Chicago-based Ventas reported third-quarter funds from operations of 75 cents per share Friday, coming in above analysts’ expectations for the real estate investment trust but still 22% lower than a year ago. Not surprisingly, the real estate investment trust’s senior housing properties continue to be significantly affected by the COVID-19 pandemic, with same-property earnings declining 42% in the quarter. Much of this decline was driven by lower occupancy rates and higher COVID-19-related expenses.
Earlier this year, Ventas renegotiated the terms of Brookdale Senior Living’s 121 community triple-net master lease arrangements in an effort to preserve the firm’s cash and shares of stock. During Ventas’ third-quarter earnings call Friday, Chairman and CEO Debra A. Cafaro also noted that the firm recently has sold or placed under contract certain portfolios of senior living assets that are not viewed as long-term holds.
“We want to continue making senior housing a key part of our diversified portfolio because of the operational asset class upside post-pandemic, the demographically driven demand that is in front of us and the continued improvement on the supply side,” Cafaro said. “There remains a strong bid from private capital for senior living, which supports our conclusion.”
Still, in the short term, Ventas continues to report declining occupancy rates. September’s average occupancy of 79.6% was 130 basis points lower than June’s average occupancy of 80.9%. Occupancy loss declined at an improving rate intra-quarter, however, through the end of September. In September, average occupancy was 30 basis points lower compared with August average occupancy. Further, the REIT continues to excel at limiting outbreaks within its properties, and move-ins exceeded move-outs in October.
“While results were better than consensus forecasts, this was another tough quarter for Ventas,” Kyle Sanders, financial services analyst with Edward Jones, told the McKnight’s Business Daily. “While we think the easing of lockdowns led to improving occupancy trends, we note that coronavirus cases are increasing again and that we are entering what has historically been a more challenging time of the year with flu season. We expect the seniors housing business to remain challenged until one or more coronavirus vaccines reach the market.”
In a similar vein, Sabra Health Care REIT reported normalized adjusted funds from operations of 46 cents per share in the third quarter, ahead of the 44 centers per share predicted by Mizuho Securities USA. From an investment standpoint, the REIT also funded $20 million in the quarter for a new preferred equity investment in a 186-unit senior housing community with an initial cash yield of 10%. The move brings Sabra’s year-to-date investment activity to over $154.5 million at a blended initial cash yield of 7.88%.
“Even during these challenging times for our industry, we continue to work diligently to identify investments that offer long-term value to our stockholders and strong yields,” Sabra noted in its third-quarter earnings press release Thursday.
Ihe Irvine, CA-based REIT, however, reported that occupancy has continued to decline within all of its major business segments, led by skilled nursing, which saw a trailing 12-month average occupancy decline of 210 basis points quarter over quarter, dropping to 80%. Average monthly occupancy has declined 877 basis points through October since February, the firm reported, and declined another 32 basis points from September to October after being up 32 basis points from June to September. Occupancy within the firm’s seniors housing portfolio declined another 111 basis points in October after decreasing 259 basis points from June to September.
The firm’s October occupancy declines “may be a sign that rising COVID cases may once again be negatively impacting fundamentals,” wrote Mizuho analysts Omotayo Okusanya and Zachary Silverberg in a note to investors.