Ventas Senior Housing Performance Improves from April Lows, CEO Expects Ongoing Covid-19 Hotspots

Ventas (NYSE: VTR) is seeing promising trends in its senior housing portfolio, but CEO Debra Cafaro is clear that her company and the economy as a whole are still captive to Covid-19.

“We’re all prisoners of the virus,” Cafaro said Tuesday during a panel at Nareit’s REITweek Virtual Investor Conference.

Chicago-based Ventas is a real estate investment trust (REIT) that owns about 1,200 health care sites primarily in North America, deriving about 55% of its net operating income from its senior housing operating and triple-net lease portfolios. Senior living operators have been “heroic” in facing the pandemic, and Cafaro noted that only about 2% of residents in Ventas properties across the country have been diagnosed with Covid-19 — and that number drops to about 1% when excluding the hotspots of New York and New Jersey.


While pledging to continue strenuous efforts to keep Covid-19 at bay while strengthening the business fundamentals of Ventas and its operating partners, Cafaro also noted the limitations that exist in combating the pandemic.

“We all have to be humbled by the virus,” she said.

And, speaking as the United States is gripped by protests and riots following the death of George Floyd, she said that no lasting recovery is achievable without a leader who can unify the country.

A checkered outlook

April — the first full month of the U.S. Covid-19 outbreak — was a hard time for senior living companies across the board, and Ventas was no exception. However, some key metrics did improve in May for the REIT, backing up other industry data showing positive trends last month.

On the sales front, customer leads have been ticking up since mid-April. As of April 11, leads for major Ventas operating partners Atria Senior Living, Eclipse Senior Living and Sunrise Senior Living were just 44% of prior year levels. As of May 23, that proportion had risen to 65%.

Similarly, move-in and move-out trends have improved since mid-April, and the rate of occupancy decline has slowed. Across 335 same-store senior housing operating portfolio (SHOP) assets, occupancy fell about 330 basis points in April, but fell only 150 basis points between May 1 to May 21. At that point, occupancy stood at 79.2%.

In addition, about 70% of SHOP communities are currently operating in a less tightly restricted environment, allowing some non-medically essential visitors with advanced screening, allowing groups of fewer than 10 people to congregate, and accepting move-ins with strict protocols.

While these numbers and operational developments may be cause for optimism, Cafaro repeatedly stressed that she and other senior living leaders need to remain “humble” in the face of the novel coronavirus, and not paint with too broad a brush.

“There are at least a dozen states where the virus continues to increase in incidence,” she observed. She went on to call out a “failure of public health policy to address a national and international issue” and predicted that “we’ll continue to see real variation in hotspots across the country.”

In particular, the virus is spreading to less densely populated areas of country after wreaking havoc in urban centers such as New York City, she noted.

In terms of Ventas’ portfolio specifically, some of the hardest hit locations showed particularly favorable move-in trends in May. In New York, Massachusetts and Texas, May move-ins were tracking to be at least 50% of 2019 levels.

By contrast, some markets saw May move-ins at 0% to 25% of prior year levels. These locales included parts of Colorado, Illinois, New Jersey and Florida, among others.

The checkered effects of Covid-19 will likely continue to be felt as economies across the country go through staggered and partial reopenings until significant medical breakthroughs are achieved, Cafaro said. In particular, she referred to an eventual vaccine as well as a comprehensive and accessible approach to testing. She touted Ventas’ efforts in testing up to this point.

Through a partnership with Mayo Clinic Lab, the REIT has facilitated proactive testing of more than 12,000 employees and 1,400 residents at a cost between $1 million and $2 million.

New resident cases have declined in Ventas’ markets, and more than 89% of communities had no current confirmed cases as of May 31. Out of 426 total SHOP properties, 69% never had a confirmed resident case.

“Ventas and senior living have been at the forefront of testing,” Cafaro said.

Financial fundamentals

Covid-19 has put senior living operators under enormous financial pressure, as they have had to ratchet up spending on labor, personal protective equipment (PPE) and other items even as their revenue has taken a hit.

For its 400 SHOP assets, Ventas is anticipating about 100 basis points of sequential average monthly occupancy loss, equating to about a $2 million to $3 million revenue loss each month. Meanwhile, combating the coronavirus has driven operating expenses up about 10% in Ventas’ SHOP, with operating expenses averaging around $125 million per month in Q1 2020.

A financial silver lining is that Covid-19 has led to cost savings in some areas, including sales and marketing, as well as resident services and administrative costs. Overall, these lower costs offset about one-third of Covid-19 direct costs, Ventas disclosed.

Turning to the triple-net lease portfolio, Ventas collected “substantially all” of expected cash rent for April and May. Between $1 million and $2 million remains outstanding from an April rent deferral program, and last month, the REIT allowed qualified tenants to pay 25% of cash rent from lease deposits.

While supporting tenants during Covid-19, Ventas took steps to shore up its liquidity and otherwise strengthen its financial position. Among other actions, the REIT reduced CapEx spending and drew $2.75 billion from a revolving line of credit. Most recently, Ventas announced that about 25% of corporate positions would be eliminated by mid-June, resulting in lower general and administrative costs. In addition, Cafaro and other executives are taking salary reductions.

These labor reductions were made with an eye toward efficiency, and the company still has “people and skills in place to deliver on historic strengths of Ventas including capital raising, investment and asset management,” the REIT stated in its Nareit presentation.

Even as Ventas is making moves to streamline its corporate workforce, senior living providers across the country are making hiring pushes. One potential upside of Covid-19 could be that health care businesses will be able to hire many unemployed workers, alleviating some long-standing workforce pressures, Cafaro said.

Going forward, she would like to see legislative action on items such as pandemic risk insurance, as well as a federal safe harbor law to protect businesses that have followed best practices for infection control as outlined by the Centers for Disease Control & Prevention (CDC).

Such actions would “protect those businesses that are showing leadership and also encourage others to follow best practices because they would be protected,” Cafaro said.

Being at the helm of Ventas during Covid-19 has been a “humbling experience,” she said, adding that she is impressed with leadership in the real estate industry and the bravery of health care workers. She had less praise for governmental leaders, and said that whoever is elected president in the fall, the United States would be “better off with someone who could unify the country.”

“I think it is crucial, if this country wants to get moving again, the country stops feeding on our divisions and [builds] a more cohesive social fabric,” she said. “No economic policy is going to work in the environment we have, globally as it relates to trade, our relations with allies and others around the world, or as it relates to the divisions within our own citizens.”

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