Atria-Holiday Merger and New Seniors Agreement Position Ventas for Future Growth in Senior Housing


The positive momentum in Ventas (NYSE: VTR) senior housing operating portfolio (SHOP) that manifested in the first quarter of 2021 continued into the second quarter and into July.

New runways and accommodation during the quarter exceeded levels in the first quarter of 2019, with the former reaching a new high. Occupancy has improved sequentially for five consecutive months.

And Chicago Healthcare REIT’s senior housing assets are poised for further growth due to two major deals: Atria Senior Living’s June acquisition of $ 1.6 billion of services. management of Holiday Retirement; and the acquisition by Ventas in June of New Senior Investment Group (NYSE: SNR) in a transaction valued at $ 2.3 billion.

The two deals allow Ventas to capitalize on future demand and allow it to target middle-market seniors entering the space, CEO Debra Cafaro said on Friday during the company’s second quarter 2021 earnings call. .

Ventas announced normalized operating funds (FFOs) of 73 cents per share for the quarter, which exceeded analysts’ expectations but still marked a 6% decline from the previous year. Net income rose to 23 cents per share, down from a loss of 42 cents per share in the second quarter of 2020, a 155% increase year-over-year.

The REIT released a cautious outlook for the third quarter, acknowledging the fluid situation regarding the delta variant in some markets. Net income is expected to be between no change and 5 cents per share. The standardized FFO is expected to be between 70 cents per share and 74 cents per share.

Strong performance of senior residences

Ventas’ senior housing segment, made up of 434 communities and 26% of its total mixed portfolio, saw solid sequential improvement in the second quarter of 2021.

Net operating income (NOI) totaled $ 111 million in the second quarter. Comparable store cash RNI in the quarter increased $ 50 million on an annualized basis, compared to the first quarter of 2021 – excluding the impact of the $ 13.3 million in grants received by the Department of Health and of Social Services (HHS) in the first quarter.

SHOP’s total occupancy rate closed the second quarter at 79.4%, and management believes there is significant upside potential to be seized. In particular, prospects and moves have recovered considerably. Levels for both in June were the highest since the start of the pandemic, with tracks reaching 105% of pre-pandemic levels in the first quarter of 2019, at 21,300 and nearly 2,100 new residents.

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Ventas executive vice president for senior housing Justin Hutchens attributes this to operational partners who are turning to digital sales and marketing strategies during the pandemic. These remain in place as traditional primary sources such as personal referrals, respite care, and professional referrals return.

“The digital footprint of our operators has grown significantly over the past year, casting a wider net,” he said.

Ventas’ SHOP portfolio saw a 229 basis point increase in spot occupancy from March 31 to June 30, and 424 basis points from its low in mid-March to July 31. And the REIT has experienced five consecutive months of occupancy growth, led by its US SHOP segment.

The US Ventas SHOP communities grew 313 basis points from March 31 to June 30. Its Canadian holdings grew more modestly due in part to already high occupancy rates hovering around 90%, as well as a slower deployment of vaccines,

Among Ventas’ operating partners, Sunrise Senior Living led the way in occupancy gains with 627 basis points of nadir spot occupancy growth from mid-March to July 31. Hutchens believes the McLean, Va.-Based operator has benefited from a rejuvenated management team under CEO Jack Callison, well-invested communities and a balanced approach, demonstrating occupancy gains and pricing power. very important.

Atria also saw significant occupancy gains, with 529 basis points of cash occupancy growth from mid-March to July 31 and an overall occupancy rate of 81.85. The Louisville, Ky.-Based operator has achieved that by offering discounts and incentives, but plans to tighten incentives as occupancy stabilizes and pricing power recovers, Hutchens said.

As the delta variant contributes to the increase in positive cases of Covid-19 across the country, Ventas and its operational partners are cautiously optimistic about the continued forward momentum. SHOP’s overall spending fell 2.3% in the quarter, due to a better-than-expected drop in spending related to Covid-19.

“Our operators have prioritized the safety of residences and weathered several short-term headwinds, including the delta variant and transitional wage pressures due to staff shortages and certain markets,” Hutchens said. “Underpinning our premier operating partnership relationships and recent sales momentum is our attractive market presence, which allows us to benefit from attractive supply and demand prospects in the housing sector. for the elderly. “

Analysts expect Ventas’ performance improvement to continue into the third quarter, somewhat tempered by continued pressures.

“The third quarter is likely to see higher seasonal labor costs, compounded by continued labor pressure from a macroeconomic pandemic,” wrote Frank Morgan, equity analyst at RBC Capital Markets. , in a note to investors.

Big deals boost optimism

Ventas will benefit from both the Atria-Holiday merger and its New Senior acquisition.

New Senior has 102 private independent living communities and one continuing care retirement community (CCRC) in 36 states. The portfolio had around 40% operating margins before the pandemic.

The purchase price is on average 20 to 30% lower than the replacement costs.

Ventas is acquiring the assets of New Senior at a 5% cap rate, which is expected to reach a rate of 6% from the expected NOI in 2022, with a further rise as the industry continues to recover. And management believes the deal will strengthen its senior housing segment from several strategic perspectives.

First, New Senior will improve Ventas’ cash flow generation. Margins have remained resilient in the 35% range during the pandemic. Occupancy has withstood the headwinds of Covid-19 around 80 basis points better than industry averages reported by the National Investment Center for Seniors Housing & Care (NIC). More recently, New Senior has seen strong sales trends; the occupancy rate of the portfolio improved by 100 basis points in June.

“New Senior has a track record of strong operational performance, enjoys a diverse geographic footprint with favorable exposure to market fundamentals and compelling demographics, and represents a high quality, well-invested portfolio responding to an attractive market segment.” , Hutchens said.

The Atria-Holiday merger, which creates the second-largest for-profit senior housing company, will also benefit Ventas. The REIT owns a third of Atria’s management platform and will directly benefit from the increase in scale.

Ventas also likes the combination of locations, levels of acuity and talent that the combined companies bring to the table. Specifically, Cafaro sees opportunities for future growth by leveraging Atria’s data analytics and technology capabilities to move forward.

“It’s a lot more about that than the scale,” she said.

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