Ventas (NYSE: VTR) is the latest REIT to report second quarter earnings, and while performance is improving, it is not improving fast enough for some investors. Its seniors housing portfolio, while still showing improvements, lagged behind Welltower’s, and investors sent the shares down by 6.5% in early trading.
Total seniors housing occupancy in its SHOP portfolio of 568 communities decreased by 30 basis points in the quarter, year over year, and declined by 20 basis points sequentially. On a same-community basis, occupancy increased by a small 10 basis points year over year, but declined by 20 basis points sequentially. Yes, the first and second quarters are usually not good for occupancy, but we are still rising from the COVID bottom, and other operators have seen better results in the first half of this year.
On a year-over-year basis, same-community RevPOR increased by 6.6%, operating revenue by 6.7%, cash NOI by 14.0% and NOI margin by 160 basis points to 25.4%. Sequentially, revenue increased by just 0.2% but operating expenses declined by 0.9%, resulting in a 3.0% increase in NOI.
What continues to bolster VTR’s results is its Canadian portfolio. Its same-community portfolio of 82 properties in Canada posted a 90-basis point increase in year-over-year census to 94.3%, much better than Welltower’s Canadian portfolio. The U.S. portfolio of 434 same communities declined by 20 basis points to 77.1%.
In the primary markets (defined by NIC), year-over-year census dropped by 50 basis points to 76.4% (206 communities), secondary market census increased by 90 basis points to 77.4% (115 communities), while “other U.S. markets” (113 communities) declined by 110 basis points to 78.2%. Despite these census issues, cash NOI has been increasing nicely, up 20.0% in the primary markets and 21.9% in the secondary markets year over year, which means their providers are pushing rates and keeping a lid on costs. The higher cash flow is not coming from census growth.
The entire industry needs to get above 85% occupancy before development begins to ramp up, which may not happen for a few years given the cost of capital and lenders’ risk aversion to new development in this market. As we have stated before, monthly rates need to be increased aggressively, but with each 8-10% increase, the affordability goes down and the market pie shrinks. Just an economic fact of life.
