Ventas announced its quarterly and annual earnings report, and we were interested to learn that the REIT has acted on nearly two-thirds of its seniors housing portfolio via acquisition, disposition, development, lease resolution or operator transaction since 2020. The pandemic spared few communities, so that level of portfolio management really required all hands on deck. And the pain isn’t over for many properties, unfortunately, with more distress almost certainly set to hit the market in 2022. That will mean even more dispositions, value-add acquisitions and lease/operator restructurings from Ventas.
Activity in 2021 included nearly $2.6 billion in acquisitions of independent living communities, mostly from Ventas’ $2.3 billion purchase of New Senior Investment Group and its 103 communities for a “below replacement cost” value of $185,000 per unit. Ventas also expanded its Canadian portfolio through the acquisition of five independent living communities and one assisted living community, in addition to leasing up three recently opened communities in its Le Group Maurice portfolio to 92% occupancy. We also saw that Ventas added six new seniors housing operating partner relationships, bringing the company’s stable of distinct operating partners to 37.
On the disposition side, Ventas sold 29 non-core seniors housing assets resulting in about $400 million in gross proceeds at an approximate 2.5% cash yield. In total, seniors housing and MOB asset sales comprised approximately $850 million of proceeds at a below 4% cap rate, and the repayment of several loans generated another $350 million at an average yield exceeding 9%. The REIT also transitioned 90 communities to seven new operators that have local presences in each respective area, which could help with the census recovery in addition to staff sourcing and retention.
So far in 2022, Ventas closed on the purchase of 18 MOBs comprising 732,000 square feet from Ardent Health Services for $204 million and the $107 million acquisition of Mangrove Bay, a Class-A seniors housing community in Jupiter, Florida. Newmark previously reported that it handled the transaction, which had a per-unit price of nearly $670,000, a record in the state of Florida. Opened in the early 2000s, the community has 160 units of independent living, assisted living and memory care. It had previously sold for $49.4 million in 2012 to Health Care REIT (now Welltower), and again in 2017 for $71.9 million to Blackstone. Ventas acquired the property at an in-place yield of 5.6%.
Occupancy-wise, Ventas’s SHOP reported average occupancy of 80.4% in the fourth quarter of 2021, up from 79.8% in Q3:21 and 79.1% in Q4:20. Across the same-store SHOP, occupancy rose to 83.4% in Q4:21, up from 82.2% in Q3:21 and from 81.4% in Q4:20. However, in that same-store portfolio, NOI margin dropped to 23.1% in the fourth quarter of 2021 from 23.3% in Q3:21 and 30.0% in Q4:20, driven large increases in operating expenses. No surprise there.
Looking forward, average occupancy for the first quarter of 2022 in the same-store year-over-year SHOP business is expected to increase approximately 410 basis points at the midpoint of Ventas’ expectations versus first quarter 2021. But in the same-store sequential SHOP business, occupancy is expected to decline by 20 basis points from the fourth quarter 2021. The company says that is outperforming normal seasonal trends and tempered by COVID-19 related impacts but only lengthens the recovery period for the portfolio.
