Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 dentist, earning conference call at this time, a participant lines and listen only mode. After the speakers presentation, there will be a question and answer session.
The question. During this session you need to press star one on your telephone please be advised that they've called which is being recorded.
Require any further assistance. Please press star Zero I would now like <unk> and the conference over to your speaker today.
Juan Sanabria. Thank you. Please go ahead Sir.
Thanks, Justin Good morning, and welcome to the Ventas Conference call to review the company's announcement today regarding its results for the fourth quarter and for your ended December 31 2019.
As we start let me express it all projections or predictions and certain other statements to be made during this conference call maybe considered forward looking statements within the meeting at the Federal Securities Law.
The company cautious at these forward looking statements are subject to many risks uncertainties and contingencies.
Stock holders in other should recognize an actual results may differ materially from the company's expectations, whether expressed or implied.
And tots expressly disclaims any obligation to release publicly any updates or revisions to any forward looking statements to reflect any changes in expectations.
Additional information about the factors that may affect the company's operations and results is included in the company's annual report on form 10-K pretty your ended December 31, 2018, and the company's other FCC filings.
Please note the quantitative reconciliations between each non-GAAP financial measure referenced on this conference call and its most directly comparable GAAP measure as well as a complement the company's supplemental disclosure schedule or available in the <unk> Investor Relations section of our website Www Dot Ventas read dot com.
Now I'll turn the call over to Deborah acre borrow chairman and CEO up the company.
Thank you one good morning to all of our shareholders another participant and welcome to the Ventass yearend 2019 earnings call.
Today. The Ventas team is here with me to discuss our 2019 performance and provide our outlook for 2020.
Let me start by expressing how personally committed I am to the future success at Ventas, our ventas team and our stakeholders.
As such today, we're announcing a series of decisive actions to drive performance, including recruitment of new talent and realignment of our executive team.
Much of an exciting new growth platform and significant moves to improve senior housing quality and reliability.
Following our third quarter call with you in October we committed to doing three thing.
One closing out the year consistent with the guidance we provided.
Sector, taking demonstrable steps to improve performance and get back on the Ventass winning huh.
And third providing 2020 guidance when it was ready and reliable today, we have met all three commitment.
Let's start with finishing our year consistent with our outlook for the full year in 2018, we delivered solid enterprise results of $3, an 85 cents per share at the high end of our full year normalized FFO guidance range issued in February of 29 team led by our office segment Alper.
Performance steady growth in our health care portfolio accretive investments any effective capital markets activity.
Fourth quarter 2019 results also came in line with our projection.
[noise], notably during the year. We also made significant strategic advances, we announced cluster commenced nearly $4 billion and new investments expected to deal between six and 7%.
These investments include our attractive L. G M portfolio and partnership and come back and our commitment to nearly $1 billion and high quality research and innovation ground up development projects with leading research University.
We took smart capital markets actions to finance, our investments lower interest expense and extend maturity.
And thanks to Pete bulk rally and his team we delivered strong results in our office business that now represents nearly 30% of our portfolio.
We continued to lead in and be widely recognized for our commitment to environmental social and governance values.
Second we promised to take demonstrably actions to improve our performance and position us for growth and success.
We have been moving with a sense of urgency intensity its purpose and have made significant strides over the past couple of months.
These actions fall into three general category leadership senior housing and platform for growth.
Let me start with leadership.
Today, we announced the appointment of Justin Hutchens to our executive leadership team.
Most of you know Justin as a well respected operationally focused senior housing leader.
Just into will report to me and move to Chicago will oversee our senior living business in North America.
Martin or with our operators and focus on maximizing our position in the market.
His operating background will provide a strong complement to our existing capable team and his presence will add to our senior housing bad but.
We are all very excited about the insight impact Justin will have on the Ventas senior housing is that when he joins us in early April.
At the same time, we're realigning our current leadership team to provide expanded roles and responsibilities for each executive and we will welcome our new General counsel carry Robert when she begins at downtime in March.
Turning to the action items to improve our senior housing business.
We're marketing for sale over $600 million and non strategic senior housing assets and the process is competitive.
When achieved proceeds of these divestitures will be recycled into our exciting research and innovation pipeline with leading research universities.
We have also collaborated with our operators to accelerate and target our senior housing capital investment plans for 2020 and better position our communities to compete in their market.
[noise] in priority market, we have significantly increased our 2020 budgeted capex spend particularly on projects that are customer facing and design to improve the occupancy competitive position and overall attractiveness of our communities.
We have also taken initial steps to form an institutional joint venture for the E.S.L. portfolio.
Yes, L. continues to find its footing following the transition of assets to at the recent rollout of its simplified pricing model and an increased allocation of capital to the communities.
And finally in a sincere attempts to be responsive to investor and analyst input. We've updated our shops same store policies to enhance comparability transparency and consistency in the presentation number shop results and guidance.
I want to recognize Michael Bilerman for encouraging this initiative as well as Tom Herzog, Pete Scott, but in our own team for the energy in professional listen they brought to this effort for the benefit of investors analysts and other stakeholders.
The third category and action, we've taken to position the company for growth and success, it's a lunch of an exciting new business in the first quarter.
It's a ventass branded perpetual license people focused on life Science Medical office and senior housing assets.
Our fund is off to a fast start with about $650 million of committed third party capital ice initial closing, which is expected in the first quarter.
Fantasise eating the fun with life Science and medical office building valued at a 4.9% cash cap rate.
Validating the value creation of our investment strategy and execution.
[noise] at inception, we also expect to fund to enjoy nearly half a billion dollars of incremental buying power to acquire additional asset and we expect the funds gross assets under management to grow overtime.
Ventass will retain a 20% interest in the fund to ensure alignment with the fund investors as well is received asset management fees and other compensation if the fund investors receive expected returns.
Our new fund has numerous strategic and financial benefits for Ventas and its shareholders. It Leverages our brand team experience in industry knowledge extends our reach and provides us with another consistent source of capital to grow.
We expect each of the actions outlined above to contribute positively to our enterprise results over time.
[noise], which leads to the third and final objective, we communicated to you that we would introduce 2020 guidance and the components thereof, when they were ready and reliable.
Today, we are introducing 2020 normalized FFO per share guidance of $3.56 to $3.69.
Our 2020 guidance at the midpoint approximate our fourth quarter 2019 result times for adjusted for if you identified items.
Our guidance also reflects our expectation for continued strength in reliability in our office and health care verticals continued pressures in our senior housing portfolio and no capital markets or investment activity.
Our though although our 2020 guidance excludes as is typical the impact of new acquisition, we are coming off a fantastic year, and we continue to see attractive investment opportunities across our verticals, including in our research and innovation business.
During 2020, we will endeavor to extend our long history of effectively sourcing acquiring underwriting and financing value creating investment.
Turning to the broader market, we continue to see strong institutional interest in all of our asset classes.
Curricular lay senior housing life science in medical office.
Global investors continue to be powerfully attracted to these asset classes for the same reasons. We are they are driven by powerful demographic demand tailwind.
We are especially encouraged by the favorable supply demand trends in the national senior housing market and in our Submarkets that bode well for our future.
In the top 99 market absorption in the fourth quarter outpaced inventory growth for the second consecutive quarter.
Driving 2019 absorption to the highest level on record.
Across that test Submarkets, we expect 2020 deliveries of new communities to improve year over year.
Although operators are still digesting that came to the cumulative supply delivered over the past couple of years. The power of this upturn in senior housing is undeniable and inevitable.
So.
As we push through 2020, we have our sites that were late on the potential inventus from the upside we see in our senior housing business.
Contribution from the opening of our research and innovation development.
Steady growing and away from our high performing office in health care portfolios, the expansion of our footprint and access to capital through our newly launched fund.
Our enhanced team that is committed to each other and to our stakeholders and our continued investment and capital markets opportunities.
And now I'm happy to turn the call over to my partner, our CFO club pickup.
Thanks Debbie.
In my remarks today, I will cover our property performance and outlook, our overall 2019 company results.
Our company guidance for 2020.
But before I jump in or 2020, AFFO guidance range midpoint of $3, a 63 cents per share.
To be frame simply as her adjusted fourth quarter 2019 AFFO annualized.
Further adjusted for continued growth in office and Triple net health care.
Great sense of dilution from 1.3 billion of capital recycling.
And for flat senior housing performance.
This guidance excludes any new on announced fees investments were capital markets transactions as is our practice.
With that context, let's get into the property discussion.
[noise] shop result for the fourth quarter 2019 were in line with our latest expectations.
Your 2019 same store shop in a wide declined 4.4%.
While Q4 declined 7.5%.
Driven by the cumulative effect of new competition.
Together with some unique operational issues that DSL.
If we exclude U.S., so which represents 8% of our same store NOI.
Fourth quarter 2019, same store NOI would have declined 4%.
And the full year 2019 would've been down 3.1%.
As anticipated the lower revenue trajectory coming out of Q3 continued in the fourth quarter.
In occupancy finish the year at 86.3%.
Which is 160 basis points below prior year.
On a positive note operating expense growth was less than 2% in Q.
With labor inflation mitigated by strong cost controls.
Same which played out consistently during 2019.
In terms of guidance 2020 same store shop in Hawaii is projected to decline in the minus 9% to minus 4% range.
The simple socs are that our shop guidance is result of two factors.
One.
Revenue trends that we called out at the ended the third quarter, it's having an important impact in 2020 because of a lower occupancy starpointe entering the year.
And to the impact of cumulative supply still being digested and 2020.
The fourth quarter, a 29 team, which incorporates the lower ending occupancy levels is a good jumping off point for 2020.
Relative to the fourth quarter of 2019 annualized.
2020 shop same store in a wife is expected to be flat at the guidance midpoint.
We do expect improvement in the full year occupancy gap in 2020.
Relative to the 160 basis point gap in the fourth quarter of 19.
As well as modest 2020 revpar growth.
Everybody healthier place rent increases.
Wage and insurance inflation and the impact of an extra day due to the leap year.
Also incorporated.
[laughter] encouragingly, new supply coming online in our shop sub markets is expected to decline nearly 15% in 2020.
And new construction starts in Preconstruction permits are also trending favorably.
That said, we estimate cumulative new units that have come online over the last several years.
And that are still being absorbed will remain elevated in 2020.
Thereafter, the positive trends of growing demand.
Lower inventory under construction should become manifest.
W. summarized earlier or action plans in senior housing.
I will build on a few of those points.
First we continue to increase the frequency in depth of dialog with our operators.
The addition of Justin Hutchens with deep experience in relationships in senior housing operations.
Accelerate and complement those efforts.
Second.
We've incorporated the sale of 600 million of nonstrategic senior housing assets into our shop outlook benefiting the same store range.
Fine estimated 50 to 100 basis points.
And third we've revised our same store shop definitions as announced last week in conjunction with in core consistent with health peak.
The new definitions are summarized on page is 47 to 49 ever supplemental.
These shop updates are effective January one at 2020.
And we've also presented 2019 results is that piece updates to shop policies had been in effect during that year.
The impact of their adoption is to reduce 2020 same store growth by 50 to 100 basis points by eliminating the benefit of lease up of certain redevelopment.
Taken together the impacts of the sale of certain shop assets.
And the adoption of the new definitions effectively offset each other.
I would also note that over 80% of our shop assets are the same store pool.
And as is our normal practice, we provide transparency into both quarterly and full year same store pools.
Which we think is critical to understanding organic growth in shop.
Finally, I'm pleased to report that the LG and portfolio has been successfully integrated.
Our partnership with the L., Jim team is off to a strong start.
And the assets are performing well.
Let's turn to our triple net lease portfolio.
Which grew same store cash NOI by solid 2.2% for the full year 29 team.
Our health care portfolio of acute and post acute assets led this growth.
Within Triple net urban Eltek coverage remained stable at 1.4 times.
We continue to perform exceptionally well throughout 2019.
Pardon rent coverage remained robust at 3.1 times.
Trailing 12 months senior housing Triple net rent coverage was flat at 1.1 times.
But included some drift lower in coverage from certain operators, including Brookdale.
We were pleased to see the solved report from Brookdale on its earnings call yesterday.
On a same store basis for 2020 Triple net overall, we expect same store cash NOI will grow one and a half to two and half percent year over year.
Driven by in police less in place lease Escalations and the health care assets.
Let's discuss our exciting office reporting segment, which represents 27% offend tosses in Hawaii.
For the full year 29 team office same store cash NOI increased by 2.6%.
Beating the high end of our upwardly revised guidance range of two to two and half percent.
This outstanding result was fueled by a earn I portfolio.
Which grew 29 teen full year same store cash and white by 6%.
With average rent per square foot up 5.5%.
Occupancy approaching 97%.
Strong performance at our University based developments affiliated with Duke University of Pennsylvania full growth fueled growth in Q4, and the full year or not.
The benefit of lease up of our attractive overnight developments will continue to be the same store growth in this segment in 2020.
Complementing the fast growing earn I business is are highly valuable medical office business.
And we'll be same store cash NOI for the full year 29 team increased 1.6%.
In line with their expectations and above the midpoint of our guidance.
There will be team did a terrific job delivering excellent customer service in 2019.
Achieved a very strong 92% tenant retention rate for the quarter.
And 86% for the full year.
Sounds record.
On a combined basis, our office portfolio of lifestyle properties and it'll be assets is expected to accelerate growth in same store cash NOI.
From 2.6% in 2019.
In the range of 3% to 4% for the full year 2020.
This guidance is comprised at the midpoint of 1.75% and 9%.
And we'll be in our nine respectively.
Now onto our overall company financial results.
2019, we delivered normalized AFFO of $3.85 per share at the top end of the initial guidance range of 375 to 385 that we set out last February.
For the full year 29 team same store property results were also in line with our latest guidance ranges.
We've been proactive in refinancing our debt.
At the end of 29 team Ventas has averaged at duration on senior notes to approach eight years.
Our average cost of debt improved to 3.5%.
And our debt maturities through 2021 are minimal.
Finally, as expected net debt to adjusted EBITDA was six times for the full year at 29 team.
I'll finish up with our full year 2020 guidance for the company.
The key components of our guidance are as follows.
Net income attributable attributable to common stockholders is estimated to range between the dollar 60 $1.74 per fully diluted share.
Normalized FFO is forecast to range from $3 and 56 to 3069 cents per share.
We expect our portfolio same store cash and <unk> in a wide range from minus 1.5% positive 1%.
And that debt to adjusted Pro pro forma EBITDA is expected to remain stable for the full year 2020.
Following Q3 2900 earnings.
We communicated that our implied Q4 2019 guidance midpoint annualized.
There are $3.64 per share.
Would be a quote good start point.
Our 2020 AFFO per share.
This calculation was it before any new investments or dispositions in 2020.
Our 20, 20-F, AFFO guidance midpoint as published today.
$3.63 per share.
Despite absorbing and anticipated eight cents per share of dilution.
From 1.3 billion of dispositions used to reduce debt.
And to invest behind or new overnight developments.
And this is as is our usual practice, we've not included in our guidance any new fees investments or associated capital market activities.
Normalized FFO per share a bridge from our fourth quarter 2019 annualized.
Sure 2020 guidance midpoint of 363 can be found their press release.
To close.
The entire Ventas team is fully engaged and committed execute on our 2020 plan.
To improve performance and to position us for the exciting opportunities that lie ahead.
With that I'll ask the operator, please open the call for questions.
Thank you and as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please press the pound <unk>, we ask that you limit yourself to one question and one follow up please standby were compounded you in a roster.
And our first question comes from Bigram, Mark Laura from Morgan Stanley. Your line is now open.
Thanks for taking the questions I know you guys have done a lot of works with congrats on getting all this done.
So I know I had one question for a lot. So just focused on guidance can you give us a bit more color on sort of how you came out.
With the ranges for your idea growth kind of at the midpoint of then what gets you to do either end.
And what how the flu maybe baked into that and then second question on the Triple net side you talked about coverage I'm. Just wondering are you baking in any additional cut or anticipating any cuts due to the rents on the triple net side.
Sure I'll take those and thanks for the question good morning of let's start with shop midpoint of the range and then I'll do the high low.
Midpoint of the range occupancy.
We expect to improve the gap year over year.
Relative to the fourth quarter, the fourth quarter was down 160 basis points versus the prior year 29 TV 18.
And we expect to improve how you narrow that gap over the course of 2020.
We expect modest.
Revpar growth, we had nice in place increases.
In the 2021st quarter.
Thats, helping that will be offset in part by releasing spreads to get to modest growth in red for an expense side, we highlighted some of the some of the issues, including labor inflation insurance inflation.
And the extra day of leap year, and those are all baked into the plan.
I would say on the Opex growth side, we have not assume that we'll continue to hold overall opex below 2%, which is what we saw in last few years.
And when you add all that out that gets you to the midpoint of the range that we quoted.
On the I'll call it the goods side of the range the real levers I would say, particularly around cost.
So their ability to continue to drive.
The labor inflation.
Down through efficiencies and the operating model procurement et cetera.
Would be the upside that really is key to get to the to the goods side of the range on the other end.
It's really about the revenue and pricing and what happens in the marketplace.
We continue to absorb the the supply that's that's still out there so really a revenue driven equation on the downside and that's really the upside downside.
As we portrayed it.
I'm on the second question.
I should say the flu.
Yes. The flu is incorporated we don't believe it's a big deal this year.
But it is it is incorporated.
Triple net coverage they complex equation for sure.
I'd say a few things one what we told you last year.
Remains true I lease modification impacts transitions et cetera.
And becomes 20 and 20 is simple phrasing that is true.
That's incorporated in our guidance. We've also incorporated some room for further modifications should they be necessary. So that is in.
In the guidance range for reference, though as we look at the overall.
So long answer to clarify.
Just to clarify when the guidance the shop guidance that you have given youre looking to.
Given year, Sallie Mae going to undergo a change what could the guidance had been excluding yourself.
They did benefit is not.
Baked into the range.
As its not baked into our guidance.
I'd say, it approximates 100 basis points.
Okay. Thank you.
[laughter] say in Q and our next question comes from Nick Joseph from Citi. Your line is now open.
Hey, it's Michael Bilerman here with Nick and every thanks for working with your peers to standardize same store certainly appreciate that.
Two questions morning from me good morning from the fund that you launch.
Can you walk us through that process now of allocating acquisitions.
Into the funds versus on the portfolio it sounds like you're going to be both core and core plus or what's going to be the factors of an asset.
Our portfolio of assets going to the funds versus on balance sheet.
Good well, where we are excited about decides long admired dad have me his success in this area and Dan I'm I'm excited that we can use our infrastructure and platform.
Give investors at choice of how to invest in these core life Science and dead Medical office in senior housing.
Assets. So the there are defined criteria you would imagine for the fun and over time as defined growth, which we expect and hope that it well.
There there will be I'm, just really a choice of which is the better at home for the assets, making sure making sure of course that we treat all of our stakeholders fairly.
Thank you and then second question in terms of gene a load I guess, it's really a two part one what's embedded for guidance for 2020 relevance for 19 for GSK, especially as you're bringing new people on.
But also taking a look you have.
2019, you were 166 million call at about 50 basis points of gross asset value.
You know your Q close this large cap health care REIT peers, you had peak running at 90 million or just over 40 basis points and well with 126 million just over 30 basis points a G.A. The is it I mean, maybe there's some disclosure in terms of comparability, but just directionally do you feel that there's area.
That you can reduce the gionee load.
And how will justin's hiring impacting since we look at 2020.
Thank you I'll take that one Ah thanks, Michael So it's always hard to compare.
DNA I'm using different measures scale. Your operating model you know our two variables that can drive.
Real differences as we look at our Jna I'm you know I'd highlight a few things when.
When you look at year over year for example in 19, we saw.
The lease accounting standard change, where we begin to expense leasing commission costs that is a.
That is a in the run rate if you like for the year over year impact in 19.
And in the base as we look at 20.
We would expect effectively to on Gionee.
Try to stay flat.
And.
Thereby by definition absorbing you know had gone costs I.
Including Justin So that's going to be inefficiencies and.
Seeing sharp as we always are but that's that's our budget well I told them. He has to make it all bad times three or something.
Okay, [laughter] [laughter] alright, thank you.
Thanks, Mike Huh.
Thank you.
Your next question comes from Rich Anderson from S. M. B C. Your line is an open.
Thanks, Good morning, and a good associates for Jim How are you could addition, with Justin good Guy of course looking forward to seen him again.
No.
So the.
On the same store I guess the question goes for both same store NFV FFO as the year progresses and same store, meaning shop.
How do you how do you <unk> vision this sort of moving over the course of the year or do you do you see a trough quarter on either measure and then and then when you think about the work that went into sort of identifying your shop guidance is there a timeline, where you get back to more.
Headed of level of growth versus your peers is that a year from now.
I'm sure. There's something you know some sort of thought about timeline to sort of get this matter all fully behind you.
Yeah rich good question, thanks for asking.
Because the profile as you know of 19.
Was in the second half we saw the revenue drop we called it out obviously in the third quarter. They carried forward into the fourth so if you just kind of drew a line you think about 29, obviously started high finish slow in coming into 2020, that's our starting point and so all else equal.
We'd expect to see a tougher comp in the first half of the year and then normalizing if you like as we get into the back half of the year. So that that's just going to be the normal phasing.
As we look at it and as we as we look at the year over year.
Guidance range that is a fundamental predicate absolutely for sure.
Go ahead, no Oh is it was going to say could you. So is the is first quarter. The trough year. Both for same store in AFFO would you would you say.
Try to try to quarter.
Yeah, you'll you'll have some competing forces there so in terms of assets so phasing.
The dispositions, we talked about 1 billion three of dispositions being used to reinvest behind our and I.
In debt repayment.
We'll be over the course of the year, so that is dilutive because at eight cents.
Versus the fourth quarter, so you'll see that phasing in over the course of the year. Okay. So some and then offsetting forces alright, but then this time next year do you think will be as a competitive level of growth on the same store shop portfolio.
Everyone in this room its focus on delivering 2020.
Okay. Second question is on the fund assets, you kind of answered it kind of but I. Appreciate you want to you know kind of hold your cards, a little bit but is there at least a higher percentage of riskier assets or or core plus assets, there and would you see more from your existing portfolio.
Or is this all you're going to do for now and everything else would be growth.
Well right now, it's our expectation that everything will be growth and importantly, we believe that it really does odd men are aggregate capacity to grow.
And so from here on out we would expect Johns team to be sourcing investments and if appropriate they'll go in to find and otherwise we will happily take them on balance sheet. So I just wanted to language capacity expansion of overall capacity.
I don't know what appropriate as though you can you define when appropriate is for the fund yeah. I mean, there to find investment criteria that or identified that Dan would be for core like cyan.
Stabilized core life Science, senior housing and MLB and Dan or things like out are you know our growing research and innovation pipeline ground up development with our exclusive partner Wexford would clearly be ventass account.
So there are pretty clear demarcation, but where there were there may be overlap again, our our job is to be fair to to all the stakeholders and well in any aggregate expand our reach and our.
Acquisition capacity.
Okay wonderful clearly for thanks, Thank you rich.
Thank you and our next question comes from Nick Yulico from Scotiabank. Your line is an open.
Thanks, just going back to the fund I think you mentioned 500 million of incremental buying power and fund.
Tell us what what the leverage target is so we just haven't understanding of.
The asset you'd be buying and fun.
Yes, it's consistent with our enterprise leverage as a target.
Okay, So and the 500 million of incredible that incremental buying power that we sell you're referring to actually assets being bought us it's one level.
Well, if it its equity and debt availability.
Top of what were already seating to fund with in in the initial any initial clothing and then you know again, we would expect assets under management.
To grow from there.
Okay, and and in terms of the the additional assets are you more likely to be buying nuances or contributing a existing Ben Pos assets into the funds.
Right very clearly from here I now, we would expect us to augment our total acquisition capacity and it would only be newly acquired assets, which if they meet the criteria on or otherwise appropriate would go to the fun. So were initially feeding yet.
Five that we talked about and yet.
Then from there it will be Johns team that will be.
Sourcing and closing the investments in if appropriate that's how the fund would grow from here.
Okay. Thanks, just just one last question on the hiring of just maybe you could talk a little bit more about exactly what you're hoping for him to achieve.
I guess because looking back on on last year, just felt like you had kind of an issue where.
You are just dealing with some operating ratios and and.
Some places you can just tough kinda live with those operating issues I mean going forward. You know how is just going to be working with senior housing operators were I guess, you could have a little bit more control over a ultimately how some of these assets perform thanks.
Good.
Like you asked that and note that we did this right before the trade deadline. So were excited we're excited about it I mean, what we really think that Justin will bring.
On any and again, we have this bias to action, we're taking a lot of action to do what we told you which is to put ventas back on a winning path and to realize the upside in our portfolio in the senior housing portfolio.
So what he is going to do its work very closely with our existing highly capable team he's going to bring that complimentary operating.
Background that he has that will.
I will make us better and he he has pre existing relationship.
With most if not all of our operating partners say, she now and so he can work with them and our team on.
Operating strategies and capital plan with the overall objective of course to.
Improve operating results. He will also as we mentioned the press release serve on knee.
The sell board of directors.
Okay. Thank you Debbie.
Thank you.
Thank you and our next question comes from Jeff Spector from Bank of America. Your line is open.
Good morning, Thank you I'd like to assess the good morning, I'd like to focus a little bit more on hiring Justin congratulations.
Could you share with us I guess some of the feedback criteria that he provided to you and taking this role.
You know again some of the criteria he requested.
Yes, I mean, one of the great thing is that Justin.
Coming here really is attracted to ventass his team our strong track record our commitment to our stakeholders any upside in our business broadly speaking and our senior housing portfolio in particular and you know he is obviously.
Well versed in the U.S. senior housing market key how they'll have the business during a dynamic time in the senior housing market and I think he is you know confident that he can have a very positive impact on.
On the company and on our on our portfolio once he joined.
So did has he already influence the 600 million of dispositions I mean, the noncore dispositions is that.
The bulk right off the bat or he still needs to come through the portfolio and figure out how much more needs to be sold from there because I'm trying to tie just that and then you still did comment in your press release that you're expecting a positive turn in senior housing and I'm not sure. When you when you feel that.
That's coming.
Good so I mean, we have been working on these action plans obviously.
On around and as well, it's all the other actions that we outlined today. We've been full speed ahead on then and and Justin will start to make his contributions really when he comes here in April and and we're really looking forward to that and as I said in my.
Remarks, I mean, the the Tailwinds have demographic demand in senior housing are a compelling and the fact that there will be an upturn in senior housing driven by those demographic tailwinds is both undeniable and inevitable and so we're focused on 2020.
Hey, we want to continue to take action says we have today.
Got to position us to capture that upside and and that's what we're all focused on.
And check you will be focused with us as soon as he gets here [laughter]. Thank you.
Thank you.
Next question comes from John Kim from BMO Capital markets. Your line is an open.
Thank you.
Just taking a step back looking at your guidance.
Implies over two year period, and an 11% decline enough AFFO.
Thats totaling $99 million at the midpoint.
At the same time same store NOI is flat you've made $4 billion of investment.
Can you just remind us what the disconnected between those three items I know you have a $10 million run cuts last year, but are there more rent cuts contemplated this year, given where your triple net coverages.
Yes.
Right so the key.
Variable I didn't hear you mentioned, there is dispositions and loan repayment activity.
Sales.
Over the last several years again reinvested in either debt reduction or future growth through our and I.
Which have been dilutive staff that though you know that together with the senior housing.
Market driven performance is effectively that those are the two key things that answer that question.
What about any further.
Rent cuts or relief like you had last year.
Right so.
When we in our guidance have incorporated the impact of that which happened last year. So we've talked about the 10 million, becoming 20 I'm in terms of activity in the triple net operator portfolio that's in.
And then we've provided or for some additional activity if it's necessary. So we've contemplated having to deal with some others. So that's in the guidance.
Okay and then my second question is on your fund.
Can you just discuss.
How much you can earn in fees. This year is it just your typical asset management fees or if there's any origination or acquisition fees that would be included in your normalized.
Yes, it say, it's just a market structure and I'm surrounded by a failing phalanx as council. His his encouraging me to restrain my comment too I, well, but it's just have market structure.
So any one time fees would be basically promote.
Good whether it be anything else.
Again, principally again, if there's asset management fees that you would expect and are there other as.
The documents provide.
Okay.
Thank you.
Yes.
Thank you and our next question comes from Steve Sockwell from Evercore. Your line is now open.
Thanks, Good morning.
Hi, Steve Hi, I just wanted to go back Debbie to a comment you made earlier about the capex spend and you're investing into the senior housing to help you to shore up the portfolio, but I don't know the actually provided a dollar figure for that so is there any color you can provide on that and how that kind of relates to overall maintenance capex spending in 2020.
Well I'll do overall for the company that's in the Guy and sell it Chris talked little bit more specifically about senior housing but.
The guidance range for 20.
This is fad Capex, Steve is 180 million.
At the midpoint.
Round numbers, we were 156 million.
And 29 team.
And the vast majority of that increase is a function of senior housing.
And again very much a result of this targeted and accelerated spending in senior housing so I'll turn it to.
Chris to give a little more meat on that bone, Yeah, Craig again, Chris Cummings senior housing asset management.
As you look at senior housing spend on a per unit basis.
In 2019, we spent and on a total basis around 2500 per unit closer to 3300 per unit in 20 is our expectation.
We're spending in terms of customer facing capital about 65% more dollars in 20 than we did a 19 and where we're spending those dollars is primarily in those markets, which we view as as future attractive from a supply demand perspective, where we can get.
Good good outcomes from that spent.
Okay. Thanks, It didn't Debbie just going back to the Arne I business just in general you know what are you seeing a with Wexford in terms of deploying new capital and how would you expect starts to trend in 20 and maybe into 21.
We continue to have a robust pipeline I mean Wexford has a terrific position in the marketplace with these leading research University and we have a team dedicated here at Ventas to work with them.
Can you just share any more around just types of deals or the size of the pipeline or expectations on starts.
I'd refer that to my colleague John Cod, Yes, but I think last year, we announced a a billion and a half pipeline today, we've done almost <unk> billion of that.
So we're still working on another half a billion that we think we'll start hopefully in the first half of this year and then we're constantly looking at.
New deals they generally range between $100 million to $250 million apiece.
So they are sizable, but where we've been active pipeline and we have a great market competitive position.
Great. Thanks.
Thank you.
Thank you and our next question comes from Jordan Sadler from Keybanc. Your line is now open.
Thank you I just wanted to clarify odd on the hiring of just in Israel marching orders here I know you talked about sort of.
Increasing the dialogue with operators and obviously seat on the sell board.
But is he also will he also be.
Taking an overall inventory and assessment of the existing seniors housing triple net and shop portfolios and sort of.
Assessing whether or not you have the right portfolio of assets going forward.
Well working with Chris coming in our existing team you know, we why don't we want to partner with Justin as the team to improve performance and obviously part of that is.
Is looking at the portfolio with fresh eyes, we believe we have a portfolio that well continue that will perform in the long term look at capital plans, obviously look at pricing strategy. So it's all part of the overall.
Leadership of our of our senior housing.
Yes, Matt.
So it sounds like I guess, what were up probably trying to get out here is is Ah you know what justins mandate is in sort of whats been relayed to him in terms of what he'll be able to do in terms of you know needing to address whatever may be going on within that.
Folio and so you know.
What's the latitude in terms of capital recycling it sounds like you're saying there'll be some latitude.
Yes, I mean, where these our enterprise decisions, we will all work together to optimize both portfolio and enterprise and he will be really leading that effort with Chris and his team and we look forward to the results of that improving ventass performance and position and realizing knee upside.
That we know is in the portfolio.
Okay and will he.
Remain on on the a in its current board seat at New senior is that the.
Discussed at all.
I mean, that's something that I would refer you to new senior for.
Okay.
Lastly.
Bob just a clarification if you could on the leverage you said it'd be stable throughout the year that I think it does I think at the six from the six times I assume that was at year end, but just to clarify that and then but but how does that sort of foot with a 1.3 billion of recycling in this point and the 700 million the debt repayment.
Right. So you know simple sources uses your Jordan.
Is.
We've got the 1.3 billion of of sources coming in from the dispose the uses of those.
Our twofold, roughly 600 million of that is gonna be redevelopment spend principally behind the Arne I pipeline.
And development and 700 million is going to be debt repayment.
Right all through that that all through the grinder that's flat.
And finally leverage basis versus 19.
Okay.
I think I get it thank you.
Thank you.
Thank you and then next question comes from Daniel Bernstein from capital. One your line is now open.
Good morning.
Hi, I'm sorry.
So I go back and you know obviously <unk> hindsight is 2020, but what blessings can you learn from the last couple of years.
In terms of the portfolio that you can bring forward has to do you need more robust asset management more capex early more asset recycling early.
Maybe that's related to two Justin coming on board as well, but what lessons can you learn.
From the performance of the last two years that you can bring forward.
And change how you operate.
Well I think clearly and the actions that we're taking speak to those point I think that bringing Justin being one of them in terms of a expanding our and complementing our strengths with significant operating.
Experience and perspective.
I would say that Dan you know really understanding that you know the longer transition period in the SL portfolio, a minute and act and communicating that more at a to you.
And you know generally obviously, having oh I think consistent shot policies and so on said that investors can really understand organic performance across companies, which I think we've now tried to offer between us and health peak, which I think is a step forward. So actually you know.
Lots of lessons learned I think you know over at 20. Your time period, we have really focused on delivering and on excellent performance and I think we've had a short period here, where we have not met our own expectation, but we're doing everything within our power.
Thank you get back on the winning path and I'm confident that the actions, we're taking a well detail.
Okay, maybe this is related but.
But what gives you confidence that the the shop portfolio is going to perform better or even better than industry.
The size of a rising tide raises all boats.
Industry, we obviously have underperformed.
Within the shop.
What gives you confidence that.
It can perform better in the future is it to the location of the assets management.
Sunrise Atria et cetera, just just trying to understand what.
What's what can change in.
Within the portfolio.
Right. Okay, maybe that's just yep Yep Yep Yep.
So we we understand.
So there's there's two things as Bob described that were have been that affect our 2020 gagging. It with the ended the third quarter, which mathematically lowers our start point going into 2020. So obviously when that happens that has an effect on 2020 and then the cumulative absorption.
Supply.
And our Submarket and we know that that second aspect is improving.
And that I know I will inevitably follow plus again working with the operators on capital plans that are targeted.
And accelerated as well as bringing on more operating focused experience to work on pricing and so one. So those are all the actions that we're taking that we believe will drive improved performance.
[laughter] I know, it's more in two questions here, but one last one just want to make I understand.
Was the $10 million of.
Triple net lease restructuring was that already in Fourq you. That's rolling into 2020, I just wasn't clear on this correct.
Got it okay.
Okay rolling into 2000 towards okay.
Yes, right that's all I have.
Alright, thank you.
Thank you and our next question comes from Steven not quit from Barclays. Your line is now open.
Thanks, Good morning, doubling Bob.
Let the a the real conference back in November you guys gave a little more color on some of the specific secondary market separate problematic back in Threeq and 19.
Hi, with some of those Watson, you know taxes, Utah, Dior, California et cetera.
I don't know how much do you want to get to that on this call I guess I'm just curious if there's any update on a dose market you are putting out as maybe being expected to improve.
In 2020 pass on that player list.
Yes, which wants may still be.
Let's say difficult throughout the whole year.
Thanks.
Sure I'll take that one and.
So I'd say that seems are very consistent with what we talked about last.
I regard, namely the secondary markets.
Basically the 4000, the third continue to see on a proportional basis more revenue challenge.
And again, that's where we saw supply come earlier and that the.
The need to digest those units come first so.
That as we look into 2020.
That said.
Second some of those secondary markets have begun to see.
That turn and as Chris was describing where for example, we're focusing some of the capital.
Those would be good opportunities to spend targeted capital there.
The other hand primary markets and we these are just broad brush you have to get of course get into specifics but.
[noise] primary markets is where supply came later in the digestion will come later put it that way.
And so we'll expect in 2020.
Some of those primary markets I'm, having to deal with with that.
Supply, but at the end of the day this is timing.
Because the trends our electoral we see the demand growth, we see the penetration growth.
The starts trend, which has been favorable.
Oh for several years those come together.
Manifest themselves in the in the upside that we keep talking about and it's just a matter of getting from your there.
Okay. Appreciate the answers Helen I.
Thank you.
Thank you.
Ladies and gentlemen, we do ask that you limit yourself to one question and one follow up our next question comes from Jonathan Hughes from Raymond James Your line is now open.
Hey, good morning.
And then.
Hi, Debbie.
I was hoping you could clarify the augmented external growth strategy and relationship with the core and core plus fund.
You mentioned only stabilized deals will go into that vehicle does that mean only value added development opportunities will be targeted by ventas and the historical external growth trajectory those outlined last June.
Maybe also augmented down from 2 billion to maybe half that.
Not at all.
So so let me try that let me try to take it take it again, so that's the fun helps us grow our platform by augmented investment capabilities and capacity and so basically we exceeded the fun and then anything.
That grows to find assets under management will be new investments.
Typically add.
Sporty cap rate and the find well provide another arrow in our clever in terms of.
Access to capital and Dan will enable us to acquire things that in some cases would be.
In addition for us to acquire on balance sheet and as I said before you know we have an unlimited capacity too and that's on balance sheet and then eventually in the fine as it continues to grow and if you look at pro largest for example, as an example, then.
You would see that it's healthy overall enterprise grow and that's what we're aiming for and in addition, as we mentioned in the release will be the 20% GP of the funds that we will maintain and a significant interest in those assets as well so it's an internet.
Overall win for everyone the new stakeholders in the fine as well as Ventas shareholders.
Okay. So the growth trajectory advantest as a whole same more in the outside vehicle and Johns team sounds like anymore.
Same or better.
Sorry, yes, enhance Johnson sounds like it will be very busy.
Okay.
Alright, and then one more on here so.
I know you're looking for a JV partner in demand for senior housing is strong but this same portfolio ultimately didn't find a partner whenever call. It was being marketed back in late 2017, why sell it now or JV. It now after otherwise taken such a drastic turn.
The horse just feels like we're selling at a trough why not just keep it as a whole and lap it and you know in 18 months, we lap these comps and you get the benefit.
Great question, because we do we do see upside there over time and that so first of all historically speaking we chose not to pursue a partnership at that time and and.
So I think that's important for you to understand and then secondly, we have taken these initial step to doing joint venture there is institutional interest and generally partnering with Ventass and in senior housing in particular, and you know we believe that continuing.
Thank you recycle capital and attract capital.
And gain more partnership with investors, it's a positive development for Ventass and this could enable us to do that.
Why did you not JV a two years ago.
We made a decision at that time that it was not in in the best interest of.
The company tickets, though.
And you stick by that today as I know why has gone down pretty precipitously.
Oh, we do and now we'll be happy to talk to you about more color offline, but yes, we do that.
Alright fair enough I'll follow up offline. Thanks, Okay look forward to it.
Thank you.
And then next question comes from Michael Mueller from JP Morgan. Your line is an open.
Yeah, Hi, just just the timing and shop hi.
Quick question on shop occupancy 160 basis point gap.
Yearend, Bob I know you talked about that closing so we can you talk about like a magnitude of how much of that closing would you say is really good progress versus kind of a base case scenario.
[laughter] I'm going to ask right.
Thank you for asking yes, I appreciate that and the goal is to narrow yes, l. into right direction. That's a lower number one in 160 [laughter] and obviously you know there's a related question which is pricing.
So both of those need to be answered together, you need to be smart on both occupancy and price.
No revenue.
When you're when all said and done.
Growing revenue is the job to be done.
And so that's that's where the focuses.
Okay and real quick on yes held the TV should we read into that that you.
Do you think the progress that process to turn that around because the take longer. So you just want to less of it today is that the right way to think of it.
So this is John I I wouldn't read into it that way.
Okay.
No we're gonna stay in.
Okay.
Got it thank you.
[laughter].
Thank you.
Next question comes from Chad Vanacore from Stifel. Your line is an open.
Hi. This is taught you for Chad. Good morning. My first question do we uncover hi, My first question is on dividend coverage. So far this quarter was 78, no sense versus 79 dividends [laughter] pinpoint any guidance implies some declining AFFO. So how do you feel about your dividend at this point all seeing light up the higher.
Your Capex you are you expecting in senior housing <unk>.
Yes, I. Thank you for the question. So obviously the dividend is an important component of our total return and we feel good about where the dividend is because we we feel good about investing in our portfolio this year, which has increased.
This year, so that we can realize the benefits of the upside in our portfolio. So if we look forward. We do see the benefits have senior housing turning up we also see the benefits of D.R. and I development pipeline that we've been heavily investing in with those assets starting to come on line.
Okay, and contributing to cash flow in EBITDA and say open in late 21 and into 22 and they'll make a significant contribution at that time. So the combination of and then that this steady growth of the off at the office and health care portfolio is all combined.
I guess feel comfortable.
Okay, and a follow up on the Rep or numbers can you talk about what kind of rate increases do you are seeing no do you have to month of January under the belt and how does it compared to prior years, given the low occupancy level, you're seeing are you interested in more discounting you tribe day revenue.
Yeah. Thanks, so that there was too.
Pieces of price I'll touch on both one is the in place resident increase that happens this time of year.
And that's been healthy I'd say consistent with last year.
So that's encouraging in an important part of revenue.
And then to your second question, which is I think of it in terms of releasing spread when resident leaves.
What are we seeing on pricing and it there remains a competitive market. There's there's no question about it.
Therefore, our guidance for the year of of modest Revpar growth incorporates both those thoughts.
But so far I'd say the start to the year and it's in line with our expectation.
Thanks, Craig Thank you.
Yeah.
Thank you.
And our next question comes from on the Tayo Okusanya from me. So your line is now open.
Yes, good morning, everyone.
Welcome back tile. Thank you I appreciate it up so again congrats on the Justin Hudson's exit from the UK I think again, how you're generally going in a positive commentary on him, but yes again. The core question I think a lot of as they're trying to get onto the call as kind of fundamentally what's really.
Changing here in regards to how you're going to operate.
The shop platform going forward I think again the asset sales are helpful. But again your shop portfolio is $12.6 billion on I think you're only selling 600 million.
Yes, yeah. So JV is helpful to kind of reduce exposure, but kind of what we fundamentally changing here to give us more confidence that the shop portfolio will perform better going forward.
Okay. We've been yeah, we've been trying kids get at and respond to your question fundamentally.
Well you know, we if we have at 2020 and realize.
The benefits of Justin contribution.
And we see cumulative supply declining and our Submarkets as we expect.
And we continue to take these other actions that we've described which include targeted capital plan simplified pricing and so on a combination of those things.
Makes us confident that the portfolio will.
For him and we will realize the upside in the portfolio and we have to demonstrate that over time.
And that's when that's what we are.
I'm committed to doing.
Is there anything changing in regards to just the data analysis you structure is the type of relationships, you're trying to fall form with operators I guess, just I guess, that's kind of part of what I'm kind of looking for about whats structurally changing I grant that ultimately.
Fundamentals will also alluded a will be better for the sector, but again, you know that's kind of a rising tide lifts all boats and blending Ben top specific walk what really changes here.
Well I'd highlight at the two things one.
It's significant incremental dedicated horsepower and in this portfolio.
Obviously.
Critically important to us.
Dedicated focus then with an individual who has an incredibly unique set of skills.
With background as it read with deep expertise within the operations.
Be able to come in complement and accelerate.
Which we're already doing but really can bring that.
Extra bandwidth sites called the multiplier effect.
But he is going to bring operationally.
And strategically for the portfolio and so we're excited about that.
And the portfolio itself and the operators themselves again as we pay to before we think we're in good markets with good operators. So it's really then how do you optimizer than that.
Okay. All right. That's helpful. Then my second question I get your cost of capital is actually pretty attractive way. When you know at this point on someone with how do you think about the acquisition outlook going forward.
And you kind of bought.
Around again, clearly you're trying to do more development in life Sciences Ah, but from an actual acquisition perspective, how do you kind of think about.
A very attractive cap rates in skilled nursing for example on the hospitals side versus doing more on the and on the movies side or senior housing side.
[laughter], so good and yes, I mean, I think that that to your point is well take in Oh, we have talked about our investment framework that weve used over the years and that were augmentin today with the launch of the fun.
In enhancing and basically as you know we've we've created a history of accretive acquisitions through basically really high quality relatively lower cap rate assets, such as Tenthirty mass life Science building.
We have art kind of right down the middle investments such as our successful LG and investment last year, which is performing well and both is the stable assets as well as the lease up assets, so generating kind of between five and 6% Unlevered return and then we have a smaller.
Category of higher yielding that could include development. It could include healthcare government reimbursed assets and so one where we allocate a certain amount of capital and that they see overall combination of those investment activities is what.
Has driven the accretion from investments historically, and and we would continue to stick with that framework.
Okay.
Thank you.
Thanks Kyle.
Thank you.
And our next question comes from Connor Sobecki from Berenberg. Your line is now open.
Good morning, everybody and thank you very much rather than meal, Hi, Connor.
So just related to the disposition expectations for 2020 about $600 million I'm I mean, do we have any kind of pricing expectations. On these assets and then is there any rhyme or reason for the markets you've identified for these dispositions [laughter]. It it's sad 1.3 billion inclusive.
Yes that the contribution which are effectively sales to the fun and I believe in the aggregate et cetera at sub five cap rate.
Okay. Okay that helps and then I mean, there's a note that these are these funds are expected to be recycled into the Arne I pipeline I mean, how quickly or any kind of color on on you know how quickly you could move those funds into maybe new development projects for acquisitions.
So just to clarify the 600 million of dispositions are turning around and going to be invested in 600 million of development redevelopment. This year. That's on existing projects, John mentioned that we announced 900 million plus.
Oh, the new projects last year, and so it's really investing behind those first and foremost so exactly what you said yeah.
Okay, all right well that helps thank you very much good. Thank you.
Thank you I know next question comes from Michael Carroll of RBC capital markets. Your line is now open.
Yeah. Thank you I was hoping could provide some color on the triple net leases that have under one times EBITDARM coverage I'm, assuming that's largely holiday and Brookdale are you comfortable holding those leases a day or should we expect some type of restructuring over the next few years or even sooner.
<unk>.
And Michael Thanks for being patient and thanks for your question as as Bob pointed out and we've talked about before we were very happy to see the at the improved report from Brookdale yesterday, I'm really excited and happy for Sandy in the management team they've done.
A ton of heavy lifting.
It gets at this point where.
There are really starting to see some traction and sound positive trends that we feel really happy for them and you know good for us as well intends to holiday again, we continued to have fixed charge coverage that makes rent reliable and.
That all having been said Bob mentioned that our range does include in the trip on that side. They the possibility that we would decide if appropriate to take action on.
Different tenants in our triple net portfolio and that's all baked within the guidance.
Okay, and then I guess just in general I guess, not specifically related to those two tenants, but how do you ensure that operators that have this tight lease coverage ratios.
Our committed to positioning those communities to compete in the current marketplace.
And even position themselves to benefit from the demographic Tailwinds I'm just overall, yeah. I mean, good good question an important one and you know I've been here do you see some lesser you know spend on a triple net lease in some of those circumstances. So what I would say is the leases generally.
Provide for some required capex spend and or investment.
We often will work with the triple net operators to provide additional capital at a return to continue to invest any assets and then lastly, you know ultimately at the owner of these assets. You know we can also just make investments in them.
As we deem appropriate either on transition or otherwise to keep them competitive and in their markets.
Okay, and then with holiday Inn Brookdale have you pursued I guess any specific asset sales or is that included in guidance and I know with Brookdale. You. Originally had a handful that said set aside to potentially so I mean did you officially take those off the market or what's the plan that those yeah no felt like good memory in fact when.
We when we get our AR positive deal with Brookdale seems like a lifetime ago, but yeah, we sort of anticipated first of all that they they're operating performance would improve through the effort that Cindy and the team are making so again, we're happy to see that we did work with them.
Identify some assets that we both thought would be better outside the portfolio. Another operator can we sold some of those and some of those are included in our 2020 disposition guidance.
So that's good memory and and now we are doing that.
Okay, great. Thanks.
Thank you.
Well again, thanks for your patience, Michael and and I think your our last questioner for today.
Timber okay. So I really appreciate and we all are fantastic sincerely appreciate your.
Participation in today's call your interest in the company and your supported the company you continue to have our commitment to do everything we can do add to benefit our stakeholders our company in our employees and our partners. So thank you. We look forward to seeing you in Florida in March.
Thank you ladies and gentlemen, this concludes todays conference call. Thank you participating you may now disconnect.
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