Robert F. "Bob" Probst

A “severe” flu season and a “mismatch of supply and demand” will continue to affect occupancy and net operating income in Ventas’ seniors housing portfolio in the short term, the real estate investment trust’s executives predicted Friday during a fourth-quarter earnings call.

Occupancy could decline by about 200 basis points in 2018 compared with 2017 due to these factors, Executive Vice President and Chief Financial Officer Robert Probst said. Same-store cash NOI could decrease 1% to 4%, he added.

“This flu season is the most severe in years in terms of duration and reach across most markets of the United States,” Probst said, adding that the virus accelerates move-outs and also limits move-ins due to community quarantines.

Regarding new supply, he said, “The elevated levels of new deliveries we observed in 2017 are expected to further accelerate in 2018, with new openings approximating 3% of inventory in our trade areas.”

New starts in the fourth quarter were down almost 20% in the REIT’s trade areas, Probst said. “However, delayed new deliveries increased overall construction to inventory by 30 basis points, on a restudy basis, to 6.2%,” he added.

Rents for existing residents should increase by about 4% this year, Probst said, whereas rates for new residents should increase about 3%.

“From an expense perspective, a tight labor market and competition for staff is expected to drive wage pressure in the 4% range, partially offset by fluxing staff and managing nonlabor costs,” he said.

Longer term, Ventas Chairman and CEO Debra Cafaro said, “We know that demographic demand from seniors will increase significantly, which should benefit performance in the seniors housing operating portfolio in the coming years.”

The REIT saw records in net income and revenue in 2017, generating 5% in operating cash flow and dividend growth, Cafaro said. Ventas made almost $2 billion in investments and almost $1 billion in dispositions last year, she added.

Overall, the CEO said, Ventas expects another good year in 2018, the 20th anniversary of the REIT.

Also during the call:

  • Cafaro commented on the January announcement that a new company, Eclipse Senior Living, had assumed management of 76 private-pay Elmcroft Senior Living communities owned by the REIT. “We’re confident ESL [Eclipse Senior Living] will capture operational upside and additional value from this portfolio,” she said. “ESL has already become a sought-after manager in senior housing, and we’re delighted to back industry veteran Kai Hsiao and an experienced team of executives in this highly strategic new management company.” Hsiao, a former CEO of Holiday Retirement, is CEO of Eclipse Senior Living.
  • Analysts asked about Holiday Retirement and Brookdale Senior Living assets in Venas’ triple net lease seniors housing portfolio, which have leases expiring in 2019. “As we sit here today, we are comfortable with were things stand and have assumed contractual rent payments through 2018,” Cafaro said.
  • The Ventas board recently increased the REIT’s dividend by 2%, made possible by passage of the Tax Cuts and Jobs Act’s “significant” rate reduction for U.S. corporations and effective rate reduction for owners of pass-through businesses, including real estate companies, Cafaro said. “Our growing reliable dividend is an important component of the total value proposition we offer our shareholders,” she said. “To provide our shareholders with the benefit of the new rate, our fourth-quarter 2017 dividend will be taxable in 2018 under the new improved rate.”