Senior Housing Headwinds Temper Ventas’ Q3 Earnings

Ventas’ (NYSE: VTR) senior housing operating portfolio was the outlier in an otherwise rosy Q3 earnings report.

The Chicago-based health care real estate investment trust (REIT) reported normalized funds from operations (FFO) of $0.99/share, two cents better than analysts’ forecasts. Ventas posted $936.5 million in revenues in Q3, a 4% increase over last year’s totals.

“We continue to enhance the long-term durability of Ventas by following our differentiated and deliberate approach to investing in our future growth with top tier customers, and extending and expanding our key partnerships,” Ventas Chariman and CEO Debra Cafaro said during an earnings call.


Total same-store cash NOI increased 1.3%, but the strong performances of its medical office and triple-net portfolios — 3.5% and 3%, respectively — were tempered by a 2.7% decline in senior housing operating NOI. An analysis of Ventas’ earnings by St. Louis-based financial services firm Stifel (NYSE: SF) indicated Ventas’ same-store senior housing occupancy is down 60 basis points year-over-year, and but was offset by a 180 basis point improvement in revenue per occupied room (RevPOR).

RoboToaster for AMNAccentuating the positives

Cafaro expressed optimism when asked about the senior housing portfolio’s sluggish performance. She highlighted Ventas’ $194 million acquisition of Brookdale Battery Park in Manhattan as the type of strategic investment opportunity the REIT is chasing, and emphasized that the company will continue to look for opportunities to create value within its current investment strategy.


The Battery Park property is Ventas’ third  Manhattan property and solidified the REIT’s presence as a market leader in the pricey New York City real estate market. The acquisition converges with Ventas’ ongoing efforts to restructure its leases with Brentwood, Tennessee-based Brookdale Senior Living (NYSE: BKD), which has been in the midst of a turnaround effort following years of operational challenges and declining market capitalization. Ventas and Brookdale agreed in August to restructure leases on the 128 properties Brookdale operates in Ventas’ portfolio from triple net leases into a single master lease. The deal freed Ventas to sell up to 15% of its Brookdale-aligned assets, representing around $30 million in rent.

The Battery Park acquisition signals that in the midst of senior housing operating headwinds, Ventas is able to capture value through trophy acquisitions.

“The good news is our assets are very highly valued,” Cafaro said. “There continues to be a very strong bid in senior housing for the inevitable upturn.”

For the moment, though, new supply is continuing to erode the performance of Ventas’ SHOP assets. The National Investment Center for Seniors Housing & Care (NIC) Q3 market fundamentals report showed occupancy remained unchanged at 87.9%, an eight-year low But there may be light at the end of the tunnel. New construction starts in Ventas’ SHOP portfolio are at their lowest observed levels in nearly five years, CFO Bob Probst said. Annualized new starts for the first three quarters represent just 1.7% of inventory in its trade areas, slightly below Ventas’ 2% target.

Third quarter SHOP NOI performed within expectations, Probst said. Same-store cash NOI was 2.7% lower, year-over-year. Occupancy was ahead of Ventas’ expectations, while rate growth moderated. Together, this resulted in 2.1% revenue growth.

Ventas’ SHOP occupancy level reached 88%, which Probst noted was better than the industry overall, and better than NIC reports. At a market level, Ventas is recognizing strong NOI growth in Los Angeles and San Francisco, while NOI growth in markets such as Atlanta and Chicago have been affected by new competition. Full year same store guidance remained unchanged at -1% to -3%; Stifel’s analysis suggests it will trend toward the lower end of that range.

“We do expect elevated levels of new deliveries to continue in 2019,” Probst said. “Same store shop NOI may evidence a similar year-over-year decline in 2019.”

However, like the industry as a whole, Ventas has its sights firmly set on upside from longer-term demographics.

“If current trends continue, the supply-demand equation will surely reverse in our favor,” Cafaro said.

Future investing in Atria

Cafaro has positive things to say about last week’s announcement that Atria Senior Living and Related Companies are partnering to develop, own and operate more than $3 billion worth of senior living communities in major urban markets across the U.S.

“With Atria’s expertise and Related’s world-class development capabilities, we are excited about the potential for this deal,” Cafaro said.

Ventas owns a 33% stake in Atria and is effectively a general partner in the JV. Ventas owns 118 Atria properties in New York, New England and California, totaling 13,500 units at an 87% occupancy rate. Ventas would be open to investing capital into the coming Atria/Related properties, Cafaro said.

Target markets include New York City, Boston, Washington, D.C., Miami, Los Angeles and San Francisco.

Ventas stock closed trading Friday down 0.11 point, at $56.79/share.

Written by Chuck Sudo

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