Ventas (NYSE: VTR) is looking ahead with a pipeline full of potential acquisitions in senior living after a strong quarter for its senior housing operating portfolio.
Strong supply-demand dynamics have pushed occupancy gains higher for the Chicago-based real estate investment trust’s (REIT) senior housing operating portfolio (SHOP), which includes 570 properties.
Move-ins across the segment have been on the rise, leading to 240 basis points of same-store average occupancy growth in the first quarter compared with the same period in the prior year. Those gains defied typical seasonal norms and were higher than the company’s expectations for the period outlook of 250 basis points, and give the company’s leaders confidence of continued recovery when coupled with the industry’s ongoing construction slowdown.
Of Ventas’ operators, Sinceri Senior Living, Discovery Senior Living and Sunrise Senior Living were noted as highlights of “superb performance” to start the year, Cafaro said.
“All of these trends combined to support a highly favorable long term runway for growth, and the biggest part of Ventas’ business senior housing,” Cafaro said during the earnings call.
Additionally, because of the constrained debt markets the industry is seeing, Ventas is in a position for additional acquisitions and transactions, with Cafaro saying $350 million in investments have closed or been put under contract, year to date.
“Over my career, it has been rare to see such a compelling investment environment where we can acquire attractive assets in favorable markets and high going-in yields and high growth,” Cafaro said.
Analyst Juan Sanabrina with BMO Capital Markets noted Ventas’ core results were “solid (albeit below WELL) with accelerating occupancy growth,” with guidance for funds from operations (FFO) increased to be in line with the NOI expectations.
Ventas stock closed at $46.22, an increase of 5.5% compared to the previous close.
‘Occupancy upside ahead’
Central to the company’s progress in the first quarter of 2024 was progress in its SHOP segment. SHOP was a particular bright spot for net operating income (NOI), with the segment growing same-store cash NOI by 15% in the period.
Average SHOP cash NOI margins improved to 25.6% in the quarter as the company’s average revenue per occupied unit (RevPOR) ticked up to $4,924, according to financial documents provided by the REIT.
Occupancy for the SHOP segment still sits at just shy of 80%, and the company expects to see even more gains in that regard, according to Executive Vice President of Senior Living Justin Hutchens.
“There’s a lot of occupancy upside ahead. And with that comes the operating leverage that we benefit from in our business,” he said during the earnings call Thursday.
Also giving Hutchens confidence in that fact was that the industry’s “key selling season” – its third quarter – is right around the corner. He said that he expects most of the company’s senior housing NOI growth to come from its assisted living holdings in 2024, with independent living being a “2025 opportunity.”
“There’s good leading indicators in our portfolio that will ultimately drive the NOI at, but AL is really leading the way right now in the U.S.,” Hutchens said.
Like the leaders of other public senior housing companies, Ventas leadership has noted in recent quarters that current industry dynamics favor transactions from REITs and other deep-pocketed players. Loan maturities to the tune of $19 billion coming due in 2024 and 2025 are the big reason why.
As the company looks to take advantage of what Cafaro sees as a multi-year opportunity, she expects to grow the company’s senior housing holdings in the process.
“We’re seeing in the market for good assets with high yields with high growth potential,” she said. “We’re going to find a way to make those acquisitions and make senior housing a larger part of our overall portfolio.”
