Self-managing certain senior living assets is currently out of the question for Ventas (NYSE: VTR), according to CEO Debra Cafaro.
Late last year, fellow real estate investment trust (REIT) Welltower (NYSE: WELL) won flexibility from the IRS to self-manage more than 45,000 independent living units. The Toledo, Ohio-based REIT is now spinning up an operations platform, a move that will help “modernize” the company’s senior housing portfolio, Welltower management said Monday.
But Ventas is choosing a different path, at least for now. The Chicago-based REIT posted strong earnings results in the fourth quarter of 2022, and is focused on driving operational performance through its operational insights, capital investment, management, and strategy data analytics platform.
Given the company’s recent momentum, Cafaro sees no need to spin up an operating platform as its REIT peer Welltower is doing.
“It’s working, we’re producing robust year-over-year growth,” Cafaro said Tuesday during a panel at the Citi 2023 Global Property CEO Conference. “So our conclusion is that the risk-reward is not there at this time.”
Cafaro said that the REIT is not opposed to doing so where it makes sense, citing the “great success” of the company’s vertically integrated property management for medical office buildings. She noted that Ventas has also “thoroughly vetted” the idea of a senior housing operating platform.
If Ventas were to launch an operating platform for its senior living assets, Cafaro said, “If anyone should do it, it should be Justin [Hutchens], because he’s actually done it globally multiple times.”
Such a plan would also need to be a “big, needle-mover” to be worth it, said Ventas Executive Vice President and Chief Financial Officer Bob Probst.
“If you’re going to take the risk of erecting a national operating platform, you better believe it’s going to drive NOI better than your current approach,” Probst said. “We’re absolutely a believer in our ROI approach and the day-to-day management of our experienced managers.”
2023 outlook
For the rest of the year, Cafaro said Ventas was “reigniting Ventas’ cycle of success” with a favorable outlook across all asset classes, including senior housing.
“We’re at the precipice of unprecedented organic growth the likes of which I have not seen during my tenure,” Cafaro said.
That’s based on favorable demographics of an aging U.S. population and rising demand for senior living in the coming decades, she said, along with the company’s ability to recapture NOI that was lost during the Covid-19 pandemic.
“We have strong conviction that the company can exceed those and go on to even greater heights in the senior housing business,” Cafaro added.
On a same-store basis, Cafaro said Ventas expects senior housing operating portfolio (SHOP) growth of 15 to 21% in 2023 driven by approximately 6% revenue per occupied room (RevPOR) growth and continued occupancy gains.
During the pandemic, Ventas reported NOI loss of $545 million, having recovered $72 million of that to-date, Probst said. For 2023, Ventas expects to recover $100 million of that NOI loss to a pre-pandemic occupancy of 88%.
“The truth is the fundamentals of supply and demand have never been better and therefore we think we should well-exceed that 88% [occupancy],” Probst said. “…The opportunity to go into the 90s is clearly in front of us.”
Ventas assumes senior housing operating portfolio (SHOP) growth of $0.29 per share with an approximate 8% increase in revenue growth and expense growth to increase 5% year-over-year.
On Tuesday, Ventas’ stock price fell 2.82% to rest at $47.50 per share at market close.
