Demand is returning to senior housing at a rate that Debra Cafaro, chairman, president and CEO of Ventas (NYSE: VTR), did not anticipate.
“We’ve been very surprised [at] the upside [of] the demand that has already manifested itself so close on the heels of the vaccine,” Cafaro said during a presentation at the Nareit REITweek: 2021 Investor Conference, which is being held virtually. “That is the evidence that we have … that there is a value being provided to seniors and their families.”
Last month the Chicago-based real estate investment trust (REIT) reported that move-ins in March and April reached levels not seen since mid-2019. And the company has added 260 basis points of average occupancy since its mid-March low point, according to Justin Hutchens, Ventas’ EVP of Senior Housing for North America.
“Move-ins, leads, are performing above the pre-pandemic levels, and we’re off to a really good start for this recovery,” Hutchens said during the presentation Wednesday.
Spot occupancy for the company’s senior housing operating portfolio (SHOP), which includes 377 communities in the U.S. and Canada, registered at 77.9% at the end of May.
While Hutchens held off from projecting the trajectory of the company’s senior housing recovery, he believes that the “building blocks” of improvement are falling into place. That is based on several factors, including the high rate of vaccinations and low rate of new Covid-19 cases at Ventas communities; the aging baby boomer cohort; and the low rate of new construction starts in the industry compared to historical levels.
“The next three to five years look really compelling to support absorption in the sector, occupancy growth, and then ultimately push pricing,” Hutchens said. “When we push pricing, that’s the last stage to fully recover the margin that we were seeing pre-pandemic — for us that was around 30%.”
Looking ahead, Cafaro said Ventas will allocate capital in a way that puts senior housing at the forefront.
“We really are going to prioritize senior housing,” Cafaro said. “We believe in the recovery story and are prepared to put our money where our mouth is.”
To that end, Ventas is working to invest more dollars into its senior housing portfolio, while also perhaps culling a few buildings along the way. The REIT is investing in ground-up development projects with Montreal-based operating partner Le Groupe Maurice (LGM), which Ventas acquired an 85% stake in two years ago. As of June 1, Ventas’ LGM communities reported a spot occupancy of 94.3%.
“They have a secret sauce up there where they build these beautiful communities that are large-scale communities, and yet they fill up to within the 80 percent [range] within months after opening,” Cafaro said.
Ventas has completed or initiated three development projects totaling about 900 new units with LGM, representing a value of $290 million. Two other LGM communities totaling about 775 units opened in the fourth quarter of 2020.
While the looming prospect of competition from in-home care agencies has some senior living providers starting their own programs, Ventas’ leaders do not believe that increased home care poses a threat to communal living. For one, many of the residents who live in the REIT’s communities already use home health in their independent living units. And, Cafaro believes that senior housing offers something that in-home care providers cannot.
“Senior housing is so much more than an hour visit three days a week to deliver some kind of medicine or procedure,” Cafaro said. “A more inclusive 24/7 setting is where people feel safer — and more socialized, which is an extremely important value that’s provided in senior living communities.”
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