Operator:

Thank you for standing by. My name is Bailey and I will be your conference operator today. At this time I would like to welcome everyone to the Ventas Second 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to BJ Grant, Senior Vice President of Investor Relations. You may begin.

Debra Cafaro:

Thank you BJ. On behalf of all of my colleagues, I want to welcome our shareholders and other participants to the Ventas Second Quarter 2024 earnings call. It’s an exciting time for our business. We are driving performance in the early stages of an unprecendented multi-year NOI growth opportunity, fueled by powerful demographic demand and the most favorable fundamentals ever in the senior housing industry. Ventas plays an essential role in the longevity economy, serving a large and growing aging population, with over half our business and senior housing. This creates a compelling, near and long-term growth and value creation opportunity. Today I'll discuss Ventus's strong results and our latest increase in our 2024 expectations. As we generate outperformance in our senior housing operating portfolio, increase shop investment activity, optimize net operating income throughout our portfolio, and improve our financial strengths. Let's start with results. We began 2024 with momentum, which continued in the second quarter. Our enterprise delivered $0.80 of normalized FFO per share, reflecting 7% year-over-year growth. SHOP led the way with same-store cash and NOI growth of over 15%. Total company same-store cash NOI grew nearly 8%. And our balance sheet is trending positively, with 50 basis points of leverage improvement already year-to-date. We are pleased to once again raise our 2024 normalized FFO per share guidance and our total company same-store NOI expectations on the strength of this performance. Our growth expectations and value creation opportunity put us in the top cohort of companies across the REIT landscape. We're executing on our focus strategy designed to deliver growth and value to our stakeholders. As a reminder, there are three prongs to the Ventas strategy. Deliver profitable organic growth in our senior housing portfolio, capture value through investments focused on senior housing, and drive cash flow throughout our portfolio. Here are some key updates in each of those areas. In SHOP, we have now delivered eight consecutive quarters of double-digit, year-over-year same-store organic cash NOI growth. More importantly, we see a durable multi-year NOI growth opportunity ahead of us, powered by occupancy gains and revenue growth. Senior living provides invaluable benefits to residents and their families. In the quarter, occupancy grew 320 basis points year-over-year, significantly outperforming industry benchmarks, and revenue expanded 8%. Our data-driven decisions enable execution by talented operators, enabled our communities to attract more than our fair share of the strong demographic demand for senior living. Remember that our prior senior housing occupancy peak was 92%. Currently, our portfolio has trended to 84% occupancy and 27% margins. There is an additional $140 million incremental NOI opportunity simply by getting to 88% occupancy and 30% margins in the portfolio, when shop NOI would approximate $1 billion a year. From there, we expect our portfolio, operators, and communities to shoot for and potentially beyond that 92% prior occupancy peak because surging demand and suppressed senior housing construction are creating such favorable conditions, particularly in our markets. The shop resident base we serve, primarily the over 80 population, should grow by over 24% in the next five years. This population is increasing rapidly each year, from about half a million people annually now to over 800,000 individuals starting in 2027, as the leading edge of the gigantic baby boomer cohort turns 80. Yet, there were only about 1,300 units of senior housing started in the second quarter, and construction as a percent of inventory is only 1%. Both the lowest on record. Equally important, the duration of new construction continues to elongate, and we expect deliveries to be constrained for years to come. This favorable supply-demand backdrop provides powerful tailwinds and a long and unprecedented runway for growth. Justin will explain how our actions, platform, data and insights, together with our operators, deliver value to seniors and their families and position Ventas to outperform a strong market. We are also increasing our investment activity focused on senior housing as we execute on the second prong of our strategy. We're on track to close about $750 million of investments this year. Given the favorable market conditions and the strength of our pipeline for quality acquisitions, we are committed to ramping up our investment activity. Ventas is one of the country's largest owners of senior housing and we are excited about the external growth opportunities we see in the market. Rarely in my career have investment conditions been as constructive. We can invest in senior housing assets with high single-digit going-in yields and substantial near-term NOI growth prospects. Replacement costs, net absorption projections and affordability remain key criteria in our investment approach. These senior housing investments expand our shop footprint, increase our enterprise growth rate and reinforce our consistent commitment to financial strength. Third, we're also focused on driving cash flow and value creation throughout our portfolio. Our outpatient medical and research portfolio once again contributed complementary compounding growth for Ventas, powered by our competitively advantaged Lillibridge operating platform that excels in tenant satisfaction and retention. We also want to provide you with greater clarity on the 23 LTACs operated by Kindred with the least maturity of April 30, 2025. These long-term acute care hospitals represent about 5% of our NOI or $110 million annually. We've made a lot of progress since we last updated you. Currently, we are in advanced discussions with Kindred regarding a lease resolution for these properties. While a deal is not done and terms could change, we and Kindred are close to a transaction that would result in a 25% to 30% full-year rent reduction on these 23 LTACs starting May 1, 2025. About two-thirds of that amount would be reflected in calendar year 2025. We'll be happy to share more with you if and when a deal is concluded. We continue working toward a positive lease resolution that optimizes Ventas value and the NOI from these 23 properties, strengthens the master lease, and supports Kindred's future success. There are two final items that represent our approach to thoughtful investing and creation of win-win outcomes with our operators over time. First, Ardent recently completed its successful IPO, and we congratulate the management team and our partners. Ardent has done it right, focusing on patients, quality clinical care, employees, and communities. Ardent's current equity value exceeds $2.5 billion, and as Sam Zell used to say, liquidity is value. With $1.6 billion invested in assets operated by Ardent, Ventas has always been happy with Ardent's financial stability, its operational acumen, and its steady growth. The company's IPO has further enhanced this positive investment. In addition, Ventas has an ownership stake in Ardent, currently valued at about $170 million, over four times our original investment. And we believe there's additional upside in Ardent's business and its valuation. Also, in the second quarter, we monetized about 10% of our Brookdale warrants for $6 million in cash profits. We received these warrants as part of the successful lease arrangements we concluded with Brookdale in 2020. The warrants provide upside sharing in Brookdale's success and take advantage of the positive macro conditions in senior housing. Our current in-the-money value of our Brookdale warrants is about $70 million. Stepping back, we are optimistic about the future of our business, which is centered on helping a large and growing aging population live longer, healthier and happier lives. As the broader economy shows significant signs of flowing down and the labor market softens, Ventas' business with over half in senior housing is highly advantaged across the REIT space. All our asset classes benefit from inelastic, need-driven, demographically-driven demand, and most benefit from a softer employment backdrop. As a result, we have an unprecedented multi-year growth opportunity right in front of us. With favorable results this quarter and our improved outlook, our team is focused on doing everything we can to execute our strategy and continue to drive Ventas' performance and returns. With that, I'm happy to turn the call over to Justin.

Robert Probst:

Thank you, Justin. I'll start with our second quarter performance, provide an update on our leverage and liquidity and conclude with our updated and improved guidance. I'm pleased to report that Ventas delivered strong second quarter results led by SHOP and with contributions across the property portfolio. In our Outpatient Medical & Research Segment, or OMAR, we generated over 3% same store cash NOI growth in the quarter with strong margins and stable occupancy. In our outpatient medical portfolio, Pete and team continued to build leasing momentum, executing over 800,000 square feet of new and renewal deals in the quarter, which translated to 30 basis points of sequential occupancy gains. Further, the equalized loan portfolio outpatient medical assets have made significant progress, increasing occupancy 450 basis points year-over-year to 81.5% in the second quarter, leveraging the Lillibridge operating platform and playbook to drive growth. Meanwhile, our university-based research portfolio increased same-store cash NOI by 5.5% in the second quarter, with 160 basis points of occupancy growth across the same store portfolio. Our new leasing pipeline is attractive at 1.3 million square feet, with over half already executed. For the enterprise in the second quarter, we reported net income attributable to common stockholders of $0.05 per share. Our Q2 normalized FFO per share of $0.80 represents a 7% increase year-over-year. Underpaying this result was year-over-year shop same store growth of 15%, and total company's same store growth of nearly 8%. We're seeing the benefit of the execution of our strategy with a 50 basis point improvement in our net debt EBITDA metrics so far this year. Organic shop growth and equity-funded new investments in senior housing are driving the improvement. The multi-year growth expected in senior housing and the robust investment pipeline are expected to continue to improve our leverage ratio going forward. So far this year, we've closed down 350 million of new investments and have raised 500 million in equity. We have included in our updating guidance another 400 million in equity-funded investments focused on senior housing that are expected to close this year. Year-to-date, we completed 234 million in asset sales. And our liquidity at the end of the second quarter was strong at $3.3 billion, including over $550 million of cash on hand and with limited remaining debt maturities in 2024. I'll close with our updated improved 2024 guidance. We've raised our outlook for net income attributable to common stockholders to now range from $0.07 to $0.13 per diluted share. We increased the midpoint of our full-year normalized FFO guidance to $3.15 per share from the previous midpoint at $3.14 per share. Our improved full-year midpoint is driven by $0.025 combined improvement from shop organic and inorganic growth, partially offset by a $0.015 non-cash impact from potential kindred lease resolution in 2024. We've also raised our same-store cash NOI year-over-year growth midpoint expectations for each of our segments. Total company's same-store cash NOI is now expected to grow 7.25% year-over-year, an increase of 25 basis points from our prior guidance, and 100 basis points higher than our original guidance back in February. For additional 2024 guidance assumptions, please see our Q2 supplemental and earnings presentation deck posted to our website. To close, we are pleased with the results for the first half of the year and we're committed to continued value creation in the second half and beyond. With that, I'll turn the call back to the operator.

Nicholas Joseph:

Thank you. Just wanted to hopefully get a little more color on the potential kindred resolution. As you think about resetting those rents, how do you think about rent coverage, the opportunity for growth there? And then just in terms of the timing, when would you expect kind of a final resolution and is it going to be for all of the facilities or could some of them come back to you? Thanks.

Nicholas Joseph:

Thank you. And then maybe just pivoting to the acquisition pipeline. Sounds like sounds like it's starting to go there. So just curious kind of what you're seeing. Are these lease up opportunities and a more stabilized kind of just color broadly on the opportunity set that you're looking at?

Justin Hutchens:

Sure. So we are seeing a number of different opportunities. Where we're leaning in is when the pipeline meets our investment criteria and we're very focused on the market asset operator framework, looking for markets that have strong supply demand fundamentals and support strong net absorption and affordability. We do like, apply in the Ventas OI platform. We're also narrating the strong track record in the communities and looking for, generally well invested communities as well. We're primarily expanding with the existing operator relationships, but we have had the opportunity to add some new relationships as well. And we're looking for campuses that include independent living, sister living and memory care, rental campuses. And we're seeing those in the pipeline. The pipeline's been growing throughout the year and we were actively engaged in it. And we like our opportunity to continue to grow.

Debra Cafaro:

Thank you.

Michael Carroll:

Yes, thanks. I wanted to touch on the kindred update real quick. And I know Debbie probably can't talk about too much directly related to this discussion. But, in general, why would Ventas record about a penny and a half non-cash charge in 2024? I mean, is there like a cash payment that's expected that needs to be amortized this year? I guess what's some of the reasons that we drive that?

Michael Carroll:

And that happens from the time you signed the deal. It happens immediately.

Michael Carroll:

Okay, that makes a lot of sense. Thanks. And then just real quick on the on the shop guidance, I know that the RevPOR target is 5% and you're tracking a little behind that in the first half of the year. I guess are you able to push street rates higher? And is that's why you think you can generate slightly better shop RevPOR growth in the second half of the year kind of accelerating that growth compared to the first half of the year?

Michael Carroll:

Okay, great. Thank you.

Joshua Dennerlein:

Yes, good morning everyone. I just wanted to ask about the acquisitions that you're including in GuideNow. I guess historically you only included what was signed up until that point. I guess why change your strategy here? And then if you could maybe just let us know how much of a benefit that additional acquisitions is for 2024. I guess I'm just trying to get a sense of the timing and whatnot.

Robert Probst:

And you're right to say that, that started this year in February, including deals that we hadn't closed was unusual for us. But we feel very confident given the pipeline and the team that we can execute on those deals. We started the year at 350 in our guidance done, closed. We have now 400 million in the forecast to close this year. So doing what we said, the contribution from those is in the two and a half cents increased guidance on FFO from shop organic and inorganic, I would say the split of those is roughly equal. If not tipped a bit towards the new investment. So they are created from the get go equity funded and very consistent with the strategy we laid out.

Debra Cafaro:

Josh, our capital allocation priority is focused on senior housing shop investments and Justin will touch on, there's a series of both qualitative data driven characteristics we're looking for as well as financial.

Joshua Dennerlein:

Appreciate that.

Operator:

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Your line is open.

Justin Hutchens:

Well, we're certainly interested in ramping up the activity. We haven't put any targets out there in terms of volume, but more is the priority for sure given the fundamentals and the returns that we're seeing in the investments. The types of sellers, there's some certainly sellers that have debt maturities and they're having to make a decision. Even though fundamentals are good, do they put more capital in or do they, do they, sell the asset and move on to other priorities? We've been able to take advantage of some of those opportunities. There's other sellers that just quite frankly are dealing with fund maturities and they're just active sellers and then there's others that are selling senior housing a little bit reluctantly because they have other asset classes that they're dealing with and debt and other aspects of their fund. And so, we've had a wide variety and that's what's been consistent though is, good fundamentals. We're targeting markets that have really, great upside and then the returns have been excellent.

Operator:

Thank you. Your next question comes from the line of Jim Kammert with Evercore ISI. Your line is open.

Debra Cafaro:

Great question. And, and one of the things we care a lot about is we and operators are offering residents and their families a really important service. And it's really valuable. Anyone who's gone through it in their families really understands that. And penetration is back at or above, that is utilization by the population is at or above where it was pre-COVID. So that's trending in the right direction. The numbers are gigantic. So that dwarfs the impact even of penetration rate. And importantly, there are a lot of studies that show not only are seniors more secure and enjoy better lives when they move to senior housing from their homes, that it's safer, it's more secure, it's more social, but also it is more expensive to stay in your home. And that's the cost of replacing all those services, even if you can do it, which in many, many cases, if you live alone in a suburban home, you can't even get those services on a regular basis, that it is more economical to move to senior housing. You don't have lawn mowing and maintenance, taxes and insurance meals, etcetera. So it really is a replacement for what you're spending anyway or even better if you're requiring in-home health services.

Robert Probst:

Yes, Jim, it is a high quality situation for sure. The conversion price is just below 55. Those get accounted for in the fully diluted shares. It's a really modest impact at this stage and effectively embedded in the guidance, but I put this in the high quality problem camp. But de minimis as we think about the numbers this year as it stands now.

Robert Probst:

Yes.

Juan Sanabria:

Hi, good morning. Just a bigger picture strategic question for Debbie, I guess. Obviously, you rightfully so bullish on the acquisition opportunity in seniors housing and you have a successful third-party management business. Is there an opportunity to kind of accelerate your investments in seniors housing using some of the capital partners you have or maybe new ones to do stuff in joint venture or fund format?

Juan Sanabria:

Thanks. And then just with regards to SHOP business and kind of guidance. How should we think about occupancy growth going forward? You've noticed some seasonality on the RevPOR side. Is there anything equivalent on the occupancy side or any impact from changes in the pool in the second half of the year?

Robert Probst:

Sure. There's no pool impact, one, that's been very consistent since February. There is -- depending on whether you're looking year-over-year or sequentially, there clearly is seasonality in senior housing. Again, the key selling season is Q3 running into Q3, typically through September could bleed into October. Then typically, you'll have some moderation in the fourth on a sequential basis. For us, what we're seeing again is just this robust year-over-year growth that's driving the improved midpoint. But if you're modeling sequentially, you should factor that in.

Omotayo Okusanya:

Hi, good morning everyone. Just wanted to go back to [indiscernible] a little bit. So the guidance seems like you're calling for a 25% to 30% rent reduction I do recall commentary that this business itself is improving fundamentally. So just curious why give up that upside like just having kind of an immediate kind of rent reduction?

Omotayo Okusanya:

Okay. That's helpful. And just the second question some of your managerial contracts in Atria Sunrise that are a little bit more tight in the top line. Curious, that when those managerial contracts themselves expire if they do or the idea of being able to move these contracts more towards contract time towards the bottom line such that Ventas and the third-party managers a little bit better in line in terms of bottom line performing?

Justin Hutchens:

It is, for sure. So Sunrise, we've already -- that contract, we actually updated A few years ago, it's well aligned. It's really driven through revenue and NOI performance. The fees are driven through realignment. I'm very happy with that agreement. We're -- we have windows in the upcoming few years in the legacy Atria portfolio, that will also be a good opportunity just to improve upon the alignment and that relationship, everything else in the SHOP portfolio is on our newer agreements. But one thing I want to say is that Atria given a lot of the transition they've gone through, there's not a question in my mind in terms of the level of focus they have on operations, particularly on ours. They've -- there's been a number of actions that have led to a much tighter footprint that we've taken some that they've taken and other owners. And so the level of focus that we've seen with them under the new leadership and the contributions they've made to the occupancy across the board that I mentioned and especially in independent living, where we've had 340 basis points of occupancy growth year-over-year. We have their full attention and they have our full support. So we look forward to ongoing good performance with them.

Debra Cafaro:

Thanks.

Austin Wurschmidt:

Great, thanks. Just going back to the SHOP guidance, same-store NOI growth for that segment implies some deceleration in the back half of the year. And I guess, just given the operating leverage, low total portfolio occupancy, and just relative to the backdrop that you outlined in your prepared remarks, what are sort of the linked factors in the near term impacting you from sustaining that mid-teens growth that you've achieved year-to-date?

Robert Probst:

I like your words mid-teens because the first half, we grew 15%. Our guidance for the year is 14.5%. So pretty darn consistent, I would say.

Justin Hutchens:

Well, so we have a page, and if you have our earnings deck, Page 10 will articulate the performance of Canada. Canada grew 12% in the second quarter year-over-year. That was driven by really good rate growth, which was also mix driven. We had a higher price point product that outperformed Canada and drove the RevPOR up and their occupancy is still growing 170 basis points. Canada is 96% occupied now, and they keep growing occupancy. And so it's just a good performer, and we wouldn't expect it to continue to be a double-digit performer going forward, but it's been a good year in Canada.

Debra Cafaro:

Thank you Austin.

Vikram Malhotra:

Good morning. I just wondered maybe first just get some more color. You mentioned the comps or maybe even conservatism on four on the expense side. But you're sort of going from the ones to like the 2.5% guidance you gave. So I'm wondering is there any specific region or maybe it's just labor cost you're anticipating that would drive that up so much in two quarters?

Robert Probst:

I think the key thing to note, as you'll recall, is the contract labor or agency labor profile last year. Which we as we were staffing up really came down first half to second half. And so on a year-over-year basis in the first half on the OpEx port, that's a good guy. You don't have that same dynamic in the back half of the year. So that's a really important part of the answer to your question.

Justin Hutchens:

Yes. So we've been -- we've seen really broad-based growth. We've had better occupancy growth in our products that are closer to like a mid or a mid-high price point. We've seen better growth in the West, which is a relatively lower price point than the East. There's been better growth in lower acuity assisted living and independent living than the higher acuity product, but very strong occupancy growth. And so there's the mix is really just a combination of reasons why our lower price point product is outperforming. It also happens to be the recipient of a lot of the NOI-generating CapEx. And so within that group, we had over 500 basis points of occupancy growth but also had 6.5% of RevPOR growth. So within it, it's a strong contributor to both occupancy and to rate. But as it's a big part of the growth story and the growth profile, it brings the weighted average down from a RevPOR standpoint. So I think the reality is, like I said earlier, the volume is so high mix becomes a bigger factor in the metrics. But key takeaway is 8% revenue growth and 14.5% NOI and really strong occupancy performance.

Justin Hutchens:

So it's Justin again. So Brookdale, I'll start here. So it's a well-covered lease. You'll probably notice that if you look at the supplemental that they've moved up a row. And so good coverage, good performer. They have -- we've had growth in our portfolio. They're in markets that we project around 1,000 basis points of net absorption upside. So really strong growth profile opportunities ahead of it. So really, if this portfolio were to make its way to our SHOP portfolio to be very happy. So we're really concerned about an extension. Brookdale has the opportunity to extend the lease. And if they do that, they have to decide by the end of November, all or nothing extension. If they do extend, then the lease will escalate in 2026, at least 3% and as high as 10% based on a fair market value review. Considering the performance and the coverage that I've mentioned and the upside opportunity in the market, we would expect that it could be on the better end of that, but we'll have to wait and see. But we love the optionality we have here and kind of worst case, Brookdale extends and you have a well-covered lease.

Debra Cafaro:

Thank you.

Richard Anderson:

Hey thanks good morning and nice quarter. So question I asked on the Well tower call, and I got fully shut down. I'm going to ask you the same question, see what you say. So as occupancy gets higher, so does it become increasingly more difficult to grow it from there? So my theory is at 75% occupancy, you have the full range of unit options to offer people. But if you're at 85%, you have fewer options. So it's just harder to fill that Swiss cheese effect, if I can use that. Do you agree with that, that when you get to sort of post-pandemic occupancy and then start targeting that 92% peak in your history that process will maybe logically take longer to achieve?

Justin Hutchens :

So Debbie is referring to my passion project, which is encouraging our operators and communities to get to where they're achieving zero lost revenue days we benchmark this, and we report on it every month and...

Justin Hutchens :

Exactly. But truly 100%. So the one thing I love about senior housing business is that you can truly be 100%. We do have communities already in our portfolio that literally are turning units. They may have 4 or 5 out. They're turning all of them with new move-ins within the same month and having zero frictional vacancy. So my point of view, Rich, is it's actually easier, the higher occupied you get. And the reason for that is because you've established yourself as a strong market participant or market leader. Usually, there's an opportunity to fill the last unit or two with just with extra effort. I'm not going to say it's easy, but it's much easier to fill a year or two than to look upward at 20 units. So I like the opportunity in our communities that are over 90% to push all the way to 100 or as close as they can get to it. And the other thing that comes with that, obviously, is scarcity value and price goes with it. So that's the big opportunity. So I don't think I agree with you.

Debra Cafaro:

Yes. Good question. I mean one thing that's good about the way we're showing our SHOP results is that the vast majority of our communities are in our same-store results. And so those -- most of those projects in during the redevelopment process. And we take the downs to the extent there are any that time and then remain in now, and that's true for almost all ranges.

Richard Anderson:

So when you think about the redevs activity. Is it a wash then, the stuff that's sort of underwhelming occupancy and the stuff that's boosting occupancy when you net those two, the $380 million in the U.S. would probably still be pretty close to $380 million?

Debra Cafaro:

And you're trying to get them done so that you're meeting this intensive demand that's right that's present at this time. So…

Debra Cafaro:

Thank you Rich.

Michael Stroyeck:

Thanks for fitting me in. Good morning. Maybe one on the transaction market. What's the typical cap rate spread that you're seeing on assisted living deals versus independent living?

Michael Stroyeck:

Okay. That makes sense. And then it looks like a couple of research assets have entered the redev pool in this quarter. What sort of return are you targeting on those projects? And should we expect additional research assets to enter redevelopment in the coming quarters?

Michael Stroyeck:

Got it Thank you.

Operator:

Your next question comes from the line of John Kilichowski with Wells Fargo. Your line is open.

Justin Hutchens :

Yes. I mean they're there could be some conservatism in that metric. We have to those around everything. We were very explicit around two metrics, one being occupancy, that will be in NOI. The others RevPOR has some mix considerations and then OpExPOR, and they both have year-over-year comp considerations and the OpExPOR we have some comp considerations as well as just an expectation of normal inflation. So we'll just have to see how it plays out. But the labor market has been very favorable.

John Kilichowski:

So. I mean, would you be able to comment at all what you've seen quarter-to-date from labor? Is it starting to shift in your favor? Or is it same time as it was in 2Q?

John Kilichowski:

Got it. And then maybe just jumping to the dispositions in the quarter. It looks like really strong execution there, but is there any color you could give on what drove the low cap rates on those assets? Are these noncore and maybe lower quality where there's like a pro forma upside for the buyer? Or are these high-quality assets and they are just here to fund acquisitions because we're strategically rotating more in a SHOP?

Debra Cafaro:

And then senior housing with the data analytics, we're curating the portfolio on the buy and the sell side.

John Kilichowski:

Got it. Thank you.

Operator:

Your next question comes from the line of Wes Golladay with Baird. Your line is open.

Debra Cafaro:

Yes. I mean our whole strategy is designed to increase our enterprise growth rate, expand our shop footprint and because of the way we are funding the assets to continue to improve our balance sheet. And you saw that year-to-date.

Wesley Golladay:

Okay. And then turning to the senior housing development. Is there any point where you want to start on the developments, deliver countercyclical in a few years from now? Any markets that may be the first to get supply and then maybe look into Canada, obviously a little bit more stabilized market, would they start to get supply at any point?

Wesley Golladay:

Okay, thanks for the time.

Operator:

Your next question comes from the line of Nikita Bely [ph] with JPMorgan. Your line is open.

Debra Cafaro:

Yes. We can talk about this, and there are quite a few that are well underway. And Pete, can you take that?

Operator:

Your next question will come from the line of Nick Yulico with Scotiabank. Your line is open.

Justin Hutchens:

What I can tell you is that I mentioned in the prepared remarks that the key selling season is off to a strong start, including July. And that's what we have for now.

Debra Cafaro:

Well, they operate their own portfolios for what. But I think what Justin said is a good is a good data point for now.

Debra Cafaro:

Yes. Say that again, Nick. I think...

Debra Cafaro:

Got it. I mean it gets into our underwriting, obviously. We look at the last year's, we look at pre-COVID numbers, we look at trailing 3 and where it is kind of at the time of acquisition, and we model what our expectations are going forward. Given the fundamentals you would expect that there would be some growth from, say, the trailing 3 or the in place in that number, typically a modest amount. And in some cases, if occupancy is 100%, we may actually diminish it a little bit. So it really depends on the asset. And most of them will have, as we talked about, given the template for the investments 7% to 8% yields going in with significant near-term growth, you'll see some elevation from the at closing NOI number. But it's modest, but it's ramping.

Debra Cafaro:

Yes.

Debra Cafaro:

Thank you so much. And I want to thank all the participants on today's call for your interest and support Ventas. We hope you have a great rest of the summer, and we look forward to seeing you in person soon. Thank you.

Operator:

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas First Quarter 2024 Earnings Call. [Operator Instructions] Thank you.

Bill Grant:

Thank you, Kathleen. Good morning, everyone, and welcome to the Ventas First Quarter Financial Results Conference Call.

Debra Cafaro:

Thank you, BJ. On behalf of all of my colleagues, I want to welcome our shareholders and other participants to the Ventas First Quarter 2024 earnings call. Today, I'll discuss our good start to the year, describe the actions we are taking to execute on our strategy and create value for our stakeholders, and share our improved outlook for 2024 as the multiyear growth opportunity in senior housing build.

J. Hutchens:

Thank you, Debbie. I am pleased to report that our SHOP portfolio performance is off to a strong start. Total SHOP same-store cash NOI growth was 15.2%. The our same-store SHOP communities delivered solid results across all key metrics, including occupancy, RevPOR and OpEx. The first quarter same-store SHOP occupancy grew by 240 basis points year-over-year led by the U.S., which saw 280 basis points of occupancy gains. We have had a strong start to the year with broad-based contributions across community types, geographies and operators.

James Kammert:

I know it's a bit of a fluid target, obviously. But Justin, you mentioned a couple of times very optimistic about the occupancy potential growth across your core markets, right, if they -- I guess, you're making what sort of assumptions there regarding the pace of that in terms of incremental absorption how many years would that take? I mean, you said about 1,000 points in some of your core markets upside [indiscernible]?

J. Hutchens:

Yes. So there's certainly a lot of margin expansion opportunity for us because we're -- overall, both the mid-80s in the U.S. around 80% occupied. In our total SHOP portfolio -- just under 80%, both in independent living and assisted living.

Operator:

Your next question comes from the line of Michael Carroll of RBC Capital Markets.

Debra Cafaro:

Happy to talk to you about it. I mean, look, we're engaged in active discussions with Kindred and others. And we're really working to get to the right outcome. And so we believe that, that was really in the best interest of everyone to get to a good outcome, which we define as kind of optimizing Ventas value and NOI.

Operator:

Your next question comes from the line of Michael Griffin of Citi.

Debra Cafaro:

Yes. So I think that, we're in these active discussions with Kindred and others, and we're really focused on getting the right outcome for Ventas for the enterprise and also for the properties.

Nicholas Joseph:

I probably should have said this is Nick here with Michael. I guess the second question, just if it is retentive, as you talk to kind of other parties, what would the downtime be for the portfolio, if it goes down that route?

Operator:

Your next question comes from the line of Tayo Okusanya from Deutsche Bank.

J. Hutchens:

Primarily 3 simple. That maturity chart really articulates the interesting opportunity because we have tremendously good fundamentals, but you have an asset that's refinancing generally at a lower LTV and higher cost.

Omotayo Okusanya:

Okay, that's helpful. And then if I could sneak one more in. In terms of Brookdale, which is the other rent lease that's coming up, again, coverage is great and all that's fine. But curious if structurally that could change from being a triple net portfolio to much more of a [indiscernible] portfolio, just given how well your SHOP portfolio is doing and how strong senior housing fundamentals are generally.

Omotayo Okusanya:

So I guess structurally, you expected to stay the same as a triple net?

Juan Sanabria:

I just wanted to just wanted to ask around acquisitions, and it seems like you've got another group of properties maybe you're looking at. How we should think about funding that? And how you think about your cost of capital with leverage still relatively high but definitely improving.

J. Hutchens:

Great question. So first of all, it's obviously U.S. focused and it's a total SHOP, and we're running just under 80% occupied in both our independent living and assisted living products in the U.S. It's about 2/3 assisted living in the U.S. in our total SHOP portfolio. We do see a lot of upside. The structural upside opportunity in my view, through experience and philosophically is 100% occupied. And we have several communities that are at 99%, 100% occupancy. And so there's nothing like a completely full community to really demonstrate the operating leverage and also just deliver great care and services. And so that's the goal.

Operator:

Your next question comes from the line of Ronald Kamdem of Morgan Stanley.

J. Hutchens:

So a couple of comments in response here. So I mentioned that our U.S. is projected to be over 300-basis-points occupancy growth this year. So that's a set to think about. I also mentioned that we're just at the beginning of the key selling season. So we'll be seeing how that plays out. You make a good point. We're optimistic about the trends leading into it. So we'll see where that goes.

Joshua Dennerlein:

The SHOP occupancy update in 1Q, that was better than you guys were expecting and then you revised the outlook higher for the year. My question revolves around, is that driven by like the market being better, so like the beta being driven from the aging of America? Or is there some kind of like alpha overlay that you guys are doing internally that's driving better customer demand, and that's why you're getting this like uplift. If the latter, could you just maybe elaborate on what you're doing to drive that alpha?

J. Hutchens:

That's great. And it all starts with the macro for sure. And then within that, we've been working for quite some time to make sure we're well positioned to take advantage of this great opportunity.

Joshua Dennerlein:

On a different note, you guys have the Brookdale warrants. I know they're exercisable through year-end 2025. Just how are you guys thinking about essentially exercising those. I know they're really in the money, which is how do you think about using those as a potential source of capital?

Operator:

Your next question comes from the line of Nick Yulico of Scotiabank.

Nicholas Yulico:

Okay. Second question is just -- I know you have the slide in there again on the attractive time to invest in senior housing. And talks about year 1 FFO per share neutral/accretive for the investments, realizing that, obviously, there's a long runway here when you're thinking in the long term. But how should we think about your focus on -- at what point is it year 2? How should we think about accretion happening because obviously, earnings growth is important, people focus on that.

Robert Probst:

I think going in yields relative to cost of capital, roughly neutral, so not in the immediately accretive. But I would point you to the IRRs and the growth potential in these investments, mid-teens and an example used. That says there's attractive growth in the near term, which would drive accretion.

Robert Probst:

And that's what's so exciting to us.

Robert Probst:

Near term.

Vikram Malhotra:

Congrats on a strong quarter. Just two questions. Maybe Justin one for you. I guess I wanted to be clear, the acceleration trends you've mentioned last quarter and at prior conferences in SHOP. Is that occupancy? Or is that same-store NOI growth as you go through the year? Because you had a really strong 1Q, but the midpoint of the guide still suggests some decel through the year. I know you're being conservative, but I just want to understand the mechanics behind. Is it occupancy acceleration or SHOP acceleration or both?

Vikram Malhotra:

So just to clarify, are you still -- like you said last quarter, just -- I want to make sure, is it same-store NOI growth acceleration? Or is it the occupancy acceleration. You just said the trajectory change, but are you still anticipating accelerating same-store NOI growth?

Vikram Malhotra:

Got it. Okay. And then Debbie, if I don't know if you can maybe throw us some more tealeaves here just on the Kindred outcome. I guess, is it fair to assume the fact that you've extended by 1 month, and you've mentioned there are potentially other parties. It's unlikely that -- or it's more likely that Kindred is part of the solution, meaning it's like an all renewal or partial with other players and them just not renewing at all is off the table, just given the fact that you extended it by another month.

Operator:

Your next question comes from the line of Richard Anderson of Wedbush Securities.

J. Hutchens:

Good question. So I'm going to step back and just talk a little bit about the [ pressure tick ]. So obviously, we've talked a lot about markets and first step is always to make sure we're entering the right markets to support upside opportunity and affordability. And then from there, we focus on the particular asset. We're focused on need-driven assisted living and memory care, and a lot of the campus is also including independent living, high-growth, need-driven product.

Robert Probst:

Yes. It's a memorable acronym OMAR, outpatient medical and research.

Robert Probst:

Yes, an. OMAR. Easier to remember. So step back, the guide of dispose of $300 million includes OMAR, but is also across asset classes, including senior housing and others. So I would say the blended cap rate is roughly mid-single digits on that, not dissimilar to the number you quoted. So again, as we think about reinvesting maybe neutral in the short run, but again, upgrading the portfolio and with the growth potential in the investments really accretive over time. So hence, capital recycling increase is another source of funds that we're very focused on.

Michael Mueller:

I was wondering, can you give us some high-level color on how the SHOP outlook varies maybe from the AL to the IL segment.

Wesley Golladay:

I just want to follow up on that last question regarding the IL picking up next year. Is that just more so operating leverage kicking in next year?

Wesley Golladay:

Okay. And then I want to go back to that slide. You have about the $19 billion of loans. How much of those loans do you think will have some issues on the refinancing front? And has your view on the amount of distress changed over the last, call it, 6 months. On one hand, you have rates just continue to grind higher, but then the recovery is also accelerating.

Michael Stroyeck:

Maybe one on the outpatient medical business. What drove the sequential occupancy decline during the quarter, whether in terms of tenant credit, asset quality or anything you can provide? And then what were the consistent themes with those move-outs, if any, compared with the recent tenant move-outs we saw second half of last year.

Michael Stroyeck:

Okay. That's helpful. Maybe a second question, if I may. Going back to that IL versus AL discussion. So IL meaningfully outperformed in terms of occupancy gains during the quarter. Is that a reflection of just greater demand for the IL product are more attributable to an improvement in the operations of that Holiday by Atria portfolio.

J. Hutchens:

Yes, it is broad-based across IL portfolio.

Operator:

Your next question comes from the line of Austin Wurschmidt of KeyBanc Capital Markets.

J. Hutchens:

Yes. One thing I just want to point out is when we gave the metrics that are supporting the SHOP guidance, you'll notice a lot of [indiscernible]. So it's approximately 8% revenue, approximately 5% RevPOR approximately 270 of occupancy lift. And then we have an NOI range. And so we left a little room for movement amongst those metrics and see how the key selling season plays out. So I don't think we're necessarily saying we're going from 4.7% to 5%. We're just saying we expect to be around 5% and which was consistent with what we saw in the first quarter.

J. Hutchens:

Yes. So the part of the price volume optimization is really making sure we're priced right and where there's more demand in a market, an opportunity to move with market pricing more aggressively, we do that. So there's certain markets and certain highly occupied communities that are attracting a higher street rate, higher move-in rate. So that's definitely part of the plan. Now having said that, we have a lot of occupancy upside, and that's the big opportunity for us is to continue to play into the demand drive volume. Balance it so that we're getting the best out of just total revenue growth and then drive NOI.

J. Hutchens:

I mean it's a year-over-year stat. So I think you'll probably see a little bit of movement within the metric. But what we're expecting to see is growth in street rates, growth in move-in rents and growth in occupancy.

Debra Cafaro:

Great. Great. I want to thank all my colleagues and also all of our shareholders, analysts and other participants today. We very much appreciate your attention and your interest in Ventas and look forward to seeing you soon.

Operator:

Thank you for standing by, and welcome to the Ventas Fourth Quarter 2023 Earnings Call. I would now like to welcome BJ Grant, Senior Vice President of Investor Relations, to begin the call. BJ, over to you.

Debra Cafaro:

Thank you, BJ. I want to welcome all of our shareholders and other participants to the Ventas Fourth Quarter and Full Year 2023 Earnings Call. I'm pleased to share our strong results for 2023, discuss our advantaged position across commercial real estate, driven by large and growing demographic demand and introduce full year 2024 guidance as the senior housing multiyear growth opportunity continues to power our expectations. Let's start with results. We reported favorable results for the fourth quarter and full year 2023. We produced full year normalized FFO of $2.99 per share, representing over 5% year-over-year growth, above the midpoint of the guidance range we initiated in February. As anticipated, our results were fueled by unprecedented organic property growth in our SHOP portfolio, which grew same-store cash NOI over 18% last year. Enterprise same-store cash NOI growth was supported by compounding contributions from our outpatient medical and research and triple net lease portfolios. We finished the year on a high note in the fourth quarter, delivering $0.76 of normalized FFO, representing 7% year-over-year growth and reporting accelerating same-store SHOP occupancy. During 2023, the Ventas team accomplished a great deal together. We raised over $4 billion in attractively priced capital, took effective portfolio actions, invested CapEx in our assets to position our portfolio to capture demand in strong markets, made meaningful progress toward our ambitious ESG goals, successfully integrated a $1.6 billion portfolio and expanded our VIM business. As a result, we delivered over 15% 1-year total return to shareholders, posted 2 years in a row of TSR outperformance versus the health care REIT and broader REIT indices and achieved upper quartile performance for the last 3 years among health care REITs. We still have more work to do. We are focused on driving total returns for our shareholders. As durable demand fuels the multiyear growth opportunity in senior housing, we believe Ventas offers an attractive combination of growth and value. Let me provide a few reasons we believe we are uniquely positioned to create value. We entered 2024 with momentum. Because our asset classes are benefiting from demographic demand that is strong and getting stronger, we are pleased to project another consecutive year of normalized FFO growth in the mid-single digits and the third consecutive year of same-store SHOP cash NOI growth in the double digits. Notably, our projected 2024 normalized FFO growth of 5% per share puts us in the top 20% of all REITs that have issued guidance to date. In 2024, we expect to benefit from steady growth from our outpatient medical research and triple net lease portfolios. As we look into 2025, we have 2 large lease renewals, one with Brookdale in senior housing and another with Kindred for a portion of our LTACs. In Brookdale's case, our communities are enjoying positive operating trends, and they have significant net absorption potential. In Kindred's situation, rent coverage remains challenged, and it's too early to say what the ultimate outcome in 2025 will be. Kindred remains focused on performance improvements that could benefit 2024 and 2025 financial results. In all cases, we are fully prepared to maximize NOI over time. In SHOP, January is already starting positively, with 200 basis points in year-over-year same-store occupancy growth. In 2024, we expect year-over-year normalized FFO and SHOP same-store cash NOI growth to accelerate in the second half, with a SHOP NOI exit run rate that should support continued SHOP growth in 2025 and beyond. This highly positive context is supportive of growing our senior housing presence through both organic and inorganic growth. In pursuit of delivering consistent superior performance, our strategy is to, one, continue to deliver compelling profitable organic growth in senior housing; two, capture value-creating external growth focused on senior housing; and three, drive strong execution and cash flow generation throughout our high-quality portfolio that serves a large and growing aging demographic. Our optimism for a long, durable growth opportunity in SHOP is founded on compelling supply/demand dynamics, led by a step function in growth of the over-80 population in 2024 and yet again in 2027, the lowest construction starts in senior housing since 2009 and our advantaged platform that has the team, tools, financial strength, data and operators to drive organic performance. The Ventas platform should also enable us to invest successfully. As we discussed in November, we intend to build on our compelling organic growth opportunity by layering on value-creating external investments focused on senior housing. There is a confluence of market factors giving us confidence that 2024 and 2025 should be rich with investment opportunities. We're already seeing our pipeline expand as high-quality senior housing communities in good markets with embedded growth come to market, and we have a line of sight to complete over $300 million of investments in the first half of this year. Our criteria for investments include attractive going-in yields priced at below replacement costs with projected low to mid-teens unlevered IRRs that meet our right market, right asset, right operator framework. Our broader objectives are to drive enterprise NOI and normalized FFO per share growth, increase the scale of our SHOP business, deliver strong returns on capital, support stable and growing dividend capacity and maximize value for shareholders. In sum, we delivered on our commitments in 2023, and we expect another year of normalized FFO per share and property performance growth in 2024. Our 5% projected normalized FFO growth favorably distinguishes Ventas across the REIT universe. With an attractive valuation and the growth engine of senior housing, we are focused on enabling exceptional environments for a large and growing aging population and creating value for our shareholders. Now I'm happy to turn the call over to Justin.

Robert Probst:

Thank you, Justin. I'm going to share some highlights on our '23 performance, touch on our balance sheet and close with our 2024 outlook. I'll start by saying we are pleased with all we accomplished in 2023. We finished the year strong, with reported normalized FFO per share of $0.76 in the fourth quarter, a 7% increase versus the prior year, adjusting for the promote received in Q4 of '22. For the fiscal year '23, we delivered normalized FFO of $2.99 per share or over 5% growth year-over-year when adjusting the prior year for unusual items. The multiyear senior housing growth trajectory was in full display in '23, with SHOP total NOI increasing year-over-year by approximately $100 million. We also reported total company same-store cash NOI growth of over 8% year-over-year, which is one of the fastest organic growth rates in our company's history. Our 2023 normalized FFO of $2.99 per share was at the high end of our previous $2.96 to $2.99 guidance range, and included $0.01 per share cybersecurity revenue impact in the fourth quarter in our Ardent OpCo investment that was not contemplated in prior guidance. Pete Bulgarelli and our outpatient medical and research team delivered another year of continuous compounding growth, with same-store cash NOI increasing nearly 3% in 2023, at the high end of our guidance range. Continued strong retention and leasing activity in outpatient medical led the way. A key driver of that result is the remarkable record of tenant satisfaction in Ventas' Lillibridge property management business, which notched its fourth consecutive year of top quartile tenant satisfaction. In 2023, Lillibridge reached the 97th percentile for overall tenant satisfaction, placing it among the top 5 property managers. I'd also like to share a few comments on our balance sheet. Throughout 2023, we used our scale and access to diverse sources of capital, raised over $4 million of attractively-priced capital across multiple markets and geographies. This capital raising in 2023 in part refunded 2024 maturing debt at attractive rates. As a result, we had a robust year-end 2023 liquidity position of $3.2 billion and have relatively modest 2024 maturing debt of $800 million net of cash on hand. The attractive NOI and EBITDA growth in our SHOP business also improved Ventas' net debt-to-EBITDA ratio to 6.9x in the fourth quarter, a trend we expect to continue in 2024 and beyond led by the multiyear SHOP NOI growth opportunity. Let's conclude with our full year 2024 outlook. Because our asset classes are benefiting from powerful demographic demand, we are pleased to project another consecutive year of normalized FFO growth in the mid-single digits, and the third consecutive year of same-store SHOP cash NOI growth in the double digits. For 2024, we expect net income attributable to common stockholders of $0.06 per share at the midpoint. Our 2024 normalized FFO guidance range is $3.07 to $3.18 or $3.13 per share at the midpoint, which represents 5% year-over-year growth. The $0.14 FFO per share increase year-over-year can be bridged by 3 items. We expect a $0.28 per share contribution from outstanding year-over-year property growth led again by SHOP, which is expected to grow NOI by over $100 million for the second consecutive year. This property growth is partially offset by an $0.11 per share increase in higher interest expense and the $0.03 impact of 2023 capital recycling. In terms of same-store, we expect our total company same-store cash NOI to grow between 5% and 7.5% in 2024 led by SHOP same-store cash NOI growth of 10% to 15%. Our guidance also includes new senior housing investments of 350 million, which Justin mentioned in his remarks. The low and high end of our FFO guidance range are largely described by our property NOI expectations and potential changes in interest rates. A final note on phasing. We expect same-store cash NOI and normalized FFO year-over-year growth to ramp through the year, driven by higher interest expense in the first half of '24 versus '23, and the occupancy acceleration in the key selling season in SHOP, resulting in an exit run rate that should enable attractive SHOP growth '25 and beyond. A more fulsome discussion of our '24 guidance assumptions can be found in the earnings and outlook presentation posted to our website. To close, the entire Ventas team is ready to win together with all of our stakeholders. And that concludes our prepared remarks. [Operator Instructions]. With that, I'll turn the call back to the operator.

Michael Carroll:

Debbie, can you provide some additional color on your Kindred lease? I know in the business update Ventas has highlighted, Kindred has implemented some improvement -- or performance improvement initiatives, and you also highlighted that Select Medical had some really strong EBITDAR growth in 2Q and 3Q of '23. I mean are you implying that Kindred can grow into this coverage ratio? Or is that just kind of data points highlighting that there is some improvement in that coverage that could occur over the next handful of quarters?

Operator:

Our next question comes from the line of Nick Yulico with Scotiabank.

Robert Probst:

Sure, Nick. Yes. So I mentioned the $0.11 year-over-year. A big piece of that is refinancing our debt into a higher rate environment. We have $1.2 billion of debt coming due this year, and you call it in the mid-3s kind of range from having issued that debt quite -- years ago. So refinancing that in the current environment is dilutive. The volume of debt also, we have a year-over-year impact of the ELP transaction midyear last year, so we have effectively, the first half of that, that we're lapping in '24. So together, those 2 things describe the increase year-on-year on interest expense. I'd note we've included interest expense guidance, which is new to us, in order to try to help analysts' model that because I know it can be tricky, but those are the drivers.

Richard Anderson:

Speaking of Kindred, but also Brookdale and Santerre process, if I can call it that. What are the chances that there could be some activity in 2024 to sort of reset the situation in that -- those portfolios, such that maybe there will be a temporary drag to deal with this year, so that when 2025 does come around, you've kind of addressed that and you won't have sort of this other issue to deal with in 2025, sort of make next year more of a cleaner picture. Are you thinking that you could do some -- have some activity this year preemptively on any one of those 3 buckets?

Richard Anderson:

The Santerre situation, understanding you're kind of working through, but maybe there's some incremental work that has yet to be done. There's asset sales, there's things that you don't want long term. I'm just curious if there could be some preemptive work there as well?

Operator:

Our next question comes from the line of Jim Kammert with Evercore ISI.

Debra Cafaro:

Jim, yes, it's kind of funny to be talking about this 25 years after I started, because this is what I was doing 25 years ago. But look, we are really well prepared. We're experienced on this. We have lots of plans and subplans, I would say. It's only really 23 assets in total, so I think that, that makes it kind of manageable. And of course, we will try to optimize the NOI of the assets. And it's a puzzle, and we have lots of tools that we've used before, and that's really what we're focused on. And I can assure you there are -- will always be kind of alternatives that we have and are ready to execute in this scenario.

Nicholas Joseph:

It's Nick Joseph here with Michael. Just on the acquisition opportunities that you're seeing, you mentioned mid-teens IRRs, but just curious what the going-in yields are. I'm sure it's a range, but just kind of what you're thinking there? What the discount to replacement costs you're seeing on opportunities is? And then just what the funding plans would be for any external growth in 2024?

Robert Probst:

And maybe I'll touch on the funding question. Given those returns, Nick, we think that can be an attractive proposition for shareholders. And indeed, we've built into our guidance about $350 million of investments and on balance sheet financing in order to do that. And we think we can achieve both attractive investment alternatives and delevering in the process with those types of investments.

Juan Sanabria:

Just a question on, I guess, the other line items below kind of interest expense. Anything unusual between '23 or '24 or any changes, I should say, that we should be thinking about? I think about some of the Brookdale noncash amortization that's running through the numbers that presumably goes away on that lease, the initial lease, matures, correct me if I'm wrong. But just trying to see if there's any kind of unusual items from the fourth quarter of '23 that maybe you're skewing results relative to expectations from the Street. And if you wouldn't mind commenting on expectations on FAD. You gave normalized FFO, but any piece parts on the FAD would be great as well.

Operator:

Our next question comes from the line of Joshua Dennerlein with Bank of America.

Debra Cafaro:

Josh, sure.

Operator:

Our next question comes from the line of Mike Mueller with JPMorgan.

Justin Hutchens:

It's Justin. So great question. I appreciate it. There's a Page 8 in the deck for anyone that has that in front of them. It helps to articulate this. So we had 120 basis points of occupancy growth year-over-year in 2023. We had acceleration of move-ins and occupancy in the third quarter, which led to solid growth in the fourth quarter, which was at 170 basis points year-over-year in January. We're already starting at 200 basis points of occupancy year-over-year, and we are seeing better than typical seasonal results ending the fourth quarter and starting the year so far, which is really encouraging and supportive of the 250 basis points at the midpoint that we included in our SHOP guidance. So we have a good run of occupancy growth, and also, move-ins have been really strong as well. I mentioned that they're around 110% versus prior year in the fourth quarter. We've continued to see a strong move-ins at the beginning of the year as well.

Michael Stroyeck:

So going back to Kindred, and I'll try to ask this in a slightly different way. I know it's too early to say what the ultimate outcome will be, but hypothetically, if you did go down this path, as of today, what magnitude of rent reductions do you believe will be required in the near future in order to return those rents to a sustainable level, either for Kindred or the next operator assuming operations on those properties?

Operator:

Our next question comes from the line of Connor Siversky with Wells Fargo.

Debra Cafaro:

I mean I think the key point, the topic sentence, and we'll get to the answer is, those assets overlap with our own portfolio in many respects. Our portfolio is over 90% occupied and managed by Pete and the team very effectively. This was under 80%. So there was -- there is and was significant occupancy upside as we get in there and self-manage those assets. And now I'll turn it over to the team to take your questions.

Operator:

Our next question comes from the line of Vikram Malhotra with Mizuho.

Justin Hutchens:

It's Justin. So let me start with the jumping off point at the end of the year. So what's happening this year is we have significant occupancy growth in our plan. Occupancy, as you know, a lot of it comes from the key selling season. We're off to a pretty good start because we're already outperforming just typical seasonality. But what's most important is what's coming next, which is that kind of May to September period, which provides occupancy growth. Typically, we see the numbers that the demand is there, we see in the underlying performance that we're executing on the demand. So that gives us the confidence that we'll be able to grow occupancy. And then when you have the build during the year, clearly, that you end up ending the year at a higher NOI. And that NOI, the point we're making is it's a good launching pad for 2025 growth when you run that through and then you start adding more occupancy on top of that. The other thing that happens is margin expansion. We're in a place right now, we're in the -- you mentioned Canada. It's 95% occupied. U.S. is around 80%, 81%. Well a lot -- most of our occupancy growth is in the U.S. And when you -- we're just at the early stage of that occupancy band where margin starts to grow, and we're at an inflection point, and so we're also looking forward to next year as well as we -- as occupancy grows, the operating leverage goes up, margin expansion could or should be more in '25. So we think there's good support for this growth, and we're executing, and it's not -- it should help the '25 number, and then the demand is such that the runway should be even longer. So we like what we're seeing there. In terms of Canada, we do have a really, really good portfolio there. And I'm really glad you asked about it because it is a core light asset, very high quality physically. It's very high quality in terms of execution, in occupancy and margin. It's been a consistent performer for us. There's good demand in these markets. It's a great operator. Primarily most of the NOI is Le Groupe Maurice in Canada. And we look forward to continuing with that, and with that relationship and the compounding growth that it can offer and also opportunities to expand that footprint over time.

Justin Hutchens:

Yes. And actually, I'll take this opportunity to make one of my other favorite points. And that is that the U.S., okay, that grew 24.5% in -- for us last year in our same-store pool, and we're expecting mid- to high teens NOI growth in '24. That's the growth engine. And that's comparable to the other portfolio. They have similar upside and less stability, where Canada is what it is. It's high quality and stable. But when you blend the 2, obviously, it hampers our growth a little bit, and it's being hampered by a very high-quality, high-performing portfolio, and the U.S. is growing as well as anyone.

Austin Wurschmidt:

Great. It sounds like Kindred's a no-go here, but at least after all these years, I guess it's only 5% of NOI for this master lease and not 50% plus. So, Debbie...

Austin Wurschmidt:

That's even before my time. But you did highlight -- I want to hit on the acquisition piece a little bit. And you highlighted $300 million of investments you have confidence in completing in the first half of this year. And there's a chance it sounds like maybe that could increase, given the target-rich environment that you kind of laid out. I guess can you or Bob discuss about the funding plans for those assets and maybe where equity fits into the plan? And I'm just curious, given that line of sight, why not issue under the ATM late last year given kind of the favorable move in the stock and more attractive cost of capital you had?

Robert Probst:

Yes. As I mentioned earlier, look, the returns on these investments that we're seeing make this attractive from day 1 to our shareholders in our view, even at the current cost of capital when you look at the numbers. And we started this discussion with investors really late last year at NAREIT where cap rates have changed. And I think the consensus view at that point continues to be that's a good investment. And so effectively, we've built that into our guidance in this $350 million. And I mentioned the opportunity of over-equitizing alongside that, that is also assumed. That being said, in a very disciplined way. And I think that's the important part of the narrative. And so there is some -- there are assumptions around that, but we will be very prudent in all, always, a function of the market.

Operator:

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

Debra Cafaro:

I liked that Slide, too, but I'll give it to Justin to answer.

Robert Probst:

That's a good segue to some of the assumptions you asked about in our guidance, especially redev. Let's start there. So we said our #1 use of cash is investing behind senior housing redevs. You're seeing the growth that's coming from that in the attractive returns. So last year was $210 million round numbers of redev. Because the projects are starting to come down, and I'd mentioned in previous calls we're going to normalize over time, we would expect some reduction in that redev spend this year. I'll call it $175 million in 2024. And again, that should normalize over time as these projects complete. Other assumptions, capital recycling, we are assuming, after $450 million of dispositions last year, our current guidance is $100 million. So a significant reduction, and those are very focused on some senior housing noncore assets in that $100 million. And then finally, on the equity assumption. To just underscore what I mentioned earlier, we do have, in our assumption, both investments and the funding of that. The share count is listed in the assumptions that comes out of that.

Richard Anderson:

Sorry to keep things going, but what the heck. I want to ask perhaps an unanswerable question. So you guys lead the league in kind of normalization between NAREIT FFO and normalized FFO. There's a lot in there. You have $0.13 of normalizing factors in your guidance. To what degree can we -- does that offer an opportunity for -- I don't know, if something were to materialize during the year, it sort of allows you to maintain your guidance? I'm -- there's a lot of movement in your presentation that's really difficult to model, let's put it that way. Is there a way to either tighten it up, or does it offer opportunity to say, well, we can do something with Kindred this year, and we're not going to have to change our guidance in the process. I know, unanswerable, but I do feel like it's way more complicated than perhaps it needs to be, is the main point.

Robert Probst:

[Indiscernible] measuring between NAREIT FFO and normalized FFO across peers, I would suggest to you that they're very similar in terms of our numbers. And by benchmark, well, I would [indiscernible]...

Richard Anderson:

How often do you hit that number? How confident you are to hit that $0.13 number, I guess, is the question. How predictable is that to you?

Richard Anderson:

The [indiscernible] between NAREIT and normalized FFO.

Operator:

Our next question comes from the line of Vikram Malhotra with Mizuho.

Debra Cafaro:

Okay. It's a typical litigation reserve and it affects us and other REITs. And in terms of the acquisition investment opportunities, I think, again, looking at the pipeline that we have, I think Justin talked about 7% plus or minus going in cap rates, which is affected by the growth rate, leading to low to mid-teens IRRs, which, depending on how we fund, will be -- that's how the accretion, obviously, in year 1 will be determined. We're not counting on a lot of accretion into year 1, but rather enhancing our growth rate over time. And we think that those IRRs are attractive, and we want to expand our presence in U.S. senior housing.

Juan Sanabria:

Just a quick follow-up for me, focused around dispositions again. I was curious if you have a bit of a background on the 2 R&I assets disposed of in the fourth quarter as to why you chose to sell those. The cap rates looked a little elevated from the outsider's perspective. And then just curious if -- what your latest thoughts on the Santerre SNF business is? Are you kind of happy to hold what's remaining there, which is still fairly substantial, I guess, and comfortable with that SNF exposure? Or how are you thinking about that?

Operator:

I would now like to turn the call over to Debra Cafaro, Chairman and CEO, for closing remarks.

Operator:

This concludes today's call. You may now disconnect.

Operator:

Thank you for standing by and welcome to the Ventas Reports Third Quarter Results Conference Call. I would now like to welcome BJ Grant, Senior Vice President of Investor Relations to begin the call. BJ, over to you.

Debra Cafaro:

Thank you, BJ. Good morning to all of our shareholders and other participants. I'm happy to welcome you to the Ventas third quarter 2023 earnings call. We're pleased to deliver a strong quarter of normalized FFO of $0.75 per share, representing 6% year-over-year growth and total company same-store cash NOI growth of nearly 8%. Our results reflect both the actions we have taken to drive performance and the powerful demand across our diversified portfolio. that is unified in serving the needs of a large and growing aging population. We are also pleased to raise our full year 2023 normalized FFO guidance midpoint to $2.98 per share. Our senior housing operating portfolio fueled our performance, proving the significant benefits that our communities and operators provide to residents and their family. Same-store year-over-year cash NOI growth exceeded 18%, driven by Ventas' operational insights platform in collaboration with our operators. Our Canadian SHOP communities ended the quarter at nearly 96% occupancy and delivered 6% year-over-year NOI growth. Across the SHOP business, move-in significantly exceeded 2019 levels and the portfolio experienced broad-based occupancy gains in both assisted and independent living. Spot occupancy accelerated in the third, gaining 180 basis points from the beginning to the end of the quarter. The multiyear growth in recovery cycle in senior housing is in full swing. In addition, our outpatient medical and research portfolio continued to distinguish itself by delivering solid compounding consistent growth in the third quarter. As we step back and look across commercial real estate, we continue to believe that Ventas occupies an advantaged physicians. Here are five key reasons why. First, because our portfolio is unified in serving the needs of the nation's large and growing aging population, demand is strong and getting stronger. By 2030, 20% of the US population more than 70 million individuals will be 65 or older. The over 80 population alone is expected to grow 24% in the next five years. All of our asset classes benefit from these demographic demand trends and provide powerful tailwinds to our enterprise in a variety of economic scenarios. In senior housing, we're facing the most favorable supply-demand fundamentals the industry has ever experienced. Senior housing starts are at cyclical lows and likely to go lower due to tightening credit conditions. In our SHOP markets, we have virtually no new starts. This favorable supply-demand relationship creates a compelling backdrop for multiyear growth ahead in senior housing, occupancy and rate, particularly in light of the affordability of senior housing and the value proposition it provides. Second, investment opportunities continue to grow in the senior housing space, and we are well-positioned to capitalize on these opportunities. There is a huge pool of quality senior living communities with attractive return profiles that are coming to market as a result of debt maturities and higher debt service costs. These communities tend to have meaningful runway for occupancy and NOI growth in the hands of well-capitalized experienced and knowledgeable owners like Ventas. This trend should accelerate in 2024 and 2025. We have the scale, team, relationships, capital access, analytical and operational insights and experience to expand our senior housing portfolio and create NOI growth. Third, we've continued to build out our Ventas Investment Management, or VIM platform. VIM provides Ventas another way to expand the opportunity set that benefits our institutional investors and public shareholders alike. This quarter, we invested over $200 million through our open-end fund. Fourth, Ventas has assembled the nation's leading business at the intersection of medicine, research and universities. Our high-quality outpatient medical portfolio is well occupied and affiliated with leading health care systems across the country. Our research business represents a differentiated credit-driven model centered on serving the nation's top universities and our excellent internal property management and leasing function enables us to deliver an outstanding experience to our tenants and drive leasing activity. We continue to see meaningful institutional demand in our university-based research portfolio. And I'd like to give you just a few recent examples. Atrium Health Wake Forest Baptist recently announced its intention to create a new 160,000 square-foot Eye Institute at our redevelopment site in the innovation quarter at Wake Forest. At Arizona State University, the National Institutes of Health or NIH, recently leased space for medical research, demonstrating the desirability of our site and creating a magnet for other researchers. In addition, Siemens Medical Solutions recently leased space at our $0.5 billion Charlotte, North Carolina project, which is already 80% pre-leased. And last, we are pleased to welcome Dr. Drew Weisman, recent Nobel Laureate to our Penn site at One U [ph] City later this year. We are proud to serve these world-class medical and scientific leaders as they pursue life-changing discoveries. Fifth and finally, we continue to demonstrate access to multiple capital markets at attractive pricing to maintain financial strength and flexibility. We have raised nearly $3 billion year-to-date in various capital markets ahead of the recent rise in interest rates. These actions enhance our liquidity and underscore the competitive advantages Ventas has because of our size, scale and diversified enterprise. Across Ventas, we are laser-focused on maximizing fundamental performance and generating superior total return for shareholders by enabling exceptional environments that meet the needs of individuals, families and communities. In closing, we are pleased to improve our 2023 outlook and to see that while we certainly have more work to do. Our total returns to shareholders over the last one and three-year periods and since the beginning of 2022, have outperformed both the health care REIT and the REIT indices. The whole Ventas team remains intent on delivering outsized value to its shareholders and other stakeholders. Now, I'm happy to turn the call over to Justin.

Bob Probst:

Thank you, Justin. I'll share some highlights of the Q3 performance in our outpatient medical and research and equitized loan portfolios, turn to the enterprise results for the quarter, discuss our balance sheet, and close with our updated and improved 2023 guidance. Starting with some highlights from our outpatient medical business. Outpatient Medical continued its string of 3% or greater same-store cash NOI growth in the quarter. Benefiting from operational excellence as evidenced by tenant satisfaction scores, which outperformed 97% of our peers as surveyed by Kingsley. Meanwhile, our university-based R&I same-store cash NOI increased 3.3%, with occupancy growing year-over-year on the back of strong demand for space from our university tenants. This demand is evidenced by our recently completed developments at Penn and Pitt, which combined are already nearly 90% leased or committed. Ventas has experienced asset management teams continue to drive performance and value across all asset classes in the recently equitized loan portfolio or ELP. Underlying NOI performance in the ELP outpatient medical, triple-net and SHOP portfolios is trending well and our timing of taking the portfolio over is proving to be prescient. Our 2023 ELP NOI expectation remains in line with last quarter. We also pruned the ELP portfolio through the sale of 6 skilled nursing assets for a gain in the quarter at an attractive price of $60 million or $135,000 per bed. Our overall enterprise reported strong third quarter normalized FFO per share of $0.75. And representing an increase of nearly 6% year-over-year, adjusting for lapping $0.05 in prior year HHS proceeds. Total company same-store cash NOI increased 7.9% year-over-year, powered by our SHOP portfolio growth of over 18% in the quarter. In terms of the balance sheet, our liquidity is significant. We have $3.1 billion of available liquidity and which covers our 2024 maturities by over three times with our revolver undrawn and $400 million of available cash on hand. And I'm really pleased with how we realize that liquidity, namely through proactive capital raising well ahead of our 2024 maturing debt and prior to the run up in base rates. We first took action in Canada in April, then raised over $1.8 billion in attractive convertible, secured and bank debt in the summer and early fall. As a result, we've now raised $2.8 billion of capital year-to-date at an average cash interest rate below 5%. We've used these proceeds to reduce our 2024 maturities, less available cash to just $800 million. We extended our debt duration. We entered pay fixed hedges at low points in base rates, and we reduced Ventas' floating rate to just 8% from 18% earlier this year. These are strong proof points of our advantaged access to attractive capital and our skill in using that access to the benefit of our shareholders. I'll conclude with our updated and improved outlook for fiscal 2023. After another solid quarter, we are improving our full year normalized FFO guidance to now range from $2.96 per share to $2.99 per share. This guidance midpoint represents a $0.01 increase versus prior guidance and 5% growth year-over-year ex-HHS, led by broad-based property strength. As we raise our normalized FFO per share midpoint for the year, we note that 2023 is unfolding directionally as we stated at the beginning of the year, marked by significant year-over-year property NOI growth partially offset by the macro impact of higher interest rates and FX. At the full year guidance midpoint, the implied fourth quarter normalized FFO of $0.75 per share is consistent with the third quarter, with sequential property growth led by SHOP, offset by higher interest rates, FX and back-half dispositions. Total company full year same-store cash NOI year-over-year growth is maintained at 8% at the midpoint. Please see our investor presentation and supplemental disclosure posted to our website for further guidance assumptions. To close, we are pleased with the strong quarter, improved full year guidance and the commitment and skill of the Ventas team. For Q&A, we ask each caller to state one question to be respectful to everyone on the line. And with that, I'll turn the call back to the operator.

Austin Wurschmidt:

Yes, thanks. Good morning everybody. Justin, you highlighted the impact that the later timing on the renewal increases or the special assessments that you send Alpha Sunrise last year is having in the portfolio. I'm curious, is there anywhere else that you dialed back either the timing or magnitude of rate increases in order to drive occupancy here recently.

Debra Cafaro:

I think it's important to know Austin, also that last year was an extraordinary measure that had never been taken and so we -- this is just returning to normalcy with the January 1 increases.

Steve Sakwa:

Yes. Thanks. Good morning. Debbie or maybe Justin, you talked about kind of growing acquisition opportunities. I'm just wondering if you could kind of frame what kind of returns you might be seeing either with going in yields or unlevered IRRs. I guess to marry that, how do you sort of think about the funding of those? Is that going to be part of them? Or is that going to be done on balance sheet with a combination of equity and debt? Thank you.

Justin Hutchens:

So, we're seeing a number of opportunities that are really building and particularly in recent months and weeks, include the number of seller institutional -- sellers that are dealing with debt maturities or fund maturities. And we're starting to see the returns become more interesting to us. We're seeing call it, 6% to 8% in place, and it really depends on the type of asset you're buying. If it's something that has more growth, it might be low to mid-6s that can grow to an 8% or better, and then a stabilized senior housing asset in the mid-7s, and we target low double digit and in some cases, even mid-double-digit unlevered IRRs.

Nick Joseph:

Thanks. Maybe just following up on the acquisitions. We obviously saw a medical office M&A deal announced this week. So, curious your interest in growing on the medical office side and how you're thinking about current pricing within that space relative to the IRRs you can get in other asset types?

Operator:

Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Debra Cafaro:

That was a multipart question Juan. Good morning. So, the -- a portion of the Kindred lease for 23 LTACs is up for renewal in 2025. We've talked about EBITDARM coverage being about 0.9 and what's most important, obviously, is what the earnings capacity of these assets is likely to be post 2025 in terms of thinking about the outcomes. Right now, you can see that Kindred has adopted some initiatives for improving the operating performance, which we know are focused really on cost savings, in particular, labor and contract labor. And we're seeing that even in the quarter to date, those are beginning to show early signs of improvement. And so that's how we're really thinking about the 2025 renewal/maturity. LTAC certainly have a pool of qualified operators across the country from publicly traded select to a variety of regional operators, and we're familiar with all of those.

Mike Mueller:

Hi. I was wondering, can you talk a little bit about the pace of development leasing in the R&I portfolio that you're seeing? And has there been any material change in the past three to six months in terms of the pace?

Operator:

Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

Justin Hutchens:

Hi, it's Justin. So first of all, just backing up a little bit, where we always start is evaluating are we in the right markets. And so we've done a lot of work over the past years to make sure that we're well-positioned to benefit from the recovery. If we're in markets that we didn't think we're going to provide attractive growth for our respective assets, we've had dispositions. And we've used that part of the toolbox in terms of making sure that the assets are well-positioned, we've obviously made investments into our communities. And then -- we then have the operator selection and operator selection has been just a regular part of our toolbox. Certainly, shouldn't be deemed as a surprise that we're tweaking and trying to make sure we have the right fit, the best operator really to create value in those respective markets and assets. And to your point, we are pleased with the results we're getting. We had a recent transition. We had a number of things that we worked on to make sure that we could get quick results and that was getting boots on the ground. We have the management teams and the CEOs of the companies in the communities right away. We secured the lead bank so we can start executing on leads right away. We transfer the website. And the early results are good, and we're going to stay close to it and we're really pleased with the execution thus far.

Joshua Dennerlein:

Hey everyone. Good morning. I'm just kind of thinking about the SHOP business as we go forward. How are you guys thinking about pricing power? I understand the dynamic that's going on with the Sunrise timing, but just kind of thinking about just pricing power broadly.

Operator:

Our next question comes from the line of Rich Anderson with Wedbush. Please go ahead.

Justin Hutchens:

Why don't I start with the second part of the question and then Bob will jump in with the first part. So, we have a number of projects that are underway. We have 170 projects that should complete by the end of this year. We started on this endeavor in October of 2022. So, relatively quick execution on a number of improvements across our communities, mostly mid-market focused and also unit upgrades. We do have, obviously, the ability to measure the results. And what we do is we just simply take light communities and compare the results in those that have CapEx versus those that didn't. And where we're seeing outperformance in our communities that have benefited from the CapEx, the early results are showing a 20% plus ROI, but we're also seeing growth across the broader portfolio. So, we're benefiting from the broad-based demand across the portfolio. We're leaning into markets and assets where we want to improve our market position through investment, and it's all really coming together and working for us.

Bob Probst:

In a multiyear investment, to answer that part of the question. And Page 20 of the investor deck, I think, is a good reference here, Rich, because we really started this investment in 2022 last -- really about a year ago. And are looking at completing about 170 projects by the end of this year, and you see the increased redevelopment CapEx spend of $230 million this year as a consequence. We expect that to remain at a higher level next year as we finish out the suite of opportunities. And with the returns just in quoted, we want to continue to invest there. But that will be finite and then over time, come back down to normal. So that's the flow.

Unidentified Analyst:

Hey good morning. Jesus on for Connor this morning. Thanks for having me on the call today. So, just on the equitized loan portfolio, how should we be thinking about the rest of the assets in the mix here? So, how far along is Ventas been identifying and processing the CapEx needs of the outpatient medical assets? A couple of quarters back, you were talking about using a playbook from a previous portfolio. So, I'm just wondering if you can quantify the amount and timing of these investments? And how are these leasing conversations progressing for the portfolio? And just a quick follow-up. Looks like the SNFs, you guys had some pretty favorable cash yields in the assets sold. Any color on the coverage level or remaining lease term on these assets? Thanks guys.

Pete Bulgarelli:

Thanks. So, we're really excited about the portfolio. So far, we have transitioned 32 buildings onto our Lillibridge platform, out of 88. So we've made great progress in the first quarter. As it relates to leasing, we have replaced about half our leasing agents. We've replaced 12 out of 23 leasing agents for people that we think are really going to run with this portfolio. We started this portfolio at 77% occupancy. We just completed our first quarter of running this portfolio. We had an 85% retention rate and we've got 200,000 square feet worth of new leasing in our pipeline. So we're very optimistic. And I'll give you -- just -- to me, it's a fun anecdote. We had this building that we inherited called Eagle's Landing in suburban Atlanta. It's a 45,000 square foot building, it was empty, 0% occupancy when we picked it up. And it's now 30% leased, and we just signed an LOI on another 20,000 square feet in the building yesterday. So, we're going to be at 75% occupancy, very shortly in that one building. So, we're optimistic about the portfolio. As it relates to capital, we are investing some capital to improve some of the infrastructure of these buildings, and we're well underway on those as well.

Michael Stroyeck:

Good morning. Can you just provide some additional color surrounding the decline in occupancy within the MOB portfolio, the info on the type of tenant -- assets seen the decline and just what drove that would be helpful? Thanks.

Debra Cafaro:

Thanks Pete.

Vikram Malhotra:

Thanks for taking the question. Just considering the success you've had with the transitions at holiday. I'm wondering, is there a plan to maybe take another bucket and transition them? Or are there any signs that there's maybe incrementally group that ABC sort of BP -- performance, given how successful the transitions have been -- and just related to that transition, can you also just address where you stand on the Brookdale lease, which I think is due in a couple of years?

Operator:

Our next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Justin Hutchens:

And we certainly track the resolver markets and particularly as it pertains to independent living. But quite frankly, this price volume optimization I've been speaking to has been working for us, and we've seen really both move together price and volume moving together. And so I'd say the pricing power remains significant, and we're pleased to see the pickup in occupancy as well.

Operator:

And our next question does come from Michael Carroll with RBC Capital Markets. Please go ahead.

Justin Hutchens:

Yes, sure. So, we are looking at smaller opportunities to really continue to expand our existing relationships and add new relationships and using a variety of different sources of capital to do that. I mentioned benchmark. That's an exciting new relationship for us. And certainly, we have the capability to do larger transactions as well. So, we see most of what's on the market and a lot of what's not on the market, and we're very interested in expanding in senior housing.

Austin Wurschmidt:

Great. Thanks for taking the question. I just wanted to circle back on the public M&A deal this week. I know you've said now a couple of times you want to lean into senior housing. But just curious, I mean, are you underwriting that transaction? And is it something that you'd be interested in pursuing at this point?

Operator:

I would now like to turn the call over to Ventas' management team for closing remarks.

Operator:

I'd like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's call, and you may now disconnect.

Operator:

Hello. And welcome to the Ventas Reports 2023 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

Debra Cafaro:

Thank you, BJ, and good morning to all of our shareholders and other participants. We want to welcome you to the Ventas second quarter 2023 earnings call. We are pleased with our enterprise results this quarter of normalized FFO of $0.75 per share. This strong result reflects broad-based property NOI growth across our diverse portfolio, with all segments contributing positively and same-store year-over-year cash NOI growth of 7%. Our SHOP communities led the way, as we continued to benefit from the multiyear growth and recovery cycle underway in senior housing. Notably, our U.S. Assisted Living portfolio grew NOI 32% year-over-year. Our Outpatient Medical and Research and our Triple-Net leased portfolios complemented the SHOP growth. We are also reaffirming the full year normalized FFO per share outlook we provided to you earlier in the year. At the midpoint of $2.97 per share, our guidance reflects 5% year-over-year growth and the sixth consecutive quarter of year-over-year growth. At a high level, the key drivers of our normalized FFO per share for the year are consistent with those we shared originally, that is, significant property-related growth approximating $0.29, partially offset by a $0.16 impact of higher interest rates. I’d like to unpack for you some of the recent developments and share some key highlights. We are off to a strong start with a portfolio of 153 properties we took ownership of on May 1 by converting our Santerre Mezzanine Loan to equity. The portfolio consists of over 40% Outpatient Medical buildings, over 40% Triple-Net Healthcare facilities and the balance SHOP communities. There are three key components of our improved outlook for the portfolio. First, we have increased our expectations for annualized NOI from the portfolio to $104 million from about $93 million. This improved outlook is the result of our intense focus, our team’s experience and capabilities, certain positive operating trends and strong early returns. We believe the timing for taking ownership is advantageous and that our experience will help us maximize cash flow from this portfolio over time. Second, valuation, we stated last quarter that we believe the portfolio was worth about $1.5 billion, equal to the debt stack, third-party independent valuation experts now value it at 4% above that level. At our $1.5 billion cash investment basis, the per pound valuation on the portfolio is below replacement cost. Third, we replaced the $1 billion senior secured loan on the portfolio with a permanent capital structure at an attractive all-in rate, further enhancing the portfolio’s FFO contribution and demonstrating another way that Ventas’ strength can drive cash flow improvements on the portfolio over time. In addition, as previously indicated, we are also selectively starting to dispose of certain of the assets and expect to sell about $60 million in SNFs later this year at a mid-8% cash cap rate. So while we have more work to do, we have had good success so far and our cross-functional teams are intensely focused on maximizing the value and the NOI of the portfolio. Looking at our broader enterprise. In SHOP, we continue to strongly believe in and experience the demand driven multiyear growth and recovery cycle. We have runway in front of us to recapture about $300 million of NOI, as we return to pre-pandemic margins and occupancy, and perhaps, exceed that level, because of favorable and improving supply-demand fundamentals we expect over the next three years to five years. With virtually no construction starts in our markets and industry starts at the lowest level since 2011, the over 80 population is set to grow 24% over the next five years. Thus, we are well positioned to continue to enjoy outsized growth. Demand continues to be strong. Our SHOP performance in the quarter was led by U.S. Assisted Living. We benefited from strong RevPOR growth and moderating expense growth as anticipated and our highly occupied Canadian portfolio continued to shine. Occupancy in our Holiday U.S. Independent Living portfolio lagged our expectations during the quarter. These are good assets in good markets, and Justin and his team are taking significant steps to drive performance, utilizing the proven Ventas OI playbook that has been so successful since Justin joined us. Our Outpatient Medical and Research portfolio, which is about a third of our business had another outstanding quarter with nearly 4% year-over-year same-store cash NOI growth. Both Outpatient Medical and Research contributed equally to this good growth and performance, which have been impressive and consistent under Pete’s leadership. Outpatient Medical has now delivered year-over-year same-store cash NOI growth of over 3% in seven of the last eight quarters and year-over-year same-store occupancy growth for eight consecutive quarters. New leasing in the second quarter was up 35% over the prior year. Across our large 10-million square foot research portfolio, our university centered portfolio continues to benefit from a creditworthy tenant mix and a robust pipeline of leasing demand from universities and government institutions with 600,000 square feet leased in the first half to high quality tenants and we are actively engaged in late-stage conversations with multiple large users for over 0.5 million square feet. Finally, quality tenant interest continues to be high in our $425 million Atrium Health/Wake Forest University School of Medicine Development in Charlotte, North Carolina. With recent activity, we are closing in on 80% preleasing even though we are still in the early stages of construction. Moving on to capital raising. We continued to prioritize our liquidity, financial strength and flexibility. We had significant successes in raising $2.4 billion in capital across diverse markets so far this year. These transactions evidence the competitive advantage of our scale and the skill and discipline we have in sourcing attractively priced capital even during dynamic market periods. I am pleased that we are now in a net cash position with over $3 billion of liquidity. Thanks, Bob. We also have an active pipeline of investment opportunities both for Ventas’ portfolio and under the umbrella of Ventas’ third-party institutional capital management platform. In particular, we expect to complete about $0.25 billion of investment within VIM later this year, focused on core outpatient medical buildings and stabilized growing senior housing communities. With its existing capacity and investment objectives, VIM provides a competitive advantage for us as we use our platform to capture opportunities in a disruptive market for high quality assets. Overall, on the investment front, we remain focused on assets with outsized embedded growth potential and high quality stabilized assets and portfolios with good risk reward characteristics. Cap rates continued to show a wide dispersion even within asset classes depending upon the credit profile, growth potential and price per square foot or unit. We see some high quality outpatient medical buildings with strong hospital systems and good credit and life science assets trading in the mid-to-low 5s. While other assets with more garden variety characteristics or risk profiles have gapped out. There is a significant opportunity in front of us to lean into the senior housing growth and recovery story as good assets with challenged financing profiles look for solutions. We are heading into the peak years for senior housing loan maturities through 2025 with over $20 billion in debt coming due. With occupancy still about 500 basis points below pre-pandemic levels and rising interest rates, we are beginning to see significant opportunities to generate higher returns on quality senior housing assets. We are well placed to capture these opportunities with our Ventas OI tools and analytics, our team, our ability to raise capital and our expanding group of operator relationships. Against a dynamic macroeconomic backdrop, we remain advantaged given our size, liquidity and the strong fundamentals across our portfolio. Our asset classes benefit from a compelling demand outlook. While the external environment this year has been unpredictable and volatile, at Ventas we have been laser focused on execution, performance and growth, and delivering returns for our shareholders. Our team has really accomplished a lot across our enterprise and handles every macro and specific challenge that’s come our way with focus and enthusiasm. I greatly appreciate their commitment to Ventas and our stakeholders. Our enterprise momentum is strong. We are capitalizing on the large and growing demographically driven demand across our business and the unprecedented organic multiyear growth opportunity in SHOP and we are pleased to confirm our enterprise normalized FFO outlook for the balance of the year. Justin?

Bob Probst:

Thanks, Justin. I will share some highlights of our Q2 performance, discuss our balance sheet and close with our updated 2023 guidance. Starting with 20 -- with Q2 total enterprise performance, we reported second quarter attributable net income of $0.26 per share. There are notable positive net income and NAREIT FFO impacts in the quarter arising from the equitization of the mezzanine loan and the sale of approximately 24% of our shareholding in Ardent. These impacts were excluded from normalized FFO as previously communicated. Normalized FFO per share of $0.75 in the second quarter was ahead of our expectations and increased 4% year-over-year. Meanwhile, total company same-store cash NOI increased 7% year-over-year, with all segments contributing to that growth, and our equitized loan portfolio had a strong start. A few comments on the proactive steps we have taken this year to raise capital at attractive rates and to manage our balance sheet. The market backdrop is challenging, with rates continuing to increase and the 10-year treasury currently well over 4%. We have leveraged our access to diverse sources of capital, having raised $2.4 billion at a compelling 4.6% cash rate with near-term line of sight to a further $600 million in H2. We tapped into multiple capital markets and geographies, including the U.S. and Canada, raising secured, unsecured bank debt and convertible debt across multiple maturities, as well as raising equity and selling assets. And we held down our all-in costs through 10-year treasury interest rate hedges at 3.37% and two-year pay fixed hedges on floating rate debt at 3.88% that we executed post the SVB collapse. All of these hedges are significantly in the money. The use of these capital sources is refinancing 2023 and 2024 debt maturities and most notably paying down in full the $1 billion Santerre senior secured debt, thereby replacing 2024 maturing debt with a longer duration, more permanent capital structure that is accretive to Ventas. As a result of all these efforts, our balance sheet is in a strong spot. We are in a net cash position with near-term liquidity exceeding $3 billion, which covers our limited maturing debt through 2024 by nearly 2.5 times and floating rate exposure is at 10%, the low end of our targeted range. These are strong proof points of our advantaged access to attractive capital and our skill in using that access to the benefit of our shareholders. Finally, our net debt-to-EBITDA in Q2 improved to 7.0 times versus the 7.2 times we anticipated following the equitization of the Mezz. We are committed to a BBB+ balance sheet and we expect that the multiyear SHOP recovery will continue to further improve our leverage metric over time. I will conclude with our updated outlook for 2023. After a good first half of the year, we are reaffirming and narrowing our initial February normalized FFO guidance of $2.97 per share at the midpoint for full year 2023. On a year-over-year basis, our normalized FFO at the midpoint continues to represent 5% growth on an adjusted basis. Bridging versus our initial guidance, we now expect a positive $0.04 impact from the equitized loan portfolio together with the Outpatient Medical and Research and Triple-Net segments, offset by a minus $0.04 SHOP impact driven by U.S. IL occupancy. A final step in the bridge is a positive $0.02 from proactive capital raising, offsetting a $0.02 headwind from a higher forward interest rate curve and incremental dispositions now included in guidance. Net total company same-store cash NOI year-over-year growth is now expected to reach 8% at the midpoint, 50 basis points above our initial guidance. Please see our investor presentation and supplemental disclosure posted to our website for further guidance assumptions. To close, we are pleased with the results for the first half of the year and we are committed to delivering performance and value for our shareholders in the second half and beyond. For Q&A, we ask each caller to stick to one question to be respectful to everyone on the line. And with that, I will turn the call back to the operator.

Michael Carroll:

Yeah. Thanks. Justin, can you talk a little bit about how widespread the seniors housing weakness was in the IL portfolio? I know in your prepared remarks you sounded like -- it made it sound like the Atria by Holiday portfolio was largely impacted, but 38 assets were where most of it was, is that a fair comment?

Operator:

Your next question comes from the line of Joshua Dennerlein with Bank of America. Your line is open.

Debra Cafaro:

So this is Debbie. Thanks for the question. I would say, we are off to a strong start there. We are -- the NOI expectations have been increased and that’s principally the reason, and that’s really from this intense kind of focus on asset management and integration and making sure we are taking all the steps we can to maximize cash flow and value.

Debra Cafaro:

Oh! Yes.

Debra Cafaro:

Sure. So Pete’s bringing the magic to the MOB portfolio, which is in very early stages and is the largest part of the portfolio. And then the Triple-Net Healthcare portfolio is going well and we are generating additional expectations from there. And I do want to take a minute and turn it over to Pete to talk about some of his early activities and you will get a sense for why it’s going as well.

Operator:

Your next question comes from the line of Jim Kammert with Evercore ISI. Your line is open.

Justin Hutchens:

Hi. It’s Justin. Yeah. The $0.04 we view as recoverable through performance improvements and it’s really all captured in the Holiday portfolio action plans that I described.

Operator:

Your next question comes from the line of Michael Griffin with Citigroup. Your line is open.

Justin Hutchens:

Sure. Yeah. The biggest issue with this portfolio has been occupancy. We have had -- where we have had some successes where we invested the CapEx and that’s been a good driver of price and NOI, particularly occupancy remains a focus really across this portfolio and especially in those markets that we are transitioning. The operators are transitioning to have proven to have a robust sales management platform and have executed quickly in the communities that they have managed for us so far. So we are really excited to for them to get started.

Jonathan Hughes:

Hi. Good morning. Why is the SHOP transition portfolio being done now and not before these headwinds became what seems to be pretty severe? And then the second one, why raise the relatively small amount of equity given the organic delevering visibility from the SHOP NOI recovery that’s expected to drive leverage down nearly a full turn? Thanks.

Bob Probst:

I will take the second one, Jonathan, on equity.

Bob Probst:

If…

Bob Probst:

… I start with the commitment we have to our BBB+ balance sheet, which you know is real. Secondly, the Santerre equitization is 30 basis points levering, ceteris paribus, we highlighted in the last earnings call. As we also emphasized, we are putting a permanent capital structure on that equitized investment and that’s what we have been doing. And that includes equity, includes asset sales, it includes a variety of debt and so it’s really all part of balance sheet management and liquidity and leverage and that’s the rationale.

Mike Mueller:

Yeah. Hi. As it relates to the full year SHOP same-store NOI guidance, are you expecting a second half of the year acceleration or did you consider pulling the top end of the range down?

Operator:

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Justin Hutchens:

Yeah. So on the first point on the occupancy, I am basically just saying we are expecting it to perform consistent with where it performed in the first half of the year in terms of growth supporting 100 basis points year-over-year growth. In terms of the difference in pools, the 468 is obviously performing a little better in the quarter and it’s supporting our original full year guidance. So, therefore, the natural conclusion is there’s probably less performance if you kept those communities in, that’s demonstrated in the $0.04 that we talked about earlier, that $0.04 is really pointing to the Holiday by Atria portfolio, and therefore, the actions we are taking are really to address that performance.

Juan Sanabria:

Hi. Good morning. Two-part question I guess. One, just to follow up on Mike’s and Austin’s question. What is the same-store NOI growth year-to-date for the recast pool? And then secondly, there’s been some discussion on it as well about financial distress in seniors housing. There’s some anecdotes about some concessions or discounting being done on the new customer rates. So just curious what you have seen competitively or maybe some of your operators are doing themselves on the new rate front and if there’s -- if you have seen any of that pressure on the new customer rates.

Justin Hutchens:

In regards to pricing, I can say within our portfolio that our releasing spreads are as good as they have ever been historically. They have been mostly positive to slightly negative even following big rent increases in the beginning of the year. We are in the key selling season now. Clearly, operators are wanting to take advantage of that. So there’s always some kind of price movement that occurs during this period, and certainly, it’s something that we constantly look at and operators look at where can we reprice to make sure we are striking that balance between volume and rate. So I would expect to see movement in certain markets amongst operators to try to compete.

Operator:

Your next question comes from the line of Ronald Kamdem of Morgan Stanley. Your line is open.

Justin Hutchens:

So -- yeah. This is Justin. I will start with the second question first and that’s the change in occupancy. As I have mentioned, what we are looking for with all the integration activities behind the Holiday by Atria portfolio, we are really looking for is key selling season. Key selling season starts in May. June, July, August are going to be particularly strong months. So all eyes are on June and you really don’t know the net impact until the end of the month. When the end of the month came in, it was disappointing. And the way models work, you have to bake in results and so that would flow through the rest of the year. As I mentioned, we have actions underway to address that trending. In terms of pricing, pricing still remained very strong. We didn’t feature it in this deck, because it’s really more of a first quarter phenomenon for us as we have high levels of in-house rent increases. We still see very strong increases on our anniversary. Those are really not -- it’s not a big part of our portfolio, but it’s more independent living, and you generally see around 7% or so in those increases, so very strong. Pricing power is, in our view, is going to continue to be a big opportunity and only gets better as occupancy goes up. We are not even close to having scarcity of value. But what we have is a backdrop that has supply-demand dynamics that supports net absorption in the sector and we are going to play into that with price and volume and we think that opportunity will continue for some time.

John Pawlowski:

Thanks. Good morning. I just wanted to follow-up on that last question there. Maybe I am misunderstanding page 18 in the investor deck, but it looks like occupancy guidance was reduced for the revised same-store pool. So it’s not just Atria issues driving the weakness in occupancy. Are there broader -- is there broader sluggishness in the IL portfolio outside of Atria?

Operator:

Your next question comes from the line of Steven Valiquette with Barclays. Your line is open.

Justin Hutchens:

Yeah. Sure. So I would say, there’s opportunity to keep up with the market. We can’t really point to a big macro reason or even a local market reason in these markets, it really is going to come down to execution. We are doing what we can to make them more competitive. We put new operators in place. We are putting redev CapEx in place. That will help drive pricing, NOI, volume. Atria is very focused on this. The new operators are focused on this. We are all over it. So our intent is to get them back to market and beyond.

Justin Hutchens:

Yeah. Great question. It’s sales execution. One of the things that I noted in the prepared remarks is that, leading indicators have been strong and that’s true in a lot of these communities in a lot of these markets as well. We just need to capture that opportunity. I have confidence in the new operator’s ability to do this. They are excited and ready to get started.

Operator:

Your next question is a follow-up from Austin Wurschmidt of KeyBanc Capital Markets. Your line is open.

Debra Cafaro:

Yeah. So I am enjoying being back in the SNF business, especially as some of the operating trends are getting a little bit better. These are about $135,000 a bed, each of the situations within the Healthcare Triple-Net portfolio that we took ownership of is unique situation and that will change kind of cap rate and per bed valuations. But we are happy with the low 8%s and -- on these portfolios and there’s unique -- part of the value-add of this project is really the experience and the judgment to handle each one of these uniquely and get the best outcome and with these particular sales, we are doing that.

Debra Cafaro:

Thanks so much and I want to thank all of you again for joining us this morning. We are excited about the opportunity ahead of us. We remain convinced of the momentum and the multiyear growth and recovery story and we are all aligned around achieving and capturing that. So we look forward to seeing you soon, and again, appreciate your participation this morning. Thank you.

Operator:

Hello and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

Debra Cafaro:

Thanks, BJ, and good morning to all of our shareholders and other participants. Welcome to the Ventas First Quarter 2023 Earnings Call. I'm excited to speak with you today as we recap an outstanding first quarter underscore the momentum we have across our large and diverse enterprise and reaffirm our full year normalized FFO guidance of $2.90 to $3.04 per share. Our diversified business is unified in serving a large and growing aging population. Within commercial real estate, we are highly advantaged due to favorable demographic demand, the unprecedented organic growth opportunity we are already starting to realize and our scale, liquidity and access to capital. As a team, we are enthusiastic about the future and focused on delivering superior performance. The success we achieved in the first quarter was powered by our high-quality shop business, where the U.S. communities grew 22%, bolstered by the growth of our highly occupied Canadian communities. Our other asset classes are also contributing reliable compounding growth. With MOBs outperforming and our university centered life science R&I business benefiting from strong tenant mix, with significant demand from universities, health systems, investment-grade companies and government institutions. The multiyear growth and recovery cycle in senior housing is well underway. We have already started to capture the significant NOI upside opportunity in our current results. Looking forward, we project an incremental $300-plus million of additional NOI opportunity available from simply reaching pre-pandemic margins and occupancy of 88% in the portfolio. Beyond that target, we believe that above 90% occupancy and higher margins are also attainable because current supply-demand conditions are materially more favorable than they were during the last peak period. With 99% of our shop communities located in markets without competing new supply barriers to new construction starts and our senior housing team using operational insights to collaborate with operators and drive results. These conditions present a compelling multiyear growth opportunity. Turning to capital. The $30-plus billion scale of our platform, our liquidity and our diverse geographic footprint and business model give us access to multiple sources of attractive capital. We remain committed to a strong balance sheet and our BBB+ ratings. Our third-party institutional capital management business, VIM, is also a competitive advantage for Ventas. With over $5 billion in assets under management, VIM provides a way for us to capitalize on attractive investments through cycles. In the current environment, VIM provides us and our VIM stakeholders with interesting investment opportunities. Overall, on the investment front, we're focused on assets with outsized embedded growth at or below replacement cost pricing and high-quality stabilized assets and portfolios with good risk reward in a variety of economic conditions. Now let me spend a minute on results. First quarter normalized FFO was $0.74 per share with year-over-year total company same-store cash NOI growth of over 8%. Our performance was fueled by significant property NOI growth led by SHOP. Pete Bulgarelli and his team once again delivered excellent MOB performance, generating our seventh consecutive quarter of year-over-year occupancy growth and industry-leading NOI margin. As well as extending our track record of over 3% same-store NOI growth to six of the last seven quarters. Now let me touch on some other key highlights of our enterprise. Our non-property strategic investments continue to generate value. We just closed on the partial sale of our equity investment in Ardent Health Services, yielding approximately $50 million in total proceeds. This transaction is a testament to our partner, Sam Zell's ability to make outstanding investments, attract quality investors, and find excellent management teams. The price represents a greater than 4x equity multiple on Ventas' original investment basis. We retained an approximately 7.5% stake in Ardent with an implied valuation of $150 million. On May 1, we completed our previously announced plan to take ownership of the Santerre portfolio, consisting of MOBs, shop communities and triple net leased health care facilities. We believe that the conversion of our cash pay mezzanine loan into real estate ownership should produce FFO within our previously announced guidance range and that the value of the assets at March 31 approximated $1.5 billion, which is the sum of the debt stack. Our experienced team is now focused on maximizing both the value and the NOI of the portfolio over time. It's important to realize that the expected FFO contribution we are forecasting from this loan to own is substantially consistent with what we would have generated if our mezz loan had been paid in full at maturity, and we reinvested the proceeds and debt pay down. Our strong ESG practices also drive value for Ventas' stakeholders. We were proud to receive the 2023 ENERGY STAR Partner of the Year sustained excellence in Energy Management Award, the highest honor awarded by ENERGY STAR. We are also committed to best-in-class corporate governance practices and are proud of the excellence independence and diversity of our Board. Finally, we were honored to recently celebrate Ventas' 25-year anniversary. I want to publicly thank all my Ventas colleagues and Board members, past and present, partners and stakeholders, including those of you listening today, who have made the significant milestone possible. With our momentum and a cohesive experience team at Ventas, we are optimistic about the prospects for our next 25 years. And now I'll turn the call over to Justin.

Bob Probst:

Thanks, Justin. I'm happy to report a strong start to the year with results ahead of our expectations. I'll share some highlights of our Q1 performance, discuss our balance sheet and close with our reaffirmed 2023 normalized FFO guidance. Starting with some highlights from our office segment. Our Medical Office business outperformed once again in the first quarter with same-store cash NOI growth of 3.1%, Ventas' MOB NOI growth and margins are best-in-class. Meanwhile, our university-based R&I same-store cash NOI increased over 3%, adjusting for $1 million of holdover rent received in the prior year. In terms of overall enterprise performance, we reported first quarter attributable net income of $0.04 per share. Normalized FFO per share in Q1 was ahead of our expectations at $0.74, led by property strength across the business, with total company same-store cash NOI increasing 8.1%. Q1 normalized FFO increased 4% year-over-year, adjusting for HHS funds received in the prior year. The year-over-year growth is largely explained by excellent SHOP NOI growth, partially offset by higher interest rates. Excluding the year-over-year impact of higher interest rates on floating rate debt, grew 11% in the first quarter. Now a few comments on our continued focus on financial strength and flexibility. We have the benefit of scale, liquidity and access to diverse forms of attractive capital. And we have an enviable multiyear organic cash flow growth opportunity. These strengths were evident in significant proactive measures taken so far this year. Some examples, we've raised nearly $1 billion already this year from diverse capital sources at attractive rates through a combination of senior loans, secured financing and asset sales, and have already substantially completed our 2023 refinancing requirements. We've now turned our focus to forward maturities. Last month, we proactively tapped the Canadian bond market upsizing after strong demand to a CAD600 million five-year senior note issuance at 5.398%, with proceeds principally used to repurchase our first tranche of debt maturing in April 2024. In addition to raising new funds, we're actively managed interest rate risk in a dynamic rate environment. Notably, in March, we executed 400 million of pay fixed, two-year interest rate swaps and at an attractive rate of 3.79%, improving our floating rate debt exposure by 160 basis points to approximately 10% in Q1 at the low end of our 10% to 20% target range. We have robust liquidity of 2.4 billion, increasing to over 2.6 billion when including additional asset sales expected in 2023. Our leverage at Q1 was 6.9x net debt to adjusted EBITDA, which was consistent with the prior quarter. Cash flow growth from our unprecedented organic NOI growth opportunity remains the most powerful driver to return to our pre-COVID 5x to 6x leverage target. A few comments on our capital plans vis-à-vis center, we expect to fund repayment of the nonrecourse senior loan which has been extended through June of 2024 on a long-term basis over time through a variety of capital sources, including asset sales. We remain committed to a strong balance sheet and our BBB+ credit rating. I'll conclude with our 2023 outlook. We are reaffirming our previously issued normalized FFO guidance for full year 2023 and at $2.90 to $3.04 per share or $2.97 per share at the midpoint. As a reminder, this normalized FFO range represents outstanding year-over-year organic property growth led by SHOP, partially offset by higher interest rates. We've also reaffirmed our enterprise and segment level same-store cash NOI guidance ranges. Two points in our reaffirmed guidance that I'd like to underscore; first, our current normalized FFO guidance range on Santerre is consistent with our prior range in February, but with a different P&L composition. Taking ownership of the Santerre portfolio on May 1, has the effect of increasing NOI from the assets as well as higher interest expense from the senior debt. Second, normalized FFO guidance also now incorporates 0.02 of dilution from the proactive refinancing in Canada, which was not included in prior guidance. A final thought on normalized FFO phasing, we expect FFO in the second quarter of 2023 to be roughly stable to the first quarter FFO of $0.73 when adjusted for the $0.01 triple net catch-up cash rent collection in Q1. Sequential growth in SHOP is offset by higher interest rates. As the key selling season and shock kicks in and interest rates plateau, FFO growth is expected to pick up in the balance of 23. To close, we began 2023 with a strong start. The entire Ventas team is enthusiastic about the future and focused on delivering superior performance. For Q&A, we ask each caller to stick to one question to be respectful to everyone on the line. And with that, I'll turn the call back to the operator.

Nick Joseph:

It's actually Nick Joseph here with Michael. Just maybe on the Santerre portfolio, you talked about maximizing value and NOI over time. Just hoping you could quantify the opportunities that you see with the portfolio and how operationally you can get there?

Operator:

Your next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Bob Probst:

Sure, Nick. Well said. So $0.74, I would definitely highlight the penny on the triple net catch-up brand. So that's $0.02 of outperformance really across the property portfolio. It was general strength relatively across the board, and hence, the 8% same-store growth. So, it was broad-based strength, which we're feeling good about.

Jim Camrick:

Thinking about the progression for the shop NOI recovery, $300 million plus. Is that still fair to say that's a three- to four-year type objective? And what capital might be needed to achieve that in terms of a little bit higher occupancy and margin, if any? Just trying to think about the flow-through of that NOI potential.

Operator:

Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

Debra Cafaro:

This is Debbie. Thanks for the question. I would say that we're really focused on maximizing the value in the NOI of all the assets, including that portfolio. As I mentioned, the vast majority of that are SNFs, they were affected by COVID, but I will tell you that they have -- SNFs are having some positive trends a lot of those SNFs are in states with good Medicaid reimbursement increases that are generally considered attractive states. But I'll also tell you, we haven't been shy in the past about selling nursing homes. So you can draw your own conclusions there.

Conor Siversky:

Quickly on the MOBs and the Santerre portfolio, there's a note in the deck referencing the Lillibridge playbook. Could you provide any indication or expectation as to how much CapEx could go into these assets? And then what you expect the occupancy ramp to look like?

Debra Cafaro:

And Pete, maybe you could just address kind of the pyramid of how you've attacked our portfolio to generate those industry-leading kind of margins and retention and so on. There is a playbook of a pyramid.

Conor Siversky:

Okay. And then one quick follow-up, if I may. Justin had mentioned that the yields on senior housing assets are pretty sticky in the current environment. So as you're addressing this select acquisition pipeline, I mean, could we expect to see more MOBs within that pool?

Operator:

Your next question comes from the line of Steven Valiquette with Barclays. Please go ahead.

Justin Hutchens:

Yes. Sure. Good question. So we're really pleased that we gave full year guidance this year, and we're not getting into the descriptions around our performance expectations in each quarter. Last year, in terms of occupancy growth, it's pretty solid. It was even more in the prior year. I did mention in my prepared remarks that we have an aggressive occupancy ramp that we're expecting in support of our performance expectations, the key selling season starts now. So -- and we're well positioned, we think, to play within that. So we'll see how that plays out.

Justin Hutchens:

Yes. Canada has an absolute much higher occupancy at 94% although they're still growing. And so they do experience a key selling season similar to the U.S., but they're working off of a much higher base.

Michael Carroll:

Justin, I wanted to follow up on the 100 CapEx projects that you mentioned over the past few quarters within the SHOP portfolio. I'm not sure if you highlighted the yields on those deals? And do you take those projects out of same store, I guess, if not, is there an earnings drag coming in through the portfolio right now as you're doing those renovations?

Bob Probst:

As they're not particularly disruptive to the community.

Operator:

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Debra Cafaro:

I was here for 24 plus.

Debra Cafaro:

So, I'm going to get Bob to answer the first, and that's on a status quo basis.

Debra Cafaro:

And then in terms of the senior housing, I would say, as I mentioned, the vast majority of the NOI is coming from these large-scale communities, which are all rental based and they're in good markets. And so those are -- some people call them rental CCRCs, other people call them senior housing communities. It's a nomenclature. But they're very large communities with high replacement costs in good markets, with a pre-existing operator that we have. And so that's the answer to that question. Then on the SNF, there's about 5,000 beds in the health care triple-net portfolio and -- in terms of coverage, we want to -- we'll do that at the appropriate time once we feel confident in the reported operating results and at the appropriate time, consistent with our policies.

Tayo Okusanya:

Yes. we better say happy birthday, happy 21st as well. Life Sciences, I'm just kind of curious, again, during the quarter, with the same-store numbers, kind of large increases in same-store apex, some occupancy pressures as well. Just kind of talk us through some of kind of what happened specifically during the quarter. I think it's a portfolio where I think in the past few quarters have got occupancy losses. So just trying to understand exactly what's happening and what one can expect going forward.

Tayo Okusanya:

Got you. And when do all these one-timers normalize out so we can get to kind of true underlying strength, and also any commentary about occupancy as well would be helpful just kind of given some of the occupancy declines in the past few quarters?

Peter Bulgarelli:

Yes. And we have had some office tenants decide either not to renew their lease or downsize. As we said in previous calls, it's an opportunity in some cases for us to transition to lab space, and we're seeing good momentum in those lab conversions. So we're optimistic about that.

Ronald Kamdem:

Just a quick one. Looking through the presentation, just the two things that jumped out. One was the pricing power slide. I think you guys have 11% plus rent increases. I think last quarter, you added 10%. So number one, I might sell to take that, that pricing is actually accelerating going into the selling season? And then number two, if I may, if I look at the NOI opportunity slide, you're talking about a potential long-term target now of 1 billion in NOI. I think previously, that number was 900 million. Maybe can you just walk us through what's driving that delta?

Bob Probst:

Sure. Yes. We chose to simplify the methodology, honestly, to determine what the potential is after a lot of questions around what the assumptions are and basically just say, look, pre-COVID -- occupancy was 88% and margins where NOI margins were 30% on the portfolio at that time. And hence, to get to that level, what's the NOI opportunity, and that's the 300 million. And on the portfolio today, that equates to $1 billion of NOI. And so it's really both simplification and aligning with some fear disclosure, frankly, that drives the change.

Ronald Kamdem:

Great. And what about...

Justin Hutchens:

Yes, I can jump in, Justin. So, on the pricing, you mentioned the slide we're showing that the contributors we have rent increases over 11%. And by the way, we have over half of our residents that will have contributed to those rent increases now at this stage. So that's great, care pricing up 9% year-over-year and the street rates up. So I mentioned RevPOR is up 6.8%. We have all of these positive contributors to that. There's a little nuances, for instance, in care pricing. Last year, there was a big spike in agency and therefore, a move to accelerate the growth in care pricing. In response to that, we're comparing to that number on a year-over-year basis. And so it's just normalized a bit. Street rates, these are very strong. They're also contributing to our positive re-leasing spreads that we've had in the first quarter where our new move-ins are paying more than people moving out on the same unit basis, which is great. We would also point out that we continue to expect to see that improve over time. As Debbie mentioned, there's a really strong supply/demand backdrop. And one thing that should happen in time is those street rate growth rates should start to match closer to the in-house rent increases, maybe in some cases, even getting ahead. We're just not there yet. There's still a lag. It's definitely growing. The market is supporting the higher pricing at the street rate level, and we would expect that over time to become even better.

Unidentified Analyst:

This is George on for Vikram. Could you provide more color on CapEx for the remaining of the year? And any anecdotes of benefits to senior housing ramp from it?

Operator:

Your next question comes from the line of John Pawlowski with Green Street. Please go ahead.

Justin Hutchens:

Yes, sure. So, we've -- first of all, expenses are exactly on track to where we expected a 5% growth. Within that, the labor is the biggest piece is 60% of the expenses. We're pleased to see that the agency cost has come down. That's down to 3.3% of total labor, which is the lowest it's been -- so you have that happening. And then as you -- the net hiring has been improving and you're bringing in new people, you're onboarding, you're paying for the onboarding, so there's an offset that you see. And when I said that, there could be opportunity for improvement -- really what I'm speaking about is the opportunity for agency to continue to trend down, if it does, and then getting past the period where you have this onboarding costs. And so -- we'll see how that plays out. We certainly haven't changed any guidance or anything like that. And so far, we're right on track with the 5% overall.

Debra Cafaro:

Yes. It's higher than the 5%. So that's consistent with what we're seeing in the macro environment as you look at wage inflation, which is improving, but is improving relatively slowly. And so the benefit that we're seeing overall in labor is that the year-over-year growth rates are moderating considerably in the aggregate our ability to predict them has been very good, I would say. And within that agency is coming out at a good pace, -- and we're getting that installed base, which is very positive, but we're assuming there is reasonable wage unit inflation in that installed base. But we're still coming out ahead, and that's the key point. And as Justin said, your care is better in your culture and your communities better as you get a higher installed base. So I hope that answers your question.

Austin Wurschmidt:

Just wanted to hit on the shop occupancy again, I'm curious, I know you guys had expected some seasonality, but did the level of sequential occupancy decrease in 1Q surprised you at all given how strong the leading indicators were to start the year? And then I'm just curious if there were any move-outs concentrated with any segment or region of the portfolio or pushback related to rent increases that drove some of that?

Operator:

With that, I'll turn the conference back over to management for any closing remarks.

Operator:

Ladies and gentlemen, that will conclude today's conference. Thank you all for joining. You may now disconnect.

Operator:

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas Fourth Quarter 2022 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the conference over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

Debra A. Cafaro:

Thanks, BJ, and good morning to all of our shareholders and other participants. Welcome to the Ventas fourth quarter and year-end 2022 earnings call. We are pleased to deliver a strong fourth quarter, which reflects the attractive operating and financial results of our diverse portfolio and the benefits of our key strategic initiatives. Fourth quarter normalized FFO was $0.73 per share, fueled by accelerating SHOP growth at 19%, record Medical Office Building performance and profitability from our third-party institutional capital management business, VIM. The demand fundamentals that support our business are strong and getting stronger across all Ventas asset classes, which are unified in serving the nation's large and growing aging population. After significant capital recycling and asset management actions, our diverse portfolio of high-quality senior living communities, Medical Office Buildings, R&I labs and other health care assets is well positioned to capitalize on these demand trends. In 2022, Ventas began what we believe will be a multiyear growth and recovery cycle led by SHOP and supported by favorable supply-demand fundamentals, actions we've taken in the portfolio and our post-pandemic rebound. In senior housing, there are compelling supply demand tailwinds. The over-80 population will grow at record levels in 2023. Yet, we continue to see construction as a percentage of inventory at its lowest level in five years and substantially better in Ventas markets. Over the last few years, we have taken decisive actions to position our SHOP portfolio to capitalize on this exciting demographically-led demand. We strengthened our team, enhanced our powerful analytic capabilities, rolled out the Ventas OI platform, sold, transitioned and acquired properties and invested capital in communities with strong market fundamentals, all to win the recovery. Benefiting from these trends and actions, we are well underway to recapturing the post-pandemic SHOP NOI opportunity. Our portfolio has already enjoyed significant occupancy and NOI growth from the COVID trough, and we see even more recapture potential ahead of us in the coming years as we first seek to reach 2019 performance levels and then hopefully exceed them. Bob also took significant steps to maintain our financial strength and flexibility and improve our balance sheet and liquidity. These actions garnered three positive credit rating moves in 2022 and reduced our 2023 maturities to a very manageable level. In 2022, we also continued our long history of value creation with $1.2 billion of new investments, often with key partners. These include the $425 million Atrium Health/Wake Forest University School of Medicine Development in Charlotte, North Carolina; $200 million in senior housing investments, including the acquisition of Mangrove Bay and a new development with Le Groupe Maurice, both in very attractive markets; and $300 million in MOB investments highlighted by the acquisition of an 18-property MOB portfolio leased to Ardent. Finally, we remain committed to our values, including our ESG leadership. We accelerated our progress in 2022 as we further diversified and elevated our Board and made a bold commitment to achieve net zero operational carbon emissions by 2040. These efforts will be advanced under the leadership of our General Counsel, Carey Roberts, who has the passion and experience to move us forward. Now, we enter 2023 with strong momentum. Today, we are pleased to introduce full year normalized FFO guidance representing 5% growth at the midpoint. We are projecting unprecedented organic growth in our portfolio, once again driven by SHOP, and complemented by the positive compounding contributions of our office business led by Pete. We also will continue to build out our VIM business, which already has over $5 billion in assets under management, and mine our non-property investments for value as evidenced by both the pending Ardent equity stake sale and our recently completed Atria Glennis software deal while we also seek to optimize the outcome in our Santerre loan. Finally, we will continue to invest capital wherever we find compelling opportunities to sustain and reinforce our new cycle of success. The macroeconomic assumptions underlying our forecast include some slowing of the economy, moderating inflation, softening labor conditions, and continued, albeit less aggressive Fed tightening. Against that backdrop and in many other likely scenarios, we believe our business is relatively advantaged because demographic demand for our assets is large, growing and resilient, we have demonstrated strong pricing power in SHOP and softening economic conditions should benefit our operations in multiple ways. One final note. In January, Justin assumed the additional role of Chief Investment Officer at Ventas. I know you want to join me in congratulating Justin, and I want to thank him for his continued leadership, which has been instrumental in our success and positive outlook. Working with our strong teams, Justin will use his experience and insights to create value by making good investments across our asset classes, enhancing the connection between our investment activity and business operations and deploying the powerful Ventas OI platform across our organization. And now I'm happy to turn the call over to the man himself. Justin?

Bob Probst :

Thanks, Justin. I'm going to share some highlights on our fourth quarter performance, touch on our balance sheet and close with our 2023 outlook. To start, we are proud of the fourth quarter results. Throughout 2022, we were accurate in our forecasts and followed our mantra to do what we say. In the fourth quarter, normalized FFO was $0.73, at the higher end of our guidance range. Fourth quarter property growth was particularly strong, with total company and SHOP same-store cash NOI growth of 8.5% and 19.1%, respectively. I'd like to give a shout-out to Pete Bulgarelli and our Office team. Office had a great year, growing same-store cash NOI by 3.8% in fiscal year '22. And that Office result was led by our MOB business, which posted some outstanding metrics, including strong leasing performance with same-store year-end occupancy of 92%, the highest level since 2017. Tenant satisfaction measures exceeded 93% of all MOBs. Same-store operating expenses increased just 2.6% year-on-year, well below inflation. And as a result, full year '22 MOB same-store cash NOI grew 3.4%, the highest on record for the company. R&I also posted attractive organic performance, growing same-store cash NOI by 5.1% in the full year '22, led by leasing at higher rates and solid expense management. I'd highlight two other items in the fourth quarter. We earned our first promote approximating $0.02 per share as a general partner of the Ventas Fund, which was $0.01 better than our guidance. We're also eligible to earn further promotes in 2023. Second, we recognized a $20 million noncash CECL allowance on our $486 million mezzanine loan investment to Santerre Health Investors. Interest coverage on the loan has declined through year-end, but the loan remained fully current through January 2023 and full interest is expected in February. Next, a few comments on our balance sheet. Over the last two years, we enhanced our portfolio and strengthened our balance sheet through $1.3 billion in asset dispositions and loan repayments with proceeds used to reduce near-term debt. We also issued $2.7 billion of new debt in that period, extending duration at attractive pricing before the run-up in interest rates. As a result, we have just 4% of our consolidated debt or under $500 million coming due in 2023. And we've made good progress towards this refinancing, having locked in all-in cash rates of 4.2% on nearly 2/3 of this requirement. Consistent with our long-held risk management approach to maintain 10% to 20% in floating rate debt, 12% of our consolidated debt was floating in the fourth quarter. We have plans to issue $500 million in new secured fixed rate debt with proceeds designated to pay down floating rate debt in 2023, which would bring our floating rate debt to the lower end of our targeted range. We have significant liquidity of $2.4 billion at year-end 2022. And finally, our net debt to adjusted pro forma EBITDA improved by 30 basis points to 6.9x in the fourth quarter, with SHOP NOI growth steadily moving that ratio back toward our pre-pandemic target range. Last but not least, I'm extremely pleased to reintroduce full year 2023 guidance. This is tangible evidence that we are in a post-pandemic world, and our guidance demonstrates the exciting post-pandemic organic property growth opportunity for Ventas. The key components for our '23 guidance are as follows

Joshua Dennerlein :

I just want to ask about that Santerre Health Investors loan. Could you just provide more background why the allowance? And then, Debbie, I think you mentioned you're looking to optimize the outcome. So kind of just help us think through like the outcomes that you're expecting.

Operator:

Our next question will come from the line of Vikram Malhotra with Mizuho.

Justin Hutchens :

It's Justin. I'll start, and Bob you probably want to jump in. First of all, it is a large initiative. We have 100 communities that are in the process of being refreshed. We do believe that it will be impactful. It's about $1 million of pop. It should help improve performance. Certainly, we've considered that when we gave our guidance for 2023. And there's more to do. But at this stage, we picked our highest priorities and we've been executing aggressively. So we look forward to these projects coming online during the key selling season.

Vikram Malhotra :

And sorry, could you just clarify this $100 million, is that this year or is it spread out? I'm just trying to tie it back to ultimately the FAD growth coming through because if these are multiple years of $100 million, then maybe the FAD growth gets depressed.

Debra A. Cafaro :

And it's a multiyear NOI impact as well we will see going forward. We'll be investing into this multiyear recovery in senior housing and the supply-demand fundamentals in our market.

Ronald Kamdem :

Just a quick two-parter. Thanks for the presentation. It was super helpful. Two things. The first was just the leading indicators and the lead generators being pretty strong, both in 4Q and January. Maybe just a little bit more color on what that's capturing conversion rates. Just thought that was really interesting. And then the second piece is, I think on the end of the presentation, you talked about sort of a $900 million SHOP NOI opportunity with all things said and done. If you take a step back, just curious how you guys are thinking about sort of the margin profile at that point versus pre COVID?

Justin Hutchens :

Sure. So in regards to leading indicators, you've noted they're looking really good. We've had, we think, the highest fourth quarter lead volumes on record in terms of leads. Movements were solid. You noted the conversion rate. We had an operator that put in place a website upgrade intra month in December. It slowed down leads, a bit slowdown move-ins. Those move-ins have since recovered in January already, so no worries there. We expect to follow normal seasonal trends. And so you'll see move-outs be a little bit higher. We've had -- it's normal to have additional clinical move-outs. It's normal to have additional financial move-outs. And then so far in January, we're off to a strong start with move-ins at 104% of 2019 in the U.S., 111% in Canada. So all looking pretty good from a leading indicator standpoint. In regards to the margin question, there's 1 thing that we're all excited about. Obviously, Debbie noted it, I noted it, and that's the pricing power. That's really helped to accelerate our margin expansion. Occupancy growth does as well. So we do anticipate margins to continue to expand. And also, to Debbie's point, we're anticipating and hoping to get back to that 2019 level again. And margins will -- should settle out but also should continue to grow because of the strong demand for the senior housing sector.

Michael Carroll :

Just regarding to your SHOP same-store growth forecast. Is there a meaningful difference between the legacy same-store assets versus the new properties coming in, in terms of growth? I mean, I think that a lot of the new stuff being added from new seniors, so is the growth profile of the new senior assets different than the legacy same-store portfolio?

Bob Probst :

Yes. Mike, I'd say, first off, all the pools, all of the operators are contributing really attractive growth across the board literally as you look at it. This is broad-based growth in recovery and improvement across the portfolio. And you mentioned new senior, new senior importantly part of that contribution. And when you look at the fourth quarter of '22, you'll see almost the same asset pool, and that growth in the fourth quarter reflects that broad-based strength.

Operator:

Your next question will come from the line of Steve Sakwa with Evercore ISI.

Justin Hutchens :

Yes, that's a great question. So let me start with describing the 300 basis points, and I want to relate it to seasonality. When we grew 300 basis points in 2022, we had two things helping that growth metric. One was that Q1 of '22 performed better than typical seasonality. So very strong start in '22. There really wasn't much clinical activity at all. And so that was helping us. It was also comparing to a prior year, Q1 of '21, that was pandemic impacted. So you have a stronger start in '22 and you have a favorable comparison. Moving ahead into '23, I mentioned in the prepared remarks that we're experiencing normal seasonality. So we have a lower starting point in Q1, so effectively Q1 has lower occupancy than Q4. It's in line with normal seasonality. Typically, you see about 100 basis points change downward from Q4 to Q1. And then what we'll see this year is an acceleration in growth. And as I said, we're expecting more move-ins. We're expecting more net move-ins. So in fact, the growth rate in '23 will be stronger. The effective growth rate is stronger, but the average overall is at the midpoint of 150 basis points of growth.

Justin Hutchens :

Right, exactly.

Jonathan Hughes :

I appreciate the full year guidance and the confidence in the seniors housing recovery that providing that outlook conveys. But I was hoping you could give us the SHOP NOI growth guidance breakdown between the U.S. and Canada. Canada seems to have been where some of the upside versus guidance came in the fourth quarter. But I know there are price restrictions and some providence is north of the border. I'd just that breakdown between the U.S. and Canada for this year would be helpful.

Bob Probst :

I would just -- I'd emphasize 95% occupancy in Canada and we delivered 12% growth in the fourth quarter. That business is performing well. But obviously, the U.S. is the engine driving the overall midpoint.

Michael Griffin :

Justin, in your conversations with your operating partners, can you give us a sense what the better performing partners are doing right on the labor side of the equation? And then conversely, for those that might be underperforming, what the plan is to bring them sort of up to snuff? And ultimately, if they're not performing, could you look to transition that maybe to some of your better partners? But any expansion there would be great.

Operator:

Your next question will come from the line of Juan Sanabria with BMO

Debra A. Cafaro :

Well, I mean start out with the principle that FAD CapEx is really routine recurring non-income producing kind of steady state activity. And then Bob will go further.

Juan Sanabria:

Any dollar guidance for total CapEx spend then?

Debra A. Cafaro :

You've got something out of him, Juan.

Tayo Okusanya :

A quick question on the guidance side. Again, very strong underlying fundamentals built in '23. I'm trying to understand a little bit more about some of the kind of the drags on the numbers, if I may use that word, that results in the guidance. And specifically on the interest and FX side, trying to understand the FX assumptions being made and quantitatively how much of a drag that is on earnings this year, in case FX becomes better than expected? And also trying to understand the assumptions around the $500 million of refinancing that's baked into the numbers, exactly what kind of rates are you expecting to refinance that at?

Otayo Okusanya :

And specifically for the $500 million, could you give us a sense of what the new rate is going to be versus the old rate?

Bob Probst :

Yes, it depends on the 10-year. In the 5s would be a reasonable expectation, depending on where the 10-year is.

Peter Bulgarelli :

We're feeling good.

Nicholas Yulico :

I just also in terms of the guidance, a question on the $300 million of capital recycling proceeds that you're getting. If you could just give the breakdown on the loan repayments versus property dispositions in that number. And as a second on that would just be how we should think about your using those proceeds? I mean, are you earmarking for debt paydown, acquisitions or development? Any color there would be helpful.

Operator:

Our next question will come from the line of Rich Anderson with SMBC.

Debra A. Cafaro :

Good. I mean, it all starts with the demand side, as you know, with the record 80-plus population growth in 2023. In terms of supply, I would analogize where we are to a little bit after the financial crisis because during those years, construction and development starts, obviously, were paused for a period of time because of the great financial crisis. And this is similar really to what we're seeing from kind of the pre-COVID period that you referenced but then also kind of during COVID and then continuing now because costs are still quite high, particularly capital costs. I mean, construction loans are extremely expensive now. And so the costs remain, for the time being, very high. And there's -- would tend to be because starts are really low in our markets, Justin can give you the specifics. But we believe we have a good multiyear window here where we know kind of the demand profile and can capture that while, at the same time, deliveries should remain muted, very muted because they'll be seeing the effects, again, much like we did after the financial crisis, where deliveries were low. And I think at that point, occupancies got up in and around the 92% level. And that's really where we want to be able to see if we can get back to that kind of 92% level in this nice window that we have and kind of that's the game plan.

Operator:

Your next question will come from the line of Mike Mueller with JPMorgan.

Justin Hutchens :

So it's Justin. So I'm going to go back to what I was just talking about, which is demand. So another part of this is just affordability in our markets, which is very high and there's demand for the services. So you have the combination of people needing the service and people having the ability to pay. And with numbers that we've never seen before in terms of demand at the doorstep. So that should be supportive of pricing power moving forward. There's always some sensitivity relative to inflation and CPI. But what you're really working to do to generate earnings growth is to create a spread. And we've been effective in doing that in this cycle.

Operator:

Your next question will come from the line of Derek Johnston with Deutsche Bank.

Justin Hutchens :

It's Justin. You're absolutely right. Agency was close to zero pre-pandemic. Obviously, there's been big shifts in the labor market since then. And we've had it enter our sector as others. We've managed to bring it down, which you've noted. In our 2023 guidance, we assume lower agency than we did in '22 year-over-year. And so that's supportive of our moderating expenses. But we are, in fact, carrying that Q4 run rate, which is like 2% of revenue forward throughout the year. There is -- I mentioned in my prepared remarks the guidance range. It assumes lower expenses and more occupancy at the top end, works the other way on the bottom. So we've incorporated that into our thinking. But we're anticipating that agency remains relatively stable.

Operator:

Your next question comes from the line of Steven Valiquette with Barclays.

Justin Hutchens :

Yes. So great points or observations. I'll start with the clinical side. The clinical side, I would just describe as kind of normal. It's certainly wasn't representative of the headlines that they were around flu. It's very normal kind of typical seasonality in both December and so far in January. We have had financial move-outs, which is also typical around this time because I mentioned over half of our residents received their in-house rent increases. And we've also mentioned they're relatively high this year as well. So that's contributing to the move-out trend and which is normal. That's kind of the point I was trying to make, and we're -- in that regard, we're kind of back to normal trends. And then from a move-in expectation standpoint and net move-in expectation standpoint, we expect those to continue to improve due to the demand at the doorstep.

Tao Qiu :

So Justin, the SHOP guidance assumes a 6% RevPOR growth, which is kind of slowly -- slightly lower than the higher single digit and even 10% in-place rate increase that some senior housing operators have been talking about. So could you talk -- could you comment on the expectation on the moving rates in the current promotional activities? Are you still expecting the positive re-leasing spreads for 2023? And as a quick follow-up, on the Colony loan, how much of the $50 million annualized interest income did you take off the guidance?

Debra A. Cafaro :

And then on Colony, I would say there's a range of outcomes basically bracketing the FFO contribution in 2022.

John Pawlowski :

I just had a follow-up question on the mezzanine loan. Can you remind me what loan-to-value range your mezz tranche set out in the capital stack when you originated the loan? And then can you give us a sense for what magnitude of NOI increases are needed at these properties to fully service the debt? Because I believe the interest rate is LIBOR plus 640 bps and that's really, really painful for cash flows. And so just any thoughts on how you got comfortable about not taking a larger impairment would be helpful.

John Pawlowski :

On the timing mismatch. If rates stay where they are, when will NOI operating income start to fully cover the loans?

Operator:

Our final question will come from the line of Dave Rodgers with Baird.

Justin Hutchens :

Yes. So first of all, we're fortunate to have a wide variety of capital sources to further acquisitions. We'll prioritize our key asset classes, senior housing, obviously, is one of those, life science, Medical Office as well. The market itself is not normal. There's exceptions to this, but there tends to be fewer market participants right now. The deals that that we're seeing are getting repriced. Again, there's exceptions to that. Pricing could be unclear on the stabilized assets. But we remain very interested in expanding the portfolio and growing in our preferred asset classes.

Debra A. Cafaro :

Thank you so much. I want to sincerely thank everyone for joining us on the call today. We really appreciate your interest in the company. We look forward to seeing you. We're all very optimistic and aligned around our 2023 momentum and opportunities and are ready to get after it. Thank you very much.

Operator:

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas 2022 Third Quarter Results Conference Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. [Operator Instructions] At this time, I would like to turn the conference over to BJ Grant, SVP of Investor Relations. Please go ahead.

Debra A. [Author ID1:

at Mon Nov 7 22:16:00 2022

Bob Probst:

Thank you, Justin. I’ll start with an overview of our third quarter office and enterprise results before closing with our outlook for the fourth quarter. Starting with office, same-store cash NOI grew 3% year-over-year, which represents a beat to our third quarter guidance. MOB has led the way with growth of 3.4%, driven by 90 basis points of occupancy gain. Quarterly retention was strong at 93% in the quarter, supplemented by new leasing exceeding 200,000 square feet. Medical office same-store occupancy is now at 91.8% and has increased year-on-year for five straight quarters. MOB same-store quarterly performance has now exceeded 3% for four quarters of the last five quarters. For R&I, year-to-date, same-store cash NOI performance is a strong 4.8%, while we posted same-store growth of 1.5% for the third quarter. As we told you earlier in the year, we’re in the process of converting space into labs where we have seen opportunities from tenant departures as a result of COVID. At the enterprise level, despite the market volatility, we’re very pleased that we once again delivered results that were in line or better than our original guidance ranges. Our total property same-store cash NOI increased 4.8% year-over-year, at the high end of our guidance range. And that result was led by SHOP, where same-store cash NOI grew 13% year-over-year, as Justin just described. But the SHOP P&L top to bottom, where we called it a quarter ago. Q3 normalized FFO of $0.76 per share is right in line with our guidance. And as a reminder, we received $0.05 of HHS grants in the quarter, which were included in our initial guidance. From a balance sheet perspective, we saw our leverage improved to 6.9 times in the quarter. As we look ahead, we’re benefiting from the proactive steps we took prior to the run-up in interest rates to reduced near-term debt and extend duration. Some Ventas stats to call out include $2.5 billion of available liquidity, 2023 consolidated debt maturities and amortization is just $500 million or less than 2% of enterprise value and 11% of our consolidated debt is at floating rates. Let’s talk Q4 guidance. We expect net income to range from $0.06 to $0.12 per fully diluted share. Q4 2022 normalized FFO is expected to range from $0.68 to $0.74 per share, which represents nearly 4.5% growth at the midpoint when compared to the fourth quarter of 2021, adjusted for unusual items in the prior year. SHOP is contributing $0.06 of growth year-over-year, while interest rates and FX are a $0.04 headwind. Total company same-store NOI growth year-over-year of 6% to 9% is expected with accelerating SHOP same-store NOI midpoint growth of 18%, leading the way. Bridging FFO from Q3 to the Q4 guidance midpoint is as follows

Juan Sanabria:

Hi,[Author ID1

Juan Sanabria:

Thank you.

Joshua Dennerlein:

Hey,[Author ID1

Debra A. Cafaro:

Josh, this is Debbie. And obviously, the leads are well over 100% of 2019 levels and move-ins are at 109% [ph][Author ID1

Justin Hutchens:

Yes. So we’ve had – our conversion rates have been relatively – they move around a little bit, but relatively consistent around 9% and moving activity,[Author ID1

Debra A. Cafaro:

Thank you.

Michael Carroll:

Yes. Thanks. The 10% annual rate increases is pretty encouraging. I mean, has there been any pushback from residents?[Author ID1

Operator:

We’ll move next to Steve Sakwa at Evercore ISI.

Justin Hutchens:

Yes, that’s a great question because it does stick out a little bit. You’ll notice if you look on the trending that we’ve been – I’m going all the way back to the first quarter of 2021, 94%, 91%, 91%, 96%, 97%, 92% and now 98%. And I absolutely would agree that as our absolute number of residents go up through occupancy growth that we’ll see higher move-ups again,[Author ID1

Michael Mueller:

Yes, hi. Just wondering, can you talk about what you’re seeing or thinking about in terms of private market pricing changes for life science and MOBs?

Michael Mueller:

Thanks.

Operator:

We’ll take our next question from Vikram Malhotra at Mizuho.

Justin Hutchens:

Hi, it’s Justin. So first of all, actually, our length of stay has been very stable. There’s been – I remember we had questions last year. Is it shortening? Is there some kind of higher acuity person coming in? That never happened. And so I would – it’s pretty consistent with where it was even before the pandemic, and it’s been consistent. So not much to really report on from a length of stay standpoint. One thing I’ll also mention, which is indicative of the demand at the doorstep and the pricing power is that our re-leasing spreads have been so good. So as residents have been moving in, they’ve been paying more than the last resident that occupied that unit. And as I mentioned in my prepared remarks, that actually went positive in this past quarter. So pricing power has been great internally through in-house increases, but it’s also been really strong from a Street rate standpoint as well.

Vikram Malhotra:

The pricing power basically, the pricing power driving some of that. Is that what you’re saying?

Debra A. Cafaro:

Yes. And as people moved in during a period of the pandemic at lower rates, obviously, that’s where you start to get this positive momentum on re-leasing.

Justin Hutchens:

Yes. So absolutely. There – right now, we’re pricing off of the current inflationary environment. So if that changes, and certainly, that could be additive to NOI growth. But we’ve been – this sector historically has had a pretty healthy spread in terms of increases over CPI, and CPI obviously is much higher these days, and we’ve continued to build that spread in. Pricing power has really always been a strength, and it’s magnified now because of the emphasis on the expense growth. Obviously, revenue has been outpacing expenses significantly. So we’re in good shape.