Eclipse Senior Living has increased occupancy by 200 basis points, or 2%, at the senior housing communities formerly managed by Elmcroft Senior Living since taking over the portfolio in January, Ventas Executive Vice President and Chief Financial Officer Robert Probst told analysts and shareholders Friday during the real estate investment trust’s second-quarter earnings call.

The leased properties, numbering more than 70 and owned by Ventas, continue to be known by the Elmcroft name. Kai Hsiao, former CEO of Holiday Retirement and senior managing director of senior housing properties at HCP, is the CEO of Eclipse, also known as ESL.

“Kai and team are busy rolling out operational excellence initiatives at the community level,” Probst said. “Between occupancy gains and operational initiatives, we expect to mitigate the inevitable disruption in net operating income that occurs with asset transitions.”

Probst said moving the properties from management by Elmcroft to Eclipse was “one of the biggest transitions, certainly in our experience, that we’ve seen.”

Eclipse accounts for 7% of Ventas’ annualized revenue and 3% of net operating income, according to the REIT.

Across the 350 senior housing properties in the Ventas portfolio, average unit occupancy was 86.5% in the second quarter, compared with 88.2% in the same quarter of 2017 and 86.7% in the first quarter of 2018, according to supplemental materials released in conjunction with the call.

Latest Brookdale activity

Related to another operator in the REIT’s portfolio, Brookdale Senior Living, one analyst asked Ventas Chairman and CEO Debra Cafaro how things have been progressing since the REIT’s lease-restructuring deal with the country’s largest operator of senior living communities, announced in April. One part of the agreement, which involves 128 communities, extends Brookdale leases until 2026.

“Part of the thesis there is that the new management team is focusing on operational initiatives, and we are trying to support them in that endeavor,” Cafaro said, adding, “One would expect it will take some time for those initiatives to take hold.”

The deal also allows Ventas to sell up to 15% of its Brookdale properties to diversify and improve the quality of its portfolio or reduce leased assets. Ventas has not begun marketing any Brookdale communities for sale, Cafaro said. “We will undertake that over time,” she said.

Brookdale accounts for 5% of Ventas’ annualized revenue and 9% of net operating income, according to the REIT.

‘Challenging’ environment

Cafaro described the current seniors housing operating environment as “challenging” but said Ventas is benefitting from its partnerships with market leaders.

“From a larger, market perspective, we were heartened to see that construction starts in senior housing as reported by [the National Investment Center for Seniors Housing & Care] have continued to improve materially and in [the second quarter] reached their lowest level nationally since 2012,” she said.

“In the second quarter, total national starts were 5,344 units, which, importantly, was less than half the starts at the construction peak in 2015,” Cafaro added. “If this trend continues, it should, over time, reverse the current supply / demand imbalance in our favor. We remain confident in the market opportunity and seniors housing and are well-positioned to maximize the benefits from it.”

Diversity and differentiation in the Ventas portfolio, by financing and property type, will help the REIT in the meantime, she said.

The CEO said Ventas is developing an investment thesis related to age-restricted multifamily properties.

“My views are continuing to evolve as I learn more,” she said. Demographically driven equity lifestyle properties, age-restricted apartments and senior housing all have “their own positives and negatives and I think are strong, demographically driven, reliable cash-flow businesses,” she said. “Big picture, we like them, but my views continue to be educated and evolve.”