In an expected development, Ventas slashed its dividend today. What was unexpected was the size of the cut. The July dividend was reduced from the previous per-share amount of $0.7925 to $0.45 per share, a drop of 43%. This will be saving Ventas $130 million of cash each quarter, or $520 million a year if they keep it at this lower level. Management stated a few months ago that if they lowered the second quarter dividend they would revisit it as operations improved. Don’t expect a large increase any time soon.  

Management indicated that its Seniors Housing Operating Portfolio (SHOP) was showing positive momentum with move-ins and leads improving, but that occupancy was continuing to decline, which may have a material impact on financial results. The REIT’s SHOP occupancy averaged 86.6% in the first quarter but has declined by 590 basis points to 80.7% on June 11. April declined by 270 basis points, May by 140 basis points and June declined by 70 basis points through June 11. The slowing decrease is good news. 

Monthly SHOP net operating income in the first quarter averaged $56 million, but for April and May, this has dropped to an average of $36 million. This 35% sequential decline in NOI for a SHOP portfolio is unprecedented, but as move-ins and leads at its three largest operators improve, there may be a turnaround later in the third quarter.

Expenses, however, are still running high, and are 5% higher than in the first quarter. But with the recent cut in corporate overhead of $25 to $30 million annually (we’ll see how long that lasts), plus the dividend cut, Ventas will be conserving more cash than it needs to offset the declining cash flow at its SHOP portfolio. 

On the positive news front, substantially all triple-net lease rents have been collected this quarter, which is something we have heard from other REITs. The fact that triple-net leases are performing better than RIDEA structures may cause people to be less negative about leases. However, as the market hits bottom, next year may be the best time (from the REIT’s perspective) for a new RIDEA structure to capture all the potential upside from an improving economy and increasing occupancy. From the operator’s perspective, starting a new lease at the bottom would mean all the upside would go to them. There are no easy answers. 

As we said several weeks ago, a dividend cut was already built into Ventas’ stock price, and the news this morning caused barely a ripple in its price in early trading (down 1.4%). The yield is now down to 4.6%, which is close to where it was when Ventas was healthier. It seems this is a statement on the REIT’s future, not on the current situation.