You have to hand it to Jonathan Litt of Land & Buildings, he has not given up on the senior care sector. After going after a few provider companies in the pre-COVID past, he recently set his sights on Ventas. But, Big Deb did not quake in her heels. She never does.
As is his way, Litt tried to get a position on the Ventas Board, and after meeting with two separate groups of directors, he apparently thought that he made a good impression and had swayed them. Wrong. Right after his March 7 letter to Ventas shareholders, Ventas announced the appointment of a new board member, but his name was not Litt. Extremely qualified, yes, but not Litt.
In Litt’s letter, he indicated his “tremendous respect” for the Board and the CEO, both personally and professionally. But his main criticism was that the Ventas shares have underperformed the market, and especially compared with its primary competitor, Welltower. Unfortunately, that is true. He also criticized their capital allocation and communications to shareholders, some of which was unlucky timing.
One point where we do agree with Litt was management’s handling of the former Elmcroft portfolio, which was struggling as a leased portfolio several years ago. But when they thought that was doomed, to create a new company to manage the assets in a RIDEA structure (about 90 assisted living communities) was a bit of a hope and a prayer. It didn’t work out so well. Litt wanted Ventas to sell it off, which was always an option. But it was not a great option, as we suspect the valuations in the market were not very high, and most likely not worth it for a sale.
Splitting the portfolio off into groups of assets to be managed by half a dozen other operators was the best option to try to get some of the properties back to decent performance levels. Some will get there, and some won’t, but it was the right decision at the time. Litt’s disagreement with this decision perhaps reflects his lack of knowledge of the assisted living market, which is understandable since he is an investor looking at things from 35,000 feet. And, in our opinion, it was the best way to try to create value for shareholders. But sometimes, putting lipstick on a pig just delays the trip to the slaughterhouse. We hope the new managers have success, but it will not be easy.
The other thing that we tire of is talking about the 20% annualized return for Ventas shareholders since 1999. The problem is, how many have been shareholders since 1999, so who really cares in 2022? And, the more practical look is what the return has been for the past five years, which is not so great. While the share price has more than tripled from the early, panic-driven, pandemic low in March 2020, it is about where it was five years ago. That is why they like to go back for 10 or 20 years to get that high average annualized return. That is pretty irrelevant for today’s world. Shareholders, like Litt, want to know what management has done for them today, not since 1999. Land & Buildings owns just over $50 million of Ventas shares. All they want is to see it go up… a lot. That is what we all want.
