We are rounding out the first quarter earnings announcements, and like most everyone else, Ventas posted improved results, especially in its SHOP portfolio. And like everyone else, we are sure management would have liked to see a faster pace with the improvements.
We can probably be criticized for focusing so much on census improvement over the now-25 months since the bottom of the market, but census is a good indicator for the health of the industry, as well as the demand for seniors housing units in an environment when supply is at its slowest growth point in years. With new supply constrained because of construction costs and a financing market contraction, combined with the beginning of the demographic wave, some people were expecting better growth in occupancy.
Ventas’s SHOP portfolio has 558 communities, and on a same-community basis, year-over-year occupancy increased by just 80 basis points to 81.3%. We say “just” because Brookdale Senior Living’s same-community portfolio saw an increase of 310 basis points year over year. Sequentially, they were pretty similar, with Ventas declining by 90 basis points and Brookdale by 80 basis points. Ventas blamed the seasonality and some pushback on the rent increases, as well as some financially driven move outs.
With Ventas, however, its Canadian portfolio with average occupancy in the first quarter of 94.2%, up 100 basis points year over year, is driving the higher overall occupancy. In the U.S. market, average occupancy at the 467 SHOP communities was just 77.2% in the first quarter. This compares with Brookdale’s census at the end of April of 77.6%.
What is interesting is that occupancy at the 206 communities in the U.S. primary markets was 76.5%, with the secondary markets (115 communities) a little higher at 77.1%, and all “other” U.S. markets (113 communities) the highest at 78.9%. One would think the primary markets would have been better. The primary market also had the lowest year-over-year cash NOI increase of 15.9%, with the other two markets growing by 32.1% and 30.5%, respectively. Now, no one is going to complain about that kind of growth.
Year-over-year same-community NOI at 507 communities increased by 17.4% to $158.6 million, with the margin increasing by 200 basis points to 24.3%. And despite a sequential drop in census, sequential NOI increased by 6.8% and cash NOI margin increased by 90 basis points. It’s all in the power of pricing.
Ventas management believes that today’s conditions are more favorable than in 2014 when census topped 90%. But today is a completely different environment than nine years ago, and we do not believe the comparison makes sense. They think there is a potential $300 million NOI recovery, which mathematically is possible, but not by 2025. Everything would have to work in their favor, and that never happens. We like that they are still on the road to recovery, but as we have been saying, it is going to be a long and winding road for most.
