Ventas Expects Shop Segment To Comprise Half Of Noi By Year’s End

Leaders with Ventas (NYSE: VTR) said the company is in a “strong position” to grow its senior housing operating portfolio, given the demand upside at the industry’s doorstep.

The Chicago-based real estate investment trust (REIT’s) 638-community SHOP segment grew NOI nearly 16% on a same-store basis in 2024, representing a third consecutive year of double-digit NOI growth. As of the end of the fourth quarter, the segment’s average occupancy rate registered at 86.3%, a gain of 330 basis points over the same quarter in 2023, when average SHOP occupancy was 83%.

The REIT’s SHOP segment totaled about 43% of the company’s annualized NOI in 4Q24. By the end of 2025, Ventas believes its SHOP segment will grow to comprise half of that total given its current positive operating momentum.

“We are excited about the opportunities ahead,” Ventas CEO Debra Cafaro said during the company’s fourth-quarter 2024 earnings call Friday. “We intend to continue to drive SHOP growth and expand our SHOP footprint with accretive investments focused on senior housing.”

Outside of its SHOP segment, Ventas also has 301 communities currently under triple-net leases.

In 2024, Ventas closed more than $2 billion worth of investments, primarily in senior housing and culled from a “much bigger pipeline of opportunities,” Cafaro said. The company currently has “line of sight” on a pipeline of opportunities worth $1 billion and is “in the advanced stages” of executing on it, Executive Vice President of Senior Living Justin Hutchens added.

The REIT reported normalized funds from operations (FFO) of 81 cents per share in the fourth quarter of 2024, a gain of 7% over the same quarter in 2023.

Ventas’ results in the fourth quarter of 2024 represented “solid core growth,” according to an investor note from BMO Capital Markets analysts Juan Sanabria and John Kim.

‘Power of the platform’

Looking ahead, Ventas management is confident that it will continue to add occupancy and grow margins in its SHOP segment due to the industry’s current supply-demand imbalance and its ability to support operating partners with data and other operational insights.

“It’s hyper-locally focused, and that gives us the comfort and confidence that if we make that investment and we take certain actions, it’s going to deliver growth opportunities,” Hutchens said. “And that’s really the power of the platform. It’s looking ahead to the near-, mid- and long-term and ensuring that we’re well positioned.”

In January, Hutchens noted the company’s SHOP segment is “off to a strong start in January,” and he added that the company has seen “strong counter-seasonal results” during this time in the past.

“But it doesn’t really change one important fact, and that is that we have a heavy reliance on the key selling season,” he said. “I think we’re well-positioned … but that’s always the most important season, because that’s where a lot of the net move-in activity happens.”

About a quarter of the communities in the portfolio carry occupancy rates below 80%, with an average occupancy for U.S.-based properties of 84%. To that end Hutchens said the company has “a lot of growth opportunity in terms of occupancy” ahead.

“We’re expecting solid occupancy growth again, with good pricing support,” he said. “And as we get into higher occupancies, we fully expect that they’ll have the opportunity to push pricing more over time.”

Adding to his optimism is the fact that hiring for the company’s operators has been “very strong,” with strong retention of current workers.

“I’m going to knock on wood and say the labor market for us has been about as good as we’ve seen in some time,” Hutchens said.

Ventas also recently bolstered its leadership bench. The company hired Alex Russo as senior managing director of investments, and Senior Vice President of Business Development Tim Sanders will continue to manage the company’s investment officer group.

As Hutchens has noted before, in the five years after the Great Financial Crisis, the population of people aged 80 and older in the U.S. grew 4%. Between now and 2030, the population of people aged 80 and older is expected to grow 27%. And Hutchens noted that he believes the company has finished only its “first lap in a long race” with regard to demand.

“We’re just now – like, really now – getting to the period where demographics become really strong,” he said. “It happens to be during a period when supply is completely muted, so it’s been pretty good the last few years. We’re looking forward to more strength moving forward.”

Acting on ‘a unique opportunity’

Looking ahead, the REIT finds itself in a “unique opportunity” where it “can invest in high quality assets that have the combination of delivering yield and growth” – something it “hasn’t seen before,” Hutchens said.

“We’re buying larger communities that have a mix of IL, AL and memory care services. We’re in markets that have strong absorption and a strong affordability,” he added. “We’re continuing with the same investment criteria in 2025.”

The company in 2024 had considered $18 billion worth of potential acquisitions, and it ended up pursuing only $5 billion of that, resulting in its $2 billion investment total in the end.

“We’re extremely focused on the criteria that we set forth, which will help us to ensure that we’re getting the combination we’re looking for: Yield growth and then ultimately, a high-quality, high-performing asset,” he said.

Cafaro added that the REIT “may choose not to bid more because we don’t value an asset the way maybe someone else does,” alluding to why the company didn’t ultimately transact on all $5 billion of the deals it pursued in 2024.

“Part of the secret sauce, of course, is bringing these assets on and adding the OI platform and knowing what can be delivered under our auspices. And so there are plenty in there that we just choose not to bid more because we don’t like the risk-reward proposition,” Cafaro said. “There are very few deals – very few – where, if we want it, we don’t get it.”

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