Ventas Anticipates ‘Pivot’ in 2019 as Senior Housing Pressures Persist For Now

New supply and other industry headwinds put a damper on Ventas’ (NYSE: VTR) senior housing portfolio in the fourth quarter of 2018, but the company sees signs those pressures might start to let up soon. Meanwhile, it’s moving to bulk up other parts of its portfolio, notably with a $1.5 billion life science pipeline.

“We are very encouraged by the recently reported continued improvement in senior living starts, which have reached their most favorable point since the third quarter of 2012,” Ventas Chairman and CEO Debra Cafaro said Friday, during the company’s Q4 2018 earnings call. “As starts continued to moderate, demand for our product ramped to our highest level ever in 2018.”

For now, though, Ventas is still grappling with the same senior housing pressures as other major players in the space, such as new supply in some markets and rising labor costs.


Average occupancy for the company’s senior housing operating portfolio (SHOP) was 87.7% for the fourth quarter of 2018, a decrease of 90 basis points from when it logged an average rate of 88.6% one year prior. And the company’s same-store SHOP cash NOI growth declined 3.5% for the fourth quarter of 2018 when compared with the same period in 2017.

Overall, the REIT reported a fourth-quarter funds from operations (FFO) of $0.96 per share, which beat analysts’ expectations by one cent. Ventas also took in a total revenue of $923.2 million for the quarter, a roughly 3.1% gain over the previous year’s amount.

Ventas has re-shaped its portfolio in recent years, including by jettisoning skilled nursing facilities and building up its holding in the hospital and life science arenas. While Ventas — and other REITs — have taken a backseat in senior housing dealmaking, that could start to change as market dynamics shift.


Looking ahead, Cafaro cited demographic trends as a sign the senior housing market will begin to turn around in earnest. Specifically, 2019 may well shape up to the “pivot year in our transition,” she noted.

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“The 75 to 81 contingent is growing 4% per year for the next five years, and the 82- to 86 year-old cohort begins to grow over 3% per year after 2019,” Cafaro explained. “Assuming these trends continue, we anticipate a bottoming in senior housing so that the supply-demand equation moves in our favor in the future, creating a powerful cyclical upside.”

A potential uptick in penetration rates could further improve the overall financial picture for Ventas, Cafaro added.

Caution on senior housing, $1.5 billion pipeline in R&D

For now, some market-watchers are taking a wait-and-see approach to future growth for the REIT.

“As evidenced by Ventas’ initial ’19 SHOP NOI growth guidance range (0 to -3%), this tough environment is expected to persist for the next few quarters,” wrote Green Street Advisors analyst Lukas Hartwich in a note to investors. “That being said, the construction pipeline within three miles of Ventas’ portfolio shrunk in the fourth quarter, which may foreshadow easing headwinds further down the road.”

While waiting for senior living market conditions improve, the REIT has made some select deals and beefed up its leadership team. The company completed its $194 million acquisition of Brookdale Battery Park in Manhattan late last year. Additionally, it hired Bhavana Devulapally as chief information officer (CIO) and picked up Juan Sanabria as vice president of investor relations in January.

And outside of senior living, Ventas is making bold moves.

The company announced a $1.5 billion life sciences pipeline anchored by a renewed relationship with university-focused developer Wexford Science & Technology. The pipeline includes a new $77 million development with Arizona State University (ASU) for biomedical academic and commercial research space. And Ventas recently acquired five medical office buildings (MOBs) on the West Coast with Pacific Medical Buildings and Ardent Health Services.

Ventas stock was down roughly 0.3% at $64.27 by the time the markets closed Friday.

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