Ventas (NYSE:VTR) has a “several hundred million dollar” net operating income opportunity right in front of it — provided the company can reach its pre-pandemic census and NOI levels.
Overall, the Chicago-based real estate investment trust (REIT) is targeting an 88% occupancy rate and 30% margin in the coming years, Ventas Chairman and CEO Debra Cafaro said during the Sept. 12 Bank of America Global Real Estate Conference. And its best demand years may be yet to come, given today’s market fundamentals and construction levels, she added.
“New starts in the business are the lowest they’ve been since 2009,” Cafaro said. “And that’s coupled with three times the population growth over the next five years that we saw following 2009. We have a better supply and demand forward environment than we’ve ever had in senior housing.”
To hit its goals ahead, the company will focus on improving operations in a variety of ways, including by continuing to stay on top of operator performance and possibly leveraging predictive analytics down the road.
Ventas leans on an operational strategy Executive Vice President of Senior Living Justin Hutchens refers to as “right markets, right assets, right operators,” wherein the company continually prunes and adjusts its senior housing operating portfolio (SHOP) to ensure it is capitalizing on the company’s “multi-year growth and recovery story.”
The most recent example of that came by way of operator transitions. Ventas a few weeks ago transitioned the management of 26 of its communities to operators Sodalis Senior Living, Priority Life Care and Discovery Senior Living in Texas, Florida and California respectively. The move was done both to expand its current relationship with the operators in question and to “increase occupancy and performances” in the communities.
“As we evaluated the three states — Florida, Texas and California, which did not have good performance and therefore needed quicker execution — we decided to move with new operators,” Hutchens said. “We thought that was our best opportunity to create value and to create momentum.”
Hutchens added Ventas is utilizing AI selectively, and that the company plans to utilize it more in the future for predictive analytics.
“We’re putting a plan in place to take this enormous amount of operations, financial and market data and put it to good use to better predict performance within our decision making in senior housing primarily, and also across the enterprise,” he said.
One current thorn in Ventas’ side, albeit a relatively small one, is its latest encounter with activist shareholder Land & Buildings, which has holdings representing less than 1% of the company’s total share value.
In an open letter Monday, Land & Buildings Founder Jonathon Litt aired more grievances over what he perceived as “failure of oversight” from the REIT. Cafaro noted the company had “not talked to Land and Buildings,” as of the time the letter was released and that the activist investor has “not reached out to us for over a year.”
“We are … very engaged with our shareholders and very interested in their feedback,” Cafaro said. “And, again, what we care about is performance and value creation.”
Through the remainder of the year, Ventas expects to add $100 million in net operating income with its senior housing operating portfolio (SHOP) for 2023 compared to 2022. The state of interest rates are currently making life harder for the industry overall, and Cafaro said she only “maybe” expects that the Fed is done rate-hiking in the future. But she does not expect any interest rate cuts in 2024.
She also said she thinks real estate transactions will pick up in the end of the year and into early 2024 driven by “reality checks” in debt maturities.
“There’s a trillion and a half of real estate maturities coming over the next couple of years and that will drive the ‘reality check’ and the transaction volume, in my opinion, to people who can raise capital and deploy capital,” she added.