Ventas, Inc.

Q1 2024 Earnings Conference Call

5/2/2024

spk01: Thank you for standing by. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Vintess first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would like to turn the call over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.
spk14: Thank you, Kathleen. Good morning, everyone, and welcome to the Ventos first quarter financial results conference call. Yesterday, we issued our first quarter earnings release supplemental investor package and presentation materials, which are available on the Ventos website at .VentosReit.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 topics may cause actual results to differ materially from those contemplated in such statements. For 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 Ventos 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 the Chairman and CEO of Ventos, Deborah A. Caffaro.
spk13: Thank you, BJ. On behalf of all of my colleagues, I want to welcome our shareholders and other participants to the Ventos first quarter 2024 earnings call. Today, I'll discuss our good start to the year, describe the actions we are taking to execute on our strategy and create value for our stakeholders and share our improved outlook for 2024 as the multi-year growth opportunity in senior housing builds. As a reminder, our three-pronged Ventos strategy is composed of first, deliver organic growth in our senior housing portfolio, second, capture value through investments focused on senior housing, and third, drive cash flow throughout our portfolio. We entered this year with momentum. And in Q1, our enterprise delivered 78 cents of normalized FFO per share and over $2 billion in annualized NOI. Our strong results came from nearly 7% same-store property NOI growth led by shop at over 15%. Notably, demand-driven occupancy gains in our shop portfolio are accelerating, fueled by favorable supply-demand fundamentals in our markets and the actions we've taken in concert with our care providers. Move-ins across the portfolio were elevated as we gained 240 basis points of occupancy in our same-store shop portfolio year over year. As the second largest owner of senior housing, we are benefiting from the multi-year senior housing growth opportunity that continues to gain traction from both demand-led occupancy and report growth. Accelerating demand for our senior housing community underscores the valuable benefits they provide to residents and their families. The over-80 population is expected to grow by 5 million individuals through 2030, yet new construction starts in senior housing are the lowest in over a decade, as is the percentage of inventory under construction. In our shop portfolio, 99% of Ventos' communities are free from competing construction starts. All of these trends combine to support a highly favorable long-term runway for growth in the biggest part of Ventos' business, senior housing. We also want to expand our footprint in senior housing by capturing value-creating investments in the space. On this second prong of our strategy, we are making good progress. -to-date, we have closed or placed under contract about $350 million of investments that meet our targets of going in yield, expected unlevered IRRs, occupancy growth potential, affordability, and pricing below replacement costs. Over my career, it has been rare to see such a compelling investment environment where we can acquire attractive assets in favorable markets at high going-in yields and high growth. Due to market conditions, our efforts, and our team's relationship, our pipeline of investment opportunities continues to grow, and we expect to make further progress on our investment plan in the balance of the year. Across Ventos, we are also focused on the third element of our strategy, driving cash flow throughout our portfolio. In addition to SHOP, which is now generating over $800 million in annualized NOI, there are two other areas I'd like to cover, Kindred and our outpatient medical and research business. First, respecting the Kindred lease for 23 LTCHs, representing approximately 5% of our NOI, the trailing rent coverage remains stable, and Kindred has projected improving revenue and expense performance trends for 2024. We continue to have active discussions with Kindred and other parties to optimize Ventos enterprise value and NOI from our properties following the April 2025 lease maturity. We and Kindred recently agreed to a one-month extension for the lease renewal notice date to the end of May. We know you are keenly interested in hearing the outcome of our discussion, and we look forward to providing you with more information as soon as we can. Our competitively advantaged outpatient medical and research business continues to shine and benefit from strong institutional demand, and it's delivering complementary, compounding contributions to our enterprise. As a leader in senior housing, whose portfolio is aligned around serving a large and growing aging population, Ventos is advantaged across commercial real estate because demand for our assets is strong and getting stronger. The Ventos team is focused on the opportunity for value creation right in front of us. On that point, we are pleased to improve our outlook for the full year. We are raising Ventos' 2024 normalized FFO guidance to between $3.10 and $3.18 per share. And increasing our full year 2024 total company same-store cash NOI guidance to 7% at the midpoint. And with that, I'm happy to turn the call over to Justin.
spk08: Thank you, Debbie. I am pleased to report that our SHOP portfolio performance is off to a strong start. Total SHOP same-store cash NOI growth was 15.2%. Our same-store SHOP communities delivered solid results across all key metrics, including occupancy, ref, and OPEX. The first quarter same-store SHOP occupancy grew by 240 basis points year over year, led by the U.S., which saw 280 basis points of occupancy gains. We have had a strong start to the year with broad-based contributions across community types, geographies, and operators. In our same-store portfolio in the U.S., move-ins were elevated at 113% versus prior year led by independent living move-ins at 127%, outperforming normal seasonal patterns. We have had nine consecutive months of tours outperforming prior year levels, contributing to the positive move-in momentum we have been experiencing. Rev4 performed in line. Operating expenses were lower than expected due to continued strengths in net hiring and cost efficiencies realized by our operators, leveraging insights from our Ventus OI platform. OPEX4 was 1.6%, .5% when adjusted for the leap year. I'm really happy that our operators are delivering excellent care and services and great results. I'd like to highlight Sunrise, Sincere Discovery, and La Grote-Marise in particular for their superb all-around performance to start the year. Like I said, we are experiencing broad-based contributions from our operators, and we continue to leverage Ventus' OIs, vast datasets, and powerful analytics and insights to drive performance outcomes. Notably, our SHOP portfolio delivered double-digit same-store cash NOI growth for the seventh quarter in a row. Growth in the first quarter was led by our U.S. communities, which grew same-store cash NOI 18%. This strong performance in the U.S. was complemented by our high-quality Canadian portfolio, which was 95% occupied and continues to deliver a valuable and stable cash flow with 9% -over-year growth. Given the strong start to the year, we are happy to raise our full-year guidance expectations on our same-store SHOP portfolio, which we now expect to grow 12% to 16% in NOI -over-year. The key assumptions that drive the midpoint of our range are average occupancy growth of about 270 basis points, up from 250, led by the U.S. with over 300 basis points, which is higher than we originally anticipated. We still expect Rev-4 growth of about 5%, which puts the total revenue growth at around 8%, and OPEX-4 growth is expected to be slightly lower than previously forecasted at approximately 2.5%. Our total SHOP expectations were originally to add 118 million of NOI growth, and we have raised that expectation to 130 million. April occupancy is already off to a strong start. Driven by both tours and move-ins, volumes that are higher than prior year levels, so we're optimistic about our ongoing occupancy performance. Remember that we are just now entering the critical key selling season. We'll have to see how that plays out. Looking forward, we are energized by the 1,000 basis points of potential occupancy upside in our markets over the course of the next few years. I'm excited about the very strong supply-demand fundamentals combined with well-invested properties and excellent operators supported by our Ventos OI platform to drive growth. Moving on to investments, senior housing is now just over half of the Ventos portfolio of NOI, with SHOP representing 40% and growing due to the exceptionally strong organic growth, and now we are expanding externally as well. We have been actively capturing value-creating external growth opportunities focused on senior housing. So far, we have closed or under-contract for approximately 330 million of senior housing investments, although it's 130 million has already closed. These opportunities are exactly in our sweet spot. I am particularly excited by the unique opportunity to invest in relatively high-yielding, high-quality senior housing communities coupled with outsized growth. These investments have a blended going-in yield in the high 7s, coupled with mid-teens on levered IRRs. Additionally, we are investing at an attractive discount to replacement cost, with an average cost of $241,000 per unit. Our approach to executing our investment strategy is guided by our Right Market, Right Asset, Right Operator framework. We are investing in markets with a compelling supply-demand profile, strong affordability, and meaningful expected net absorption. We prefer communities that are supported by need-driven demand and offer a combination of services, including independent living, assisted living, and memory care. These communities help us employ a strategic expansion of Ventos strengths in our active, value-creating asset management playbook, driven through the Ventos OI platform supported by our -in-class data analytics. We are primarily expanding with existing operators with proven performance. Additionally, as part of our data-driven selection process, we welcome new operators with strong track records, with capabilities tailored to the service offering at the community, as we have more than doubled our shop operator pool over the past few years. I'll highlight the Magnolia Springs acquisition, which includes seven communities that are 10 years old on average. They're currently 89% occupied and are located in markets projected to grow around 1,100 basis points over the next few years, supporting more significant revenue growth. The communities average 100 units each and offer a combination of assisted living and memory care services in the Indianapolis, Cincinnati, and Louisville market areas. Affordability on average in the markets is very strong at a projected seven times length of stay. The going-in yields projected to be low 7s and the unliberated IRR is projected to be mid-teens. The discount to replacement costs is estimated to be around 40%. The communities will be operated by a SINC-SERI who has a proven track record of delivering outstanding care services and performance. Moving ahead, we plan to continue to execute on our growing pipeline of senior housing communities. We are actively evaluating many attractive opportunities. In summary, occupancy momentum is strong and we are off to a strong start to the year. We look forward to continuing shop organic growth and executing on our compelling investment pipeline. Bob?
spk03: Thanks Justin. I'll share some highlights of our first quarter performance, provide an update on our balance sheet and capital activities, and close with our increased 2024 guidance. I'll start my first quarter comments with our Outpatient Medical and Research segment, or OMAR, which reported same-store cash NOI growth of nearly 5% in the quarter. In Outpatient Medical, Beaton Team executed 900,000 square feet of new and renewal leases in the first quarter, 50% higher than prior year. Meanwhile, the Outpatient Medical assets from the Equitized Loan portfolio increased occupancy by 300 basis points since taking ownership last year due to the effective asset and property management initiatives from the Ventos team. Our university-based research same-store cash NOI increased over 5% in the first quarter, with occupancy growth across the same-store portfolio. Our overall new leasing pipeline has increased by 30% to 1.4 million square feet, with strong institutional and university demand for our university-based life science buildings. In terms of first quarter enterprise results, we reported a net loss attributable to common stockholders of forcements per share. Normalized FFO per share in Q1 was strong at 78 cents, representing 5% -over-year growth. Our total company same-store cash NOI grew nearly 7%, led by SHOP increasing 15%. Strong SHOP organic growth also drove a 20 basis point sequential improvement in our net debt debita in the first quarter. Further supporting our leveraged trajectory was 94 million in equity raised at an average price of $44.04 to fully fund senior housing investments. The SHOP growth included in the balance of the year guidance is expected to drive continuing leverage improvements in 2024. We had some notable capital markets activity so far this year. First we extended the maturity to 2028 on our $2.75 billion revolving credit facility with improved pricing and strong oversubscription from our banking partners. We thank for their support of our platform. Second, we raised $650 million in five-year Canadian senior notes at .1% in the first quarter, taking some 2025 maturing debt off the table early at attractive rates. We also used cash on hand to repay a portion of recent maturing debt, leaving us $700 million of 2024 debt maturities left to refinance this year. I'll close with our updated 2024 guidance. We improved our outlook for net income attributable to common stockholders to now range from 3 cents to 11 cents per diluted share. We increased the midpoint of our full year normalized FFO guidance to $3.14 per share from the previous midpoint of $3.12. The increase in our midpoint can be explained by a 3 cent per share improvement in organic shop NOI, partially offset by higher interest rates. We've also raised both our property NOI and same store cash NOI -over-year growth midpoint expectations for each of our segments. Total company same store cash NOI is now expected to grow 7% -over-year compared to our We have not included any incremental investments in our outlook beyond the $350 million closed or under contract discussed today. We're increasing our full year capital recycling proceeds to $300 million as we enhance our portfolio and build additional sources to fund an attractive pipeline of senior housing investments. Finally, we expect to spend $250 million in FADCAPX in 2024. For additional 2024 guidance assumptions, please see our Q1 supplemental and earnings presentation deck posted to our website. With that, I'll turn the call back to the operator.
spk01: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and listening via loudspeaker device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue. Your first question comes from the line of James Kamert of Evercore. Please go ahead.
spk12: Good morning. Thank you. I know it's a bit of a fluid target, obviously, but Justin, you mentioned a couple of times very optimistic about the occupancy potential growth across your core markets, right? If they, I guess you're making, what sort of assumptions there regarding the pace of that in terms of incremental absorption and how many years would that take? I mean, you said about a thousand points and in some of your core markets upside.
spk08: Yeah, sure. So, stepping back, obviously, there's been a lot of focus by those of us that participate in the senior housing sector on supply and demand, which has been excellent. Debbie highlighted that, I think, nicely in the opening remarks. We've added a page to our earnings deck that you've mentioned that articulates a thousand basis points of upside in our markets over the next few years. We use a variety of data sources to determine that and back testing and those proprietary, but we feel comfortable that's a good outlook. Clearly, we haven't included pacing, but we certainly like the opportunity to continue to perform well within those markets and then to expand into new markets through our external activities and capitalize on the exciting upside.
spk12: Thanks. And sort of a follow on to that, if you had for every hundred basis points of occupancy, is there any algorithm we can use to think about how that improves margin? Because there's obviously a fixed components cost that gets levered.
spk08: Yeah, so there's certainly a lot of margin expansion opportunity for us because we're overall, you know, both the mid-80s, we're in the US around 80% occupied. And our total shop portfolio is just under 80% both in infant and assisted living. So there's a lot of occupancy upside ahead and with that comes the operating leverage that we benefit from in our business. And so there's really good margin expansion ahead. There are some rules of thumb. Maybe we'll include that in some upcoming conferences.
spk12: All right. Thank
spk08: you. I'll leave it there. Thanks.
spk01: Thank you, Jim. Your next question comes from the line of Michael Carroll of RBC Capital Markets. Please go ahead.
spk19: Yeah, thanks. I wanted to touch on Kindred. I know you made some prepared remarks Debbie about it, but can you talk about the reasons for the extension option by one extra month? Is this something that Kindred asked for that they needed more time kind of assessing if they wanted to exercise that option or not?
spk13: Good morning, Mike. Happy to talk to you about it. I mean, look, we're engaged in active discussions with Kindred and others and we're really working to get to the right outcome. And so we believe that that was really in the best interest of everyone to get to a good outcome, which we define as kind of optimizing Ventus value and NOI.
spk19: Okay. And then just kind of on that, I know in the past few quarters you kind of highlighted that Kindred has been putting in new operational efficiency initiatives to deliver, I guess, better results. Has those been put in place yet and are you seeing returns? I mean, if you look at like the trailing 12-month EBITDA arm coverage ratio in that portfolio for the past three quarters, it's kind of held steady at that point nine times. So it doesn't seem like coverage has yet picked up, but I know that's a trailing point. It's a trailing number. So I didn't know if we have more recent data on the most recent quarter kind of highlighting some upticks there.
spk13: I mean, you're right on. Kindred has initiatives underway to improve both revenue and expense performance and we are seeing sequential improvement, but the heat map, of course, is a trailing look. And so that's really how you ought to think about it. So you hit the nail on the head.
spk19: Okay, great. Thank you.
spk13: Thank
spk01: you. Your next question comes from the line of Michael Griffin of Citi. Please go ahead.
spk16: Thanks. Maybe just following up on Michael's question. Could there be an additional extension for Kindred or do you think end of May is when we will have a decision?
spk13: Yeah. Good morning. So I think that we're in these active discussions with Kindred and others and we're really focused on getting the right outcome for Ventas, for the enterprise and also for the properties. And I would be, you know, we're working very hard to get to that kind of outcome. And so I'd be less focused on the notice date and just more focused on, you know, the work that we're doing. We have a great team working on it. We've been working on it for a while. This is very similar to what happened last time and we're on it to get a resolution that, you know, as soon as we can and we look forward to telling you as soon as we can.
spk16: Thanks. I probably should have said this is Nick here with Michael. I guess the second question, just if it is retentative as you talk to kind of other parties, what would the downtime be for the portfolio if it goes down that route?
spk13: Right. If, you know, it's interesting to see that well-respected players like Ensign have now entered the LTCH space. It seems to be enjoying a bit of a moment and that's positive. I would say that, you know, there would be a transition kind of on day one if there were other tenants for some or all of the properties. So that's the way to think about it. There's no downtime. It's not like, you know, outpatient medical or anything. There's a direct operational transfer if that were to occur.
spk16: Perfect. Thank you very much.
spk01: Thank you. Your next question comes from the line of Tayo Okusanya from Deutsche Bank. Please go ahead.
spk10: Yes, good morning, everyone. Congrats on a great quarter. Thanks, Tayo. Of course. In terms of acquisitions, again, you have an interesting page in your deck just kind of talking about all the upcoming debt maturities in senior housing and how you look at that as a potential opportunity. Should we be thinking about acquisitions purely as fee simple transactions or can we possibly see you doing more on the structured finance side as well?
spk08: It would primarily be simple. You know, that debt maturity chart really articulates the interesting opportunity because we have tremendously good fundamentals, but you have an asset that's refinancing generally at a lower LTV and higher cost. So it's putting pressure on existing owners and it creates an opportunity for buyers like us to make high quality acquisitions with a better capital stack. And there's a variety of sellers as well. There's private equity sellers and operators and multifamily and institutional sellers that we've been seeing in our pipeline, including that which we've been executing on.
spk10: That's helpful. And then if I could make one more in, in terms of Brookdale, which is the other rent reset that's coming up, again, coverage is great and all that's fine. But curiously, structurally, that could change from being a triple net portfolio to much more of a regia portfolio just given how well your shop portfolio is doing and how strong senior housing fundamentals are generally.
spk13: Hi, thanks for asking that. You know, Brookdale is about 7% of our NOI and I'm you're right. The coverage has been improving and it's about 1.3 times on a trailing basis. And again, the trends in those markets also support a lot of intermediate term occupancy increases. And so there are lots of positive outcomes for Ventas as we as we think about that, which is that as you mentioned at the end of 2025.
spk10: So I guess structurally, I expected to say the same as a triple net.
spk08: Yeah, so I think when we say we have a lot of positive options, I mean, these communities and markets that also have tremendous upside from a supply demand standpoint, the demand metrics are excellent. At the same point, Debbie made on Kendra, you know, the trailing coverage is always a little out of date. So there's even better performance, I'm sure, to come. So we like the opportunity really in any structure to own these communities. And that's the positive opportunity that we're facing.
spk01: Thank
spk10: you.
spk08: Thank you.
spk01: Your next question comes from the line of Juan Sanabria of BMO Capital Markets. Please go ahead.
spk05: Hi, good morning. I just wanted to just wanted to ask around acquisitions and things like you've got another group of properties maybe you're looking at. How we should think about funding that and how you think about your cost of capital with leverage still relatively high, but definitely improving.
spk03: Sure, Juan, I'll take that one. Thanks. You know, starting with the financial returns that we're seeing on these investments, which Justin articulated are really, really attractive, even at the current cost of capital. We talked last earnings call about the fact that, you know, on balance sheet, financing can work given those returns. In fact, baked that into our guidance. And that's what we executed on in the first quarter. We fully funded those senior housing investments with equity. And as we look forward, given the pipeline, what we've incrementally added to guidance is more disposition proceeds as a source. So another couple hundred million across asset classes as a source of funds just because we see the opportunity in front of us. So pretty much doing what we said and building more dry powder would be my summary.
spk05: Thanks, Bob. And a follow up for Justin on the thousand basis points of occupancy upside on the U.S. portfolio. I guess first, is that a same store comment or an overall portfolio comment? And kind of where is the starting point now? And what do you see as the kind of the structural ceiling for occupancy, knowing there's always some turn of customers or seniors in and out of the communities?
spk08: Great question. So first of all, it's obviously U.S. focused and it's total shop and we're running just under 80 percent occupied and we're both are independent living and assisted living products in the U.S. It's about two thirds assisted living in the U.S. in our total shop portfolio. We do see a lot of upside. The structural upside opportunity in my view through experience and philosophically is 100 percent occupied and we have several communities that are at 99, 100 percent occupancy. And so, you know, there's nothing like a completely full community to really demonstrate the operating leverage and also just deliver great care and services. And so that's the goal. And we have operators that are starting to deliver on that goal, certainly in Canada, it's starting to happen in the U.S. in certain markets, and we'll keep driving. And it's just great to have so much demand at our doorstep and to be able to look forward and have confidence around the opportunity.
spk09: Thank
spk01: you. Your next question comes from the line of Ronald Camden of Morgan Stanley. Please go ahead.
spk15: Great. Just two quick ones. So one, trying to connect the dots on the occupancy here. You put a lot of breadcrumbs in the presentation, obviously starting with a thousand basis points occupancy upside. Then we're seeing here that you finally hired senior VP and senior housing, the op ventas, oh, I and sort of the occupancy gains are getting on that on that CapEx investment. I guess the question to be direct is, is 275 to 300 basis points of occupancy gain a year? Is that is that the new normal? And if not, what would like what would be sort of stopping that?
spk08: So a couple comments in response here. So I mentioned that our U.S. is projected to be over 300 basis points occupancy growth this year. So that's a step to think about. I also mentioned that we're just at the beginning of the key selling season. So we'll be seeing how that plays out. You make a good point. We're optimistic about the trends leading into it. So we'll see where that goes. We have made a new hire senior VP of senior housing and chief revenue officer for senior housing. This this person will introduce when she starts in the first part of June. But her job really will be to lead the shop platform, the drive performance, and has a very, very strong background in top line performance in senior housing and in hospitality. And she's held leadership roles in global Fortune 500 companies. So really excited about the addition of the team and continue this momentum and work with what is really a tremendous existing team that's really been driving the live platform. And I think that the new addition will just make us even stronger.
spk01: Your next question comes from the line of Joshua Dennerling of Bank of America. Please go ahead.
spk20: Hey, guys. Morning, everyone.
spk01: Good morning.
spk20: So, yeah, the shop occupancy update 1Q, that was better than you guys were expecting. And then you revised the outlook higher for the year. Hey, my question revolves around is that driven by like the market being better? So like the beta drive being driven from the aging of America? Or is there some kind of like alpha overlay that you guys are doing internally that's driving better customer demand? That's why you're getting this like uplift. If the latter, could you just maybe elaborate on what you're doing? Drive that alpha.
spk13: It's both. And, you know, I sort of take the macro and then I defer to Justin on all of the kind of driven actions and initiatives to deliver outside performance within a demand driven macro.
spk08: That's great. And it all starts with the macro for sure. And then within that, we've been working for quite some time to make sure we're well positioned to take advantage of this great opportunity. Couple examples. One is just price volume optimization. And this is really the opportunity to ensure that we really we maintain our market position. Good example would be Sunrise and Atria, which are well invested, well established operators and local markets. And as we adjust pricing over time, we want to make sure that we're maintaining the relative position in the market. We've back tested this and we've over the past year, we've had big increases in average move in in in those companies. And then there's other examples. So Siri jumps out to me as one where we made we took actions to invest in the properties and put the new operator in place. And then we've tracked the performance relative to market and they're outperforming market. And so that's an opportunity. You know, the overall CapEx investment we highlighted in our earnings deck, you know, where we've we've had year over year growth of four hundred and seventy basis points of occupancy and a three rate growth of over not over nine percent. So it's a combination of a lot of activity and actions and helping to give our operators some strategic support as they do the great job of executing on a day to day basis.
spk20: On a different note, I said the Brookdale warrants, I know they're exercisable through year on twenty, twenty five. Just how are you guys thinking about actually exercising those? I know they're they're really in the money, which is how do you think about using those as a potential source of capital?
spk03: Yeah, I'll take that one. You're right. We have sixteen million warrants, three dollars a share. So clearly deeply in the money. And that is that is again another source of funds as we think about the opportunity to both create value recognized gains and invest behind senior housing, real estate and obviously by a year and a half left in terms of duration. But a clear opportunity.
spk20: Thanks for the talk.
spk01: Your next question comes from the line of Nick Hillicove, Scotiabank. Please go ahead.
spk18: Thanks. Good morning, everyone. Maybe just a bigger picture question on kind of the focus for the company right now in terms of, you know, there is a lot of opportunity to invest in seniors housing. If we fast forward a year from now, you know, is Ventas going to be a larger company, more assets owned, higher senior housing exposure? How should we think about, you know, that sort of investment pipeline, how you could capitalize on it? Because I think year to date or what's in the pipeline is somewhat neutral. You have acquisitions, dispositions, roughly matched. How you how you how you think about sort of growing the portfolio right now?
spk13: Yeah, I mean, we're again, we're executing on the strategy that the driver of organic growth is obviously driving the bus. We're going to as the second largest owner of senior housing with the platform that we have and access to capital, we're layering on external growth focused in senior housing. That part of the portfolio is definitely going to grow. And, you know, we're committed to taking advantage of this multi year opportunity and the kind of returns that we're seeing in the market for good assets with at high yields with high growth potential. We are we are going to find a way to make those acquisitions and make senior housing a larger part of our overall portfolio. I mean, it's already over a half with job at 40 percent and growing, and I think you're going to see those trends continue.
spk18: OK, thanks, Debbie. Second question is just, you know, I know you have the slide in there again on the attractive time to invest in senior housing and, you know, talks about year one FFO per share neutral slash accretive for the investments, realizing that obviously there's a long run way here when you're thinking the long term. But, you know, how should we think about, you know, your focus on, you know, at what point is it year two? You know, how should we think about, you know, accretion happening? Because obviously earnings growth is important. People focus on that. Thanks.
spk13: Definitely. And we are too. Bob?
spk03: Yeah, I think going in yields, you know, relatively cost the capital roughly neutral, so not in the, you know, immediately accretive. But I would point you to the IRRs and the growth potential in these investments, you know, mid teens. And an example used, you know, that says there's attractive growth, you know, in the in the near term, which would drive accretion. Yes. And that's that's what's so exciting to us.
spk13: And it would be near term accretion
spk03: near term.
spk02: All right. Thanks for that.
spk01: Thank you. Your next question comes from the line of Vikram Maharta of Mizul. Please go ahead.
spk09: Morning. Congrats on a strong quarter. Just two questions. Maybe just Justin one for you. I guess I wanted to speak clear the acceleration trends you mentioned last quarter and prior conferences in shop. Is that occupancy or is that same sort of growth as you go through the year? Because you had a really strong one queue, but the midpoint of the guide still suggests, you know, some decel through the year. I know you're being conservative, but I just want to understand the mechanics behind is it occupancy acceleration or shop acceleration or both?
spk08: First of all, occupancy is accelerating. That's it's been underway. And that's part of the guidance expectation we gave. Good point. We had a real strong start to the first quarter from an I stand point. So that kind of changes the trajectory of what we're expecting in terms of stepping up throughout the year. And also another good point. Key selling season starts right now. So we'll give ourselves time to see how that plays out and go from there.
spk10: So, so I
spk09: just to clarify, are you are you still like you said last quarter? I just I want to make sure is it same for no I growth acceleration or is it the occupancy acceleration? You just said the trajectory, but are you still anticipating accelerating same turn?
spk03: Yeah, I would I would point you to first off occupancy. We, you know, we posted two hundred forty so far. You're today. We've got two seventy year over year. So clearly there's going to be incremental year over year occupancy growth embedded in the forecast. Our range has gone up at the midpoint to fourteen percent on and why we posted fifteen percent in the first quarter. So we're pretty close. You know, I think we keep coming back to this key selling season notion. You know, we're just starting that we want to see how that one plays out.
spk09: Got it. OK. And then Debbie, if I I don't know if you can maybe throw us some more tea leaves here just on the kindred outcome. I guess is it fair to assume the fact that you've extended and you by one month and you mentioned, you know, there are potentially other parties. It's unlikely that I mean, or it's more likely that kindred is part of the solution, meaning it's like an all renewal or partial with other players and then just not renewing it all is off the table. Just given the fact that you extended it by another month.
spk13: Well, again, happy to to give as many tea leaves and more as soon as we can. I would say that, you know, we are in active discussions with kindred and others. It's more likely that kindred would be part of a solution going forward. But we're continuing to keep working on every alternative so that we can reach the goal, which again is optimizing value for Ventus shareholders and the NOI from these properties. So we're very focused and we're very on it.
spk09: Great. Thank you.
spk01: Your next question comes from the line of Richard Anderson of White Bush Securities.
spk17: Thanks. Good morning, everyone. So, Jesse talked a little bit about what you do with assets once you own them. Price optimization, investing in the properties and also perhaps transitioning to other operators that are proving themselves to be worthy. If you do a billion dollars, how much do you think will fall in the transition category? And would you be expecting any meaningful downtime? Whereas, you know, you get the full benefit, maybe not this year, but a year from now.
spk08: Good question. So I'm going to step back and just talk a little bit about the approach we take. So obviously we've talked a lot about markets and first step is always to make sure we're entering the right markets to support upside opportunity and affordability. And then from there, we focus on the particular asset. We're focused on need driven assisted living and member care. And a lot of the campuses also included in a living high growth, need driven product. Then it's who's really in the best position to manage that. And we make the decision really not because we're trying to cause a delay, it's because we're trying to cause better performance sooner. So when we move a new manager and that's our expectation, we've had very good results with transitions. There's always risk associated with a transition. Obviously we have a lot of experience having transitioned well over 150 communities over the past few years. Managing through that and getting good outcomes. And so it's going to come down to the decision really is going to be. Putting ourselves in the best position to drive performance in that community.
spk17: Okay. And then second question, I think Bob mentioned a lot of what's been or everything that's been done so far has been funded with equity. Just the back of the envelope, I'm looking at like an AFFO yield of about 6%. But then when you talk about dispositions, I think you called it OMAR, which is a new one. How comparable are disposition cap rates to your equity costs in your view and how much of it comes out of OMAR and how much comes out of R? Yeah,
spk03: it's a memorable acronym, OMAR, obviously medical and research. The A is for Ian. Yeah, and OMAR. You're here to remember. So step back. The guide of dispos of 300 million includes OMAR, but is also across asset classes, including senior housing and others. So I would say the blended cap rate is roughly mid single digits on that, not dissimilar to the number you quoted. So, again, as we think about about reinvesting, maybe neutral in the short run, but again, upgrading the portfolio with the growth potential in the in the investments really creative over time. So hence capital recycling increases and other source of funds that we're very focused on.
spk17: Have you asked OMAR's wife how she feels about this?
spk04: I sent
spk13: the headline and there's somewhere for you.
spk09: Thank you.
spk01: Thank you. Your next question comes from the line of Michael Mueller of JP Morgan. Please go ahead.
spk04: Yeah, hi, I was wondering, can you give us some high level color on how the shop outlook varies, maybe from the AL to the IL segment?
spk08: Yeah, sure. So it most of our NOI growth is coming from AL. We have, you know, that's going to be on the much higher end of the average, you know, particularly in the US. So, you know, the IL growth really, there'll be some growth and some contribution this year, but really more of a 2025 opportunity that we would see it in terms of big contributions in the US. Occupancy trends have been excellent across our independent living portfolio in the US. I mentioned that we ran at 127% of prior year move-ins in the US in the first quarter in independent living. We've had, you know, multiple months of occupancy growth. We, you know, the April looks good in independent living and so there's good leading indicators in that portfolio that will ultimately drive the NOI. But AL is really leading the way right now in the US. Got it. Thank you.
spk01: Thank you. Your next question comes from the lineup. Wes, Qaddei of PIRD, please go ahead.
spk11: Hey, good morning, everyone. I just want to follow up on that last question regarding the IL, you know, picking up next year. Is that just more so operating leverage kicking in next year?
spk08: Yeah, exactly. So IL is a high margin business. It has relatively high fixed costs because you're not delivering care. You're offering more limited services. So the operating leverage is very, very high. And the higher the occupancy, the more you benefit from that. And we have a long runway ahead in terms of occupancy upside. So we look forward to some continued growth there and then see how that plays out, you know, driving NOI moving forward.
spk11: OK, I want to go back to that slide. You have about the 19 billion dollars of loans. How much of those loans do you think will have some issues on the refinancing front? And has your view on the amount of distress change over the last six months? On one hand, you have rates continue to grind higher, but then the recovery is also accelerating.
spk13: Right. I would say that there are there's a large percentage of those loans that have some difficulty in refinancing without additional equity contributions. The assets are good. The markets can be good. The growth can be good. But because LTVs are lower and as you say, rates are higher and the NOI, you know, many of them have not recovered to pre-COVID levels or they were construction newly constructed assets that really were delivered in COVID and therefore aren't meeting their original pro forma. And there's really good upside, but the refinancing mass doesn't necessarily work without significant paydowns. And so those owners, which again, I think is a significant percentage of the 19 billion either have to decide if they want to reach in their pocket and put more equity in or if they can sell them for a reasonable value and just move on, whether that's really where they want to go. And that's that's really part of that opportunity. But as Justin said, there are many other market forces that are pushing sellers to market and that are creating the overall pipeline opportunity that we're seeing.
spk11: Thanks for the time, everyone.
spk13: Thank you.
spk01: Your next question comes from the line of Michael Troyak of Green Street. Please go ahead.
spk07: Thanks and good morning. Maybe maybe one on the outpatient medical business. What drove the sequential occupancy decline during the quarter, whether in terms of tenant credit asset quality or anything you can provide. And then what were the consistent themes with those move outs, if any, compared with the recent tenant move outs we saw second half of last year?
spk02: Yeah, yeah, thanks for the question. You know, we're actually really happy with our leasing. We in the first quarter, we did nine hundred thousand square feet of leasing. Fifty percent more than prior year, which is terrific. And what I'm also happy to talk about is health system health is is really come back. If you look at the coffin hall data, you know, it's the financials for the health systems are almost forty percent higher than what they were a year ago. So they're back. They're executing on their strategy and they're upgrading their facilities and converting nonclinical space to clinical space. That's your point about the forty basis points that equates to about seventy two thousand square feet worth of lost occupancy. I can tell you that almost immediately we released fifty five thousand square feet of that seventy two. And in many cases, it's essentially the same entity. I'll just give you two examples. One example is with a health system where the practice an independent practice moved out. And then health system who's associated with that practice immediately lease the space back again. We have to build out the space. So occupancy goes down, but it's essentially released. Another example of the health system had on a particular floor, a bunch of small sweets. They wanted to just let all those go and release the space as one suite. They could have a larger, more efficient practice. So those types of things are going on as frictional vacancy. We're losing a little bit of occupancy as the health systems execute on their strategy. And then that'll result in better leasing, better rent later in the year or next year.
spk13: Thank you.
spk07: Okay, that's helpful. Maybe a second question, if I may, going back to that versus discussion. So, I'll meaningfully outperformed in terms of occupancy gains during the quarter. Is that a reflection of just greater demand for the I'll product or more attributable to an improvement in the operations of that holiday by atria portfolio? Yeah,
spk08: so we've had, we definitely have had good recent momentum in our independent living portfolio that includes some holiday communities, includes former holiday communities and includes some of our existing, mostly, most other I'lls operated by our legacy atria within our legacy atria portfolio. So, you know, there's been a intense effort to work with our operators to ensure that we're getting the best performance within those communities. And that continues. And the whole playbook really has been used, everything from, you know, sales oversight insights, price volume optimization, capex investment, and then the operators just really executing. And so we're really happy to see the good results and look forward to more growth.
spk07: All right, so just to clarify, it's pretty broad based across the portfolio. Yeah,
spk08: it is
spk07: broad based across the portfolio.
spk13: Yep.
spk07: Yep. Great. Thanks for the time.
spk13: Sure thing.
spk01: Your next question comes from the line of Austin Werschmeid of KeyBank Capital Market. Please go ahead.
spk06: Great. Thanks. Just wanted to hit on Rev4. You guys, you know, assumed, affirmed, excuse me, the Rev4 growth for the year, which does imply acceleration similar to occupancy in the quarters ahead. Just kind of what gives you that confidence. And is that acceleration coming from primary markets that have kind of lagged the overall portfolio or is it other buckets that are driving that improvement?
spk08: Yeah, one thing I just want to point out is when we gave the metrics that are supporting the shop guidance, you'll notice a lot of tildes. So, there's approximately 8% revenue, approximately 5% Rev4, approximately 270 of occupancy lift. And then we have an NOI range. And so we left a little room for movement amongst those metrics and see how the key sales and season plays out. So, I don't think we're necessarily saying we're going from 4.7 to 5. We're just saying we expect to be around 5, which was consistent with what we saw in the first quarter.
spk06: Got it. That's helpful. And then just on the street rate growth, broad-based for overall same store portfolio, given some of the leading indicators you've pointed to, showing strength, the occupancy acceleration, what would lead you to kind of lean into that and maybe kind of test the waters on pushing that a little harder if you continue to see the strength and the demand that you see now for the last couple of quarters?
spk08: Yeah, so the part of the price volume optimization is really making sure we're priced right and where there's more demand and in a market and opportunity to move with market pricing more aggressively, we do that. So, there's certain markets and certain highly occupied communities that are attracting a higher street rate, higher movement rate. So, that's definitely part of the plan. Now, having said that, we have a lot of occupancy upside and that's the big opportunity for us is to continue to play in the demand drive volume, balance it so that we're getting the best out of just total revenue growth and then drive NOI.
spk06: Thank you, I was just going to do the guidance assume that that's 7% kind of stay steady to your point on kind of the occupancy upside.
spk08: I mean, it's a year over year stat, so I think you'll probably see a little bit of movement within the metric, but what we're expecting to see is growth in street rates, growth and moving around and growth and occupancy.
spk06: That's helpful. Thanks for the time.
spk13: That's
spk01: a good three,
spk13: so yes.
spk01: Austin, thank you. That concludes our Q&A session. I will now turn the conference back over to Deborah Cafaro, Chairman and CEO of Fintas for closing remarks.
spk13: Great, great. I want to thank all my colleagues and also all of our shareholders, analysts and the other participants today. We very much appreciate your attention and your interest in Ventas and look forward to seeing you soon.
spk01: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-