70+ Elmcroft properties to see management, ownership changes, Ventas says
More than 70 Elmcroft Senior Living properties currently in real estate investment trust Ventas' portfolio under a master lease agreement are expected to be transitioned to a new management company in early 2018, Ventas Chairman and CEO Debra Cafaro said Friday to those participating in a third-quarter earnings call.
The private-pay properties will be managed by a new operator led by Kai Hsiao, formerly the senior managing director of senior housing properties at HCP, and including “his long-time colleagues,” Cafaro said.
HCP announced Hsiao's impending departure in May. He had joined HCP in mid-2016, previously having been president and CEO of Holiday Retirement. Hsiao had transitioned to a vice chairman role to focus on personal health matters, Holiday announced in early 2016.
The senior living communities are expected to be owned by Ventas and an institutional investor in a joint venture that is being formed, she added. Cafaro described the institutional investor as a “leading global capital source.”
“There can be no assurance whether, when or on what terms the transactions will be completed,” the REIT said in a press release issued in conjunction with the call.
Louisville, KY-based Elmcroft has 83 senior living communities including four multilevel retirement communities, serving more than 6,000 residents in 18 states, according to its website. Ventas is headquartered in Chicago and has offices in Louisville, KY, and Plano, TX.
“We have a good relationship with Elmcroft,” Cafaro said. “They've been good partners. We've known them for a long time. They originally were at Vencore many, many years ago and spun off as part of the original Atria. So the relationships we have with them go way back, and we are working with them collaboratively to transition the portfolio.”
She described the assets as “a great portfolio and well-positioned. The largest part of it, of course, is a stable ... growing asset, and then there's a portion that we think can drive some significant upside … and we want to enjoy the benefits of that for Ventas and also with a joint venture partner.” The joint venture will diversify Ventas' capital sources and could expand in the future, she said.
The announcement drew several questions from analysts.
When asked whether Ventas would own a stake in the new operator, Cafaro said: “We've been known to do that before. We have established a really significant strategic relationship with the new management company, and we're excited about being in business with them, and it would be possible that we would have an ownership stake going forward.”
When asked whether those currently employed by Elmcroft will remain associated with the properties when the transaction is complete, she said: “Elmcroft is a good company, and they have a lot of good people there. The expectation is, as is almost always the case in these transitions, that virtually all the property people will be carried on uninterrupted.”
When asked whether current Brookdale Senior Living properties in Ventas' portfolio might be added to the joint venture in the future, Cafaro said that the relationship “would be another source of capital should we wish to grow in that joint venture and if we thought the assets were appropriate to go in there.”
Ventas ‘highly engaged' in tax reform process
Also during the call, Cafaro said that now that the federal government has turned its attention from healthcare to tax reform, “We are highly engaged in the policy debate and closely monitoring the tax legislation as it evolves.”
She had predicted a “tax reform roller coaster ride” during the REIT's second-quarter earnings call.
“At Ventas, we are focusing principally on pass-through rates and the treatment of REITs and their shareholders, potential limits on interest expense deductibility, state and local tax treatment, 1031 exchanges and FIRPTA [Foreign Investment in Real Property Tax Act of 1980] reform or repeal,” she added.
The real estate industry is associated with 20% of the country's gross domestic product, Cafaro said, and plays an an important role in furthering sustainable economic growth, capital formation and job creation.
Operators shine during national disasters
Echoing comments she had made in September at the Bank of America Merrill Lynch Global Real Estate Conference in New York City, Cafaro praised executives and employees at operators within its portfolio — specifically, Atria Senior Living, Brookdale and Kindred Healthcare — for their efforts to keep residents safe during Hurricanes Harvey and Irma. Almost all of the communities are “back to normal” now, she said.
“The natural disasters also highlight the value proposition and health wellness advantage of senior housing,” Cafaro said. “That message seems to be resonating as demand and penetration rates nationally continue to rise and more individuals are choosing to live in community-based senior housing.”
Executive Vice President and Chief Financial Officer Robert Probst said the REIT's direct costs from the hurricanes, including property damage and costs associated with evacuation, meals and lodging, were approximately $10 million in the third quarter. That estimate does not factor in insurance reimbursements, he said.
REIT pleased with quarter results
For the quarter, Ventas' earning per share of $1.03 missed analysts' projections by $0.01. Revenue of $899.93 million, up 3.8% year over year, beat analysts' projections by $30.51 million.
“We are very pleased with our results this quarter, our prospects for the full year and the accelerated execution on our strategic priorities,” Cafaro said.