Ventas, Inc.

Hello and welcome to the Ventus Reports 2023 second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Sarah. Good morning, everyone, and welcome to the Ventas second quarter financial results conference call. Yesterday, we issued our second quarter earnings release, supplemental investor package, and presentation materials, which are available on the Ventas website at ir.ventasrete.com. As a reminder, remarks today may include forward-looking statements 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 in 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, and for a reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental posted on the Investor Relations website. And with that, I'll turn the call over to Deborah A. Caffaro, Chairman and CEO.

Thank you, BJ, and good morning to all of our shareholders and other participants. We want to welcome you to the Venta second quarter 2023 earnings call. We are pleased with our enterprise results this quarter of normalized FFO of 75 cents per share. This strong result reflects broad-based property NOI growth across our diverse portfolio. with all segments contributing positively, and same store year-over-year cash NOI growth of 7%. Our shop communities led the way as we continued to benefit from the multi-year growth and recovery cycle underway in senior housing. Notably, our U.S. assisted living portfolio grew NOI 32% year-over-year. Our outpatient medical and research and our triple net lease portfolios complemented the shop growth. We are also reaffirming the full year normalized FFO per share outlook we provided to you earlier in the year. At the midpoint of $2.97 per share, our guidance reflects 5% year-over-year growth and the sixth consecutive quarter of year-over-year growth. At a high level, The key drivers of our normalized FFO per share for the year are consistent with those we shared originally. That is significant property-related growth approximating $0.29, partially offset by a $0.16 impact of higher interest rates. I'd like to unpack for you some of the recent developments and share some key highlights. We are off to a strong start with a portfolio of 153 properties we took ownership of on May 1 by converting our Santerre mezzanine loan to equity. The portfolio consists of over 40% outpatient medical buildings, over 40% triple net healthcare facilities, and the balance shop communities. There are three key components of our improved outlook for the portfolio. First, we've increased our expectations for annualized NOI from the portfolio to $104 million from about $93 million. This improved outlook is the result of our intense focus, our team's experience and capabilities, certain positive operating trends, and strong early returns. We believe the timing for taking ownership is advantageous and that our experience will help us maximize cash flow from this portfolio over time. Second, valuations. We stated last quarter that we believe the portfolio was worth about $1.5 billion, equal to the debt stack. Third-party independent valuation experts now value it at 4% above that level. At our $1.5 billion cash investment basis, the per pound valuation on the portfolio is below replacement costs. Third, we replaced the $1 billion senior secured loan on the portfolio with a permanent capital structure at an attractive all-in rate, further enhancing the portfolio's FFO contribution and demonstrating another way that Ventas' strengths can drive cash flow improvements on the portfolio over time. In addition, as previously indicated, we are also selectively starting to dispose of certain of the assets and expect to sell about $60 million in SNFs later this year at a mid-8 cash cap rate. So, while we have more work to do, we've had good success so far, and our cross-functional teams are intensely focused on maximizing the value and the NOI of the portfolio. Looking at our broader enterprise, in SHOP, we continue to strongly believe in and experience the demand-driven multi-year growth and recovery cycle. We have runway in front of us to recapture about $300 million of NOI as we return to pre-pandemic margins and occupancy and perhaps exceed that level because of favorable and improving supply-demand fundamentals we expect over the next three to five years. With virtually no construction starts in our markets and industry starts at the lowest level since 2011, The over 80 population is set to grow 24% over the next five years. Thus, we are well positioned to continue to enjoy outsized growth. Demand continues to be strong. Our shop performance in the quarter was led by U.S. Assisted Living. We benefited from strong RevCorps growth and moderating expense growth, as anticipated. And our highly occupied Canadian portfolio continued to shine. Occupancy in our holiday U.S. independent living portfolio lagged our expectations during the quarter. These are good assets in good markets, and Justin and his team are taking significant steps to drive performance, utilizing the proven Ventas OI playbook that has been so successful since Justin joined us. Our outpatient medical and research portfolio, which is about a third of our business, had another outstanding quarter with nearly 4% year-over-year same-store cash NOI growth. Both outpatient medical and research contributed equally to this good growth and performance, which have been impressive and consistent under PEATS leadership. Outpatient medical has now delivered year-over-year same-store cash NOI growth of over 3% in seven of the last eight quarters. and year-over-year same-store occupancy growth for eight consecutive quarters. New leasing in the second quarter was up 35% over the prior year. Across our large 10 million square foot research portfolio, our university-centered portfolio continues to benefit from a credit-worthy tenant mix and a robust pipeline of leasing demand from universities and government institutions with 600,000 square feet leased in the first half to high quality tenants. And we are actively engaged in late stage conversations with multiple large users for over half a million square feet. Finally, quality tenant interest continues to be high in our $425 million Atrium Health, Wake Forest University School of Medicine Development in Charlotte, North Carolina. With recent activity, we are closing in on 80% pre-leasing, even though we are still in the early stages of construction. Moving on to capital raising, we continue to prioritize our liquidity, financial strength and flexibility. We had significant successes in raising $2.4 billion in capital across diverse markets so far this year. These transactions evidence the competitive advantage of our scale and the skill and discipline we have in sourcing attractively priced capital, even during dynamic market periods. I'm pleased that we're now in a net cash position with over $3 billion of liquidity. Thanks, Bob. We also have an active pipeline of investment opportunities, both for Ventas' portfolio and under the umbrella of VENTUS's third-party institutional capital management platform. In particular, we expect to complete about a quarter billion dollars of investment within VIM later this year, focused on core outpatient medical buildings and stabilized growing senior housing communities. With its existing capacity and investment objectives, VIM provides a competitive advantage for us as we use our platform to capture opportunities, in a disrupted market for high-quality assets. Overall, on the investment front, we remain focused on assets with outsized embedded growth potential and high-quality stabilized assets and portfolios with good risk-reward characteristics. Cap rates continue to show a wide dispersion even within asset classes, depending upon the credit profile, growth potential, and price per square foot or unit. We see some high quality outpatient medical buildings with strong hospital systems and good credit and life science assets trading in the mid to low fives, while other assets with more garden variety characteristics or risk profiles have gapped out. There is a significant opportunity in front of us to lean into the senior housing growth and recovery story as good assets with challenged financing profiles look for solutions. We are heading into the peak years for senior housing loan maturities through 2025, with over $20 billion in debt coming due. With occupancy still about 500 basis points below pre-pandemic levels and rising interest rates, we're beginning to see significant opportunities to generate higher returns on quality senior housing assets. We are well-placed to capture these opportunities with our Ventas OI tools and analytics, our team, our ability to raise capital, and our expanding group of operator relationships. Against a dynamic macroeconomic backdrop, we remain advantaged given our size, liquidity, and the strong fundamentals across our portfolio. Our asset classes benefit from a compelling demand outlook. While the external environment this year has been unpredictable and volatile, at Ventas, we have been laser focused on execution, performance, and growth, and delivering returns for our shareholders. Our team has really accomplished a lot across our enterprise and handled every macro and specific challenge that's come our way with focus and enthusiasm. I greatly appreciate their commitment to Ventas and our stakeholders. Our enterprise momentum is strong. We're capitalizing on the large and growing demographically driven demand across our business and the unprecedented organic multi-year growth opportunity in shop. And we're pleased to confirm our enterprise normalized FFO outlook for the balance of the year. Justin?

Thank you, Debbie. I'll start by covering the Q2 shop performance. The demand story remains strong. As the top of the sales funnel, including leads and move-ins, are consistently performing above pre-pandemic and prior year levels. Our SHOP portfolio continues to deliver double-digit same-store cash NOI growth in line with our expectations for the quarter. SHOP NOI was led by the US with 32% growth and 14% overall. Margin expanded 160 basis points. Notably, the US led the way with 18.5% growth and 230 basis points margin expansion respectively. The assisted living results are driven by our legacy strong performers including Atria and Sunrise. And our regional assisted living operator relationships that have joined us to transition communities over the past year and a half are delivering exceptional results as our strategy committed to ensuring we are in the right markets with the right assets and right operators is working. Our NOI generating CapEx program continues as we have now completed over 100 projects with 70 more planned to complete this year in our USAL and IL portfolios and the early returns are excellent. These projects are all part of our CapEx budget that we established at the beginning of the year. Our highly stabilized high-quality Canadian portfolio reached 94% occupancy in the second quarter and NOI grew 2%. The revenue growth in our portfolio remains strong. Revenue grew 6.7% year-over-year driven largely by RevPort growth of 6.6% and led by an exceptional U.S. RevPort growth of 7.4%. Operating expenses grew approximately 4% year-over-year, which was better than our expectations. Within OPEX, labor was better than expected as contract labor continued its downward trend and partially offset by an increase in regular labor expense. The key selling season is well underway, and we had a strong ramp in June, driving 50 basis points of spot occupancy growth during the quarter. However, we didn't see the strong performance at month end that we expected in independent living. Occupancy grew 10 basis points year over year, which was disappointing. and driven by softness in our Holiday by Atria USIL portfolio. We have identified 38 communities that are particularly lagging occupancy performance. Adjusting for these 38 communities, the total shop same-store portfolio would have achieved 17.3% NOI growth year-over-year versus 14% reported in the second quarter, and the U.S. would have grown 24% versus 18.5% reported. These communities will benefit from executing the more aggressive measures in our OI playbook, including operator transitions and comprehensive redevelopments, and these plans are already underway. First, we will ensure we have the right operator in place by transitioning 26 Holiday by Atria communities to existing Ventas manager relationships in Florida, Texas, and California. These regional operators have demonstrated strong performance, robust sales management, and they have had solid geographic overlap with the transition asset markets. Next, we will continue our successful NOI generating CapEx program. We have completed several of these projects in our Holiday by Atria portfolio that are delivering very good results. We have another round of projects planned to complete in our Holiday portfolio by year end. We'll ensure that we are utilizing our full OI approach, which has proven to be very successful in communities that are transitioned to new operators. By collaborating with the right operators and combining their intense local market focus and execution with our respective operating expertise, best in class data analytics, aligned management agreements, portfolio management, and capital investments, we are driving performance. Our best proof point of this successful execution is the Transition 90 portfolio where we completed the transition of 90 assisted living communities in early 2022 in regional clusters to seven different operators. We sold and or closed nine of those communities and invested CapEx across the portfolio. This portfolio has experienced net move-in growth in 13 of the past 15 months. and delivered year-over-year occupancy improvement of 370 basis points, REVPOR growth of 8.2%, and therefore NOI has had extraordinary growth in a relatively short period of time with all seven operators contributing. These newly appointed operators have demonstrated they have the recipe for success in delivering on the value proposition for their respective residents in these markets. This is a prime example of performing on our right markets, right asset, and right operator philosophy. We have the playbook, we are executing, and we expect to continue to drive performance across our broader shop portfolio. Finally, for our same store portfolio NOI, we are reaffirming our shop same store growth range of 15% to 21% X to 38 assets. full-year occupancy growth of 80 to 120 basis points, which is approximately consistent with the first half of the year performance. In closing, we remain very confident in the multi-year recovery in senior housing as the table is set for net absorption across the sector. Bob?

Thanks, Justin. I'll share some highlights of our Q2 performance, discuss our balance sheet, and close with our updated 2023 guidance. Starting with Q2 total enterprise performance, we reported second quarter attributable net income of $0.26 per share. There are notable positive net income and NAREID FFO impacts in the quarter arising from the equitization of the mezzanine loan and the sale of approximately 24% of our shareholding in Ardent. These impacts were excluded from normalized FFO as previously communicated. Normalized FFO per share of 75 cents in the second quarter was ahead of our expectations and increased 4% year-over-year. Meanwhile, total company same-store cash NOI increased 7% year-over-year, with all segments contributing to that growth, and our equitized loan portfolio had a strong start. A few comments on the proactive steps we have taken this year to raise capital at attractive rates and to manage our balance sheet. The market backdrop is challenging. with rates continuing to increase and the 10-year Treasury currently well over 4%. We've leveraged our access to diverse sources of capital, having raised $2.4 billion at a compelling 4.6% cash rate, with near-term line of sight to a further $600 million in H2. We tapped into multiple capital markets and geographies, including the U.S. and Canada, raising secured, unsecured, bank debt, and convertible debt across multiple maturities, as well as raising equity and selling assets. And we held down our all-in costs through 10-year Treasury interest rate hedges at 3.37% and two-year pay fixed hedges on floating rate debt at 3.88% that we executed post the SVB collapse. All of these hedges are significantly in the money. The use of these capital sources is refinancing 2023 and 2024 debt maturities, and most notably paying down in full the $1 billion Santerra Senior Secured Debt, thereby replacing 2024 maturing debt with a longer duration, more permanent capital structure that is accretive to Ventas. As a result of all these efforts, our balance sheet is in a strong spot. We're in a net cash position with near-term liquidity exceeding $3 billion, which covers our limited maturing debt through 2024 by nearly two and a half times. And floating rate exposure is at 10%, the low end of our targeted range. These are strong proof points of our advantage access to attractive capital and our skill in using that access to the benefit of our shareholders. Finally, our net debt EBITDA on Q2 improved to 7.0 times versus the 7.2 times we anticipated following the equitization of the MEZ. We are committed to a BBB Plus balance sheet and we expect that the multi-year shop recovery will continue to further improve our leverage metric over time. I'll conclude with our updated outlook for 2023. After a good first half of the year, we are reaffirming and narrowing our initial February normalized FFO guidance of $2.97 per share at the midpoint for full year 2023. On a year-over-year basis, Our normalized FFO at the midpoint continues to represent 5% growth on an adjusted basis. Bridging versus our initial guidance, we now expect a positive $0.04 impact from the equitized loan portfolio, together with the outpatient medical and research and triple net segments, offset by a minus $0.04 shop impact driven by US IL occupancy. A final step in the bridge is a positive $0.02 from proactive capital raising offsetting a two cent headwind from a higher forward interest rate curve and incremental dispositions now included in guidance. Net total company same-store cash NOI year-over-year growth is now expected to reach 8% at the midpoint, 50 basis points above our initial guidance. Please see our investor presentation and supplemental disclosure posted to our website for further guidance assumptions. To close, we are pleased with the results for the first half of the year. and we are committed to delivering performance and value for our shareholders in the second half and beyond. For Q&A, we ask each caller to state to one question to be respectful to everyone on the line. And with that, I'll turn the call back to the operator.

Thank you. If you have a question, please press star 1 on your telephone keypad. If you are in the queue and wish to withdraw your question, simply press star 1 again. As a reminder, please limit yourself to one question before rejoining the queue. Your first question comes from the line of Michael Carroll of RBC Capital Markets. Your line is open.

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

That's a great question. To be a little more specific about it, we have all of our independent living communities in the U.S. that are not holiday by Atria are doing great. They have double digit NOI growth, they have occupancy growth that's consistent with, more consistent with the assisted living growth that we've seen. The issues really narrow down to holiday, and let me describe that a little bit for you. We will have 85 communities with Atria that are holiday communities moving forward. Over half of those, by the end of the year, will have benefited from the REDEV program that I mentioned in our prepared remarks. 17 or 18 of those are done already. We have many more planned throughout the year. So the plan with those communities that are staying with Atria is to continue the REDEV which is generating very good results. The communities that are transitioning are going to operators that have a great track record in their respective states and have had an excellent track record for us thus far in the Ventas relationship. There's 26 of those. They were particularly underperforming, and we're confident we're putting them in good hands when we have an action plan in place to get those on track. So I would say, yes, it's really... It's not an IL issue, it's more of a holiday of my atria issue and we have plans in place to address it.

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

Joshua Dennerlein Yeah, hey guys. Appreciate the time. On the Santerre portfolio, it looks like it kind of was a four cent positive versus like the initial guide. What in particular in the portfolio is driving that outperformance?

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

Sorry, Senior Housing, is it from NetLease or the MOB segment?

Oh, yes, sure. So Pete's bringing the magic to the MOB portfolio, which is in very early stages and is the largest part of the portfolio. And then the TripleNet Healthcare portfolio is going well and we're generating additional expectations from there. And I do want to take a minute and turn it over to Pete to talk about some of his early activities and you'll get a sense for why it's going well.

Thanks, Debbie. Thanks for the question, Joshua. You know, just a reminder, the MOB portion of The equitized loan portfolio is 88 assets, about 3.2 million square feet. Also, just as a reminder of the systems that are associated with these medical office buildings, 67% of those overlap with the systems from our legacy portfolio. And of the medical office buildings, 75% of them are sitting in the same MSAs as we have existing medical office buildings. So our integration efforts are are much easier to do. And I tell you, we've been really busy. We've been using the Lillibridge playbook. We've done an engineering assessment for each one of the buildings. We have strategic asset plans for each one of the buildings. We've approved and are beginning to spend capital to improve the safety, efficiency, and curb appeal of the buildings. We're transitioning OPEX contracts like cleaning and elevator maintenance and so forth. We think we've identified about 400,000 square feet of, or $400,000 worth of savings for our tenants just by transitioning contracts. We've done a tenant satisfaction survey and we received the results and are working on action plans. And finally, we've transitioned some of the property management to these buildings. We've transitioned six this week to Lillibridge, which brings the total since May to 18. And the good news is, on the MOB portion, we are about $500,000 ahead of our pro forma for this portfolio.

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

Good morning. Thank you. As regards the 4 cents, which is called Ernie's drag, associated with the reposition or 2B repositioned assets, What portions of that would be maybe like transactional, you know, legal and other just sort of contractual issues that you may not recoup versus can you get all four cents of earnings power more back post-transition? I'm just trying to better understand. Thank you.

Hi, it's Justin. Yeah, the four cents we view as recoverable through performance improvements, and it's really all captured in the holiday portfolio action plans that I described.

Yeah, we want to get the $0.04 back and then a lot more.

Our next question comes from the line of Michael Griffin with Citigroup.

Your line is open.

Thanks. Just going back to those assets you expect to transition, I mean, was the underperformance mainly due to kind of occupancy declines, labor issues that you saw at those facilities? Any kind of color around that would be helpful.

Sure. Yeah. The biggest issue with this portfolio has been occupancy. We've had where we've had some successes where we invested, you know, the CapEx and that's been a good driver of price and NOI, particularly occupancy remains a focus really across this portfolio and especially in those markets that we're transitioning. The operators are transitioning to have proven to have a robust sales management platform and have executed quickly and

in the communities that they've managed for us so far so we're really excited to for them to get started your next question comes from the line of jonathan hughes with raymond james your line is open hi good morning um why is the shop transition portfolio being done now and and not before these headwinds became what what seems to be pretty severe. And then the second one, why raise the relatively small amount of equity given the organic de-levering visibility from the shop NOI recovery is expected to drive leverage down nearly a full term?

Thanks. Justin, fair question. I'll take the first part. So, you know, the holiday portfolio was an acquisition by Atria. They had acquired the manager holiday. And they've been integrating for a period of time. We saw those integration efforts come to a conclusion at the end of 2022. At that stage, we were really looking forward to the key selling season to see proof points that the merger integration had been working. And like I said in my remarks, they fell short. So, you know, some of the actions were already underway, which includes the redevs. We're doing a more comprehensive redevs in several communities, as I mentioned. And then we're transitioning to new operators. We're taking action. We had, you know, good visibility into, you know, the merger integration. And now that we're at this stage, it's time to step up our OI activities.

I'll take the second one, Jonathan, on equity. If, you know, first start with the The commitment we have to our triple B plus balance sheet, which you know, is real. Secondly, the Santerre equitization is 30 basis points levering, ceteris paribus. We highlighted the last earnings call. As we also emphasize, we're putting a permanent capital structure on that equitized investment. And that's what we've been doing. And that includes equity, includes asset sales, includes a variety of debt. And so it's really all part of balance sheet management and liquidity and leverage, and that's the rationale.

Your next question comes from the line of Mike Mueller with JP Morgan. Your line is open.

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

In regards to the guidance, really, you know, I'll just run through it. So we're looking at cash NOI 15 to 21 percent. That really preserved the existing midpoint, and we have good visibility that that's the runway. Occupancy at the midpoint, around 100 basis points, is consistent with the performance we've seen year to date. REV4, the same. Revenue, a little less than the original guide. And OPEX, a little less as well. So it's pretty consistent. And there's a little bit of growth in it, because obviously we've been running around, in this portfolio, around 17%.

in it so in the second quarter so a little little bit of occupancy growth is contemplated your next question comes from the line of austin worstschmidt with key bank capital markets your line is open yeah thanks justin did i hear you correctly that year-to-date growth and occupancy was around 100 basis points um if you exclude the 38 assets from the same store pool implying no real need for acceleration. And then I'm curious what would same store revenue and same store eye guidance have been had you kept the 38 assets in the same store pool and then the balance of the portfolio. Is that outperforming original expectations or performing more in line? Thanks.

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

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

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

Yeah, Juan, let me take the first one. Just the first half on this pool of 468 Justin described, X to 38 assets year over year, growing in the 18-ish percent range. We highlighted in the materials the impact of the 38 assets coming out of the pool in the second quarter. That's 330 basis points impact positively to the growth rate. As you think about the full year pool, that's a good proxy. of the impact. And so hopefully that puts some numbers behind it all.

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

Thank you.

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

Great. Just a two-parter for me as well. So, Juan, it looks like you took out the pricing power slide from the 1Q deck just going through right now. But can you remind us what in-place rent increases are, you know, how they're trending? certainly for the back half of the year and how you're thinking about that is part one. And then part two is, and I think others have asked this in a different way, I'll give a stab at it, but just trying to really hone in on what changed over a three-month period, right, to take the shop occupancy down 50 basis points. It sounds like you're saying it was just the peak selling season did not progress as expected, but just wondering, shouldn't there have been some signs or or something, just maybe can you just hone in on just what really changed here?

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

Your next question comes from the line of John Pawlowski with Green Street. Your line is open.

Thanks. Good morning. I just wanted to follow up on that last question there. Maybe I'm misunderstanding page 18 in the investor deck, but it looks like occupancy guidance was reduced for the revised same circle, so it's not just atrium issues driving the weakness in occupancy. It's Um, are there broader, is there broader sluggishness in the IL portfolio outside of Atria?

Okay. Yeah, sure. Good. That's a good opportunity to clarify something. So, so we are moving communities away from holiday by Atria. There's 26 of those. We mentioned 12 redevs that we're doing. Um, there are also communities that are remaining with Atria. Um, and there's actions underway to help improve the performance within those. They're still in the same store pool. They're getting redevs, but they're not the comprehensive-style redev that would remove them from the pool. So that's probably where the confusion is. That remains an area of focus. Even within the revised same-store pool, there's holiday communities that have a big opportunity to improve performance.

Your next question comes from the line of Stephen Valliquette with Barclays. Your line is open.

All right. Thanks. Um, yeah, my primary question is kind of similar to some of these other ones on the reasons for the honor performance in that holiday IL portfolio, but I guess just to dive in deeper on the, you know, the occupancy shortfall, just curious on like the competitive landscape. So in other words, was holiday just being outmaneuvered by competitors or, you know, was there just softness in those markets that hit all competitors, you know, for various reasons. And it sounds like maybe pricing was not the issue, but just curious whether, uh, Was Holiday just losing market share versus competitors, or was everybody feeling the pinch in these particular markets? Just curious for more color around that, if you're able to decipher that.

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

Okay, maybe just a quick follow-up. What would be the lowest hanging fruit then with the new operators coming in? What's the easiest thing to pick up as far as number one on the list to improve performance within all the things we're going to do?

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

Okay. I appreciate the color. Thanks.

Your next question is a follow-up from Austin Wertschmidt of KeyBank Capital Market. Your line is open.

Great. Thanks for taking the follow-up. You guys flagged plans to sell 63 million of SNFs later this year at a mid-8% cap rate. I guess, one, what is that on a price-per-bed basis? And then, two, do you think that the mid-8% cap rate is reflective of the overall SNF portfolio? And I ask because I think we talked about a neighborly ability to sell some of the non-core SNFs at an 80,000 to 120,000-a-bed range, which would imply a lower cap rate for a the overall portfolio versus the mid-eight you quoted. Thanks.

Yeah. So I'm enjoying being back in the SNF business, especially as some of the operating trends are getting a little bit better. These are about 135 a bed. Each of the situations within the healthcare triple net portfolio that we took ownership of is a unique situation, and that'll change kind of cap rate and per beds you know, valuations. But we're happy with the, you know, low eights on these portfolios. And there's unique, you know, part of the value add of this project is really the experience and the judgment to handle each one of these uniquely and get the best outcome. And with these particular sales, we're doing that.

Thank you.

This concludes the question and answer session. I will now turn the call over to Deborah A. Caffaro, Chairman and CEO, for closing remarks.

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

This concludes today's conference call. We thank you for joining. You may now disconnect.