The slow rate of new construction starts and looming demand from the baby boomers have led to “the most favorable supply demand fundamentals the industry has ever experienced,” according to the top leader of Ventas (NYSE: VTR).
Thanks to those conditions, Ventas CEO Debra Cafaro laid out that she sees “a compelling backdrop for multi-year growth ahead” for the company’s senior housing holdings. Like other leaders in the industry, Cafaro also said the company is also gearing up to capitalize on a wave of debt maturities among operators in the coming years.
At the same time, Ventas has made progress turning around a challenged segment of its senior housing operating portfolio (SHOP) months after the Chicago-based REIT brought in three other operators to manage it.
“Communities tend to have meaningful runway for occupancy and NOI growth in the hands of well-capitalized, experienced and knowledgeable owners like Ventas,” Cafaro said during the company’s third-quarter earnings call with investors and analysts Friday.
Ventas reported funds from operations (FFO) of $0.75 per share in the third quarter. The company’s total revenue for the quarter was more than $1.14 billion.
The Chicago-based REIT has 587 properties in its SHOP segment, with a triple-net portfolio of 334 properties.
Analysts highlighted the company’s solid senior housing momentum during the quarter.
“FFO guidance was bumped (in line) with SHOP & other segments maintained,” wrote BMO Capital Markets analysts John Kim and Juan Sanabria. “Overall we see results as solid and helping to start to rebuild credibility”
Stifel Managing Director Stephen Manaker wrote in a Nov. 2 investor note: “SHOP remains the main earnings driver (36% of NOI), and the recovery is continuing as we expected. However, we believe expectations are ahead of likely results in the near-term due to a slowing pace of occupancy gain.”
Ventas’ share value registered at $44.08 on Friday afternoon after financial markets closed, representing a less than 1% gain on the day.
Leaning on operator relationships
Ventas’ SHOP segment led the quarter in terms of net operating income (NOI) growth, with the same-store SHOP segment growing 18% over the same quarter in 2022.
Occupancy for the SHOP segment hit 81.8% in the quarter, representing a gain of 20 basis points versus the same period in 2022. Average monthly revenue per occupied room (RevPOR) grew 7.9% in the third quarter of this year to land at $ 4,706.
As in previous quarters, Ventas management praised the efforts of its operating partners as making a difference in the quarter.
In the second quarter of the year, the company’s executives reported a “disappointing” quarter for a portion of its Holiday by Atria SHOP segment, prompting the company to assign three new operators to the 24-property segment.
That effort paid off in the third quarter to the tune of a 130-basis-point occupancy gain for the segment. Ventas Chief Investment Officer Justin Hutchens credited those gains in part to the company’s support, which includes its “operational insights” platform.
“Our expert approach of moving communities to new operators ensures that lead banks are transferred immediately, websites are integrated [and] management, including the CEOs, have access to the communities well ahead of the transition date to enable quick execution,” Hutchens said during the call.
On the whole, the 75-community SHOP segment managed by Atria Senior Living saw good progress in the quarter and added 190 basis points of occupancy between July and September, representing the fastest census growth over a two-month period in more than two years for any of the company’s operating partners.
Move-ins for the segment in the quarter were 120% of 2019 levels, he added. Total SHOP revenue for Ventas in 3Q23 was $7.5 million, a 1.8% increase quarter over quarter and a 7.6% increase year over year.
“We continue to see good performance in this more streamlined portfolio, which allows for enhanced focus and with a renewed sense of urgency to execute,” Hutchens said.
Looking ahead for future investments, Ventas announced plans to look at combining smaller opportunities and expanding its current relationships.
During the quarter, Ventas acquired two communities totaling 181 units in Connecticut and Massachusetts for $79.5 million. The acquisition also linked Ventas with Boston-based Benchmark Senior Living, “an exciting new relationship for us,” Hutchens said.
“We see most of what’s on the market … and we are very interested in expanding in senior housing,” he said.
Cafaro noted there are growing investment opportunities within the space and that Ventas is “well positioned” to capitalize on the opportunities available due to debt service maturities, and the trend is expected to continue throughout 2025.
“There’s a huge pool of quality senior living communities with attractive return profiles that are coming to market as a result of debt maturities and higher debt service costs,” she said.
On the whole, the senior living industry is plagued by an M&A market that has largely frozen as higher interest rates have taken hold. But Hutchens noted “a number of opportunities that are really building, and particularly in recent months and weeks.”
“That includes the number of institutional sellers that are dealing with debt maturities or fund maturities, and we’re starting to see the returns become more interesting to us,” he said.
Hutchens added: “We are looking at smaller opportunities to really continue to expand our existing relationships and add new relationships, and use our variety of different sources of capital to do that.”
The company also is improving its existing senior living communities, with about 170 projects across its property holdings – “mostly mid market focused, and also unit upgrades,” Hutchens said.
Moving forward, Cafaro said the plan for Ventas is to “lean in” to the senior housing side of the business given the company’s “significant expertise” and “double digit internal rate of return.”
“We’re very interested in that area first and foremost,” she said.
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