The earnings reporting season is coming to an end, and the odds were that Ventas would cut their second quarter dividend payable in July, much like what Welltower, Sabra Health Care REIT and Diversified Healthcare Trust have done. They would have every reason or excuse to do it. A cut was already somewhat embedded into their share price. Their funds available for distribution were shrinking. But it didn’t happen. A decision will be made about the next dividend sometime in June. 

Investors were pleased, sending the shares up by 10.5% on May 8, driving the yield down a bit to 10.5%. That is still double its recent “normalized” dividend yield, which has been in the 4.5% to 5.5% range in recent years before the troubles began. Consequently, we have to assume investors still believe a dividend cut is coming in July. The question is, by how much?  

Getting back to the first quarter results, on the occupancy front, in March, the REIT’s seniors housing operating portfolio (SHOP) averaged 85.0%, while it dropped in April to 82.4%. They were a little better if New York and New Jersey are removed from the equation. But looking beyond the average, on April 1, occupancy was 84.0% and decreased by 330 basis points to 80.7% by May 1. They have reached that 80% threshold that we predicted for the industry by June 30.  

The problem is move-ins, as April’s were 75% below the typical numbers, while move-outs have been consistent with historical performance. Although deposits are not something they usually track, management did mention that there are about 300 deposits, many of which are with Sunrise Senior Living communities. Even so, they stated that occupancy has been declining by about 70 basis points each week. That seems to match up closely with Welltower’s recent experience. All we can say is, this has got to be turned around by the end of the second quarter. 

The first quarter was not all bad news. There was strong sequential performance from Atria Senior Living and for Eclipse Senior Living (ESL), but Sunrise posted a 7.3% drop in NOI sequentially and a 14.4% decline year over year. Atria’s NOI was up 7.3% sequentially but down 4.7% year over year. 

Looking at same-community performance, based on 335 communities, year over year the SHOP occupancy declined 150 basis points to 85.5%, NOI declined by 10.4%, NOI margin dropped by 330 basis points to 28.5%, and operating expenses increased by 5.1%. On a sequential basis with a larger pool of 376 communities, occupancy dropped by 80 basis points, but NOI increased by 2.3%, NOI margin increased by 20 basis points to 29.6%, and operating expenses rose by 1.5%. Expenses were obviously impacted late in the quarter by the pandemic, and April and May expenses should be bloated as well. The other property groups at Ventas performed better which helped produce quarterly results better than management had expected.    

The other news was that Ventas has agreed to convert its relationship with Holiday Retirement Corporation from a lease to a RIDEA structure. The leases had an EBITDARM coverage of 0.9%, meaning they were not even covering a management fee. The change will be dilutive to Ventas in the near term, and management put a positive spin on it in terms of capturing the future upside. We are not sure when that will happen, however. Ventas had been receiving $68 million in annual rent from the 26 communities, but will obviously be receiving less in NOI after paying a management fee until things can turn around.  

The first quarter for all these companies does not paint the COVID-19 story, which will appear more dramatically in the second quarter results, unless providers can get expenses and move-ins under control by June. Given that positive cases of the virus keep on increasing, and the death toll may top 100,000 before June, the end is not near. And who knows what might happen as states begin to open up their economies.