This Dividend Stock's Turnaround Is Only Just Getting Started

Ventas (NYSE: VTR) cut its dividend in 2020, which is something that no real estate investment trust (REIT) ever wants to do. The problem was the mixture of a pandemic and the company's exposure to the senior housing sector. Today, however, the senior housing business is starting to look up on a number of key metrics. Here's what you need to know as Ventas' turnaround gets under way.

When occupancy falls, so does revenue

The nearly 45% dividend reduction in 2020 basically goes back to one thing and one thing only for Ventas. The REIT has a sizable portfolio of senior housing assets that it both owns and operates. In the industry, these are known as senior housing operating assets, or SHOP. In practice, Ventas hires property managers to handle day-to-day operations. But the big takeaway is that the performance of these assets flows directly to the REIT's top and bottom lines. That's very different from a leased property, in which the tenant has to pay rent no matter how the property is performing.

This is not a trivial issue, because property-level performance of senior housing assets plunged during the early days of the coronavirus pandemic. Move-outs increased (a number that includes resident deaths), move-ins decreased, and, thus, occupancy fell. That meant less revenue for Ventas and lower funds from operations (FFO). Even today, as the company works back from the hit, the SHOP portfolio represents 37% of the REIT's net operating income. This is an important business.