Executives with Ventas Inc. (NYSE: VTR) are reducing their salaries and the Chicago-based firm is cutting about a quarter of its corporate staff as part of an effort to maintain financial strength in the midst of the Covid-19 pandemic.
The real estate investment trust (REIT) is one of the largest owners of senior housing properties in the United States, with a senior housing operating portfolio (SHOP) of nearly 400 communities and a triple-net lease portfolio of about 340 communities.
Ventas CEO Debra Cafaro is voluntarily reducing her base salary by 20% and other executive officers are voluntarily reducing their base salaries by 10% for the second half of the year, the REIT announced Wednesday in a Securities & Exchange Commission (SEC) filing. In addition, the company is eliminating roles representing 25% of its corporate positions.
About 90 positions in total will be eliminated, in the interest of creating a “leaner, more agile organization and to adapt to the current business conditions caused by the pandemic,” Ventas Vice President of Marketing and Corporate Communications Louise Adhikari told Senior Housing News via email.
“Many of the eliminated roles are in areas that can be reduced because of process redesign work we’ve done and advanced technologies we’ve implemented,” she wrote. ” We’re confident we have the people and skills in place that we need to deliver on the historic strengths of Ventas including capital raising, investment and asset management.”
Onsite field personnel will not be affected. The workforce changes will be effective in mid-June.
These changes and “other reductions in compensation and non-compensation expense” will cut Q3 2020 general and administrative (G&A) expenses between $25 million and $30 million on an annualized basis versus fiscal year 2019 G&A, the company stated. Q3 2020 G&A is expected to be reduced by $5 million to $6.5 million compared to Q3 2019.
Ventas has been “G&A heavy” compared to peer REITs Welltower (NYSE: WELL) and Healthpeak (NYSE: PEAK), Raymond James Analyst Jonathan Hughes told Senior Housing News. Although Welltower is a larger overall entity, Ventas’ estimated 2020 G&A as a percentage of total assets was 0.6%, while Welltower’s was 0.4%, according to Raymond James’ calculations. Welltower lowered their G&A a few years ago, Hughes said.
The moves Ventas announced Wednesday may not be intended to bring G&A in line with peers as much as to preserve capital in light of ongoing market uncertainties, RBC Capital Markets Analyst Michael Carroll told SHN. While other REITs may not cut corporate positions, he anticipates they will also take steps to reduce G&A expenses.
Ventas has already taken several actions to preserve capital, maintain liquidity and support senior living operations since the onset of Covid-19, including drawing $2.75 billion from a $3 billion revolving credit facility. Unlike some other senior housing REITs, Ventas has not cut its dividend. The REIT did withdraw its 2020 guidance.
Prior to the coronavirus crisis, Ventas’ senior housing portfolio was underperforming due in part to persistent oversupply pressures. In response, the REIT took several measures, including hiring industry veteran Justin Hutchens.
Covid-19 has added new challenges, with same-store SHOP occupancy declining to 80.7% as of May 1, while expenses were on the rise. Same-store SHOP NOI was down 10.4% in Q1 2020. However, Ventas was able to make strides by restructuring a lease with Holiday Retirement, placing 26 independent living communities into a management agreement.
Like other publicly traded senior housing owners and operators, Ventas’ share price plunged on coronavirus fears but has regained some ground in recent days as the markets overall have rallied. Ventas ended regular trading on Wednesday up 5.15%, at $37.37 per share.