Occupancy, Rate Growth Propel Ventas’ Senior Housing NOI Higher in Q1

Occupancy and rate growth among operators in Ventas’ (NYSE: VTR) senior housing portfolio helped the company see “outstanding” net operating income growth in the first quarter of 2022.

The Chicago-based real estate investment trust (REIT) reported a 14.2% gain in net operating income (NOI) growth for its senior housing operating portfolio (SHOP) in 1Q22, excluding HHS grants. And the company expects to see SHOP segment NOI of 2% to 10% in the second quarter of 2022.

Ventas CEO Debra Cafaro also noted that the first quarter of 2022 was the first time since the pandemic began that the REIT grew both normalized FFO and SHOP same-store cash NOI.


“Looking forward, the power of our well-positioned communities, strong demand evidenced by leads that consistently exceed pre-pandemic levels into April, pricing power and advantaged markets should translate into sustained NOI growth through the balance of the year,” she said during the company’s first-quarter 2022 earnings call with investors and analysts Friday.

Despite its relatively strong performance in the first quarter, Cafaro also noted that the company is grappling with inflationary pressures, signs of a possible recession ahead and “the tightest labor market we have seen in 50 years.”

Still, Ventas is well-positioned, challenges or not, she added.


“Pricing power is strong and has the potential to strengthen further as occupancies continue to recover,” Cafaro said. “Softening the rate of growth in labor and other expenses should improve our margin, particularly as revenue and occupancy increase.”

Ventas reported funds from operations (FFO) of $0.79 per share in 1Q2022, beating Wall Street estimates by two cents.

The REIT’s senior housing operating portfolio (SHOP) spans 544 communities.

Runway to recovery

With many of the company’s indicators trending positive and given the size of its SHOP segment, Ventas is on track to benefit from a post-Covid recovery ahead.

But, the process might take many years to play out, and occupancy will likely hit pre-pandemic levels one or two years before margin recovery occurs, according to Stifel Analyst Stephen Manaker.

“Higher labor costs are the key factor delaying margin recovery,” Manaker wrote in a May 5 note to investors.

Although the REIT did moderate its SHOP segment guidance for the second quarter of 2022, that is largely a factor of “ongoing expense pressure that will eventually moderate,” according to RBC Capital Markets Analyst Michael Carroll.

“The SHOP revenue trend continues to be healthy and is tracking in line with our expectations,” he wrote in a May 5 note.

Ventas’ share value dipped slightly Friday, hitting $56.97 by the time financial markets closed.

Talking SHOP

The company’s SHOP NOI gains in Q1 portend more growth ahead, according to Executive Vice President of Senior Housing Justin Hutchens. At the same time, occupancy and rate growth helped propel same-store revenue nearly 10% higher in the first quarter.

“The revenue performance is very strong, driven by volume and pricing in spite of Covid-19 … leading to our best year-over-year and sequential revenue performance we have ever seen in our portfolio,” Hutchens said.

Ventas’ operating partners increased rates by about 8% across the board, while same-store average occupancy grew by 420 basis points to 83% in the first quarter of 2022.

Operating expenses increased 8% in 1Q22 compared to the same quarter a year ago due to “macroeconomic factors” and elevated labor costs, according to Hutchens.

At the same, ​​Hutchens noted that Ventas has grown its number of net hires for the last seven months, though “we have yet to see it impact the P&L,” he added.

Although Ventas’ leaders were “pleased” with the first-quarter SHOP performance, performance was uneven by geography.

Net operating income grew to $72.8 million in 1Q2022, up from $57.5 million in 1Q2021, representing an increase of 26%. But, in Ventas’ Canada portfolio, NOI dropped to $41.1 million in 1Q22, a decrease of 2.4% from the $42.1 million NOI the company saw a year prior.

But Hutchens attributed that difference to lingering move-in restrictions in Canada, and noted the company expects conditions to improve over the year.

“In Canada … they’ve always been much quicker to shut down when there is a little bit of an outbreak or a threat of an outbreak,” he said. “That slowed the move-ins down.”

But occupancy in the company’s Canada portfolio has remained at or above 90% for the last decade, and Hutchens noted that “March and April are off to a good start, so we think there is potential to recover.”

Occupancy among Ventas’ 73 Canada-based communities was 91.8% in 1Q2021, rising to 93.2% in 1Q2022.

“The broader Canadian market tends to have a better supply-demand dynamic over time,” Hutchens said.

Looking ahead to the rest of 2022, Ventas has targeted $200 million of senior housing dispositions this year, in an effort to “improve the portfolio through selective pruning,” Hutchens said.

‘Right Operator’

Ventas also spent the quarter strengthening relationships with its existing operator partners as part of its “right asset, right market, right operator” strategy.

The most recent milestone in that strategy is a newly revised management agreement with McLean, Virginia-based operator Sunrise Senior Living, which deepened a partnership that began in 2007 and now includes 92 communities.

Under the new arrangement, the companies consolidated multiple ongoing contracts into one master contract that keeps the existing term through 2035. Also included in the master contract are incentives for NOI growth – a priority for Ventas.

“What we like about this new arrangement is that it’s pretty simple – if they deliver higher NOI to us, then they’ll get a higher management fee,” said Hutchens, adding that a lower NOI also means a lower management fee.

Ventas is also expanding its relationship with its largest operator in Canada, Le Groupe Maurice (LGM).

Ventas acquired 29 LGM-operated communities in 2019 and has since grown the portfolio to 34, accounting for more than half of Venta’s entire Canadian portfolio. Ventas has three more communities under development with the operator.

Ventas expects to break ground on a $90 million project in the Montreal suburb of St. Hyacinthe later this year. With an expected stabilized yield of 6%, the community will include 362 units and is located near supermarkets, restaurants and entertainment.

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