Things will definitely start to get better as the vaccine finishes its roll out in senior living communities, but even more ground will have to be made up as a result of the continued deterioration in census in the past few months. Ventas, which just released its fourth quarter and full-year 2020 results, has not been immune to these declines, yet they see the light at the end of the tunnel.
On a same-community basis, the senior housing operating portfolio (SHOP) occupancy level dropped by 870 basis points in the fourth quarter compared to the same quarter last year, to a low of 79.6%. This is a total of 377 communities. But when the Canadian communities are removed (68 communities), the U.S. portfolio (309 communities) plunged by 1,120 basis points in the fourth quarter to 73.7% year over year. The worst hit were the communities in NIC MAP’s primary markets, with those 182 communities falling to 73.2%.
On a same-community basis, the SHOP portfolio in the U.S. posted a 29.5% decline in NOI in the fourth quarter, year over year, to $84.9 million. Monthly REVPOR also showed a drop of 2.1% in Q4, year over year. The Canadian portfolio, with an average Q4 occupancy of 93.6%, suffered just a 10.6% drop in NOI and a small 0.4% decline in REVPOR.
According to management, it is not going to get better in the first quarter. They expect the SHOP portfolio to have an additional decline of 250 to 325 basis points compared with the fourth quarter. A lot of this will be from January’s drop. We assume most of that will be from the U.S. communities, which could take that census perilously close to 70% by March 31. But with the usual January increases in resident rents, REVPOR is expected to increase in the first quarter, but countered by an increase in expenses. The unit rent levels in the Canadian portfolio are about 50% lower than the U.S. portfolio, so its financial impact is less.
On the good news front, which should start to have an impact after the first quarter, 100% of its SHOP communities have received the vaccine and new COVID cases are declining. This decline in new positive cases has been significant, from 92 per day in January to just nine today. In other good news, Ventas is collecting all of its rents from tenants. Here, here for triple net leases!
The REIT also indicated that they are looking for up to $1.0 billion in asset sales this year, mostly from seniors housing and some in its medical office building portfolio. There will be no shortage of buyers for these assets, and the key will be the per-unit prices with cap rates less important because, after all, what cash flow is being used? In-place? Not too relevant. Trailing-12 months? Not a good analytical benchmark either.
Buyers are looking at the future turnaround, not how operators performed in the pandemic. They may pay based on a below-market cap rate on current cash flow, but it will be an above-market cap rate based on what they will forecast. By the time they close the deals, we will be approaching herd immunity with census increasing as a result.
Investors seemed to focus on the positive and the light at the end of the tunnel, with the Ventas’ share price increasing slightly after the earnings results were released.
