okusanya lowered his price target on Ventas last month. The analyst reduced it from $51 to $50 per share while keeping his outperform rating. He believes Ventas' 2023 guidance will be lower than expected and that it must delever following the Santerre transaction.
Meanwhile, Wells Fargo analyst Connor Siversky initiated coverage on Ventas last month. The analyst gave it an outperform rating while setting his price target at $50. Siversky thinks Ventas offers an attractive combination of senior housing growth and a relatively cheap valuation, especially compared to its closest peer, Welltower.
Ventas also took a step to shore up its balance sheet last month. It priced a 600 million Canadian dollar ($440 million) senior notes offering last month, CA$100 million ($73 million) more than it initially hoped to raise. The notes priced at 5.389% and will mature in 2028.
It used that money to launch a tender offer for two series of notes that mature next year: CA$600 million ($440 million) of 2.8% senior notes and CA$250 million ($183 million) of 4.125% senior notes. Investors in the 2.8% notes tendered CA$527 million ($387 million), 100% of which the company accepted. Meanwhile, holders of the 4.125% notes tendered CA$192 million ($140 million), 45.2% of which Ventas will repurchase. While it's paying a much higher interest rate on the new notes, this refinancing will address some near-term term debt maturities by extending them out several years. That lifted some of the weight on the stock.
Now what
Ventas opted to take ownership of some properties secured by a loan it issued to Santerre. That transaction will act as a near-term headwind on FFO and leverage, which led some analysts to cut their price targets last month. However, the company believes there's longer-term upside potential by converting the loan into ownership. If it can turn those properties around and shore up its balance sheet, the stock could have more upside ahead.
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