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spk10: Good morning. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to Vintas' fourth quarter financial results conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. We ask that you please limit yourself to one question to allow everyone an opportunity. If you'd like to ask another question, you may re-enter the queue. Thank you. Sarah Whitford, Director of Investor Relations. You may begin your conference.
spk21: Thank you, David. 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.ventas.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 in this call. For reconciliation of these measures to the most closely comparable gap measures, please refer to our supplemental posted on the investor relations section of our website. And with that, I'll turn the call over to Deborah A. Cafaro, Chairman and CEO.
spk01: Thank you, Sarah. And I want to welcome all of our shareholders and other participants to the Ventas fourth quarter and year-end 2021 earnings call. 2021 was a year that was bracketed by two very positive developments. At the beginning of the year, we rolled out life-saving vaccines in our senior housing communities to keep residents and caregivers safe from COVID-19. And as we close out 2021 and begin a new year, we look forward to posting growth in the first quarter and sustained improvement in our senior housing business through 2022. In between those bookends, our Ventas team found a way to drive our business forward in a highly dynamic environment. While prioritizing health and safety, we took proactive steps to capture upside in the senior housing recovery, delivered strong organic growth in our office and triple net healthcare businesses, and stayed financially strong. We also extended our long track record of value-creating external growth, with $3.7 billion in new investments focused on our strategic priorities of senior housing and life science. As we enter 2022, we are reporting a fourth quarter that exceeded our expectations on the strength of senior housing and office performance. Carrying that momentum forward, we expect total portfolio NOI growth, once again led by our senior housing and office businesses, with additional contributions from investment activity and deeply appreciated grants from HHS for our assisted living communities in the first quarter. We're pleased that we can benefit from both organic and external growth in the first quarter, consistent with our longstanding value proposition for shareholders. Let me put our investment activity in a broader context and discuss some of the highlights. Since 2010, we've averaged over $3 billion per year in average investment activity across asset classes executed in a variety of transaction types, large and small. 2021 provided excellent examples of our approach and execution. Consistent with our current capital allocation priorities at this point in the cycle, our 2021 investment activity was allocated 70%, to senior housing in attractive markets with significant growth potential. 20% to our high value life sciences business, including the ground up development of a new research facility anchored by University of California, Davis. And 10% to expanding our successful medical office building franchise. Within the senior housing capital allocation sleeve, we completed both the new senior investment acquiring over 100 independent living communities in advantaged submarkets at attractive pricing below replacement costs. And we also closed a Canadian senior living deal with a handful of well-performing assets with additional lease-up upside. The Ventas investment team is using its decades of industry experience, strong and varied relationships, and deal structuring ability to address an extremely robust pipeline as we enter 2022. We continue to identify areas of competitive advantage and pick our spots consistent with our strategic priorities and our analytic assessment of risk-reward. We started the year off well, closing over $300 million of investments in the medical office and senior housing areas, both with good in-place returns and both generated by ongoing relationships. With significant opportunities in our sites, we are also confident in the array of funding sources available to us, as we demonstrated by recycling over a billion dollars of capital in 2021, split between $850 million of divestitures of non-core senior housing and MOB assets at attractive valuations, and over $350 million of full repayment of well-structured loans that yielded unlevered IRRs exceeding 11%. In addition to capital recycling, these transactions improve the quality of our portfolio and the sustainability of our go-forward cash flows, which also supports our well-covered dividends. We also grew our Ventas investment management business during the year and successfully accessed multiple capital markets opportunistically. VIM is a huge success story and now has over $4.5 billion in assets under management with leading global institutional investors. Our perpetual fund alone raised nearly $3.25 billion in untapped commitments this year. These embedded capital relationships provide another powerful tool to fund growth and build a valuable business at the same time. Turning to our values that dovetail with shareholder priorities, I'd like to highlight our enduring commitment, achievement, and recognition in the area of environmental, social, and governance, or ESG. Our ESG leadership continued during 2021 as we substantially elevated our ESG profile. Among other things, Ventas made meaningful investments in energy-saving technologies at our properties. We were named to CDP's A-list, the top 2% of global companies, for tackling climate change, and also named NAIRI Healthcare's leader in the light for the fifth consecutive year. We have also ramped up our actions to improve diversity, equity, and inclusion in our company, our industry, and our country. We've taken definitive steps in recruiting, investment, and community engagement and adopted goals to drive ourselves even harder in the coming years. Finally, our commitment to outstanding governance continues with rigorous and regular board refreshment, adding directors who are independent and diverse, and who bring a record of accomplishment and subject matter expertise to our company, such as recently added directors, Maurice Smith and Marguerite Nader. In closing, I'd like to give a huge shout out to my Ventas colleagues, whose talent, resilience, agility, and commitment to doing their best over these past two years has been inspiring. And to our operating partners who have navigated the pandemic on the front lines, with courage, caring, and commitment. We also deeply value and appreciate our lenders and equity investors who support and encourage us. We are committed to using all the tools at our disposal, including our high-quality diverse portfolio, experienced team, and platform to excel for their benefit.
spk19: Justin?
spk13: Thank you, Debbie. The senior housing outlook remains bright
spk15: Today I will speak to the favorable trends informing our outlook for growth in the first quarter, provide an update on key portfolio strategy and actions, and recap our strong fourth quarter results. I'm happy to report that we expect occupancy, revenue, and NOI to grow in the first quarter. Demand remains robust with January lead volumes at all-time highs since the onset of the pandemic and clinical conditions are dramatically improving. Core operational performance continues to deliver strong results as operators weather cost challenges and the macro supply demand backdrop should continue to power underlying growth. I'm proud of the team and operator base we've assembled as we've accomplished a lot over the last two years. Our senior housing business is competitively positioned to capture the benefits of the ongoing sector recovery and I could not be more excited for the path ahead. During recent community visits, my team and I witnessed firsthand the strength of the top of the sales funnel as tours were abundant. As COVID cases have declined and tours have picked up, the energy at our communities has been evident. We are expecting significant revenue growth of 10% in the first quarter. supported by pricing power and robust underlying demand. We executed our pricing strategy to drive outsized rent increases led by Atria and Sunrise. Leads in our year-over-year same store pool of 321 assets exceeded 16,400 in January, the highest volume achieved since before the pandemic. We expect a strong supply-demand backdrop to further support lead and occupancy growth. Supply levels are expected to trend favorably, as construction starts and deliveries have improved significantly versus pre-COVID levels. Additionally, our footprint is well positioned, as we witnessed new starts in just three of our top 20 markets. Needless to say, I am very encouraged by the fundamentals supporting our business and the opportunity for growth moving forward. Bob will cover our first quarter guidance shortly, but for SHOP, it includes 10% revenue growth at the midpoint and 6 to 15% NOI growth at the lower and upper ends, respectively. The main variable affecting the NOI range will be operating costs. In January, The surge in COVID cases among employees pressured the availability of caregivers in what was already a challenging labor market. Our communities have continued to make progress implementing workforce management and efficiency initiatives. Net hiring trends are showing early signs of improvement as recruiting resources have been bolstered, labor monitoring capabilities have been enhanced, and targeted competitive wage increases have been executed. We are hopeful the improving clinical backdrop and the operating initiatives will take hold and support the high end of our guidance range, but the midpoint assumes the costs remain elevated. Moving on to portfolio actions. Having been here for two years now, I couldn't be happier with the ability of Ventas to execute on key priorities related to senior housing. We have been extremely action oriented. executing on acquisitions, dispositions, transitions, resolutions, and targeted capital investments, and strengthening our strategic approach to managing the senior housing platform. The Ventas advantage is that we have very deep operational experience in the senior housing sector. We've married this operational expertise with our sophisticated analytical capabilities to execute strategic portfolio actions enhance performance management, and drive targeted capital investment. Building on the strength of our experienced best-in-class operating partners, we are fully engaged in our aligned interest to create value in our senior housing business. Our latest initiative involves the deployment of our Ventas OI in close partnership with our operators. Ventas brings to the table an emphasis on operational insights, geospatial analytics, and capital allocation priorities. I couldn't be more pleased with the excitement amongst the operators and my team as they've engaged in this together. Some examples of outputs include in-depth pricing strategies, workforce recruitment and retention management, targeted value creating CapEx, and formulation of best practices. This approach takes the best of what Ventas has to offer in a collaborative effort with our operators to drive business results. We've taken several decisive actions as we continue executing on our strategy of the right asset in the right market with the right operator. Since the start of 2021, Ventas has added six new senior housing operating partners, bringing our portfolio to a total of 37 relationships. This portfolio balance, along with the deep industry experience of our operators in their respective markets positions us to grow our relationships and strengthen our senior housing platform over time. Recent portfolio actions include the sales of 29 non-core senior housing properties in 2021, resulting in approximately $400 million of gross proceeds. These communities represented orphan assets in markets with elevated competition and in need of significant capital investments. More recently, we completed the acquisition of Mangrove Bay and are thrilled to add this premium 160 unit senior housing campus to our growing portfolio. What a great opportunity to recycle capital out of non-core assets at a two and a half yield and into a Class A asset at five and a half in an attractive market. Turning to fourth quarter performance, Total Shop NOI achieved the high end of our expectations in the fourth quarter of 21 and same store average occupancy in the fourth quarter of 21 versus the fourth quarter of 20 grew by 200 basis points to 83.4%. Rate and revenue grew for the first time since the start of the pandemic as same store revenue increased 3.3% year over year. As we anticipated, operating expenses excluding HHS grants increased sequentially by 8.7 million or 2.6%. the majority of which was driven by incremental labor expenses. Shop NOI excluding HHS grants for the sequential same store pool declined modestly by just 1 million or 90 basis points. And NOI for the year over year same store pool declined 3.8 million or 3.6%. Both are leading results among peers. For the non-same store pool, underlying performance was stable. In closing, My enthusiasm for the outlook in our senior housing business remains high as we are well positioned to succeed in what we expect to be a favorable macro backdrop. With that, I'll hand the call over to Bob.
spk04: Thank you, Justin. I'm going to jump straight to our first quarter outlook and finish up with a few summary thoughts on our balance sheet before turning the call to Q&A. Our Q1 guidance is for net income to range from $0.07 to $0.11 per fully diluted share. Q1 normalized FFO is expected to range from $0.76 to $0.80, or $0.78 at the midpoint. Incorporated in our guidance is $0.08 of HHS grants received in Q1-22. When excluding HHS grants in both periods and adjusting our Q4 for the one-time $0.03 kindred M&A fee received in the quarter, we are describing a Q4 of $0.68 to a Q1 of $0.70. That growth can be simply described by $0.02 sequential growth from our senior housing portfolio. In terms of Q1 2022 property expectations net of HHS grants, we expect Q1 year-over-year same-store cash NOI for the total same-store portfolio to grow in the range of 2.5% to 5.5%. At a segment level, our shop guidance is to increase occupancy 410 basis points year-over-year. to grow revenue by 10% led by occupancy gains and strong in-place rate increases, and to grow NOI in the range of 6% to 15% ex-HHS grants. At the guidance midpoint, Ventas expects operating costs to remain elevated through the first quarter, even as COVID-19 clinical conditions moderate. We expect our triple net portfolio to be down 1.5% to flat in the first quarter. With escalator-led growth, offset by modest rent reductions in the TripleNet senior housing portfolio from the impact of the pandemic on some of our smaller tenants. Over time, we anticipate the benefits of the senior housing recovery will accrue to these operators as well as to Ventos. We expect a third of our portfolio, that is the office business, to grow Q1 same-store NOI by an attractive 4% to 5%. Pete Bulgarelli has led a series of differentiated operational initiatives and MOBs in the last few years, which are really bearing fruit. The results of these efforts were evident in the excellent fourth quarter performance for the MOB portfolio, which grew same store fourth quarter NOI by 3.4%. The second quarter in a row where same store growth exceeded 3%. Meanwhile, MOB new leasing was up approximately 55% and customer retention was 92% for the quarter. That strength is expected to carry into the first quarter. Final Q1 guidance assumptions of note include no new HHS grants beyond the 33 million already received, no new unannounced material acquisitions or capital markets activities, and 403 million fully diluted shares. We have provided additional insights and disclosure in our business update deck and our supplemental, including our Q1 versus Q4 sequential shop assumptions, as well as a reported segment NOI to FFO trending schedule. to allow for easier insight into unique items in our results. Some final comments on balance sheet leverage and liquidity. In 2021, the company enhanced its portfolio and strengthened its balance sheet through $1.2 billion in asset dispositions and loan repayments used to reduce near-term debt. Meanwhile, we extended duration and increased our fixed rate debt to 91% by tapping into the bond markets in the U.S. and Canada, including a 10-year U.S. unsecured offering at 2.5%. the best 10-year health care rate in 2021. Net debt to EBITDA was stable at 7.2 times in the fourth quarter, with the senior housing recovery now underway, expected to improve that ratio over time. And that's a good segue to close with our enthusiasm as we look into 2022 based on the strong senior housing recovery that is now underway and the confidence that we have the portfolio, partners, and team to create value for all our stakeholders. And that concludes our prepared remarks. Before we start with Q&A, we're limiting each caller to one question to be respectful to everyone on the line. With that, I will turn the call back to the operator.
spk10: Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll take our first question from Nick Joseph with Citi. Your line's open.
spk08: Thank you. Thank you. And first of all, thank you for the increased disclosure. It is very helpful. But I guess my question will be on senior housing. So clinical trends continue to trend favorably and assuming there's no disruption from another variant or anything. How do you think about the ability to decrease the use of agency labor going forward?
spk15: Hi, it's Justin. So if we step back and you look at the kind of macro backdrop that was causing labor shortages, this was happening in the third quarter. We anticipated that that would continue into the fourth quarter. What happened during that period is we had net hiring in our portfolio, so we were encouraged about the hiring trends. And then Omicron happens, and that really had a big impact in the first part of the first quarter. You can see some trends in our business update where we show the clinical cases among our employees. And what's encouraging is you can see that those cases are coming down. But we're not all the way out of the woods yet. to have a healthy workforce. Um, the second thing is to continue those net hiring trends. Um, and then, you know, as that continues, then we would expect, uh, the agency cost to, to be able to come down.
spk11: And next we'll go to Steve Sockwell with Evercore ISI.
spk00: Great. Thanks. Good morning. Um, I just wanted to stay on senior housing, uh, Justin, you know, the, the leads and, and, uh, They're certainly positive here. And I'm just wondering if you could talk about maybe the sales cycle. And I realize you're forecasting for a modest decline in occupancy in Q1. But I'm just wondering, given the pent-up demand that seems to be there and the fact that cases are coming down so quickly, what's the chance that you could actually move folks in maybe later this month and into March and exceed kind of the minus 20 basis points on the occupancy side?
spk15: Hi, sure. So you know, you know, you've probably noted that leads are really high. In fact, I mentioned that they're the highest events since the onset of the pandemic. Leads are going to be critical, you know, to supporting this, the senior housing recovery that's underway. Getting to the kind of your question, it certainly seems possible that the move ins that didn't move in late January, could flow over into February, and we would definitely qualify that as pent-up demand. As you know, a lot of the moving activity happens towards the end of the month, so we're looking forward to see how that plays out.
spk11: Next, we'll go to Rich Anderson with SMBC.
spk10: Your line's open.
spk22: Thanks. Good morning. So, you know, Welltower had their call this week and suggested that they would never be an elephant hunting type of company in terms of external growth. I'm curious if you have a red line through that mentality as well, and specifically I'm thinking about how you identified senior housing and life science as your strategic priorities. Could a scenario unfold where MOBs become, you know, given the pricing that's being attributed to that sector, be a significant source of funds to be redeployed in some significant way that would qualify as elephant hunting? Thanks.
spk01: Hi. Rich, good to hear your voice. Look, I think our – competitive advantage has really always been our ability to do all different types of deals across our asset classes and to do so in a way that's created value. And that includes sort of getting into MOBs early and building a great business. It includes, of course, allocating capital to senior housing. And most recently, our significant investment in value-added life sciences. I mean, that has just been really incredibly positive for our shareholders. So we have sold MOBs, as we talked about this quarter. I think recycling that capital has enabled us to upgrade our portfolio in a very positive way, and we'll continue to look for opportunities to do that, while at the same time, our investment activities will continue our long pattern of really picking our spots where we have a competitive advantage and think we're going to add value from good risk-adjusted return.
spk11: Next, we'll go to Nick Yoluko with Scotiabank.
spk10: Your line's open.
spk23: Great. Thank you. In terms of just going back to the agency labor costs, I wanted to see if you guys had the number for the whole portfolio or at least I know you break it out for the same store in the presentation, which is very helpful. It's 7.7% of labor. But you have the bigger portfolio now with New Senior and others. So I'm just trying to understand a full agency labor number that was in for the fourth quarter. And when you're saying for the first quarter that it's going to be elevated, is it just literally the same amount of agency labor in the first quarter? Absolutely.
spk04: Hey, Nick, it's Bob. I direct you to page 16 of our investor deck. I think there's a nice description of the pie chart of revenue and its decomposition. And you can see within that in-house labor is 42%, contract labor is 4%. You can apply that to the entire portfolio or subsets of the portfolio. It'll give you the same relative composition. And you'll see the picture down below of what that means for the year-over-year pool. Though contract labor is important, and it has accelerated, and indeed in January accelerated even further, the underlying costs really are driven by the in-house labor, and that is really the key, and hence that's why we're so focused on bringing that in-house. Should we do that successfully? That's clearly upside given the cost per hour, but ultimately it's a much smaller piece of the overall cost than in-house labor, but clearly an opportunity there. And you can apply that percentage to whatever pool you'd like to get the answer.
spk11: Next, we'll go to Jordan Sadler with KeyBank Capital Markets. Your line's open. Thank you and good morning.
spk09: Can you guys discuss, you know, Justin, you touched on the non-same store portfolio in the quarter. I think the comment I heard was that performance was stable. I'm curious if you could kind of flesh that out for us a little bit, specifically as it relates to the 90 transition properties that took place, what's going on with those, and then what's embedded in your guidance for 1Q sequentially for the transition portfolio?
spk04: Let me take the numbers first, Jordan, and I'll let Justin give some of the color. The outperformance, the high end of our range that we delivered in the fourth was led by senior housing within, led by the non-same store portfolio. You know there are two pieces of that in the fourth. There's new senior in the transition 90 assets. Both those pools performed well at the higher end of our expectations, which we're really pleased with. The assumption carrying that then into the first is continued stability, notably within the transition 90. The new senior assets I'd highlight are in the sequential pool in the first. And so as you look at the guidance for the sequential pool, you'll see the impact of new senior, which is growing nicely. And that's the outlook. So Justin, any commentary on the 90 and how it's going?
spk15: Yeah, the only thing I'd add is that we, you know, as planned, we successfully transitioned all of those communities by the first of the year to seven different operators, and everything's going relatively smooth.
spk11: Okay, next we'll go to Stephen Valiquette with Barclays.
spk10: Your line's open.
spk20: Hey, thanks. Good morning, everybody. So just a question or two here on the triple net portfolio. So Ventas turned the corner with a slightly positive SSNOI in the fourth quarter in triple net. With the guide for that to be down 1.5% to flat in the first quarter at 22%, but with senior housing on the road to recovery overall, can we, you know, assume that the rent resets are, you know, hopefully behind us now within the triple net portfolio?
spk12: Good morning.
spk01: Thanks for your question. I think we have a page on this also in the business update. We have really been action-oriented, as Justin talked about, and have addressed, you know, the lion's share of our senior housing portfolio, which is really 50% Brookdale. And you've seen the EBITDA guide they have there. Because of the length of the pandemic, there are a couple of small operators that are still challenged by the length of the pandemic. And really the outcome there is pretty dependent upon HHS support, but more importantly, the recovery in the senior housing business. which we expect to be robust, and we expect to get the benefit of that over time.
spk11: Next, we'll go to Juan Sanabria with BMO. You're lined up.
spk06: Hi. Just hoping to follow up on Stephen's question. The triple net portfolio, what percentage is paying kind of cash, one times EBITDA, and can you quantify the potential upside there? as those leases revert to market, to the contract rents?
spk13: Yeah, sure.
spk15: As Debbie said, the operators that have had elongated challenges, there's just a few, and they each represent less than 1% of our overall portfolio. Those operators will benefit from HHS funds. They'll benefit from operational improvements and the recovery of senior housing, just as our shop portfolio does as well. So we're anticipating that the triple net would behave similarly to our shop portfolio. We do have some cash flow paying tenants, and that's in a range of around 15% to 20%.
spk11: Next we'll go to Vikram Malhotra with Mizuho. Your line's open.
spk02: Morning. Thanks for taking the question. So maybe just stepping back, Debbie and Justin, just thinking about sort of the external growth piece of it, as you outlined the track record and what you've done in 2021. As we look to 22 and 23, can you talk about just how you think about growing in seniors housing? in particular with what you're seeing fundamentally, the longer-term growth opportunities, and maybe specifically talk about on balance sheet versus maybe using more of a JV structure.
spk19: Good.
spk01: I'm going to ask John Cobb to address the senior housing question, and I would expect most of our senior housing to be on balance sheet.
spk24: Yeah, and this is John Cobb. Yeah, I mean, I think most of our pipeline, which is fairly robust today, really kind of mirrors what we talked about in 2021. We're seeing a lot of senior housing. We're seeing some select life science development opportunities with our partners, Wexford. And we're seeing, you know, a few medical office buildings, mainly with our existing partners that we have in our portfolio. But by and large, it's senior housing. We're seeing some really good high-quality portfolios out there. that we expect to transact in 2022. So we're very excited and looking forward to looking at these transactions and hopefully acquiring them.
spk11: Okay, next we'll go to Teo Akusana with Credit Suisse. Your line's open. Teo? Go ahead, your line's open. Hello, can you hear me? Yes, go ahead.
spk03: Yes, we can. Perfect, yes, good. Good morning, everyone. Good quarter, great to see things heading in the right direction. Thank you. I wanted to move off senior housing, talk a little bit about the office portfolio. And then in 4Q, really strong seems to NOI growth yet again from the MOB, somewhat weaker on the life sciences side. I wondered if you could talk a little bit about what happened with both areas to kind of perform the strong performance, the somewhat underperformance, and then how we think about that going forward in 2022.
spk01: Well, you made Pete Bogarelli's year. So, Pete, can you address the fourth and the first?
spk14: Yeah, to figure out how to turn on my mic. It's just so rare that I get questions. Yeah, so let's first talk about MOBs. We had a terrific, really, second half in 2021. As Bob had already mentioned, we did a significant amount of new leasing. Really, for all of office, we did 3.7 million square feet of total leasing. The new leasing was substantially higher than 2020 for MOVs and even higher than 2019. Retention, as Bob mentioned, was 86% for the full year. For the quarter, it was 92%, and most exciting for December, it was 95%. What I would say is that it just wasn't a lot of leasing in MOVs. It was really high quality leasing. Just to give you an example or two, our weighted average lease term for new leases were nine years. And what that did, that's for the quarter, and what that did is extended the whole portfolio's vault from 4.8 years to five years. Same thing on escalators. Our escalators for new leasing were 2.9% for the quarter. And that increased the whole portfolio's escalators by 30 basis points. So very substantial. And what that allowed us to do is to grow for the first time in a long time, two quarters in a row at 3% per quarter. So if you project forward on MOBs in the first quarter of 22, we'd expect that trend to continue really on the basis of growth having higher occupancy late in the year and that carrying over. And I can tell you in January, we're on track in MOVs to achieve what we said we're going to do. So I'm moving to R&I, and I'll go back to the fourth quarter. I think you need a little context. In R&I, we had a very good year. We grew by 13.9% for the full year. And without the termination fee, we still grew by almost 4%. If you look at the supplemental, revenue was fine. We had good revenue for R&I in the fourth quarter, but we had some higher expenses than normal in the fourth quarter, mainly around as buildings start up, you go from dirt to a building to an occupied building, real estate taxes take a while to kind of catch up. And that's one of the factors in the fourth quarter. We had a very large tax payment in the fourth quarter. Secondarily, Many of the buildings kind of came back to life. They became occupied again in the fourth quarter. As a result, utilities went up significantly. In addition to in Baltimore and in Philadelphia, two of our larger locations, there were large utility rate increases. So we're very happy with the R&I performance in 21. So if you project forward to 22, they will cover the balance of what I already described for MOVs. It'll be largely on occupancy growth carrying into the first quarter and strong expense control. So I'm very bullish about the office business really in 2022. Sorry for the long answer. I got carried away. All right.
spk10: Next, we'll go to Joshua Dinnerline with Bank of America. Your line is open.
spk16: Yeah. Hey, everyone. Hi. I just wanted to ask about Maybe the residential or the resident renewals going out now. I know for the January one, it was 8%. Just curious how they've trended for the people rolling later. And then maybe just an update on the releasing spreads and how we should think about them going forward.
spk01: Yeah, I'm glad you raised that because obviously as we talk about, you know, revenue growth and the in-place January one rate increases are extremely important. I think it's important to note that that applies to a part of our portfolio and will continue to have pricing opportunities as we deal with the anniversary renewals and rate increases, as we deal with new residents coming into the portfolio as occupancy is increasing, and also the care component, which can increase throughout the year. So those are all opportunities that we have in front of us. And obviously, it was a good start with the 8% increase in January.
spk15: And then I would just add that as we're working to identify what the appropriate pricing is moving forward, as I mentioned, Ventas OI, which really stands for Operational Insights, and really taking the best of our data analytics, combining it with our operating experience and the experience and expertise of our operating partners, we collect vast amounts of geospatial data on demographics, wealth, penetration rates, new construction to train our demand and supply forecasting models, which have been remarkably accurate as it pertains to decision-making on pricing, acquisition dispositions, So we have that approach at our disposal and the levers that Debbie mentioned around care, street rates, and the anniversary rent increases that will happen throughout the rest of the year.
spk01: And the demand that we're seeing from the leads obviously demonstrates the value proposition and the strong consumer demand for these services. And so that is a tailwind as well that should support these efforts.
spk04: I'll add, I don't know if you mentioned this, the releasing spreads have been improving. You know, market prices is firming. Yeah, it's obviously fundamental.
spk01: Yes.
spk04: So the combination of the in-place increases and improving releasing spread, the care component, which can be priced throughout the year, and the anniversary pricing, you know, in a dynamic inflationary environment, there's a number of different levers at our disposal. Thanks, Josh.
spk11: Next, we'll go to Richard Hill with Morgan Stanley.
spk10: Your line's open.
spk17: Hey, you have Adam on for Rich. Good morning, guys. I hope you guys are all well. Just wanted to kind of ask about the kind of the expense control and the agency labor, you know, recognize the kind of the pressures there. Kind of wanted to see if you could maybe kind of quantify the kind of December versus January versus February to date impacts, you know, how have trends gone? You know, agency labor usage increased over these three months, decreased, kind of, if you could just kind of quantify the sequential moves, I think it would be kind of helpful to think about how kind of the quarter's playing out and what kind of the outlook would be for the next couple quarters.
spk04: Sure. Again, I'll direct you to page 16 of the business deck, because I think it's nice to be able to see how labor breaks down. And for this pool, there's $16 million of contract labor in the fourth quarter. I'll call it just $5 million-ish on a run rate basis. We saw that accelerate to call it $6 million in December and into January. And that's what we've effectively carried forward in our assumptions. Each pool is different, but that kind of gives you a flavor of it. Clearly, if the clinical situation improves, the staffing continues to get traction, that would be an opportunity. But that's how we dimensionalize the cost.
spk11: Next, we'll go to Michael Carroll with RBC Capital Markets.
spk05: Yeah, thanks. You guys did a good job detailing your recent capital recycling transactions. I guess, where does Ventas stand in that overall process? I mean, how much of the current portfolio, specifically in the seniors' housing, kind of falls in that non-core bucket that the company would likely to eventually sell out of?
spk13: Hi, it's Justin.
spk15: I'm happy to report, as I was mentioning all the actions we've taken, that the heavy lifting is really behind us. There will always be some non-core assets that we're looking to sell or transition or invest in or do something to create value, but it will be a small number moving forward.
spk10: Okay, next we'll go to Mike Mueller with J.P. Morgan.
spk08: Yeah, hi. For the $205 million of 4Q shop labor, where do you think that number goes to if you're fully staffed at market prices but without the heavy contract labor component?
spk04: The real question I think that you have to answer for that is what's happening to the $189 million of in-house labor?
spk18: Right.
spk04: Again, I think the focus is very much and rightly so been on contract labor, but the key in terms of total cost is in-house labor. and that gets to the macro question of where the labor market and therefore inflation go, which I'm not going to pretend I know the answer to. I think the economists will tell you, many of them, that that macro situation will improve in the back half. We subscribe to that, but very tough to call, and so we're not going to make a long-term forecast.
spk19: And in the near term, we're projecting essentially a run rate in the quarter.
spk04: Great.
spk10: Next, we'll go to John Pawlowski with Green Street.
spk07: Hey, thanks for the time. Justin, quick question for you, and apologies if you've chatted about this in recent quarters, but I'm hoping you can help quantify the operating upside of recent initiatives you've rolled out and you are currently rolling out. I'm new to the company, so just trying to understand how much higher the earnings and NOI power of the shop portfolio will be under your purview versus the Vantasa Volt?
spk13: All right. Yeah.
spk15: Well, you know, so there's been a lot of actions over the last couple of years. Certainly, some priorities were accelerated based on the fact that we were going through the pandemic. And, you know, the goal of all of the actions, you know, whether we're acquiring or disposing or making a decision to invest CapEx, transitioning assets under new management is to create value and create just a greater opportunity to drive NOI over time. So I think really time is going to tell. We're off to a good start. We're pleased that we set expectations in the fourth quarter and we're able to meet those expectations. And we are excited about the growth in the first quarter. Off to a good start.
spk10: Next, we'll go to Daniel Bernstein with Capital One. Your line's open.
spk25: Good morning. Nobody get excited. I'm going to ask an MOV question. Go ahead. Not just you guys, but your peers have also spoken the last several quarters about better releasing spreads, better annual rent bumps in MOVs, and so Given an inflationary environment, you know, kind of what, how do you think the rent bumps can improve going forward? I mean, can we push north of 3% on rent bumps? Can we see higher releasing spreads? And kind of what's the willingness of tenants and MOBs to accept that? In the past, that hasn't been the case, but recently it seems like it has been.
spk01: I mean, one thing that's really important to remember in the MOB business is that the assets are priced and have a low cap rate because of the reliability of the cash flows, as we've seen over the past two years, the benefit of that and the reliable growth. They also have higher margin, a much lower labor component, and so you have to look at both sides of the equation, I think, when you're thinking about the risk-reward of the asset class. And so, you know, Pete can answer, you know, we ask him every 15 minutes if they can get higher escalators. And so we'll let him answer that.
spk14: Daniel, I think it's a great question. This is Pete. And, you know, given that our portfolio is largely on campus, there aren't a lot of options just sitting there waiting to compete with you. Usually it requires new construction to compete. And certainly with inflation and the environment we have today, The cost of building a new MLB and the required leasing rates have gone up. And so our leasing team is very location and city specific as far as what's happening to the demand of medical office space as well as construction costs. But in many cases, we're competing against brand new medical office buildings, which does give us room to raise our escalators, and honestly, our initial rental rates.
spk01: Yeah, and remember, you're pushing through the expense increases to the tenants as well. So you really have to look at the revenue and the expense side to really evaluate the benefits of the MOB.
spk14: Yeah, we only have a couple of percent of our leases that are gross leases. The rest are some fashion of pass-throughs of expenses. Thanks, Daniel.
spk10: Next, we have a follow-up from Juan Sanabria with BMO.
spk06: Hi, just a quick modeling question. For 2022, realizing you're not giving full year guidance for earnings, but just wanted to get a sense of what you guys are expecting from a FAD, CAPEX, and G&A perspective for those two line items.
spk04: Sure. So I'll start with G&A. We did give 37 million number for the first quarter with stock comp amortization, which is, you know, our FFO treatment on that. So 37 million. And if you look at just 2021 G&A, you know, obviously that was a very good year in terms of year over year in cost management. We hope this year we get back to normal, you know, business as usual to some degree, which will obviously have an impact in terms of just T&E and things like that going up. But first quarter, you know, very much in line with first quarter year over year, frankly. In terms of FAD CapEx, really there's a few things I'd highlight. Obviously with the acquisitions we've done, particularly New Senior and a higher shop portfolio base, there's more FAD CapEx dollars. And secondly, and Justin should touch on this, more opportunities for us, I think, to really focus using our OI as now branded to identify opportunities to invest in the portfolio. And so we'll see some acceleration there.
spk15: Yeah. And I just say consistent with, you know, some of my other comments and the goal is to create value. You know, CapEx is a tool at our disposal and with the use of our analytics and operational expertise and combined with the operating partners, local market experience, we can make smart choices and anticipate returns on that investment.
spk11: Okay. Next, we have a follow-up from Jordan. We have a follow-up from Jordan Sadler with KeyBank Capital Markets.
spk19: Okay.
spk09: Thank you. A quick one here for you, Justin, and then a follow-up to Bob. Just, Justin, shape of the recovery this year, just mathematically, I'm curious – if you've taken a look at the portfolio uplift potential throughout the year, I mean, could this year look similar to last year in terms of the occupancy gains, given sort of the strengths and leads you're seeing early on? I know it's very difficult to look out, but I'm kind of saying mathematically given sort of the, you know, a bit of an increase in occupancy already, how are you thinking about, you know, sort of, you know, the potential left-listed occupancy throughout the year in the shop portfolio. And then, Bob, just on the asset sales, or actually there's a loan maturing this year. It looks like almost $500 million. I'm just curious about timing or expectations. Will it be repaid or extended? Thanks.
spk01: Yeah, I'll take the loan. That's a loan that can be extended. And so that's our expectation at the current time. And then in terms of, you know, occupancy, I think we're projecting significant year-over-year occupancy in the first quarter, which has been outperforming yet following seasonal patterns. And so that is something to think about when you're looking at this slope for the year.
spk11: Next, we have a follow-up from Teo Akusana with Credits.
spk03: Yes, thank you very much. This one's for Justin, maybe Bob. You did talk about the releasing spreads improving but still being negative. And I guess the question I have is, with that still being negative, I guess I'm still somewhat surprised that you can push rent renewals as high as 8%, especially given, again, industry-wide occupancy is still well below where it was pre-pandemic. trying to understand those dynamics of why is it that you don't get that much pushback when there's still a high vacancy industry-wise and market rates are still kind of below where renewal rates are.
spk01: That's a great observation. I think it really does go to the value proposition that's being offered by the communities for the teachers and their families that at this level of occupancy, we have been able to successfully reduce drive pricing in the first, you know, as of the beginning of the year. And that portends well kind of for the future as occupancy increases. So, Justin, do you want to talk about the normal releasing spreads and how?
spk15: Sure. Yeah. So, you know, the releasing spread, you know, Bob mentioned this, that, you know, we saw it tighten, you know, through the end of 21, even all the way back to pre-pandemic levels, which were, like, negative mid-single digits. The high-class problem is that we have the large increases that happen in January, and then you start comparing to relatively higher rents. And so technically the releasing spread widens, but it doesn't mean that your pricing power doesn't continue to improve. And one thing that we do look forward to that this backdrop seems to support is the opportunity, given the demand at the doorstep, to eventually get to a place where you have positive releasing spreads again, which we've had throughout the sector's history. We've seen that at times, and certainly there seems to be support moving forward for that to happen again.
spk19: Thank you, Tayo.
spk11: Okay, next we'll go to a follow-up for Vikram.
spk10: Mahota with Mizzou.
spk02: Thanks so much. justin justin maybe one uh broader question as we look into second half 22 and 23 you know with a new senior and just your other acquisitions you now have more of a tilt towards il versus al in the ridea pool eventually uh same store pool what does that mean uh from an expense growth standpoint and then a pricing bar standpoint for the second half and 23.
spk15: Well, certainly independent living is a high-margin business, has relatively low labor costs compared to assisted living. It's a little less need-driven, so you may not see the occupancy pop, but we expect a higher ceiling in occupancy and independent living over time because there's less supply that faces it. And that's consistent with historical track record of independent living as well. So we look forward to revenue growth in the independent living communities and certainly assisted living is need-driven. It performs well. It seems like no matter what the backdrop is, as long as there's a way to pay for the service, which given the housing values and wealth demographics, there is. And so we expect that to continue as well. And the opportunity really is to price in labor costs over time. And as we've said, we're off to a good start given our high in-house rent increases.
spk01: One other thing we like about independent living is really it meets, you know, this is we're getting to the period now where the overage is growing over 3%. So we're really hitting kind of that demographic boom. And the independent living tends to meet that customer at a little bit earlier age. So that's another part of the business in addition to kind of the lower labor costs that we like.
spk12: Great. Okay. Oh, we have one more question. Okay.
spk10: Next we'll go to Nick Joseph with Citi.
spk09: Hey, it's Michael Bellarmine here with Nick. Good morning. Good morning. I just wanted to go just in terms of acquisitions, in terms of the fund. You know, as your cost of capital has improved, both from a debt and equity perspective, how do you sort of look at that opportunity to buy within the fund relative to on balance sheet? And how are you balancing that as you're looking at the transaction market for opportunities?
spk01: Yep. Thank you. Yeah. So the fund's a great tool. Obviously, our VIM business is going strong. and it gives us a great tool to continue to grow. It was very, the fund itself was very thoughtfully conceived in order to be a net additive component of our growth strategy, so that it really is designed to address, you know, we're very disciplined about capital costs and capital allocation, and so it's really designed to address many of the opportunities that were really not as attractive to us on balance sheet because of the relationship between our cost of capital and the pricing of that type of assets. You know, a great example is our South San Francisco Life Science Building, our Johns Hopkins Life Science Building, which were put in the fund with great success, and those are things that we may not have been able to acquire had we been doing it on balance sheet, but now we have 20% interest in it, we have asset management fees, we have ultimately other types of economic incentives if the performance is good, which it has been. So a very thoughtful kind of defined strategy to use them to grow our business for the benefit both of our public shareholders and the third-party institutional capital.
spk10: And that concludes today's question and answer session. I'll now turn it back over to Deborah Cafaro, Ventus Chairman and CEO.
spk01: Well, it's been a great call and I'm very glad to end the year on a very good quarter and look forward to another positive one in the first. I really want to thank everyone for joining our call today. I can't tell you how much we appreciate your ongoing support and interest in the company, and we look forward to seeing you in person soon. Thank you.
spk10: And this concludes today's conference call. You may now disconnect.
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