Ventas’ investments in research facilities pay off as senior housing market stalls

The Chicago-based REIT posted a strong Q1 despite falling occupancy at its senior housing facilities
By Joe Ward | April 26, 2019 02:00PM

Debra Cafaro (Credit: iStock)

Debra Cafaro (Credit: iStock)

Despite the senior housing market still dealing with a surge of new supply, Ventas posted a strong start to 2019 thanks to its investments in other sectors, including medical and research facilities.

The Chicago-based REIT that specializes in senior housing and medical facilities posted growth in both net operating income and funds from operations in the first quarter, officials said during a Friday earnings call.

Ventas’ funds from operations totaled $352.7 million in the first quarter, up from $293.1 million in the fourth quarter, and $345.1 million in the first quarter of 2018. Ventas’ net operating income was $466.5 million, up 1.1 percent year over year. That came despite its senior housing portfolio seeing same-store net NOI decrease 2.2 percent year over year, to $157.7 million.

Ventas Chairman and CEO Debra Cafaro said the senior housing industry continues to see a “mismatch” in deliveries and demand, thanks to increasing supply that’s hit the market recently.

“We continue to feel the effects in our senior housing business in elevated openings” of new facilities, Cafaro said during the earnings call.

Industry wide, a flood of new senior housing inventory has caused occupancy rates to drop to 88 percent, a 20 basis point decline year-over-year.

Ventas officials were hopeful that slowing construction starts will boost their senior housing portfolio. Starts in the first quarter were at the lowest level since the third quarter of 2012, Cafaro said. That’s coupled with the aging of the Baby Boomer generation, which should increase demand increase in the coming years, she said.

“As a result of these positive trends … the supply-demand equation will flip in our favor after we work through” current supply, Cafaro said.

Ventas is marketing for sale 20 of its senior housing facilities, and expects to net $120 million from the sales, officials said.

The stalling of the senior housing market was made up for by Ventas’ investments in research facilities, Cafaro said.

Earlier this year, Ventas announced a $1.5 billion investment pipeline into research and innovation facilities, starting with a $77 million development at Arizona State University. In April, Ventas paid $128 million to acquire a research facility in Cambridge, Massachusetts, between Harvard University and the Massachusetts Institute of Technology. Rents at the facility have grown more than 10 percent per year since 2015, according to Ventas.

Ventas also signed Yale to a 25-year, 250,000-square-foot lease at its New Haven, Connecticut facility. The university’s school of medicine, which is now Ventas’ largest research and innovation tenant, is replacing Alexion Pharmaceuticals. Alexion paid a termination fee to exit the lease, a move that helped Ventas’ first quarter performance, the company said.

Net operating income from its medical and research holdings increased by 3.8 percent in the first quarter year over year.

Ventas will begin the rest of its $1.5 billion research and innovation pipeline within the next 15 months, Cafaro said.