The year 2019 will be “a pivot year in our transition back to growth” for Ventas, Chairman and CEO Debra Cafaro told investors and analysts during the real estate investment trust’s fourth-quarter and full-year 2018 earnings call on Friday.
“While the specific timing of our return to growth following 2019 is difficult to predict, the building blocks are clear: deliver organic portfolio growth when senior housing operating conditions improve as other business lines continue to grow, capture the benefits of our research and innovation business and development pipeline, utilize our financial strength and flexibility, and reignite our long-standing history of completing successful accretive acquisitions,” she said.
Cafaro said Ventas is “very encouraged” by national trends in senior housing construction starts, “which have reached their most favorable points since the third quarter of 2012.”
“As starts continued to moderate, demand for our product ramped to its highest level ever in 2018,” she said. “The 75-year to 81-year-old contingent is growing 4% per year for the next five years, and the 82-year to 86-year-old cohort begins to grow over 3% per year after 2019. Assuming these trends continue, we anticipate a bottoming in senior housing so that the supply / demand equation moves in our favor in the future, creating a powerful cyclical upside. Potential increases in the penetration rate would incrementally improve this picture.”
Executive Vice President and Chief Financial Officer Robert Probst said Ventas was “very pleased” with the performance of its triple-net senior housing portfolio, for which same-store cash net operating income grew 2.1% in the fourth quarter and 0.6% for the full year. In 2019, he said, Ventas expects triple-net portfolio same-store cash NOI to increase between 0.5% and 1.5%.
Results in the senior housing operating portfolio were in line with expectations for the fourth quarter as well as all of 2018, same-store SHOP cash NOI declining 3.5% in the fourth quarter and full-year same-store NOI growth at –2.1%, Probst said. Ventas expects full-year 2019 SHOP same-store cash NOI to range from –3% to 0, a 60 basis point improvement in year-on-year performance, he said.
Beyond 2019, however, “we’re excited about the powerful upside opportunity in seniors housing and in our excellent market position,” he said.
Ventas leaders also provided updates on the status of some of the senior living operators in its portfolio:
Brookdale — Under a agreement with Brookdale announced in April, Ventas can sell up to 15% of the properties that Brookdale operates under triple-net leases in the Ventas portfolio, to diversify and improve the quality of the REIT’s portfolio or reduce the number of leased assets. Ventas has identified “an early tranche” of Brookdale communities for potential disposition, Cafaro said Friday.
“We’re at the very early stage of marketing that portfolio, and that’s where we stand, and that will continue to improve the overall quality of our portfolio and be helpful to Brookdale as well,” she said.
Holiday Retirement — “Holiday has recently entered into a variety of transactions with its other landlords,” Probst said. “In our case, we have a wide array of possible options and many tools and previous experiences at our disposal to obtain an optimal outcome if we believe a transaction is appropriate. Importantly, we believe that in any transaction we’d be made substantially economically whole.”
Twenty-six communities managed by Holiday represent 3% of the REIT’s net operating income, with approximately $60 million in annual contractual rent, which is fully current, he said.
Eclipse Senior Living — “We saw good fourth quarter from ESL really on the cost side in particular, getting their operating model in place,” Probst said. “So nice stabilization of performance there.”