When looking at the second quarter results for Ventas, it almost appears that there are a few different story lines. Take the 321 U.S. same-community SHOP portfolio. Occupancy decreased 530 basis points in the second quarter to 72.1% from the second quarter of 2020. Not great but in line with the rest of the industry.
But then its Sunrise Senior Living portfolio’s spot occupancy has increased by 627 basis points from the low point in mid-March to the end of July. Although it was not a straight-line increase, an average of 156 basis points a month is great. Heck, increasing at that level every quarter would be good. Its Atria Senior Living portfolio performed almost as well, ending July at 81.8%, up 529 basis points from the mid-March low. In the case of Atria, management admitted they were engaged in “strategic price incentives,” which is a cute way of saying they are discounting to gain census. For most operators, the name of the game today is to build census, and then build margin back to where it was. This is what caused RevPOR to decline.
The Canadian portfolio, which has always been above 90%, is now showing some signs of weakening as the country’s delayed vaccine rollout is having an impact. It is still above 90%, however, so no worries there. It is just that you have to separate it out to get a real understanding of what is happening in the U.S. market.
Within Ventas’ SHOP portfolio, the secondary markets are outperforming the primary markets by a small margin, which may reflect the exodus from major metro areas during the pandemic. Everyone keeps on talking about getting back to pre-pandemic levels, but they really need to get back to pre-2018 levels. Occupancy and margins were on a steady decline prior to ever hearing of COVID-19, mostly because of excessive development in many markets, which put pressure not only on census but also pricing. The industry, and the Ventas operators, can’t afford to settle for just pre-pandemic results. While in today’s world, and today’s circumstances, that would be great, there is still a long way to go to get where we should be.
Some other good news was that the SHOP portfolio had its first sequential increase in net operating income since the start of the pandemic. This excludes the $13.3 million of HHS grants in the first quarter of the year. In addition, COVID-related expenses are declining, as they are for the rest of the sector, and should be. The big question will still be labor and its cost, and no one has a good solution for that one.
Ventas seems very hot on their pending $2.3 billion acquisition of New Senior Investment Group. Even though the portfolio is on the old side, and it has an average RevPOR of just $2,700, much lower than what they are used to with Atria and Sunrise, it provides stability with its longer length-of-stay IL communities, and the low price point may actually work to their advantage as demand for middle-market communities should be stronger than the upscale ones moving forward. New Senior, comprised almost entirely of Holiday Retirement Corporation communities, should also benefit from a steady rise in Holiday occupancy as well.
Shares of Ventas sold off by 2.8% with the second quarter announcement. We are not sure if investors are looking for more, are worried about the Delta variant and its potential impact, or have simply seen a big enough rise since March 2020. They also may be waiting for a dividend increase.
