With improvements and growth underway among operating partners, leaders with Ventas (NYSE: VTR) are now looking to further expand the footprint and bolster the value of the company’s senior housing portfolio.
The company’s senior housing operating portfolio (SHOP) now carries an average occupancy rate of 84%, which is 8 percentage points below the segment’s peak census of 92%. Operating margins are currently at about 27%.
Assuming the 579-community segment can return to 88% occupancy and 30% margins, the company has identified an additional $140 million of net operating income (NOI) upside ahead. And according to CEO Debra Cafaro, the segment’s target resident base – people aged 80 and older – is expected to grow by 24% in the next five years, with good supply-demand fundamentals expected in that time.
Year to date, Ventas has made about approximately $350 million in investments focused on senior housing; $300 million of that in the second quarter. But by year’s end, the company’s management expects to have grown that number to $750 million “given the favorable market conditions and the strength of our pipeline for quality acquisitions,” Cafaro said.
At the same time, the company is continuing to advance the growth of its Ventas Operational Insights data platform. According to Executive Vice President of Senior Housing and Chief Investment Officer Justin Hutchens, more than 133 communities have leaned on the data program, with better operational results as a result.
“Ventas’ business, over half in senior housing, is highly advantaged across the REIT space. All our asset classes benefit from inelastic, needs-driven, demographically driven demand, and most benefit from a softer employment backdrop,” Cafaro said. “As a result, we have an unprecedented multi year growth opportunity right in front of us.”
Overall, Ventas reported funds from operations (FFO) of 80 cents per share in the second quarter of 2024, an increase of 7% compared to the second quarter of 2023.
Chicago-based Ventas is among the largest owners of senior housing communities in the U.S. with more than 800 properties.
Ventas’ stock closed at $56.40 per share on Aug. 2.
‘Off to a strong start’
Helping to lead the way for Ventas’ results in the second quarter of this year was positive growth among its SHOP segment, which grew same-store NOI 15.2% compared to 2Q23.
SHOP operators in the U.S. led the quarter for occupancy growth and added 380 basis points of census compared to the same period in 2023. The REIT’s operating partners in Canada grew occupancy 170 basis points during the same time, landing at an average rate of 96% overall in the second quarter of 2024.
Ventas management noted that all of the communities in the segment experienced strong demand, sales execution and move-ins regardless of community type, geography and operator during 2Q24.
The “cornerstone” of the company’s efforts to improve SHOP performance is its Ventas Operational Insights data platform, which “enables us to combine our best-in-class analytics with our operating expertise to drive thoughtful conversations and actionable insights with the operators to quickly make informed decisions on critical areas of the business,” Hutchens said.
Ventas uses the platform to distribute CapEx dollars and other community investments. The platform also provides Ventas’ operating partners with an analysis of market demand, home values, net worth and affordability of prospective residents.
Since the launch of the Ventas OI program, 215 projects have been completed, resulting in a 530 basis point occupancy growth for the segment, according to Huchens.
Ventas also has executed digital marketing efforts with move-ins in mind, specifically “improving the attractiveness of the website to Google search, for instance, and user experience improvements.”
Using that strategy, Ventas was able to deliver net move-in volumes in the second quarter of 2024 that are 13 times higher than the same period last year.That is thanks to performance of operating partners including Ventas’ Atria Senior Living and legacy Holiday portfolios along with operators including Sinceri Senior Living, Priority Life Care and Discovery Senior Living.
The company had “very strong” levels of occupancy growth for communities at middle-market price points, Hutchens said. He also noted that there “has been better growth in lower-acuity assisted living and independent living than the higher-acuity product,” mirroring comments made earlier this week during the earnings call of peer REIT Welltower (NYSE: WELL).
“We’re off to a really strong start,” Hutchens said. “We’ve actually raised guidance twice now … that’s due to the outperformance we’ve had early in the year.”
Ventas invested more than $300 million in its SHOP segment in the second quarter of 2024. The “value-creating” investments were spread across 12 communities, 10 of which are operated by operating partners the REIT already works with. Hutchens added that the company is also in the process of working with new operators.
Looking ahead, the company has “line of sight” on $400 million of senior housing investments with which to expand its footprint. Opportunities to buy are stemming from a mix of asset holders with fund maturities, active sellers and others who are selling properties more reluctantly.
“We’re certainly interested in ramping up the activity,” Hutchens said. “There are certainly sellers that have debt maturities, and they’re having to make a decision. We’ve been able to take advantage of some of those opportunities.”
As a whole, though, Hutchens noted the fundamentals for senior housing are continuing to remain strong, and the returns the company is seeing so far have been “excellent.”
“At the present time, because of the REIT’s footprint and experience and platform in senior housing, we are focused on capturing those opportunities really at the enterprise level,” Cafaro said. “But we have in selective appropriate circumstances, done a few senior housing assets with our partners.”
