Real estate investment trust Ventas held its third-quarter 2018 earnings call on Friday. Here are seven senior living-related highlights you need to know:
1. Brookdale Battery Park purchase.
Ventas’ impending purchase of a former Brookdale Senior Living independent living community in New York City for $194 million, announced in August, had the effect of “firmly establishing our leadership in the high-end senior living Manhattan market,” said the REIT’s chairman and CEO, Debra Cafaro.
“We’ve been in the Manhattan senior living market since 2011, and we think that the pricing on this asset is well below replacement cost,” she added later. “So we could foresee, with the attractive demographics in New York and the unique positioning of this asset, that we would have stabilized net operating income growth going forward, and there are potential redevelopment and licensing opportunities over time that could produce additional opportunities for really great returns. So we have multiple paths to success.”
2. Brookdale property sales.
Executive Vice President and Chief Financial Officer Robert Probst provided an update on the sale of assets that was part of the REIT’s lease-restructuring deal with Brookdale that was announced in April.
Under terms of the deal, Ventas is permitted to sell up to 15% of its leased Brookdale properties to diversify and improve the quality of its portfolio or reduce leased assets. Ventas will receive all of the net sale proceeds, and Brookdale will receive a 6.25% rent credit for any sales.
“The asset sales announced as part of the Brookdale transaction are progressing,” he said. “We expect the first tranche of these sales to occur in 2019.”
Cafaro described the transactions as being in the “premarketing” stage.
3. Eclipse Senior Living progress.
Probst also provided an update on Eclipse Senior Living’s progress with the takeover of more than 70 properties formerly managed by Elmcroft Senior Living. The properties still are marketed with the Elmcroft name.
Eclipse “is continuing to roll out operational initiatives,” he said. “I’d say [CEO] Kai [Hsiao] and team are deep into that right now, things like the staffing model and the operating model, and really bringing best practices there. …Certainly, we’ve seen some transition impact in terms of net operating income. That’s always expected. But I think we’ve stabilized on that, and we are looking forward to the impact of those initiatives.”
4. Atria Senior Living joint venture.
Cafaro mentioned Atria’s recent announcement of a $3 billion joint venture with Related Companies through which two to three luxury senior living communities, under a new brand name, initially will be developed and operated over the next five years.
“We are effectively a general partner in these potential projects through our one-third ownership interest in Atria,” she said, adding that Ventas is “excited about the potential for this deal.”
There may be other opportunities for Ventas to invest capital in the project as well, Cafaro added.
5. Holiday Retirement changes?
Asked whether Ventas would consider making changes related to the Holiday properties in its portfolio, Cafaro said, “Just like every other customer that we have, we would typically engage in conversations just like we did with Brookdale, just like we have done with Kindred, over the years. And we will be thoughtful and have a lot of ways of coming up with optimal changes should we believe they are appropriate.”
Holiday is responsible for 3% of Ventas’ net operating income, Cafaro said. Some assets in Ventas’ triple-net lease seniors housing portfolio have leases expiring in 2019, the REIT formerly said.
6. Inaugural corporate social responsibility report.
Ventas released its first corporate social responsibility report, a 65-page document detailing the REIT’s environmental, social and governance initiatives, on Friday.
“We believe that our commitment to ESG principles underpins our long-term success,” Cafaro said, pointing out that the REIT has been recognized several times for its efforts in these areas.
“To my mind, sustainability starts with financial strength and resilient cash flows from a high-quality, diverse portfolio,” she added later.
7. 2019 outlook.
Probst said formal guidance on the 2019 outlook for the REIT’s seniors housing operating portfolio will come in February. “We expect performance in 2019 to look quite similar to 2018 in terms of year-over-year,” he said, however.
Issues related to price, occupancy and wages likely will be similar, Probst said. “We do expect elevated levels of deliveries to continue in 2019,” he said, noting, however, that construction starts are decreasing and demand is increasing.