Ventas Inc. (NYSE: VTR) is showing some tough love to senior housing giant Brookdale Senior Living (NYSE: BKD).
The Chicago-based health care real estate investment trust (REIT) is continuing to work with Brookdale, which the REIT believes “can and should operate better,” Ventas Chairman and CEO Debra Cafaro said during a presentation at the Bank of America Merrill Lynch 2017 Global Real Estate Conference on Sept. 13.
All the while, Ventas, which was already seeing occupancy gains in the third quarter of this year, is now anticipating move-in interest to spike even higher, due in part to recent hurricanes and the resulting media coverage.
Brookdale ‘can and should operate better’
During the presentation, Cafaro touched on the precarious position of Brentwood, Tennessee-based Brookdale Senior Living, which has fielded plenty of criticism and acquisition rumors in recent months.
“We feel very comfortable with our Brookdale exposure,” Cafaro explained.
The REIT has committed to working with Brookdale to strengthen both companies.
“We have focused our efforts with Brookdale in terms of two things,” Cafaro said. “We believe they can and should operate better, and so we focus our efforts on how they can do that. And in terms of our relationship with them.. we focus a lot of energy on, ‘are there things we can do that make you better off and make Ventas better off?’”
Ventas has been down this road with an operator before.
“Those are complicated questions, but we over time have found a way to do that with Kindred,” Cafaro said.
Cafaro first took the reins at Ventas as the REIT led a major restructuring of a highly distressed skilled nursing tenant, Vencor, that went on to become Kindred Healthcare (NYSE: KND). The Louisville, Kentucky-based company is now the largest home health provider nationally and is in the process of exiting the skilled nursing industry, after which it will no longer be part of the Ventas portfolio.
Great pricing power
In general, Ventas continues to feel positively about the senior housing space—especially where pricing is concerned.
“I continue to believe very strongly that we have great pricing power in senior housing,” CFO Bob Probst said during the Sept. 13 presentation. “Our rate growth is 4% through the first half of the year. … I expect that pricing power to continue.”
Additionally, Ventas has seen occupancy rise sequentially, quarter-over-quarter.
“We see modest occupancy increases in the third quarter of 2017 compared to the second quarter of 2017,” Cafaro explained.
Cafaro believes the “stability in [Ventas’] management team… over long periods of time” will also serve the REIT well into the future.
“Senior housing is still an immature industry, and I think it has tremendous potential,” she concluded.
Hurricanes Harvey and Irma impacted approximately 1% of the NOI in Ventas’ SHOP portfolio—or about 18 assets, Carafo noted during Wednesday’s presentation.
“The costs are basically the costs of extra staff, moving people, hotels, food, provisioning for supplies, and so on,” she said, adding that all of Ventas’ assets are covered by insurance.
The staff and residents of six Ventas-owned, Atria Senior Living-operated buildings were evacuated in South Florida, with the residents temporarily moving into hotels in Orlando, Florida. Some of these Atria residents wound up flirting with celebrity—they made an appearance on Jimmy Kimmel Live with actress Kristen Bell.
The experience of evacuating hundreds of Atria residents and staff in Florida reinforced Ventas’ longstanding business philosophy, Cafaro suggested.
“We emphasize over and over again doing business with leading operators as an important component—I do think that the hurricane cast those decisions in sharp relief,” Cafaro said.
Additionally, though the hurricanes undoubtedly present a variety of challenges to senior housing owners and operators, they also tend to inspire future move-ins.
“We typically do see an uptick in inquiries about moving in after these natural disasters after people realize the value of health and wellness and safety [that communities bring],” Cafaro explained.
Written by Mary Kate Nelson