Shares of Ventas (NYSE:VTR) jumped an impressive 21% in April, according to data from S&P Global Market Intelligence. That comes on the heels of a very difficult first quarter, in which the stock of the healthcare-focused real estate investment trust (REIT) dropped 54%. Adding April's gain to that early downdraft leaves the stock off by 44% through the first four months of 2020. Clearly there are bigger things going on.
Ventas has a diversified portfolio of healthcare assets, including senior housing, medical offices, and medical research properties. The latter two businesses should hold up reasonably well, even with the COVID-19 issues the world faces today.
But senior housing is a vastly different story. This business makes up around 55% of the REIT's net operating income. About 60% of that, meanwhile, falls into what is known as senior housing operating portfolio (SHOP) assets. These are properties that Ventas owns and operates (it actually hires others to run the facilities), allowing the performance, for better or worse, to flow through to the REIT.
This is a very real problem today. The coronavirus spreads easily in group settings, and older adults appear to be most at risk. Senior housing is specifically designed to bring together older adults in a group setting. That will have material implications for Ventas' largest business.
For example, costs are rising for its SHOP portfolio assets as it has to enhance cleaning efforts and as employee expenses rise. It is likely to see an increase in move outs (an industry euphemism for a resident dying) at the same time that the number of people considering moving in is likely to be falling because of coronavirus concerns. And even for those still looking to live in a senior housing facility, social distancing mandates have made giving tours difficult, at best.
In other words, occupancy and rents are being pressured at a time when costs are rising. The same thing is happening to the company's lessees in the senior housing space (about 40% of this division's net operating income), which will make it harder for them to come up with rent payments.
The situation is not good for Ventas or any of its senior housing peers. How bad it gets won't be fully understood in just one quarter, either. At this point, investors will likely have to suffer through a long spell of uncertainty here. And a dividend cut wouldn't be too surprising. Despite the April rally, the pain probably isn't over for Ventas or its shareholders.