Ventas (NYSE: VTR) shares have been surging since the company announced its quarterly earnings last Friday, and its CEO Debra Cafaro received effusive praise from CNBC’s Jim Cramer during a Monday night appearance on his show Mad Money.
“This was the quarter that we’ve all been looking for, all of the objections have been answered,” Cramer said of Ventas, a Chicago-based real estate investment trust (REIT).
One of those “objections” has been related to oversupply hitting the senior living space. Senior living makes up the majority of Ventas’ portfolio, with 730 communities in the first quarter of 2018. Over the past several quarters, an influx of new supply has created competitive pressures, suppressing occupancy for senior housing owners and operators. Now, the tide appears to be turning.
“People have stopped building senior living,” Cramer said.
Construction starts have indeed come to down, with 6,000 units underway in the top 99 metro markets as of Q1 2018, Cafaro (pictured above) noted. That’s about half of what starts were at their peak, at the end of 2015.
Another investor objection has been Ventas’ exposure to Brentwood, Tennessee-based Brookdale Senior Living (NYSE: BKD). The nation’s largest senior living operator, Brookdale has been struggling for years, first with integration challenges following its mega-merger with Emeritus Corp., and then due to operational headwinds and self-inflicted wounds. It recently ended a strategic review process, installed a new CEO, and is focused on a turnaround.
Ventas has struck an agreement with Brookdale to extend lease maturities on about $180 million of annual rent to 2025.
The agreement has several other provisions related to rent credits, capital expenditure requirements, and potential asset sales. These were detailed in a presentation released by Brookdale on Tuesday.
“We have eight more years of lease protection guaranteed by Brookdale, and of course, that’s when we start to see, in 2020, the huge growth in the senior population,” Cafaro told Cramer. “And so by 2025, this so-called silver wave will be rocking and rolling, and that will be really, really positive for us.”
Investor concern over Brookdale has been “weighing down” Ventas’ stock, Cramer said, and this deal has provided welcome certainty. It’s one reason, he added, that VTR shares have been climbing following news of the company’s “break-out quarter.”
Shares had been trading around $47.47 prior to the earnings announcement last week. They were trading at $52.41 as of market close Tuesday, when Ventas leaders were at the New York Stock Exchange to ring the closing bell. The company was marking 20 years since its founding and listing on the NYSE.
“Our journey to an S&P 500, financially strong enterprise that ranks as one of Fortune’s World’s Most Admired Companies returning a total shareholder return of 4,673% since 1999 is nothing short of exceptional,” said Cafaro, in a press release issued Tuesday. “Over the last 20 years, we have earned our leadership position by delivering consistent, excellent performance for the benefit of our shareholders, business partners and employees through a variety of economic, capital markets and reimbursement cycles.”
Written by Tim Mullaney