With tracks at pandemic highs, Ventas expects ‘significant’ revenue growth in 2022

As prospects soar to highs not seen since the start of 2020, Ventas (NYSE: VTR) executives believe the company is well positioned to see benefits from the ongoing recovery in senior housing.

And for the rest of the year, company executives “expect significant revenue growth” to the tune of 10% in the first quarter, year-over-year, as operating partners of business drive rate growth and regain occupancy.

Although personnel and labor costs continue to weigh on the industry – and by extension on Ventas’ operating partners – executives at the Chicago-based real estate investment trust (REIT) have noted improvements in net hiring trends, and they expect that to continue in the coming year.

Supply and demand fundamentals are also positive for the REIT as only three of its top 20 markets saw new construction begin in the fourth quarter of 2021. Overall, the company expects a positive net operating income (NOI) growth in the first quarter of 2022, driven by its senior housing and medical practice segments, according to CEO Debra Cafaro.

“We look forward to posting growth in the first quarter and continued improvement in our senior housing business through 2022,” Cafaro said during the company’s fourth quarter earnings call with investors. and analysts on Friday.

Ventas’ total holdings in the senior housing space span 819 communities, including 552 in the company’s senior housing operations (SHOP) portfolio segment.

Analysts see good signs

Ventas announced normalized operating funds of 73 cents per share in the fourth quarter of 2022, beating analysts’ expectations of two cents. The REIT’s revenue of about $1.02 billion in 4Q22 also beat analysts’ expectations of 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 spending. artwork.

“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 spikes since the start of the pandemic in January – coupled with lower year-over-year moves and stabilizing to moderate spending growth — bodes 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 SHOP same-store portfolio delivered revenue growth of 3.3% in 4Q21, which is expected to reach 10.0% in 1Q22,” Carroll wrote in a Feb. 17 note to investors.

Ventas share price rose nearly 2% to land at $52.94 as markets closed on Friday.

Revenue increase

Ventas Executive Vice President, Senior Housing Justin Hutchens said on Friday’s call that he expects occupancy, revenue and NOI to increase in the first quarter of this year.

“We expect significant revenue growth of 10% in the first quarter [in our SHOP segment]backed by pricing power and robust underlying demand,” he said.

Ventas also expects SHOP NOI to increase by 6% to 15% in the first quarter of 2022.

Hutchens bases his optimism on the fact that leads and tours have increased in recent months, while new supply has remained muted in major markets where it has communities.

Total leads in the company’s same-store segment of 321 senior housing assets topped 16,400 in January, which Hutchens said was the highest volume reached since the pandemic began in 2020. Additionally, SHOP prospects have evolved to pre-pandemic levels for nine consecutive months, including January 2022.

Hutchens recently visited some of the company’s communities and “witnessed first-hand the strength of top-of-the-funnel sales.”

“As Covid cases have declined and touring has resumed, the energy of our communities has been evident,” he added.

Occupancy in the Company’s SHOP segment reached 80.4% in the fourth quarter of 2021, representing a gain of 130 basis points over what the company saw in the fourth quarter of 2020. The company’s comparables reached an average occupancy rate of 83.4% in the fourth quarter of 2021, reflecting a gain of 200 basis points compared to 4Q20.

Average occupancy for the Company’s sequential same-store SHOP segment, comprising 436 assets, is expected to decline 20 basis points sequentially beginning in the fourth quarter of 2021. Nonetheless, this result would exceed normal seasonal trends, even if ‘it’s tempered by the Covid-19. 19 pandemic.

One variable affecting the company’s NOI lineup is operating expenses, which are still high in the retirement home industry as operators grapple with the pandemic.

To support its 37 senior housing operating partners, the company has deployed operational analytics capabilities as well as geospatial analytics and capital allocation advice.

“Some examples of results include in-depth pricing strategies, workforce recruitment and retention management, targeted value-creating investments, and formulation of best practices,” Hutchens said.

The company has also taken recent steps to balance and grow its senior housing portfolio. The company entered into new relationships with six new senior living operators in 2021, particularly following the closure of Eclipse Senior Living.

The company also sold 29 non-essential seniors’ housing in 2021 — “orphan assets” in competitive markets in need of CapEx, Hutchens said — for gross proceeds of around $400 million. The company also notably acquired another REIT, New Senior Investment Trust, in a transaction valued at approximately $2.3 billion.

Most recently, the company in February acquired Mangrove Bay, a Class A senior housing community in Jupiter, Florida, for $107 million. And in Canada, Ventas is pursuing several new development opportunities with its operating partner Le Groupe Maurice, with the goal of innovating in 2022.

“Our senior housing business is competitively positioned to reap the benefits of the current industry recovery, and I couldn’t be more excited about the path forward,” Hutchens said.

Labor expenses will remain high

Despite Ventas’ momentum in the quarter, the company’s operators are still struggling with relatively high labor costs.

A tight labor market and an increase in Covid-related staff absences drove up labor and agency costs in the first quarter of 2022 year-to-date. Excluding HHS grants received, Ventas’ operating expenses increased by $8.7 million in 4Q21, representing a gain of 2.6% over the prior quarter.

Midway through its guidance, Ventas expects operating costs to remain elevated through the first quarter, even as some of the Covid-19s fade into the background.

“The first thing we’re going to look for is having a healthy workforce, and the second thing is to pursue those clear hiring trends,” Hutchens said. “As this continues, we would expect the cost of the agency to come down.”

Sallie R. Loera