Ventas, Inc.

and welcome to the Ventus fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero, and an operator will come back on to assist you. I would now like to hand the conference over to your first speaker today, Sarah Whitford, Director of Investor Relations. Please go ahead.

Thanks, Amy. Good morning, and welcome to the Ventas fourth quarter financial results conference call. Earlier this morning, we issued our fourth quarter earnings release, supplemental, and investor presentation. These materials are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks made today may include forward-looking statements, including certain expectations related to COVID-19 and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website. Certain non-GAAP financial measures will also be discussed on this call. For reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental posted on the investor relations section of our website. I will now turn over the call to Deborah A. Cafaro, Chairman and CEO.

Thank you, Sarah, and good morning to all of our shareholders and other participants. On behalf of all my colleagues, we want to welcome you to the Ventas fourth quarter and year-end 2020 earnings call. Let me begin by expressing my deep gratitude and optimism, born of the strength, resilience, and innovation so many have demonstrated over the past year. and the positive developments we are seeing on the ground in our portfolio virtually every day. Our results in the fourth quarter demonstrated Ventas' resilience with normalized FFO reported at 83 cents a share and 74 cents at much appreciated funding from HHS to our senior living communities that have been affected by COVID-19. I've reflected on the grueling year we've all had. I couldn't be prouder of our productive and skilled team, our enterprise, and our capable, dedicated partners. After a fast and positive start to 2020, the last year has been dominated by the COVID-19 pandemic and punctuated by extreme weather disruption. both of which have continued into the first quarter of 2021. Throughout, we've put the full force of our firm's resources and energy behind keeping people safe, demonstrating remarkable resilience, and becoming part of the solution, whether in employee testing, advocacy, or assistance to tenants and operators who needed it. Financially, through our foresight, our long-standing diversification strategy, and our decisive action, we've kept our enterprise strong and stable, generating almost the same EBITDA in 2020 as we did in 2019, and benefiting from our investments in people, systems, and preparedness, our balance sheet flexibility, and our embedded relationships with best-in-class partners. and we found ways to grow and advance our strategic objectives, including building value through acquisition and development in life sciences, investing in LaBrute Maurice's attractive senior housing development pipeline, creating new partnerships, and establishing a third-party investment management platform that will provide more options for future growth. We remained committed to our core values of respect and integrity and accelerated our actions to promote sustainability, diversity, and social justice in our company, our communities, and our country. Finally, we were very fortunate to recently add two top-notch directors to the company, one a leader in healthcare and the other in real estate and REIT. My gratitude and optimism also flow from the life-saving COVID-19 vaccine discovery by doctors and scientists in record time and the recent acceleration of vaccine delivery by the Biden administration. Nationally, ending COVID-19 is foundational to spur sustained economic recovery and restore vitality to so many businesses, households, and workers. At Ventas, we're proud that 100% of our U.S., SHOP, AL, and memory care communities have already received the vaccine, and nearly 90% of them will complete their second dose by the end of this month. Notably, senior housing vaccine delivery represents one of the shining successes in our fight against COVID-19. In our shop communities, it is wonderful to know that about 30,000 vulnerable residents have already been vaccinated and are one step closer to feeling safe, seeing loved ones, and enjoying a richer life. From our real-time data, we also know that confirmed COVID-19 cases in our communities have recently begun to improve significantly, creating an enhanced sense of well-being and enabling more operators to open communities to new move-ins. And leads that our communities built to their highest level since the pandemic began in January once again demonstrating the strength of the value proposition of senior housing and the resilient demand for the services our care providers deliver. While we expect SHOP's first quarter NOI and occupancy, which are lagging indicators, to decline sequentially as a result of November to January extreme COVID-19 conditions, we are encouraged by the breadth and consistency of all positive leading indicators. Conditions remain dynamic, and it is too early to declare a definitive trend, but we like the picture we are starting to see. Post-pandemic senior housing growth represents an incredibly significant value creation opportunity for our shareholders. Turning to our investment outlook, our diversified asset base with five verticals has given us the ability to continue successfully allocating capital over time and through cycles. For example, we've created tremendous value since our early cycle investments in our research and innovation business in 2016. We continue to find meaningful opportunities to drive that business forward in both ground-up development and asset acquisition, with universities and in cluster markets alike. Our decision to add life sciences to our enterprise has provided uplift to our results, our investment activity, and our value. Here are a couple of current examples. Our $280 million Life Sciences Project, known as One Youth City, in the thriving research sub-market of Philadelphia, which is bookended by Penn and Drexel, is attracting significant leasing interest. In addition to the nearly $1 billion ground-up development projects already underway, our university-based development pipeline continues to hold about another billion dollars in active potential projects with both new and existing university relationships. In particular, with Westford, we are in the design development phase of a nearly half-billion dollar project with a major research university on the West Coast that is substantially pre-leased. We look forward to sharing more information with you later this year. Outside of research and innovation, we continue to allocate capital to develop large Class A independent living communities with our partner, LGM, in Quebec. We've had five projects underway with investment also totaling nearly half a billion dollars. And two of the projects were delivered in the fourth quarter. We are pleased to report that the two open communities have leased up quickly and occupancy is already nearly 80%. In addition, our pipeline of potential acquisitions in all five of our verticals is active and growing. We continue to invest with an eye toward growing reliable cash flow and favorable risk-adjusted return. We will also continue to evaluate and execute opportunities to recycle capital as well. Both Justin and Pete have been working with our deal team to target about a billion dollars of dispositions during the year to optimize our portfolio. Finally, our institutional investment capital management platform continues to grow and succeed, with well over $3 billion in assets under management. Bringing together our pre-existing and new third-party capital vehicles under one umbrella, the Ventos Investment Management business includes our life sciences and healthcare funds. The Ventas Fund stands out as one of the most successful launches of a first-time real estate fund in any asset class. Our investment management platform provides a significant competitive advantage to Ventas. It broadens our capital sources, augments our investment capacity, expands our footprint, leverages our team and industry expertise, improves our financial flexibility and liquidity, and adds an incremental source of earnings. There is tremendous market opportunity within life science, medical office, and senior housing real estate, and we are well positioned to capitalize on it in multiple ways. In closing, let me reiterate that demographically driven demand is right in front of us. The leading indicators in senior housing are improving rapidly, vaccine delivery is accelerating, and the long-term thesis for all of our asset classes and for dentists remains firmly positive. All of us at Ventas have an abiding commitment to staying strong and steady and winning the recovery on behalf of all of our stakeholders. Now I'm pleased to turn the call over to Justin Hutchins.

Thank you, Debbie. I'd like to begin by highlighting the fourth quarter performance and first quarter performance expectations. First, I would like to mention that we are humbled and grateful that HHS continues to recognize the crucial role senior living plays in protecting vulnerable older Americans. Through the CARES Act, HHS has provided several rounds of funding to assist the living communities to partially mitigate losses directly suffered because of the COVID-19 pandemic. Through this program, applicable to sequential same-store shop assets, our communities have received $34 million in the fourth quarter and $13 million to date in the first quarter, which has been applied as a contract expense to offset COVID-19-related expenses incurred. After a challenging fourth quarter and January in which the national spread of COVID-19 hit all-time highs, our communities experienced an increase in resident cases and we had more communities close to move-ins. Leading indicators have followed a similar pattern. leads and move-ins drifted down throughout November and December, while at the same time move-outs were elevated. Although the fourth quarter was a challenging quarter, we are pleased our occupancy hung in there with a 90 basis point decline. Looking ahead to the remainder of the first quarter, for the forecast Q1 sequential same-store shop portfolio, we expect cash NOI to decline from the fourth quarter to the first quarter excluding HHS grants of $34 million and $13 million to date in each respective period. This NOI deterioration is driven by a 250 to 325 basis point expected occupancy decline, partially offset by a modest rate increase. We expect to see continued elevated operating expenses into the first quarter. And while we are seeing continued high levels of COVID-related costs, These are partially mitigated by $13 million of Phase III HHS grant money received to date in the first quarter. I'll add that recent severe winter weather across the country could cause additional expenses as well as delays and movements. We haven't included any impacts, if any, in our guidance. While we are experiencing choppy waters at this stage of the pandemic, I would like to highlight green shoots. that support a more optimistic outlook ahead. I'll start by highlighting our improving clinical trends. Consistent with the US COVID case trends, our SHOP communities are experiencing a significant decline in new COVID cases. In the most recent week, we are averaging nine cases per day, which is the lowest since October and down from 92 cases per day at the peak in January. We couldn't be more relieved about this improvement knowing this means less illness and less people potentially dying from COVID. This positive clinical trend is also important to local health departments' support of our community's ability to accept new move-ins and to offer a more robust living experience for our residents. I'd like to comment on the early success our operators have had deploying the vaccine to residents and employees within our shop portfolio. As Debbie mentioned, 100% of our assisted living and memory care communities have hosted their first vaccine clinic. In other good news related to the vaccine, two studies from Spain and Israel have come out showing favorable data that people who are vaccinated and still contract COVID-19 are far less likely to spread the illness to others than if they were not vaccinated. The execution of the vaccine is a massively important step for the stabilization and growth in our senior housing platform. I'll note that 95% of our communities are already open to move-ins, which is near a pandemic high. I'll remind you of the importance of the segments mentioned in our business updates. Currently 80% of our communities are operating in segment three. This is up from 64% a month ago. Segment three is the least restrictive operating environment. The communities in the segment offer a more robust living experience, a more open dining experience and small group activities. Most importantly, it allows for less restrictive visitation between residents and their loved ones. As more communities expand their service offering, demand for our services should improve. Leads and move-ins started to pick up again in January, with the highest number of leads we have witnessed since the beginning of the pandemic. We have seen broad-based strength in lead volume across regions, and the initial indication is that this momentum has continued into February. The increase in leads have been bolstered by very strong growth in our Le Groupe Maurice portfolio in Canada and consistent strong lead performance by Atria in the U.S. To summarize our optimism, new COVID cases down. Vaccine distribution on track, leading to a more robust living experience and all combining to support higher leads. We continue to monitor these positive trends on a real-time basis and remain focused on supporting our operating partners as they get in position to win the recovery. Moving on to TripleNet Senior Housing. In the fourth quarter and through January, BENTOS received all of its expected TripleNet Senior Housing cash rent. Our underlying TripleNet Senior Housing portfolio performance continues to be impacted by COVID-19, However, due to a mix of lease resolutions executed in 2020, government subsidies, including PPP loans and HHS funds and other tenant resources, our tenants have continued to pay as expected. Our trailing 12 month cashflow coverage for senior housing is 1.3 times respectively. I'll comment on the senior housing industry outlook. Our competitive outlook has continued to evolve amid the pandemic. In 2020, construction starts nationally were down 50% year over year, and deliveries were at their lowest level since 2013. Our shop markets witnessed particularly favorable supply trends, with starts down 66% versus the prior year, and deliveries down over 40%. We are optimistic about the long-term impact from lower construction starts. Fewer starts today, combined with the compelling aging demographic trends where the 80-plus population is expected to grow nearly 15% between now and 2024, which is five times faster than the broader population, will provide a potent tailwind over the next few years. Moving on to final comments. I'd like to comment on the tremendous job well done our operator partners and frontline staff have done prioritizing the health and safety of our residents and employees throughout a very challenging period. We couldn't be more proud of their focus, determination, courage, and perseverance throughout the pandemic. I'd also like to note our excitement and support for Jack Callison, the new CEO of Sunrise Senior Living. We know Jack to be an accomplished and charismatic leader who is extremely qualified to lead Sunrise. I'll finish by reiterating our optimistic outlook as we consider the improving clinical trends, vaccine rollout, communities opening for move-ins with a more robust living experience, and post-pandemic supply-demand tailwinds that give us continued confidence and a very strong positive growth trajectory in senior housing. With that, I'll hand the call to Pete. Thanks, Justin. I'll cover the office and healthcare triple net segments. Together, these segments represent 47% of Ventas' NOI. They continue to produce strong results, showcasing their value proposition and financial strength amongst the pandemic. In fact, for the full year 2020, these segments combined to generate same-store cash NOI growth of 3%. First, a cover office, MOVs and research and innovation centers. The two lines of business within our office portfolio, they play a key role in the delivery of crucial healthcare services and research for life-saving vaccines and therapeutics. The office portfolio continued to provide steady growth, delivering $128 million of same-store cash NOI in the fourth quarter. This represents a 1.5 percent sequential growth led by our R&I portfolio, which generated 3.6 percent same-store cash NOI growth. Moreover, full-year office same-store cash NOI grew 3.3 percent versus 2019, near the midpoint of original 2020 office guidance of 3 to 4 percent despite the impacts of COVID-19. Normalizing for a paid parking shortfall and increased cleaning costs due to COVID, SaneStore Cash NOI grew 4.5%, surpassing our pre-COVID guidance range. In terms of rent receipts, Office 10 has paid an industry-leading 99.2% of contractual rent in the fourth quarter. For the entire period from April through December, tenants paid 99.4% of contractual rent. This is without deducts or deferrals, which were de minimis. Substantially, all granted deferrals have been repaid, and new deferrals were negligible during the fourth quarter. Continuing the trend, we have collected 98% of January contractual rents on track to meet or exceed the fourth quarter collection rate. February to date collection results are also strong and are at a consistent pace when compared to the fourth quarter. This strong performance is enabled by the mission critical nature of our portfolio and by our high quality credit worthy tenancy. In our medical office portfolio, nearly 85% of our NOI comes from investment grade rated tenants and HCA. In our R&I portfolio, 76% of our revenues come directly from investment-grade rated organizations and publicly traded companies. Medical office had a record level retention of 88% for the fourth quarter and 87% for the trailing 12 months. Driven by this retention, total office leasing was 700,000 square feet for the quarter and 3.4 million square feet for the full year of 2020. This includes 540,000 square feet of new leasing. Total leasing far exceeded our pre-COVID 2020 plan. All of our MOV properties are in elective surgery restriction-free locations. As a result, we are seeing positive utilization trends that mirror increased admissions and surgery volumes being reported by the health systems. As an example, paid parking receipts during the second quarter of 2020 were only 46% of normal. During the fourth quarter, however, paid parking recovered to 71% of normal. As Debbie mentioned, we continue to be excited about the office business and particularly investment opportunities in the R&I space. In the fourth quarter, we closed our acquisition of the three-asset, 800,000-square-foot Trophy Life Sciences Portfolio in San Francisco. Since last quarter's announcement, we have renewed a large tenant and signed two new leases, bringing the building to 100% lease, a clear demonstration of the attractiveness of these buildings to the marketplace. We also opened our $80 million R&I development on the campus of Arizona State located within the Phoenix Biomedical Campus, a 30-acre innovation district established by the City of Phoenix in the heart of downtown. The building is over 50% pre-leased and is ahead of pro forma. Now let's turn to healthcare triple net. During the fourth quarter, our healthcare triple net assets showed continued strength. We have received 100% of fourth quarter rents, as well as 100% of January and 100% of February rents. Trailing 12-month EBITDARM cash flow coverage improved sequentially for all our healthcare triple net asset classes, except skilled nursing, despite COVID-19. Acute and post-acute providers had early access to significant government funding to create liquidity and mitigate pandemic-related losses. Acute care hospitals trailing 12-month coverage was a strong 3.3 in the third quarter, a 20 basis point sequential improvement driven by a rebound in elective surgical procedures, prudent expense management, as well as government funding. Arden continues to perform extremely well in this dynamic market condition, and all of Arden's hospitals reside in jurisdictions that are open for elective procedures. We are excited to continue growing with Ardent. During the fourth quarter, Ardent opened a new outpatient cancer center on the campus of their hospital in Amarillo, Texas. The cancer center features best-in-class equipment and facilities for radiation therapy, chemotherapy, and cancer care. We invested approximately $30 million at a near 8% stabilized yield. IRF and LTCH coverage improved 10 basis points, and 1.6 times in the third quarter, buoyed by strong business results and government funding. In particular, Kindred has demonstrated its core competency in treating complex patient cases. Census levels continue to be very high. And finally, within our loan portfolio, our Colony, Holiday, and Brookdale loans are all fully current. I'd like to close with a thank you, a sincere thank you, to our frontline staff who have kept these critical facilities open during this difficult time. You are all heroes. With that, I'll turn the call over to Bob. Thanks, Pete. In my remarks today, I'll cover our 2020 enterprise fourth quarter results, our expectations for the first quarter of 2021, and our recent liquidity, balance sheet, and capital activities. Let's start with our fourth quarter financial performance. Ventas reported fourth quarter net income attributable to common stockholders of $0.29 per share, and normalized funds from operations of $0.83 per share, or $0.74, excluding the $0.09 in HHS grants received in shop in Q4. Other sequential fourth quarter drivers to highlight include $0.04 of income recorded in unconsolidated entities, offset by a $0.05 Q4 sequential decline in NOI, principally in shop. Meanwhile, office and triple net healthcare was stable on a sequential basis in the fourth quarter. That's a good segue to our Q1 guidance, as Q4 is an appropriate start point for our first quarter 2021 expectations. The key components of our Q1 guidance are as follows. Net income attributable to common stockholders is estimated to range between minus 7 cents and minus 1 cent per fully diluted share. Normalized FFO is forecast to range from 66 cents to 71 cents per share. The midpoint of our FFO guidance, 68 cents per share, represents a 15-cent sequential decline from the fourth quarter. This change can be largely explained by a 9-cent reduction in HHS grant income and income from unconsolidated entities. The balance is driven by a five-cent reduction in organic shop NOI performance. A few of the key shop Q1 assumptions include Q1 2021 average occupancy ranging from 250 to 325 basis points lower versus the fourth quarter average, sequential growth in REV4 as a result of the annual in-place rent increases implemented at the start of 2021, and continued elevated levels of operating expenses driven by COVID labor and testing. Outside of shop, we expect our property NOI to be stable on a sequential basis in the first quarter. A normalized FFO per share bridge from our fourth quarter to our first quarter 2021 guidance midpoint, together with key assumptions, can be found in our press release and our business update presentation posted to our website today. I'll close with our balance sheet and capital activity. I'm proud of the actions the Ventas team has taken to manage our balance sheet leverage and liquidity. We have navigated the disruption created by COVID and kept Ventas strong and stable while protecting shareholder capital. I'd highlight a few of our most recent actions and results. First, some key stats from 2020. We finished 2020 with full year net debt EBITDA of 6.1 times, maintained a strong maturity profile with duration exceeding six years, had held total debt to gross asset value at 37%, reduced our net debt at year end by over $500 million year over year, and retained robust liquidity exceeding $3 billion. In 2020, we also took advantage of the strong bid for healthcare real estate and realized over $1 billion in asset sales at a blended 5.3% cash yield. In 2021, we're targeting an additional $1 billion in asset sales across our verticals in the second half of the year. Proceeds from dispositions are expected to be used to reduce debt and to fund future growth through development and redevelopment capital spend. In January 2021, we closed on a new four-year, $2.75 billion unsecured credit facility. We had great demand from 24 new and incumbent financial institutions and were able to realize better pricing. I'd like to personally thank our banking partners for their support of Ventas. They are critical to our success. And finally, in March 2021, Ventas will use cash on hand from recent dispositions to reduce our near-term maturities by fully repaying $400 million of our 3.1% senior notes due January 2023. As a result of these and other actions, we're positioned to capitalize on the powerful upside across our business once the pandemic is finally in the rearview mirror. That concludes our prepared remarks. Before we start with Q&A, we're limiting each caller to two questions to be respectful to everyone on the line. With that, I will turn the call back to the operator.

At this time, ladies and gentlemen, if you would like to ask a question, please go ahead and press star, then the number one on your telephone keypad. Again, that is star, then one to ask a question. Your first question today comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Hi, good morning. Good morning. Good morning. I was just hoping, Debbie, maybe you could provide a little color on the acquisition pipeline. You talked about it being robust across your various verticals. So I guess I'm curious what asset texture of the most interest you've been kind of quiet on the seniors housing acquisition front for a while. It seems like Arden might have some new opportunities if it merges with LifePoint. I'm curious if that acquisition pipeline is more focused on balance sheet or through the fund.

Well, it's great to hear from you. I would say that we have a lot of options now as we look at investment opportunities. Not only can we look across the five asset types, but also we have a number of tools we can use to acquire assets either on balance sheet or in our investment management business. So I'd say we're really looking across the board. We've got obviously a lot of life sciences and research and innovation, both ground up development as well as acquisition activity. We've got some senior housing. possibilities in the pipeline. Arden's obviously doing well, and we continue to look for similarly high-quality opportunities in that space. And so it really is, you know, quite interesting and across the board. And as I mentioned, we're continuing to invest with LGM. they have done just an incredible job both on the management of the stable portfolio, but also in developing and leasing up very quickly these Class A assets. And we're looking forward to doing more of that with LGM as well.

Okay, thanks. And then just for my follow-up on the disposition front, switching to the opposite side, the billion dollars for 21 that you've targeted for the second half. Could you provide any color on the types of assets you're selling? If I think about this time last year, you talked about maybe joint venturing Eclipse. You had some Atria assets that were on the block. So if you could just give us a little bit more color on the flavor there.

Good one. I mean, I gave a little clue when we talked about Justin and Pete really optimizing the portfolio. So while we're really looking across the board, I would say that senior housing and maybe some select MOBs could fall within that disposition pipeline.

Thank you.

Thanks, Juan.

Your next question comes from the line of Nick Joseph with Citi. Please proceed with your question. Thank you.

Maybe just following up on that question.

I know you said it's the back half of the year, but just curious what the timing is and then the cap rates on any of those asset sales and trying to get a sense of any potential dilution in the back half of this year into 2022.

Yeah, I mean, obviously we're going to look to be smart about when and how we do it. I would basically just refer you to kind of the back half, and, you know, you can make a weighted assumption around timing. It's obviously TBD and, you know, cap rate also TBD, but we would look really to find lower cap rate assets that we could – you know, that we could dispose of. And obviously you can see in the market, there's a really strong bid across the board in these asset classes. And that is, you know, a very good sign for our ability to execute in a really effective way.

Thanks.

And then maybe just on the senior housing side, you know, I'm looking at your business update with the move out trending higher, at least through January. What percentage of those were voluntary, and then how have voluntary move-outs trended over those past few months?

Yes, I'm going to turn it over to Justin. I mean, as we've mentioned, I mean, the key points are really around the clinical results because, you know, you really have to think about leading indicators being, you know, cases and mortality, and then When those start to improve significantly, as we've seen, the lagging indicators of NOI and occupancy tend to follow. So I'll turn it over to Justin so he can really address your question in specific.

Hi, Nick. In regards to the recent trend upwards and move out, that's mostly clinically related hospitalizations, deaths. that the voluntary move-out questions come up. We really haven't seen a high number of discretionary move-outs that are for reasons other than clinical purposes. Thank you.

Thank you. Your next question today comes from the line of Omoteo Okasayama with Mizuho. Please proceed with your question.

Yes, good morning, everyone. Hope everyone is safe and healthy. Two quick ones for me. Oh, my pleasure. Two quick ones for me. Red pork booth in the quarter. was kind of down meaningfully. You know, I think it was negative 3.3% or so. Could you talk a little bit about kind of what caused that? I think you had made some comments about kind of, you know, concessions and discounts and things like that. And kind of how is that trending in the early stages of 2021?

Yes, I mean, we are projecting positive Rev4 sequentially, and I'll turn it over to Bob to elaborate.

All right, cool. So fourth quarter, you're right to say down on Rev4 tile, really two drivers there. One is simply discounting, you know, in the effort to get occupancy, definitely seeing that in the marketplace. The second is mix. With Canada continuing to perform really strongly, Canada has a lower Rev4. You see a mixed impact. It's a combination of those two things on a sequential basis. which drives the number you see on REV4. Positively, looking ahead to Q1, you know, we're expecting growth. And again, that in-place increase, very much in line with what we've seen historically, which is quite positive. And so expect to see that as a tailwind in the first quarter on revenue.

So no additional, like the whole discounting concession thing is not kind of riding through the first quarter of 21? i think that will likely carry on at least in the short run but you see the lift of the of the in-place rent which you know happens jan 1 across a good part of the population so that that really benefits the first quarter okay great and then on the government reimbursement side any you know thoughts or any estimates in regards to how much more hsf grants you may be due under kind of like the phase two and phase three

programs from last year and generally what are you hearing about you know future government support uh just kind of given the change in administration right uh we've had um you know with our industry partners a really effective uh public outreach on this this this exact point of really the impact of COVID-19 on these communities and on seniors. And we have made so much progress, Tayo, as evidenced by the willingness of HHS to mitigate some of the COVID-19 impact by the amounts that we've received to date, which for us has been, I think, about $48 million or so. And we're very grateful for that, as Justin mentioned. What we're focused on going forward is there continues to be significant billions remaining in the HHS funds. Well, first of all, phase three could result in additional funding. That's an unknown. There's also multiple tens of billions remaining in the HHS funds, which hopefully can be utilized beyond phase three to support the health care providers writ large, including senior housing. And then in terms of additional COVID relief packages, we would endeavor to make the case that some of those funds should be either earmarked for or certainly available to be used to mitigate the continuing impact of COVID-19 on the million to two million seniors who are cared for in senior living. So that's the framework, and we'll continue to try to be a fact-based advocate with policymakers to produce a favorable and I think very justifiable outcome on a public health and priority basis.

Got you. Keep fighting the fight. Thank you.

Thank you. Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

Yeah, thank you. I wanted to see if you could provide some color on the occupancy expectation going into the first quarter of 21. I guess the 250 to 325 basis point decline in average occupancy, I mean, what does that trend look like on, I guess, the week-to-week or month-to-month basis on the low end versus the high end?

I mean, do you expect declines to continue at this pace through February and start to moderate in March, or how should we think about that?

Yes, good question. I'm going to turn it over to my colleagues. And again, I think in light of the conditions in January, we feel that our portfolio is really hanging in there in terms of leads and occupancy. So I'll turn it over to the team to answer the specific question that you're asking.

Sure, I'll take that. So, Mike, you can see on page 12 of our investor presentation some of the most recent data on the trends in the quarter on occupancy. If you look at it quarter to date, on average, we're down about 210 basis points quarter to date, really driven by that January result. If you just extrapolated that, to the full quarter, i.e., you know, kind of baked what we have and held from there, we'd be at the better end of the guidance range, at 250 basis points down. If the trend continued down, as we've seen in the first quarter to date and carried on, that would be the lower end, i.e., the worst end of the range. And so it's really kind of that's the guardrails, if you like. stabilization versus continuation of the trend, if you want to think about it that way. Okay, great. And then I guess on the move-ins, obviously there was an uptick on an absolute basis in January, but it still looks like the percentage compared to 2019 actually dropped. I mean, is a good way to think about that is that the seasonal nature of leaves probably is not holding right now, just given the COVID impact, and you're just more optimistic because the absolute number is actually increasing?

I think what is incredibly encouraging is that the clinical conditions in January were the worst that they've been really since the beginning of the pandemic. And you can see that on the slide. Yet we are getting incredible demand, in my opinion, in January. Nonetheless, through both leads and, you know, And that, to me, is an incredible combination and one that is just really heartening about this being a kind of need-based business that is going to be resilient. And that happens during the toughest time. And so that is the key point, Mike. Thank you for raising it.

Great. Thank you.

Your next question comes from the line of Nick Uliko with Scotiabank. Please proceed with your question.

Thanks. Good morning, everyone. I guess just first off, maybe if you wouldn't mind providing, you know, you gave the vaccine data, which was good on number of residents, number of staff. Do you have that in terms of a percentage?

know of the residents and of the staff who've gotten uh the vaccine so far and yeah yeah in in in general the uptake with the residents has been really really high you know in and around the 90 range and probably even higher if you take out people who were ineligible either because they had you know just had coveted or something like that or another medical condition And amongst the staff, it's really been in that 40-ish plus or minus at the beginning on the first clinic, but we're seeing way higher uptake of employees getting that first shot at the second clinic. And so those numbers are going much higher. both because of an increasing comfort level with the vaccine and also some operator, we'll call it incentives and requirements. And Justin, maybe you can touch on what the operators are doing in the vaccine to make the uptake better.

Absolutely. So there's been... The standard practice across the sector is, you know, communication, incentives, bringing a lot of attention, and quite frankly, celebration around the vaccine. That's been very successful. We have operators that have mandated vaccine as well. Where that's happened, we've seen the employee numbers, you know, tick up significantly. And we know at least two that have made the decision to mandate. There's several others where we know it's under consideration. And it's been met with a lot of success where those employee numbers are closer to 80%.

Okay, great. Thanks. That's very helpful. Just second question is on the leads having picked up.

You know, I guess, are you getting any information from your prospective tenants about at what point, you know, they're going to increasingly convert that lead into a move in?

You know, does it have something to do with the percentage of people in the facility that are vaccinated or, you know, a reduced rate of COVID in a facility? I guess we're just trying to understand at what point. If leads are down still around 20%, moving down around 20%, at some point you get closer to 100%.

But are you getting any information from prospective tenants about that? Thanks.

Yeah, I can definitely give you some color. One point about our leads is that leads are actually stronger in our U.S. portfolio, but our move-ins have been stronger in Canada. When you think about a higher conversion rate in Canada, there's less dependency on external agencies to get move-ins. So if you focus in on the U.S., one thing that we found interesting is that the lead volume is very high, as Debbie mentioned, in spite of the clinical backdrop, but we're also still missing out on some typical sources for leads, and that includes respite, that includes personal and professional referral sources, which are all our highest converted leads. So as the lead bank starts to materialize and get back to normal, not only will the leads go up, but our conversions should go with it. So our operators are, you know, fairly bullish on the outlook. But, you know, that remains to be seen, obviously.

Thank you.

Our next question comes from the line of Connor Siversky with Brennenberg. Please proceed with your question.

Good morning, everybody, and thank you for having me on the call. You mentioned in the prepared remarks, just switching gears to the R&I portfolio, that U-City was attracting some significant leasing interest. I'm just wondering if you can quantify at all how this is progressing and then what the path looks up to stabilization on that end.

Good to have you. I'm going to turn that over to our team to talk about the significant leasing interest there in the UCD market.

John, did you want to take that? Sure. Yeah, this is John Cobb. I think we have a lot of good leads. I think we're swapping a lot of LOIs back and forth, but the interest is high. But it's a When you start building and you start going vertical, the interest is much higher when you're doing that.

Okay, thanks for that. And then just related to the development of the independent land communities in Quebec with the group Maurice, I'm just wondering if that occupancy metrics you guys provided, does that take into account the 800 units that had just recently opened?

Yeah, well, I believe it is those 800 units. So this is what is remarkable, and we're trying to have it rub off on us here south of the border, is LGM builds these, you know, large projects, Class A for, you know, independent living, a younger, healthier senior population. They're really beautiful. We hope to take you there someday. And then they have a really significant pre-marketing effort, a lot of pre-leasing and deposits. And, you know, these communities opened in the fourth quarter, and they're already nearly 80% occupied.

All right, that's all from me. Thank you very much.

Thank you.

So our next question comes from the line of Daniel Bernstein with Capital One. Please proceed with your question.

Good morning.

Hi, Dan.

Glad to hear an upbeat tone and outlook.

The question I do have, though, and I think the movings are kind of rather simple, you know, simple math, you know, demographics going up, construction going down, COVID levels going down, but I'm trying to understand a little bit better the move-outs And particularly, you know, if you have any color on average entrance age of residents coming in and thoughts on length of stay and, you know, whether that's going to offset some of the improvement that seems likely to come on the moving side.

Hi, Dan, Justin. You know, you mentioned, I'll start with the second part of your question. Length of stay has actually gone up. And the reason for that is because respite stays over this past year far less. So that averages up without the short-term stays of respite. In terms of the type of resident moving in, we also haven't seen a lot of change there either. There's the age group demographic, the type of resident, care needs. Everything's been relatively consistent. We just need more of them. And as we mentioned, leads are certainly on their way up. Okay.

And then the other question I had on shop, I don't know if you can give a kind of a general idea of what the rent increases are in 1Q versus maybe historical, whether those are, you know, kind of what we should be thinking about when we model that versus historical 1Q increases. Sure.

Well, since that's a modeling one, Bob, do you want to take that?

Yeah, I love the modeling ones. So, Dan, historically, we've seen sort of mid-single-digit in-place increases nearly every year. And that's, again, sort of an overarching number to think about. From there, though, a few considerations. There's always a percentage of the population to whom that does not apply. And that could be those who are on an anniversary renewal or those who came in, moved in late in the year and aren't subject to it, things like that. So, you know, all of that said, it blends in on a sequential Q4 to Q1 RAV4 basis to improve RAV4 overall. And, you know, that is one of the powers of having the occupancy in place in December is to have that benefit.

Okay. I appreciate it. Good day. You bet.

Your next question comes from the line of Rich Anderson with FMBC. Please proceed with your question.

Thanks. Good morning, everybody. Hi. So if investment activity can be used as a proxy for perhaps, you know, your level of confidence in things going forward, you know, your company in the history is sort of hunkering down at the right times. I recall back in 08, 09 timeframe, you were quick to, you know, protect the balance sheets. like a lot of your peers, but I remember that in particular. You now have a billion dollars of asset sales. You refer to paying down debt with that, at least in part, but then you also talk about this pipeline of activity. So I can't get a good sense of where you are at on a net disposition or net acquisition perspective, or are you kind of still on the point where you're sort of hedging your bet? You could go one direction or another, or are you sort of thinking along the lines of sort of a neutral impact?

Well, we are – thank you. It's really good to hear from you. I mean, we are continuing to invest, you know, very actively. As I mentioned in life science, in these LGM developments, we do have an acquisition pipeline. So it really is a case-by-case basis, and we continue to evaluate conditions very carefully and carefully. are really in a great position given all the things that we've done and all the pieces we've put in place to be able to really act opportunistically, you know, as and when we believe the circumstances are appropriate, you know, based on risk-adjusted return. And so... where we are, and we have a long history, as you know, of doing, you know, $2 or $3 billion a year of investment activity, and we're in the market in all the verticals and have the team and the capital options, and so it'll be based upon what opportunities become available.

Fair enough. Okay. And then on the HHS grants, you guys were – perhaps earlier than some others in terms of getting your hands on it. But nonetheless, it impacts the assisted living side more, obviously. I think you're 60% ALF and 40% independent. Correct me if I'm wrong on that. I could have that backwards. But does this inform you about where the opportunities might exist going forward in terms of that specific debate between ILF and ALF?

Well, I think we would base our investment decisions and our portfolio composition really on the fundamental opportunities that we see rather than what I'll call bridge support opportunities. you know, for the pandemic impact. So I think you're roughly in the ballpark on the 60-40s, but I'll turn it over to Justin really to talk about how he thinks about those asset classes and the differences and opportunities there.

And before you do that, Justin, I was thinking in terms of perhaps being there some disruption in the ILF side, which would make you more interested today, just, you know, and from the standpoint of there being better opportunities because of the lack of HHS. Anyway, that was the base of my question. Go ahead. Sorry.

I see.

Yeah.

Hi, Justin. Yeah, in terms of disruption, IELTS really held up okay. You know, it held up an early going based on, you know, having a lower move out, longer length of stay. Move-ins have continued in the IELTS setting. They're generally a higher margin business, so they had a little more room to work with as oxygen has fallen. They don't benefit from HHS funds. So a little later to the scene from a vaccine standpoint, but vaccine clinics are being set up in the IL setting. So that's on that point. And then in general, the first thing we're always going to look at is the market. And we have within our data set over 800 MSAs that we study. Within those, we can determine, you know, which products will work, which price point is appropriate. It could be ILAL, memory care, but we would always start there. And then look at, you know, so market, and then it's quality of property, and then it's opportunity for successful execution.

Okay, good enough. Thanks very much.

Thanks.

Your next question comes from the line of Jordan Sadler with KeyBank Capital Markets. Please proceed with your question.

Thank you and good morning.

Good morning.

Good morning. So, Justin, I wanted to just get your take on sort of historical seasonality. I know how familiar you are with this business in terms of shop. What percent of annual move-ins take place in December, January, February in the shop portfolio generally? All right. So there's a little bit on the seasonality. When you look at it on a quarterly basis, there's not a big change in ins or outs. You tend to have relatively... higher move outs in the fourth quarter in the first quarter and then lower move outs in the third and fourth and then move ins will they'll move within quarters you know some months that jump out to me or january you know august september um you know where you get a little bit of spike you know april may or you know some you know usually some good move-in months but on a quarter of court basis it's only like a percent change you know from one quarter to the next and and you just kind of know usually you have uh you know opportunities to net significantly during those times when move outs are lower i'm not sure if that's helpful and i'm sure you're yeah okay go ahead finish story yeah i was just going to say in this setting seasonality hasn't really held up because the clinical impacts have been so severe at times that's that impact on demand and then of course I mentioned the difference in our lead bank and that there's a lot more opportunity for that to get back to a normalized level. And so, you know, it's really hard to point to seasonality in this current environment. It sounds like typically you're saying you see higher move outs in 1Q and 4Q, but move-ins generally are more steady. Yeah, that's about right. Okay. And then... as a sort of non-sequitur follow-up. You know, of the disposition guidance for 2021, Debbie or Bob, what portion of that is scheduled or expected loan repayments? What's the mix of debt reduction versus other investments, in other words, Jordan? Yeah, I think you have a billion dollars of disposition guidance for the year. Is any of that loan repayment? Oh, I see the question. Yeah, no, it's majority asset sales. Do you expect any loan repayments, or would that be over and above, or you just don't expect any? Maybe some, but the significant majority will be asset sales, as it was in 2020. Okay, because I know you have some maturities.

in 2021 but those could be extended yep okay thank you thanks your next question comes from the line of Vikram Mahota with Morgan Stanley please proceed with your question thanks for taking the question um just maybe first one on on senior housing overall now that you have uh you know high percentage vaccinated you've got your rents in place in January for a shop, and you sort of pointed to some light at the end of the tunnel. I'm just wondering, higher level, is there an initial sort of preliminary strategy you can lay out for us in terms of how you're thinking to start gaining back this occupancy? I mean, demand will come when it is, but just in terms of flexing rents versus occupancy, high level, is there a strategy that you can lay out that differ by product type or geography.

Yes, and different operators take different views as well based on the particular conditions in markets, as you point out. So, Justin, do you want to address Vikram's question, please?

Absolutely. So I mentioned I'd probably like to step back for a second and just reiterate the underlying demand that the operators are facing and how they're trying to play into that. I had mentioned before that leads are very strong and we're missing parts of the typical lead bank that can help bolster things. But if you look back a little bit, you look back into September, October, if you look at our leads and our move-ins, you can see that We were running 80% and 90%, respectively, no vaccine in sight at the time. So the underlying demand remains really strong. Our operators are well aware of that. We even had at that time in October almost 60% of our communities that were achieving 100% or more of their prior to COVID typical move-in run rate. So all of that bodes well, and as operators have tried to play into that, and with the backdrop of, of course, the clinical trends they were facing throughout the end of last year, beginning of this year, approaches. One I'll highlight is Atria. I mentioned that they've bolstered our overall lead growth and volume, and they've done that with the help of discounting, and it's worked. because they've had higher occupancy, higher leads as a result. We've had others that have been a little more local market focused, holding back a little bit to preserve rates, and that worked as well. Moving ahead, I think what every operator is focused on is the wide variety of different referral sources that they've relied on in the past, how to rejuvenate those moving forward and to play into that, you know, the optimistic kind of supply-demand outlook I gave, as well as the trends that are positioning our community to accept move-ins again.

Okay, that's helpful. Jan, it's interesting to your point, even if you look back a year ago, just based on the numbers you gave, it doesn't seem like the conversion rates have fallen off dramatically in terms of leads to move-ins. It seems like those rates are maybe a little lower, but not dramatically lower. So that's sort of another positive. I guess just on the triple net side, you know, two quick clarifications. So you do have, you know, your EBITDA is probably closer to the low ones, if I'm not wrong. And you have a minimum four years left on maturity for a lot of these leases that are kind of in that range or below. So I'm just wondering if there is a need or thought or you just, you know, to adjust rents or convert some of these to RIDEA, And could you just clarify in that the cash flow coverage, I may be thinking wrong about this, but in the quarter or historically in just the last two quarters, is there any, the provider funds or the relief funds, they're not factored into that coverage, are they?

Yes, I'll take that. So, look, I mean, we have been really successful during 2020 since Justin's been here at really having some outstanding resolutions of the bigger relationships we have with partners like Brookdale and Holiday and others. And that's been really helpful. And we received significant cash up front as well as participation from in the outside through either warrants or conversions to management contracts. So those have been really well received and rightly so. Our operators, as you mentioned, really have been the beneficiaries in some cases of government funding. That would principally be in the fourth quarter, of course. That would benefit coverage. But our statistics are really through the end of the third quarter, which It's always on a one quarter lag, as you know, so they will be factored in. They'll be called out separately as we have with some of the health care providers on the in the supplemental materials. And so you'll be able to do your own analysis. But, again, remember that the funding is really intended to be a bridge, if you will, to replace NOI that would otherwise be there and hopefully will otherwise be there in the future. So that's how we've been thinking about it.

Fair enough. But just to clarify, you don't anticipate the need, given what you did in 2020, you don't anticipate the need for more rent adjustments or conversions near term?

It really depends on COVID, just like almost every other answer we could give you on the call today. You know, the operators are really hanging in there. As Justin said, they're doing an incredible job on health and safety. And right now, you know, we're getting all the rent that we expect to receive, and the operators are getting government funding in many cases. So that's a good picture. And if the leading indicators that we've discussed, you know, really take hold and gain traction and, you know, result in improved occupancy and NOI as we look forward in the year, then I think we feel okay about where we are.

Great. Thank you, Debbie.

Thank you.

Your next question comes from the line of Stephen Veliket with Barclays. Please proceed with your question.

Great. Thanks. Good morning, everyone. Thanks for taking the questions. Good morning. So I guess first one, just regarding the percent of shop communities open for move-ins, You know, that data on the bottom of page 11, the implementation looks pretty positive with that metric jumping up from around 80% in early January to now 95% just in the last month or so as far as communities available for open or move-ins. So I guess I'm just curious to hear more color. Is that driven more by either voluntary policy changes by the operators, or is it more just changes in local government guidelines? How much of this is simply driven by the benefits of the COVID vaccine and we're able to get the extra color around all that as far as that improvement? Thanks.

Hi, it's Justin. Yeah, so what you'll see is the, you know, first of all, 95% of our communities are open to move-ins. And then we segmented them based on, you know, just the restrictive environment. And what drives that, you know, from segment two and segment three, segment three is the most open, most consistent with, with pre-COVID lifestyle. Segment two has some restrictions, but you can certainly take move-ins. And it's the state and local health departments that are really, you know, weighing in on how open a community can be. And so those conversations are happening constantly, and it's very much driven by recent COVID activity, sometimes in the broader community, sometimes within our own communities. So that's fluid. But as you can tell from the overall picture that new cases are down and open communities are up. So, you know, it's looking good across the board.

Yep. Okay. One other quick question. You know, since we spend, I feel like, half this call discussing leads and move-ins, I think you just confirmed that the definition of a lead hasn't really changed for today versus 2019 when you're showing that data today. on page 12, and if there is just a quick one-liner on what officially defines a lead for you, it'd be great just to remind us of that as well, since, you know, that can differ sometimes from one company to the next. Thanks.

Sure. So, a lead is defined, really, another way to put it is an inquiry, and it's distinct, and so it's new. So, each month, when you see our data, all the leads that we're representing are new to that month. We don't carry forward, and it's from any source, um you know could be through the internet could be through referrals um could be a drive-by for instance uh any source that that's interested in and moving is characterized as elite okay all right that's helpful and that's remained that's remained consistent okay thanks again thank you your next question comes from the line of lucas hartwich with green street please proceed with your question

Thanks. Just one left for me. So it looks like the majority of your loan investments are maturing or can be repaid early in 2021. So I was just hoping you could provide a little bit of color of what you expect around that.

Right now, as you point out, they are open to repayment, and some are also open to extension. So our current expectation is extension, but, of course, that could change, and we always like to be repaid. So either way, I think we're in good shape.

Thank you.

Thank you.

Your next question comes from the line of Joshua Deniman with Bank of America. Please proceed with your question.

Yeah, thanks, everyone. Maybe a follow-up on Steve's question earlier on the vaccination COVID cases coming down. When you guys think big picture, it seems like by the end of this month, everyone's going to be vaccinated within your shop portfolio. Do you think you start seeing a pickup and movement because of that, or did the customer's mindset overall change kind of COVID level across their community? And then how are your operators, I guess, going to respond to, you know, vaccinations? Like, will they be able to increase visits? Because that feels like one of the big hurdles to getting people to move their parents in.

Hi, Justin. Yeah, so, you know, first of all, just the fact that there has been vaccines available has played a role in some of the uptick in leads. So certainly there's an expectation that when the vaccines are fully executed, that higher leads, more potential demand, that would make perfect sense. In terms of defining the lifestyle moving forward, I mentioned that the health departments play an important role in working with operators to define that. Certainly operators want a robust living experience, as I mentioned, for their residents. They're working hard to give the best lifestyle available, but they're going to work within health department guidelines. And I would expect that to continue for a period of time as they work through this next phase.

Okay. And let me just follow up from the opening comments. You mentioned that the severe weather that's hitting the country now is in guidance. Have any of your facilities been impacted by the power outages in Texas that you know of at this time?

Yes, I mean, it's been a biblical year when you really want to think about it with COVID and wildfires and hurricanes, and now we have this severe winter storm in places you'd least expect it. So, yes, I mean, I think everyone, many people in the real estate business have significant investments in Texas, and almost all of them will be affected by the power outages and related issues. storm impacts and that would include us and again our operators are taking extraordinary measures in the case of senior housing to make sure that employees and residents are safe and often we see in senior housing that after something like this we see an uptick in interest because you know a lot of people are alone in their homes and that's a you're better off kind of together when things like this happen. So, yes, I mean, we have investments in Texas across the board, and we, like others, would be affected by something as significant as the recent storm.

All right. Thanks, Debbie.

Thank you.

And your last question in here comes from the line of Mike Muller of J.P. Morgan. Please proceed with your question.

Yeah, hi. It looks like the shop occupancy losses have been greater in the primary versus secondary in what you call other markets. What do you think in terms of recovery? Do you think the primary markets recover faster, and are you seeing any differences in feed trends so far?

Good question. Again, the leading indicators, you know, are flashing green, and Justin will answer your segmentation question.

Thanks. Hi, it's Justin. So, you know, there's been, you know, we've studied the performance throughout the pandemic. There's a little bit of a disconnection in terms of, you know, our expectations relative to, you know, COVID impacts on move-ins and geographies because of the virus has really become, you know, through the fourth quarter became more widespread and more impactful. So, as we look ahead, we're really just looking into, you know, local markets and looking at the fundamentals I mentioned earlier relative to our position in that market. And there's, you know, some of the primary markets are really benefiting from a reduction in, you know, construction as a percentage of inventory, which we support as. But I think to get a real good read on, to answer your question, I think we're, you know, we have to go a little further beyond the pandemic and to get a clear view.

Got it. Okay, that was it. Thank you.

Good. Anything further?

There are no further questions in queue at this time.

Well, you've all been very patient, and I want to thank you, as always, for your interest in and your support of our company. We look forward to seeing you soon, and we hope that you and your family stay healthy, happy, and optimistic.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.