The positive trends that emerged across Ventas’ (NYSE: VTR) senior housing operating portfolio (SHOP) in the fourth quarter of 2020 accelerated late in the first quarter of 2021 — and continued in April.
Leads and move-ins reached 2019 levels in March. Move-ins during March and April reached levels not seen since mid-2019, and occupancy gains across its SHOP assets were at or above those reported by other publicly traded real estate investment trusts (REITs) and operators, the company reported Friday.
Moreover, Ventas reported robust demand for senior housing, particularly across its higher acuity properties in the U.S., which drove the improvement and bode well for a quick return to pre-pandemic levels in occupancy and net operating income (NOI), CEO Debra Cafaro said during the company’s Q1 2021 earnings call Friday.
Ventas reported normalized funds from operations (FFO) of 72 cents per share for the quarter, which beat analysts’ expectations but still marked a 26% decrease over the previous year. Net income of 15 cents per share fell 112%, year over year.
The company issued conservative second quarter guidance. Net income is expected to range between no change and 7 cents per share. Normalized FFO is expected to range between 67 cents per share and 71 cents per share.
Occupancy gains
Ventas’ SHOP performance in March and April tempered struggles across the portfolio, which consists of 377 communities, in the first quarter.
Same-store NOI across the segment fell 50.4% year over year and 8% sequentially, excluding 4 cents per share attributed to grants from the Department of Health and Human Services (HHS).
Average occupancy as of March 30 was 76.5%, a 1,040 basis point decrease from the previous year, as well as a 260 basis point decline sequentially, which was better than projections. Occupancy bottomed out in mid-March, Cafaro said.
Revenue per occupied room (RevPOR) decreased 4.6% compared to the first quarter in 2020. Describing the RevPOR number as “surprising,” BMO Capital Markets analysts John Kim and Juan Sanabria observed that it reflects risks associated with discounting rates.
Since mid-March, Ventas’ U.S. SHOP properties improved occupancy by 280 basis points, and spot SHOP occupancy across the entire improved 190 basis points through April 30, to nearly 78%.
This was tempered, however, by a lag in Ventas’ Canadian properties, led by communities co-owned and operated by Le Groupe Maurice. Although the total occupancy in these buildings held steady at 91%, there has been a 30 basis point decline since mid-March, Baird Vice President and Senior Research Analyst Amanda Sweitzer wrote in a note to investors.
April leads and move-ins were 104% and 110% of 2019 levels, while conversion rates hovered around 10% in both March and April, she added.
Leadership attributes the sluggishness in Ventas’ Canadian SHOP segment to clinical conditions and regulatory measures lagging behind their U.S. counterparts. Notably, positive Covid-19 cases in Canada exceeded the rate in the U.S. in mid-April, prompting calls for lockdowns to get the outbreak under control.
Ventas’ U.S. senior housing properties are now down to one positive Covid-19 case per day, out of a total resident population of 40,000 residents. All of Ventas’ U.S. SHOP communities are open to move-ins, and are expanding communal activities and visitations.
March and April marked the first consecutive months where SHOP move-ins exceeded pre-pandemic levels, as well as move-out rates during the pandemic. Ventas reported 1,880 total move-ins in April, the most in a single month since June 2019.
Net move-ins/move-outs totaled 266 more move-ins in March, and 363 more move-ins in April, said Justin Hutchens, Ventas’ executive vice president, senior housing.
He expects the move-outs to eventually fall below 2019 levels, which he believes will bode well for the remainder of the year. Using the move-in/move-out rate as a percentage of the resident population circa 2019 — applied to the current lower occupancy rate — should result in lower move-outs and higher move-ins than pre-pandemic levels.
“I refer to this as the ‘turn the lights on’ scenario, where we simply get the structural benefit from this net effect,” he said.
Favorable demand-supply trends
Leadership expressed confidence that leading supply and demand indicators will favor the REIT as it works to rebuild occupancy and NOI to pre-pandemic levels.
New senior housing construction starts have fallen 77% from their peak in the fourth quarter of 2017 and are now at their lowest levels in a decade. This should translate into fewer deliveries over the next two years, Hutchens said.
Population trends continue to be favorable, especially for need-based senior housing. The 80-plus population is expected to grow 17% over the next five years. more than double the rate recorded during the five-year recovery period following the 2008 financial crisis.
And Ventas’ SHOP performance is improving across all care types and regions. The south and southeastern U.S. is driving the rebound, with a 340 basis point improvement during mid-March and April.
Three of Ventas’ SHOP operators — Le Groupe Maurice, Sunrise Senior Living, and Atria Senior Living — look well-positioned to capitalize on demand in their respective markets. Combined, these three account for 90% of the REIT’s stabilized SHOP NOI.
But Sunrise continued to struggle with pandemic-related headwinds in the first quarter. The provider saw the largest sequential decrease in NOI, falling 50% to $67 million of annualized adjusted NOI, KeyBanc Capital Markets Equity Research Analyst Jordan Sadler wrote in a note to investors.
Sunrise is under new leadership, with Jack Callison taking over as CEO on April 1.
The decline in Sunrise’s NOI was offset by an 11% increase in annualized adjusted NOI from Le Groupe Maurice, to $92 million.
$1 Billion in dispositions planned
Ventas continues to look at ways to optimize the portfolio through selling underperforming assets that may no longer fit with its investment strategy, strategic investment in capital expenditures, operator transitions, new developments and acquisitions to improve its market position.
The planned asset sales include potential sales into joint ventures, Baird Senior Research Analyst Amanda Sweitzer wrote in an investor note. Ventas previously has explored a joint venture for Eclipse Senior Living, in which the REIT holds a 34% stake.
“What I can tell you is we’ve got a great relationship, we’re aligned with them,” Eclipse CEO Kai Hsiao said of Ventas, during a recent SHN+ TALKS appearance.
Hsiao also praised Ventas for bringing Hutchens on board — the two previously worked together at HCP, the REIT now known as Healthpeak (NYSE: PEAK).
As senior housing momentum builds, Hutchens expects to see wider variances form depending on market and product type, and price. But he believes the favorable demographic trends are in Ventas’ favor for the foreseeable future.
“It’s still early, but the widespread recovery is very encouraging,” he said.
Ventas stock traded higher Friday, closing the day up 1.41% to $54.77 per share.
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