Ventas, Inc.

Good morning everyone and welcome to the Ventas third quarter financial results conference call. Yesterday we issued our third quarter earnings release supplemental investor package and presentation materials which are available on the Ventas website at ir.ventasrete.com. As a result, as a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties in a variety of topics and 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 investor package posted on the Investor Relations website. And with that, I'll turn the call over to Deborah A. Caffaro, Chairman and CEO of Ventas.

Thank you, BJ, and good morning to all of our shareholders and other participants. I'm happy to welcome you to the Ventas Third Quarter 2023 Earnings Call. We're pleased to deliver a strong quarter of normalized FFO of 75 cents per share, representing 6% year-over-year growth. and total company same store cash NOI growth of nearly 8%. Our results reflect both the actions we have taken to drive performance and the powerful demand across our diversified portfolio that is unified in serving the needs of a large and growing aging population. We are also pleased to raise our full year 2023 normalized FFO guidance midpoint to $2.98 per share. Our senior housing operating portfolio fueled our performance, proving the significant benefits that our communities and operators provide to residents and their families. Same store year over year, cash and OI growth exceeded 18%, driven by Ventas' operational insights platform in collaboration with our operators. Our Canadian shop communities ended the quarter at nearly 96% occupancy, and delivered 6% year-over-year NOI growth. Across the shop business, move-in significantly exceeded 2019 levels, and the portfolio experienced broad-based occupancy gains in both assisted and independent living. Spot occupancy accelerated in the third, gaining 180 basis points from the beginning to the end of the quarter. The multi-year growth and recovery cycle in senior housing is in full swing. In addition, our outpatient medical and research portfolio continued to distinguish itself by delivering solid, compounding, consistent growth in the third quarter. As we step back and look across commercial real estate, we continue to believe that Ventas occupies an advantaged position. Here are five key reasons why. First, because our portfolio is unified in serving the needs of the nation's large and growing aging population, demand is strong and getting stronger. By 2030, 20% of the U.S. population, more than 70 million individuals, will be 65 or older. The over 80 population alone is expected to grow 24% in the next five years. All of our asset classes benefit from these demographic demand trends and provide powerful tailwinds to our enterprise in a variety of economic scenarios. In senior housing, we're facing the most favorable supply-demand fundamentals the industry has ever experienced. Senior housing starts are at cyclical lows and likely to go lower due to tightening credit conditions. In our shop markets, we have virtually no new starts. This favorable supply-demand relationship creates a compelling backdrop for multi-year growth ahead in senior housing occupancy and rate, particularly in light of the affordability of senior housing and the value proposition it provides. Second, investment opportunities continue to grow in the senior housing space. And we are well-positioned to capitalize on these opportunities. There's a huge pool of quality senior living communities with attractive return profiles that are coming to market as a result of debt maturities and higher debt service costs. These communities tend to have meaningful runway for occupancy and NOI growth in the hands of well-capitalized, experienced, and knowledgeable owners like Ventas. This trend should accelerate in 2024 and 2025. We have the scale, team, relationships, capital access, analytical and operational insights, and experience to expand our senior housing portfolio and create NOI growth. Third, we've continued to build out our Ventas Investment Management or VIM platform. VIM provides Ventas another way to expand the opportunity set that benefits our institutional investors and public shareholders alike. This quarter, we invested over $200 million through our open-end fund. Fourth, Ventas has assembled the nation's leading business at the intersection of medicine, research, and universities. Our high-quality outpatient medical portfolio is well-occupied and affiliated with leading healthcare systems across the country. Our research business represents a differentiated, credit-driven model centered on serving the nation's top universities. And our excellent internal property management and leasing function enables us to deliver an outstanding experience to our tenants and drive leasing activity. We continue to see meaningful institutional demand in our university-based research portfolio. And I'd like to give you just a few recent examples. Atrium Health Wake Forest Baptist recently announced its intention to create a new 160,000 square foot eye institute at our redevelopment site in the innovation quarter at Wake Forest. At Arizona State University, the National Institutes of Health, or NIH, recently leased space for medical research demonstrating the desirability of our site and creating a magnet for other researchers. In addition, Siemens Medical Solutions recently leased space at our half a billion dollar Charlotte, North Carolina project, which is already 80% pre-leased. And last, we are pleased to welcome Dr. Drew Weissman, recent Nobel Laureate, to our Penn site at One U City later this year. We are proud to serve these world-class medical and scientific leaders as they pursue life-changing discoveries. Fifth and finally, we continue to demonstrate access to multiple capital markets at attractive pricing to maintain financial strength and flexibility. We have raised nearly $3 billion year to date in various capital markets ahead of the recent rise in interest rates. These actions enhance our liquidity and underscore the competitive advantages Ventas has because of our size, scale, and diversified enterprise. Across Ventas, we are laser focused on maximizing fundamental performance and generating superior total return for shareholders by enabling exceptional environments that meet the needs of individuals, families, and communities. In closing, we are pleased to improve our 2023 outlook and to see that While we certainly have more work to do, our total returns to shareholders over the last one- and three-year periods, and since the beginning of 2022, have outperformed both the healthcare REIT and the REIT indices. The whole Ventas team remains intent on delivering outsized value to its shareholders and other stakeholders. Now, I'm happy to turn the call over to Justin.

Thank you, Debbie. I will start by reporting our third quarter SHOP results, which were very good. Broad-based demand combined with the implementation of the Ventas OI Active Asset Management Playbook in collaboration with our operators delivered healthy top and bottom line growth in SHOP during the quarter. Our SHOP portfolio continues to deliver double digit same store cash NOI growth for the fifth quarter in a row. The NOI growth of 18.2% was led by the US with 24% growth and our 95% occupied Canadian portfolio contributed 6%. Occupancy accelerated throughout the quarter, with 180 basis points of spot occupancy from June to September, led by the U.S. with 210 basis points. U.S. shop occupancy growth was supported primarily by strong demand, with move-ins that were 120% of 2019 levels. Furthermore, we saw 130 basis points of average sequential occupancy growth from the second quarter to the third. Revenue growth was 7.6% year-over-year, driven by the occupancy growth as well as rev pour growth of 6.2%, which was led by the U.S. with 6.4% as we continue to focus on optimizing price and volume to maximize NOI. REVPORT would have been 20 basis points higher if adjusted for the Sunrise Special Assessment that occurred in the quarter last year. OPEX performed well with 4% growth and margin expanded 230 basis points year over year. Now I'll give an update on the Holiday Independent Living Communities. We are pleased with the performance across this portfolio. The 75 Holiday by Atria USIL communities are benefiting from the broad-based demand and saw spot occupancy increase by 190 basis points from July to September. We continue to see good performance in this more streamlined portfolio, which allows for enhanced focus and with a renewed sense of urgency to execute. We will continue to closely monitor the performance. The 26 IL communities that moved to proven operators grew spot occupancy by 140 basis points from July to September. These three operators are making early improvements to service delivery and performance. Our expert approach of moving communities to new operators ensures that lead banks are transferred immediately, websites are integrated, and management, including the CEOs, have access to the communities well ahead of the transition date to enable quick execution and results. We continue to advance the OI platform and its impact on the portfolio. I'm pleased to see outsized performance in our Sunrise portfolio, where our move-in volume is exceptionally high, our transition communities are experiencing remarkable occupancy and REV4 growth, and our NOI generating CapEx program, which is delivering initial returns of about 20%. As we look to finish the year, we are expecting attractive top and bottom line shop same store cash NOI growth of 17% to 19% for the full year. The key assumptions that drive the midpoint of our range are average occupancy growth of about 110 basis points and rev pour growth of about 6%, which was total revenue growth to at least 7.5%. We expect operating expenses at around 4.5% growth due to increased occupancy. This, of course, implies continued margin expansion. Embedded in this guidance is the impact of the Sunrise Special Assessment that occurred in the third and fourth quarters of last year. Had Sunrise repeated the Special Assessment in 2023, our SHOP full year NOI guidance midpoint would have been 200 basis points higher. This impact reverses out in Q1 2024 as Sunrise intends to return to the normal first quarter cadence during this rate increase cycle. We expect the fourth quarter to exhibit normal seasonal patterns and are projecting sequential and year-over-year average occupancy growth. The strong demand supporting our portfolio growth is indicative of the macro backdrop that Debbie described, and most importantly, a testament to the high quality care and services that we are offering our residents and their families. Our operating partners are focused on delivering a valuable living experience for our residents a meaningful work experience for our employees, and a value proposition that is attractive to our residents and their families as they choose to live in our communities. Moving on to investments. We made two investments in the quarter through our VIM platform's open-ended fund. We acquired a trophy portfolio consisting of two outpatient medical facilities totaling 281,000 square feet located in Tucson, Arizona. fully leased to AA minus rated Banner Health. The purchase price was $134 million. These buildings are crucial in Banner's delivery of care and services, providing multi-specialty clinical care. We also acquired two Class A private pay senior housing assets with 181 units in Connecticut and Massachusetts. The purchase price was $79.5 million. The assets were developed and sold by Benchmark Senior Living and two private equity firms. Benchmark is a strong regional operator with a long-standing reputation as a market leader in the Northeast. Our top investment priorities continue to be NOI generating capex in our existing real estate and senior housing acquisitions. Now, I'll hand over to Bob.