Ventas Earnings: High Rate Growth and Higher Operating Margins Drive Senior Housing’s Recovery

First-quarter results for no-moat Ventas VTR were mixed compared with our expectations, though we didn’t see anything in the quarter that would materially change our $68 fair value estimate. Senior housing occupancy declined 90 basis points sequentially to 81.4%, below our estimate of a 70-basis-point sequential gain. Average rate growth improved 6.8% year over year and led to same-store revenue growth of 7.8% in the first quarter, which was higher than our estimate of 6.1%. Same-store operating expenses were only up 5.1% in the quarter, which led to same-store net operating income, or NOI, growth of 17.2% for the senior housing segment, above our estimate of 8.9% growth. Same-store NOI grew 4.3% in the senior housing triple-net portfolio, grew 3.1% in the medical office portfolio, but fell 1.0% for the life science portfolio. Combined, same-store NOI for the total company grew 8.1% in the first quarter, slightly better than our estimate of 7.3% growth. However, while same-store NOI was higher than our estimate for the quarter, Ventas reported total operating expenses higher than we anticipated. As a result, normalized funds from operations came in at $0.74 per share for Ventas in the first quarter, four cents below our $0.78 estimate.

While we had hoped that the senior housing portfolio would see continued sequential occupancy growth in the first quarter as it recovers from the impact of the pandemic, management indicated that the decline was in line with its outlook given typical first-quarter seasonality. We do agree that this quarter’s 90-basis-point decline is in line with the size of the drop seen in most first quarters before the pandemic, we had hoped that the recovery would be enough to offset that seasonality. Still, management did say that it expects occupancy to significantly ramp up through the year. Management also said that conditions are in place for portfolio occupancy to eventually go over 90% occupancy, which is in line with our long-term outlook.