Ventas leaders see multi-year window to restore fill rates and margins

According to Ventas (NYSE:VTR) CEO Debra Cafaro, favorable supply and demand dynamics create a “multi-year window” through which to restore occupancy and increase profits.

In the fourth quarter of 2022, same-store occupancy in the company’s Senior Residents’ Housing Operating Portfolio (SHOP) segment reached 82.5%, higher than the company’s previous growth forecast. This helped net operating income (NOI) for the entire SHOP segment reach 19.1% in 4Q22.

And the Chicago-based Real Estate Investment Trust (REIT) believes occupancy will continue to rise throughout the year, according to its fourth-quarter earnings report with investors and analysts on Friday.

“In 2022, Ventus began what we believe is a multi-year growth and recovery cycle led by SHOP and supported by favorable supply and demand fundamentals, the actions we have taken across the portfolio and our post-pandemic recovery,” Cafaro said. “Our portfolio has already shown significant occupancy and NOI growth due to the Covid crisis and we see even more reuse potential in the coming years as we first aim to reach and then hopefully surpass 2019 performance levels.”

In fact, Cafaro believes the company has a chance of reaching and potentially exceeding 92% occupancy rates after the Great Recession.

According to Juan Sanabria and John Kim of BMO Capital Markets, the company’s operating partners have strong pricing power, which has helped support REIT results in recent quarters.

“Prospects remain resilient, but conversions seem to be on a downward trend and bounce rates are also on the rise compared to 2019,” their Feb. 9 note to investors reads.

The company’s total portfolio includes more than 1,200 properties related to nursing homes, life sciences and healthcare facilities. The company’s nursing home portfolio includes 478 communities.

Ventas’ share price rose 0.87% to $51.15 by the close of financial markets on Friday.

Margin growth shows progress

Ventas made progress in the 4th quarter, increasing profitability due to the growth of positions in several key areas.

The company noted that NOI SHOP Ventas’ growth in the fourth quarter of 2022 was driven by increased margins as well as an approximately 8% increase in the same store’s revenue. The US was a particularly strong market for NOI growth, with a 22.2% increase driven by operators including Sunrise Senior Living and Atria Senior Living.

The company’s Canadian operating partners also posted growth in the fourth quarter, with an 11.7% gain led by operator Le Groupe Maurice, Senior Living’s EVP and newly appointed CIO Justin Hutchence said.

“We are still benefiting from operating leverage, even at a relatively low load, which resulted in a margin increase from 23% in the third quarter to 23.6%. In the fourth quarter,” he said.

Agency labor costs remained high, but Hutchence said the company’s operating partners have helped reduce those costs in recent quarters. Among the operators’ successful strategies has been the centralization of the recruitment of frontline staff, rather than leaving the task to the communities.

Hutchence said Ventas’ SHOP spending was about $4.7 million per day in Q4 2022. The company’s cost growth peaked in the second quarter of 2022 at 11%, before falling to 6% in the fourth quarter of last year.

This was offset by rising rents from the company’s senior operating partners. Revenue Per Occupied Room (RevPOR) grew by 1.4% in the fourth quarter of 2022 and by 6.5% for the full year.

The average growth rate of the company’s senior portfolio in 2022 was about 10%.

“Our SHOP portfolio continues to perform very well,” Hutchence said. “The fourth quarter exceeded our expectations with excellent year-over-year growth driven by pricing, higher occupancy and lower costs.”

2023 expectations

Cafaro noted that in 2022, the dynamics of supply and demand have changed in favor of Ventas. And looking ahead, she sees what is going on this year and beyond.

“We think we have a good multi-year window where we know the demand profile and can lock in,” she said. “At the same time, supplies should remain very restrained… again, just like after the financial crisis, when supplies were low.”

Looking ahead, she said the company’s “game plan” is to get back to 92% occupancy.

Ventas’ management also believes that the rate hike will support continued growth in the next four quarters.

“Eighty percent of our revenue growth in 2023 will be driven by RevPOR growth,” Hutchence said during an earnings call.

Although normal seasonality has changed somewhat due to the pandemic, Hutchence said he expects the industry to continue to normalize in that direction in the coming months and years.

“We expect a return to more normal seasonal employment patterns that include typical clinical conditions and slightly elevated financial losses in the first quarter,” he said.

Ventas is currently upgrading 100 properties in its SHOP portfolio under a $100 million capital expenditure initiative. Although Hutchence said there was still more to be done on that front, “we have chosen our highest priorities and have been proactive,” he added.

“So, we’re looking forward to these projects coming online during a key selling season,” he said.

Looking ahead, the company’s executives see an opportunity to grow their SHOP segment with an additional $900 million in NOI cash considerations.

Hutchence and other leaders were buoyed by the fact that the company’s lead generation reached historic levels in the fourth quarter of 2022.

“We expect and hope to return to 2019 levels and margins should stabilize, but should also continue to rise due to strong demand in the nursing home sector,” Hutchence said.

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button