Reporting sustained — and accelerating — growth in the real estate investment trust’s senior housing business, Ventas Chairman and CEO Debra Cafaro said Friday during a third-quarter earnings call that the strong numbers validate that the REIT is at the start of a multiyear recovery and growth period.
“This is what we have been waiting for,” she said. “Demographic demand fuels all of our asset types, and senior housing supply-demand fundamentals are highly favorable and improving.”
Year-over-year overall revenue growth in the senior housing operating portfolio was 9% in the second quarter, 13% in the third quarter, and projected to be between 15% and 21% in the fourth quarter, Cafaro said.
In the Chicago-based company’s total US senior housing operating portfolio, average occupancy was up 260 basis points in the third-quarter compared with the same quarter in 2021. Ventas said that the portfolio benefited from increasing demand and expanded pricing power, which offset operating expenses that remain elevated.
“Robust” demand led to net move-ins that “significantly” exceeded pre-pandemic figures, with US move-ins at 107% of 2019 levels and leads at 109%, the REIT reported. Executive Vice President of Senior Housing Justin Hutchens said the portfolio has seen positive net move-ins 18 of the past 19 months.
Same-store SHOP revenue was up 9% in the third quarter from the previous quarter, Ventas said, driven by occupancy and rate growth. And the REIT expects that the portfolio will see an additional 8% revenue increase in the fourth quarter, driven by rate growth and anticipated occupancy gains of 100 to 150 basis points. Same-store average occupancy grew year over year to 84.7% in the third quarter.
2023 rent increases ‘our highest on record’
Early in-place rent increases of more than 9% already have been implemented by certain operators — notably, Sunrise Senior Living, according to Ventas. Rent increases are expected to increase more than 10% in the first quarter, Hutchens said. Care rate pricing also is up more than 10% year-over-year, supporting an inflationary wage increase, he said. And street rates have continued to improve and increased more than 11% year over year in the third quarter.
“Pricing power has been impressive,” Hutchens said. “Rate increases in the coming year will be our highest on record.”
The REIT said that customized rate recommendations were implemented based on data about units and residents collected through its Ventas Operational Insights platform.
“Customized rate recommendations are grounded in data and should limit move-outs and be a huge contributor to revenue growth,” Hutchens said.
Labor challenges addressed in new ways
Operating expenses remained elevated in the third quarter, with year-over-year same-store expenses growing 8%, driven primarily by occupancy growth and continued inflation effects on labor, utilities, repair and maintenance, and food costs, Ventas said. Those costs are expected to remain high into the fourth quarter, according to the REIT.
The use of contract labor continued to decline in the third quarter, to 5.9%, compared with 6.5% in the second quarter. Hutchens said that the REIT continues to address labor challenges by focusing on community-level staff recruiting, to help operators compete more effectively for talent.
The firm “secret shopped” more than 50 job titles across 15 of its operators to evaluate reputation, career websites, the application process and application follow up, he said.
“We were pleased our operators scored well relative to industry benchmarks,” he said. “We came away with several actionable recommendations to attract fresh talent to our communities.”
Investments continue in focus areas
Cafaro said that the firm continues to allocate capital to its priority focus areas of senior housing, life science, and research and innovation.
In the senior housing portfolio, Ventas has spent $200 million year-to-date, including investments in HarborChase of Riverwalk, an assisted living and memory care community in Rock Hill, SC; Mangrove Bay in Jupiter, FL; and St. Hyacinthe, a developing project in Montreal.
