If you want to know how bad the coronavirus pandemic was on Ventas (VTR -0.79%), look no further than the healthcare real estate investment trust's (REIT's) dividend. It was cut by nearly 45% in the second quarter of 2020. If you want to know how big the headwinds have been, the fact that the dividend is still stuck at the same level around three years later should tell you a lot. The problem is that even now, when things are clearly improving, Ventas is still dealing with COVID fallout.

Ventas had a (mostly) great quarter

One of the most important things to understand about Ventas is that it has a sizable senior housing operating portfolio (SHOP), which it both owns and operates. Functionally, it hires a third party to handle the day-to-day operations.

A medical professional working with an older adult.

Image source: Getty Images.

The differentiating factor here is that tenants must pay rent regardless of property performance. But results in the SHOP go up and down along with property-level performance, directly impacting the REIT's top and bottom lines. So in 2020, when the coronavirus was spreading rapidly, Ventas experienced a great deal of financial pain.

Move-outs increased (this industry euphemism included deaths), and move-ins declined, leading to falling occupancy rates. And operating costs rose, increasing expenses. All the important trends were going in the wrong direction.

It makes complete sense, given that backdrop, that Ventas decided to cut the dividend. It was a prudent and appropriate choice made to ensure the company's long-term survival. But that was a long time ago, and financial results have begun to turn around in a big way.

For example, same-store net operating income in the SHOP increased 14% year over year in the second quarter of 2023. That's a massive number, especially when you compare it to the 3.8% growth in the REIT's medical research and office portfolio and 2% in its net lease properties (which both have more traditional rental arrangements). To be fair, the company's other properties did just fine and were fairly solid performers throughout the early days of the pandemic. The SHOP's recovery is just very impressive as it bounces back from a deep performance decline.

There's still more work to be done

While the news was generally strong in the second quarter of 2023, there was still some bad news highlighting that the pandemic impact is not yet over. Specifically, management noted that it identified 38 properties still lagging notably behind on the occupancy front. If those properties were removed from the same-store pool, same-store net operating income in the SHOP would have risen 17.3%.

So, even as the company's business is rebounding, it clearly hasn't fully recovered. That means there's more for management to do. In this case, it has taken a two-pronged approach. For roughly a dozen of these properties, it is working with the operating company to improve performance.

The goal is to take strategies that have worked well elsewhere (like redevelopment) and see whether they can improve property-level performance. The other 26 properties are being transitioned to three new operators with better track records.

These are reasonable attempts to fix the problem but also mean that the 38 properties will remain sore spots for a bit longer. Transitioning to a new operator takes time, and once completed, the operator needs time to implement new strategies.

For the dozen properties remaining with the existing operator, some of the changes being contemplated involve capital investments in the facilities. That will require time to complete before results are likely to improve. So even though Ventas is seeing material improvement in its SHOP, it still isn't back to a pre-pandemic normal.

The big sign will be a return to dividend growth

It would be understandable if investors were a bit frustrated by the long turnaround process unfolding at Ventas. That's particularly true for dividend investors who suffered through the dividend cut. And still, until the company truly has the coronavirus impact behind it, it probably makes sense for the REIT to err on the side of caution with the dividend.

But at some point, investors will want to be rewarded for sticking around, and that will require a return to dividend growth. Until then, investors will have to be content knowing that management is doing what it can to deal with the ongoing problems it faces.