Similar to other senior living operators and real estate investment trusts with senior housing portfolios, Ventas is reporting some pretty grim numbers for the first quarter and the part of the second quarter that has passed. The company hopes that new testing and rent deferral programs will help operators, however.
In the communities it owns, Justin Hutchens, Ventas executive vice president, senior housing, North America, said Friday on the Chicago-based REIT’s latest earnings call:
- Approximately 29% of the 400 communities have suspended move-ins.
- April move-ins were down 75% due to restricted access, although move-outs were in line with historic patterns.
- Leads are down 50% but have stabilized over the past few weeks, “which is encouraging in a sense, because it shows that there is still ongoing demand.”
- Average occupancy in April was 82.4%, a 2.6% drop from March.
- Spot occupancy on May 1 was 80.7%, a 3.3% decline since the beginning of April.
- As of April 30, approximately 25% of the communities had seen at least one case of COVID-19 in a resident, which equates to “slightly over 2% of the resident population.”
- Operators incurred $6 million in COVID-related costs in the first quarter.
- Operating expenses are trending 10% higher, especially for labor and supplies, including personal protective equipment.
“These revenue and expense trends we are seeing for April are expected to continue in May,” Hutchens said, adding that the financial and operational trends are expected to be similar for the leased senior housing communities in the Ventas portfolio.
A 1% rise or fall in occupancy equates to a corresponding revenue gain or loss of approximately $2 million to $3 million, Executive Vice President and Chief Financial Officer Bob Probst estimated.
Testing, rent deferral programs aim to help
Ventas is hoping that a new testing program will help accelerate the move-in process for operators in part by increasing prospective residents’ trust and confidence in senior living communities, leading to improved occupancy and finances.
Hutchens noted that approximately 70% of operators in the REIT’s portfolio have locations in states that are starting to loosen their stay-at-home policies.
“The advantage that testing gives you — obviously it gives you a lot more certainty around the potential for spread of infection — but the other advantage is, it is recognized in the [Centers for Disease Control and Prevention] guidelines,” he said. “If testing occurs, then it can accelerate the time that someone can move in. Where the regular quarantine is around 14 days, the testing allows for something closer to two or three days.”
Toward that end, the REIT is providing access to COVID-19 testing kits and analysis from Mayo Clinic Laboratories without charge to some of the senior housing operators in its portfolio “to further enhance safety,” Ventas Chairman and CEO Debra Cafaro said.
The testing primarily will be of employees, although in certain cases, it also may be available to new residents, she said.
Ventas and Atria Senior Living capitalized on Atria’s existing relationship with the lab and obtained access to more than 30,000 tests, Cafaro said.
“Atria is already nearly done testing all of its 14,000 U.S. on-site and regional staff,” she said. “With approximately 9,000 results in, less than 1% of Atria’s employee tests have been returned positive.”
Altogether, Ventas said it will make at least 10,000 COVID-19 test kits and analysis available to other operators, Cafaro said. Eclipse Senior Living, which includes the Elmcroft Senior Living and Embark Senior Living brands, will be the next senior living company in the Ventas portfolio to exercise the capability, with plans to begin testing staff members this month, she said.
Test results are available in “a day or two,” Cafaro said, adding that testing “will indeed build confidence as a component of the thoughtful reopening and admissions plan.”
Atria has been able to move in 300 residents since early March “all under full quarantine and [personal protective equipment protocol,” she said, noting that “combined with digital tracking and tracing and appropriate use of PPE, Atria is building a ‘new normal’ model to run its senior housing business safely and thoughtfully.”
Ventas also offered its triple-net lease tenants affected by the pandemic a 25% rent deferral program in April so they could use the funds toward care, medical supply costs and employee pay. Operators took them up on it to the tune of $3 million, Hutchens said.
“For the month of May, the company offered qualified senior housing tenants the opportunity to pay up to 25% of their rent with cash as escrows and security deposits and based on participating tenants, and we expect about $2 million of our rent to be paid this way,” he said.
Outlook depends on three factors
Three considerations will affect the REIT’s outlook for senior housing, Hutchens said: the timing of reopening of communities to physical tours and move-ins, driven by local, state and national guidance; cost and access to labor; and local demand characteristics, including evolving protocols required to protect against the virus.
“Through this challenging stretch, we continue to resolutely believe in the long-term value that senior living offers residents and their families and are sharply focused on positioning Ventas’ senior housing business for long-term success,” he said.
New management agreement covers 26 Holiday Retirement communities
In other news, Ventas announced that, effective April 1, it terminated an existing lease and entered into a new management agreement with Holiday Retirement, affecting 26 independent living communities (3,184 units) in the REIT’s portfolio.
Ventas received a total of $100 million, including $34 million in cash and $86 million in secured notes that will mature in five years. Under the new agreement, the REIT will pay Holiday a management fee equal to 5% of gross revenues and can end the agreement without penalty if it gives 30 days’ notice.
The terminated lease had been set to expire in 2028.
The new agreement was consensual, Cafaro said, noting that Holiday had paid full rent since the lease inception in 2013 through the end of the first quarter of 2020.
“This management structure retains our upside in our 26 communities and provides us with operational flexibility,” she said. “We appreciate Holiday management’s engagement and cooperation to complete this transaction.”