As leads reach heights not seen since early 2020, leaders with Ventas (NYSE: VTR) believe the company is well-positioned to see the upside of the ongoing senior housing recovery.
And looking ahead to the rest of the year, the company’s executives are “expecting significant revenue growth” to the tune of 10% in the first quarter, year-over-year, as the company’s operating partners drive rate growth and regain occupancy.
Although staffing and labor costs still plague the industry — and by extension Ventas’ operating partners — leaders with the Chicago-based real estate investment trust (REIT) noted improvements in net hiring trends, and they are hopeful that will continue into the year ahead.
Supply-demand fundamentals are also positive for the REIT given that only three of its top 20 markets saw new construction starts in the fourth quarter of 2021. Overall, the company expects positive net operating income (NOI) growth in the first quarter of 2022, driven by its senior housing and medical office segments, according to CEO Debra Cafaro.
“We look forward to posting growth in the first quarter, and sustained improvement in our senior housing business through 2022,” Cafaro said during the company’s fourth-quarter earnings call with investors and analysts Friday.
Ventas’ total holdings in the senior housing space span 819 communities, including 552 in the company’s senior housing operating portfolio (SHOP) segment.
Analysts see good signs
Ventas reported normalized funds from operations of 73 cents per share in the fourth quarter of 2022, beating analysts’ expectations by two cents. The REIT’s revenue of roughly $1.02 billion in 4Q22 also beat analysts’ expectations by nearly $77 million.
Analysts covering the company’s latest earnings period noted the company’s recovery. In particular, it appears to KeyBanc Capital Markets Equity Research Analyst Jordan Sadler that the REIT’s SHOP segment is on the mend, with rate and occupancy growth offsetting labor expenses.
“While it is still very early in the year and the risk of additional Covid waves remains significant, the combination of strong rate increases and peak leads since the pandemic’s start in January — coupled with lower move-outs year-over-year and stabilizing to moderating expense growth — bode well for the SHOP portfolio,” Sadler wrote in a Feb. 17 note to investors.
RBC Capital Markets Analyst Michael Carroll also saw revenue trending in the right direction for the company’s SHOP segment.
“The same-store SHOP portfolio generated revenue growth of 3.3% in 4Q21 that should pick up to 10.0% in 1Q22,” Carroll wrote in a Feb. 17 investor note.
Ventas’ stock price grew almost 2% to land at $52.94 by the time the markets closed Friday.
Ventas Executive Vice President of Senior Housing Justin Hutchens said during Friday’s call he expects occupancy, revenue and NOI to grow in the first quarter of this year.
“We are expecting significant revenue growth of 10% in the first quarter [in our SHOP segment], supported by pricing power and robust underlying demand,” he said.
Ventas also expects SHOP NOI to grow between 6% to 15% in the first quarter of 2022.
Hutchens bases his optimism on the fact that leads and tours have surged in recent months, while new supply has remained muted in the top markets where it has communities.
The total number of leads in the company’s same-store segment of 321 senior housing assets exceeded 16,400 in January, which Hutchens said was the highest volume achieved since the start of the pandemic in 2020. Additionally, SHOP leads have trended at pre-pandemic levels for nine consecutive months, including in January 2022.
Hutchens recently visited some of the company’s communities and “witnessed firsthand the strength of the top of the sales funnel.”
“As Covid cases have declined and tours have picked up, the energy at our communities has been evident,” he added.
Occupancy for the company’s SHOP segment hit 80.4% in the fourth quarter of 2021, representing a 130 basis point gain over what the company saw in the fourth quarter 2020. The company’s same-store segment reached 83.4% average occupancy in the fourth quarter 2021, reflecting a 200 basis point gain from 4Q20.
Average occupancy for the company’s same-store sequential SHOP segment, comprising 436 assets, is expected to decline by 20 basis points sequentially from the fourth quarter 2021. Still, that outcome would outperform normal seasonal trends, even if it is tempered by the Covid-19 pandemic.
One variable affecting the company’s NOI range is operating expenses, which are still elevated across the senior living industry as operators grapple with the pandemic.
To aid its 37 senior housing operating partners, the company has deployed operational insight capabilities along with geospatial analytics and capital allocation guidance.
“Some examples of outputs include in-depth pricing strategies, workforce recruitment and retention management, targeted value-creating CapEx and formulation of best practices,” Hutchens said.
The company has also taken recent moves to balance and grow its senior housing portfolio. The company forged new relationships with six new senior living operators in 2021, particularly in the wake of Eclipse Senior Living’s closure.
The company also in 2021 sold 29 non-core senior housing properties — “orphan assets” in competitive markets in need of CapEx, Hutchens said — resulting in about $400 million of gross proceeds. The company also notably acquired another REIT, New Senior Investment Trust, in a transaction valued at about $2.3 billion.
More recently, the company in February acquired for $107 million Mangrove Bay, a Class A senior housing community in Jupiter, Florida. And in Canada, Ventas is pursuing several new development opportunities with operating partner Le Groupe Maurice, with the goal of breaking ground in 2022.
“Our senior housing business is competitively positioned to capture the benefits of the ongoing sector recovery, and I could not be more excited for the path ahead,” Hutchens said.
Labor expenses to remain elevated
Despite Ventas’ forward momentum in the quarter, the company’s operators are still grappling with relatively high labor costs.
A tight labor market, and an increase in Covid-related staff absences have pushed up labor and agency costs in the first quarter 2022 to date. Excluding any received HHS grants, Ventas’ operating expenses increased by $8.7 million in 4Q21, representing a 2.6% gain over the previous quarter.
At the midpoint of its guidance, Ventas expects operating costs to remain elevated through the first quarter, even as some of Covid-19’s fade into the background.
“The first thing we’re going to look for is to have a healthy workforce, and the second thing is to continue those net hiring trends,” Hutchens said. “As that continues, then we would expect the agency cost to be able to come down.”
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