After Tough Start, Ventas Expects Senior Housing Tailwinds and $1B in Asset Sales in 2021

The most recent wave of Covid-19 infections across the U.S. had a deleterious impact on Ventas’ (NYSE: VTR) occupancy for its senior housing operating portfolio (SHOP) communities in the fourth quarter of 2020. And the trend is expected to continue through the first quarter of the new year.

The dropoff was tempered, however, by two notable items of good news. First, new leads and move-ins rebounded in January to their highest levels since the pandemic started.

Second, 100% of Ventas’ U.S. SHOP assisted living and memory care communities have participated in first round vaccine clinics, and 90% are expected to complete their second clinics by the end of February. Ventas is one of the largest senior housing owners in the United States. Its SHOP portfolio numbers 377 communities, and the company also has 362 communities in its triple-net portfolio.


The recent trends have executive leadership hopeful that these positive indicators will translate into accelerated move-in velocity as the year progresses, CEO Debra Cafaro said during the company’s Q4 2020 earnings call Thursday.

Ventas reported funds from operations (FFO) of 83 cents per share for the quarter, which beat analysts’ expectations but still marked a 10.8% decrease over the previous year. But that performance included $35 million in relief funds from the U.S. Department of Health and Human Services, accounting for 13 cents per share, RBC Capital Markets Analyst Michael Carroll wrote in a note to investors.

The Covid-19 trends led the Chicago-based health care real estate investment trust (REIT) to issue weaker than expected guidance for the first quarter of 2021. FFO is expected to range between 66 cents per share and 71 cents per share.


Ventas also announced it sold $182 million in assets in the quarter, with 13 senior housing properties sold in December for about $167.6 million. The REIT plans to dispose of another $1 billion in real estate — likely in senior housing and medical office — in the second half of 2021, to reduce leverage and fund its development pipeline.

Significant occupancy declines

Ventas reported a 90 basis point drop in occupancy between the third and fourth quarters of 2020, based on Covid-19 weakness. Correspondingly, same-store SHOP net operating income (NOI) decreased 24.6% over the previous year’s time frame.

On a sequential basis, same-store NOI decreased 26.1% over the third quarter, due to the receipt of $162 million from Brookdale Senior Living (NYSE: BKD) — part of a restructuring agreement last July which will save the Brentwood, Tennessee-based company $500 million in rent relief over five years, and give Ventas a potential equity stake in the company.

Excluding the Brookdale consideration, same-store cash NOI improved 4.4% in the fourth quarter, largely from the receipt of the HHS grants, which partially mitigated Covid-19 losses incurred by its SHOP communities.

Ventas’ occupancy woes continued into the first quarter of 2021. SHOP occupancy fell 140 basis points in January, and February occupancy is down an additional 70 points so far. Quarterly sequential SHOP occupancy is expected to fall another 250 to 325 basis points.

Positive Covid-19 cases reached their peak across Ventas’ senior housing communities in January, averaging 92 per day, Executive Vice President, Senior Housing, North America Justin Hutchens said. Cases are now down significantly to an average of nine per day, the lowest levels since last October.

“We couldn’t be more relieved about this improvement knowing this means less illness, and less people potentially dying from Covid-19,” he said.

With leads improving in January, Ventas leaders highlighted Louisville, Kentucky-based Atria Senior Living — one of its largest operating partners — with driving healthy lead volume, in part through strategic discounting.

Hutchens also commented positively on the recent CEO transition at another one of Ventas’ key operating partners, Sunrise Senior Living. Jack Callison is succeeding Chris Winkle at the helm of the McLean, Virginia-based company.

“We know Jack to be an accomplished and charismatic leader who is extremely qualified to lead Sunrise,” Hutchens said.

Ventas’ SHOP performance is a tale of two countries. While its U.S. holdings struggle from Covid-19 operational pressures, its Canadian holdings, led by its communities operated by Le Groupe Maurice (LGM), continue to outperform. Ventas’ pipeline of senior housing communities it is building with LGM includes five communities — two of which were delivered during the quarter and have achieved stabilization with 80% occupancy rates.

Cafaro attributed LGM’s success to its large Class-A buildings that attract a customer base of healthier, more active independent living residents, as well as a significant pre-marketing effort resulting in a lot of pre-leasing and deposits.

“We’re trying to have it rub off on us here south of the border,” she joked.

Dispositions planned

Ventas is not sitting on the proceeds from its dispositions. It will use the cash on hand to reduce its near-term debt by fully repaying $400 million of its 3.1% senior notes, due in January 2023.

The REIT maintains a strong debt maturity profile, with duration exceeding six years, held total debt to gross asset value at 37%, reduced its net debt as of December 31, 2020 by over $500 million year over year, and retained $3 billion in liquidity, CFO Bob Probst said.

For the full year in 2020, Ventas disposed of over $1 billion in real estate sales, at a blended 5.3% cash yield. And it plans to sell another $1 billion in assets in the second half of 2021.

The real estate will be selected from across its service lines, but senior housing and select medical office buildings are expected to account for a significant amount of the planned sales, Cafaro said.

For now, the REIT is being patient with its approach to selling its assets, and is spending its time identifying assets with lower cap rates that it can sell to the right buyer for the right price.

The market for senior housing has been favorable for another large REIT seller recently. Healthpeak Properties (NYSE: PEAK) is nearing completion of a full exit from rental senior housing, nearly six months after announcing it would dispose of up to $4 billion in real estate. The Denver-based REIT announced it sold $2.5 billion in SHOP and triple-net senior housing in the fourth quarter of 2020, and is under contract to sell the remaining $1.5 billion in assets.

Cafaro is confident that Ventas can execute in a similar fashion, with favorable results.

“You can see in the market, there’s a really strong bid across the board in these asset classes,” Cafaro said. “That is a very good sign for our ability to execute in a really effective way.”

Ventas stock closed trading Thursday up nearly 2%, to $51.60 per share.

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