Ventas has been an incredible success story, both in terms of the company itself and its stock. But most of the “incredible” for the stock occurred many years ago. Ten years ago, its share price was about $70, and currently it is about $40. It has averaged close to $65 a share for much of the past 10 years. But if you bought it in March of 2020, when the senior care world was under attack, at its low of $13.35 per share, you would be considered a genius and would have pocketed a hefty return. But that would have taken brass ones.
CEO Debbie Cafaro was recruited (against her better judgment at the time) nearly 25 years ago when the REIT’s only tenant, Vencor (later renamed Kindred Healthcare after emerging from bankruptcy), was teetering on the verge of bankruptcy. With her attorney’s hat on, she navigated through that mess better than anyone we know could have, and Ventas subsequently had explosive growth, dividends and returns, and Cafaro received nearly every award and honor known to mankind, and womankind. All were well deserved.
But a quarter of a century at the helm of any company is a long time, and probably too long, for any company or any one person. All of her healthcare REIT competitors have had at least two different CEOs in that time period, but it is a great gig if you can get it. The problem is that you have to perform for shareholders, year in and year out. One Ventas shareholder in particular has not been pleased with the performance of its shares, and he wants to do something about it.
Activist investor Jonathan Litt of Land & Buildings Management has had enough, again. His firm owns nearly $50 million of Ventas stock, and in 2022 he tried to force a change in the board at Ventas, but fell short in support from other shareholders, and the shareholder proxy firms. Apparently, some investors wanted to give management more time, perhaps another year, before putting a few of L&B’s nominees on the board. Well, a year has passed, and the stock performance has been worse, so Litt is back at it again.
The problem is, we are not sure what one or two new board members will really be able to do. Ventas is a huge investment company with more than 1,200 properties and many different operators. Even if they got their hands dirty, we are not sure how much influence they could have, other than convincing other directors that a change in direction is needed. If it was a single operating company, such as Brookdale Senior Living, you could really roll up the sleeves and try to make some changes operationally that perhaps management was not doing.
Investors are disappointed that the share price has basically not moved since recovering from the March 2020 low. Not just that, but it has declined by 2% this year while rival Welltower has jumped by 30% this year. This is what investors look at, and the comparison is telling. Whether over five years, three years, one year or year to date, Welltower is crushing Ventas in total returns.
Debbie Cafaro has been a tremendous success for many years, but at some point she will have to let go. That is the board’s job, and perhaps that is Litt’s intent. Afterall, she did have the foresight to bring in Justin Hutchens, which most everyone assumed was a stepping stone for him to take over as CEO in a few years. Afterall, he has CEO experience at a publicly traded healthcare REIT and a few private operating companies. He can relate to seniors housing operators because he has been there, done that. And he can relate to REIT investors because he has been there, done that.
We believe Litt may fall short again, but at least some other investors will start thinking. The only thing that will change the sentiment is a turnaround in the price of Ventas. And like Welltower, it could stand an increase in its dividend rate. But earnings have to increase before that can happen. We see Welltower increasing its dividend before Ventas does, and that will only add fuel to Litt’s fire.
