Ventas CEO Confident in Business Amid ‘Policy Whiplash’

The 2016 presidential election and its aftermath have served as major talking points for those in the senior housing industry, from executives to association leaders.

Major senior housing owner Ventas Inc. (NYSE: VTR), for instance, has a plan to cope with the “volatility and uncertainty in the markets, public policy and in the geopolitical sphere,” Chairman and CEO Debra Cafaro said during the company’s first-quarter 2017 earnings call on April 28.

“In this environment, we continue to believe its most important for Ventas to remain financially strong and liquid, maintain diversification and balance in our portfolio, drive cash flow and efficiency in our enterprise, allocate capital wisely, continue to elevate the already outstanding quality of our portfolio, make selective investments in our future growth and keep our team together and focused on creating value for customers and shareholders,” Cafaro said.

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The Chicago-based real estate investment trust (REIT) posted strong financial results for the first quarter of 2017, with its revenue of $883.4 million beating analysts’ expectations by $13.37 million and its earnings per share of $1.03 beating analysts’ expectations by 1 cent.

It remains unclear whether the Trump administration’s proposals on taxes, regulations, health care or trade will jumpstart the U.S. growth trajectory, or whether there is enough Congressional support to even pass the administration’s agenda, Cafaro added. The effects of this uncertainty have reverberated through several sectors. 

“There is a little bit of policy whiplash going on across all businesses, certainly including ours,” Cafaro said.

In this environment, the REIT appears to be committed to routine maintenance on its senior housing portfolio to keep it performing well in the face of supply pressures.

Supply pressures continue

Ventas has a few “clubs in its bag” it is using to maximize the value of its senior housing operating portfolio (SHOP), CFO Bob Probst said during the earnings call.

“We continue to actively manage our SHOP asset portfolio, transitioning assets to new operators and business models, and renegotiating management agreements,” he explained. 

All the while, the REIT continues to feel supply pressure in some of its senior housing markets.

“Elevated levels of new building openings in markets including Atlanta, Denver and Chicago continued in the first quarter,” Probst said. “Our NOI exposure in markets with a new supply surplus continues to represent 30% of our SHOP portfolio, or less than 10% of Ventas’ overall NOI.”

Los Angeles, New York and San Francisco, however, are not experiencing the same pressure, Probst said.

Kindred transaction ‘on track’

Ventas is on track to have very little skilled nursing exposure by year-end, executives noted on the call. The REIT fully expects that Kindred Healthcare (NYSE: KND) will in fact purchase 36 Kindred-operated skilled nursing facilities from Ventas for $700 million, Cafaro explained.

“Kindred will either purchase from us, in connection with third party sales or otherwise, 36 SNFs for $700 million, or they would renew those SNFs out through 2025,” Cafaro explained. “We believe a transaction is on track to sell those assets…that’s our current expectation.”

By the end of 2017, Ventas anticipates generating just 1% of its NOI from skilled nursing assets, Cafaro added.

In the meantime, it’s skilled nursing exposure conceivably could have something to do with its share price declining despite the strong earnings results. One day after a proposal from the Centers for Medicare & Medicaid Services (CMS) regarding a new payment methodology for skilled nursing facilities, these provider companies and REITs experienced declines on Friday.

As of Friday afternoon, Ventas’ share price had fallen 11 cents to $64.01.

Written by Mary Kate Nelson

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