Q2 2021 Ventas Inc Earnings Call
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Good day and thank you for standing by welcome to the Ventas second quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Quick question. During this session you will need to press star 1 on your telephone if you require any further assistance. Please press star zero and please be.
Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Sara Whitford and <unk>.
And the Investor Relations. Please go ahead.
Thanks, Tammy good morning, and welcome to the Ventas second quarter financial results Conference call earlier. This morning, we issued our second quarter earnings release, and supplemental and Investor presentation. These.
The materials are available on the Ventas website at IR Dot Ventas REIT dotcom.
And as a reminder remarks made today may include forward looking statements, including certain expectations related to COVID-19, and other matters forward looking statements are subject to risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements for a more detailed discussion of those factors. Please refer to our.
Earnings release for this quarter and to our most recent testing SEC filings all of which are available on the Ventas website.
Certain non-GAAP financial measures will also be discussed on this call for a reconciliation of these measures and the most closely comparable GAAP measures. Please refer to our supplemental posted on the Investor Relations section of our web site. This earnings call does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities or solicitation of any vote.
Or approval and connection with the proposed acquisition of New Senior fantasy filed with the SEC a registration statement on form S..4 that includes a preliminary prospectus for the Ventas common stock that will be issued and the proposed acquisition and that also constitutes a preliminary proxy statement for a special meeting of new senior stockholders to approve the proposed and.
Acquisition, and the proxy statement prospectus and other documents filed by Ventas and new senior with the SEC may be obtained free of charge at Ventas as Investor Relations website at IR day, Fantastic Dotcom or new Senior's Investor Relations website, and I are not new senior INV dot com as applicable or at all.
And as he sees website at www Dot FCC Dot Gov.
You should review such materials filed with the SEC carefully because they contain or will contain important information about the proposed transaction, including information about ventas and new senior and their respective directors executive officers and other employees, who may be deemed to be participants in the solicitation of proxies and respected their proposed acquisition and a description of their direct and indirect and interests.
Security holdings or otherwise.
I will now turn the call over to Debra Cafaro, Ventas, Chairman and CEO Terra well done and your first public company merger and congratulation.
Well good morning, everyone I went and welcome our shareholders and other participants to the Ventas second quarter, 2020.1 earnings call.
Ventas delivered an outstanding second quarter, and we have strong momentum across the board and health and safety capital deployment and access realization of the benefits of prior successful investment financial strength, and most importantly, and portfolio growth led by our high quality shop.
Business with significant contributions from office and stability and our triple net lease business.
We see a clear path to growth and our demographically driven diversified enterprise through capturing the embedded upside and our senior housing business and benefit of external investment reliable cash flow from our office and triple net businesses and delivery and stabilization of ongoing developments.
Primarily and the life Sciences research and innovation and Canadian senior housing areas.
Our experienced team is committed to winning the recovery for all of our stakeholders.
Let me first turn to our second quarter results, we posted 73 cents of normalized <unk> per share, which is above the high end of our previously provided guidance I'm delighted that our same store property portfolio grew 3.6% sequentially.
Our outperformance was driven by shop, which produced $111 million and quarterly NOI.
Recovery of $50 million of annualized NOI, representing industry, leading growth in same store cash NOI and occupancy.
July continued these positive shop trends for the fifth consecutive months of occupancy growth.
Importantly by the end of July lease reached their highest level since the pandemic began.
Just and we'll unpack these trends more fully and his remarks.
As a result, we've never been more confident that the senior living business and supported by powerful demand that is growing and resilient while supply remains constrained.
The last 18 months have taught us anything and it is that as soon as our communities and care providers are ready to welcome residents and their families. We experienced a surge of leads and moving almost immediately which then builds and sustainably and rapidly.
That said given the macro uncertainty and the COVID-19 environment, particularly the national and regional rise in cases, and the measures that have been taken or may be taken to contain COVID-19 spread the path to full recovery may not be a straight line, but we believe it will point.
Inexorably upward.
And our third quarter outlook, we are the same.
And the increase and Covid cases throughout the U S may have some impact on the velocity of leasing and expenses.
Rounding out our portfolio performance I think grew nicely in the quarter and our triple net portfolio continued its stability.
Pete's efforts to increase leasing keep high retention rate improve customer relationships and grow NOI are showing results.
And I'm campus and affiliated MLP strategy with leading health systems continues to shine.
Turning to health system, our investment and ardent also continues to deliver benefits.
In addition to strong cash flow coverage on our $1.3 billion dollar leasehold position.
Our 10% equity stake in the art and enterprise is benefiting from excellent Arden result, and our prior purchase of $200 million of art and senior notes recently paid off with the $15 million prepayment fees, providing us with a 13% unlevered return on our <unk>.
And then and the Arden notes.
And when all is said and done I believe and hope that our ardent investment and real estate equity and debt will prove to be 1 of our best risk adjusted return investment.
Turning to other capital allocation priorities, we certainly are on our front foot regarding external investment.
In total in 2020, 1 we have over 3 and a half billion dollars and investments completed pending are underway with another $1 billion life Science research and innovation pipeline with our exclusive development partner Wexford right behind that.
Our team is also busy evaluating attractive deals across our asset classes.
And this year to date, we have already reviewed about as many investment opportunities as we saw and all of 2019.
We will pursue those that meet our multifactor investment philosophy, which is focused on growing reliable cash flow and favorable risk adjusted return.
Taking into account factors, such as cost per square foot or unit downside protection and ultimate potential for cash flow growth and asset depreciation.
Our Q3 billion dollar pending investment and new senior and announced in the second quarter is a great example, and.
And this deal we are acquiring over 100 high quality independent living communities that are well invested and located in advantaged markets and compelling pricing.
The per unit cost is estimated to be 20% to 30% below replacement cost and 5% cash going in cap rate is expected to grow to a 6% cap rate unexpected 2020.2 NOI with upside as the senior housing recovery continues.
And the S. S on multiple of less than 12 times post synergies 2020.2 estimated at that though are all attractive valuation metrics.
I commend, Susan Givens and her team for doing a tremendous job, creating and realizing value for their stakeholders.
We are also confident that ventas shareholders will receive immediate and long term accretion and upside from the deal as senior housing recovers and the large middle market demographic expand significantly and the near term.
And Justin will describe the new senior portfolio also fits in with our senior housing strategy and framework.
And he was senior also performed well and Q2 and into July with occupancy increasing and at the same store portfolio for 5 straight months.
And unique strategic advantage of the new senior transaction, it's a long standing relationship we have with the principal managers of the portfolio Atria and holiday 2 leading operators, who recently combined to form the second largest senior housing manager.
That's a 1 third owner of Atria, we are excited about the opportunities. The combination creates we will directly benefit from growth and Atreus management platform and we welcome the combination of atria and holidays talent.
And atria advanced enterprise.
Congratulations to atria for pulling together this industry changing transaction.
Switching to our attractive life Science research and innovation and business. It continues to provide us with value creating opportunities to invest capital.
The Ventas life science and portfolio now exceeds 9 million square feet.
And is located and 3 of the top 5 cluster market includes 3 ongoing development projects and is affiliated with over 16 of the nation's top research universities.
We also have an incremental $1 billion and potential projects, we are working on with Wexford.
The first and largest new life Science project and the pipeline totaling about half a billion dollars and cod is gaining steam.
Expect it to be 60% pre leased to a major public research University that ranks and the top 5% of NIH funding. This project will be located on the west coast and should break ground and the first half of 2020.2.
Wexford with his exceptional reputation among universities is also exploring and significant additional life science potential projects beyond those in our existing pipeline.
North of the border, we continue to invest capital and high and large scale independent living communities with our partner the Marie and come back.
We have always tried to create value through both internal and external growth and we're pleased that we've returned to being a net acquirer in 2020.1.
Our team is active and engaged beyond our announced deals and our pipeline of potential investment across asset classes.
To fund new investments, we have access to significant liquidity and a wide array of capital sources, including the asset dispositions and receipt of loan repayments as Bob will describe in greater detail.
The demand for senior housing has been robust and sustainable proving out the value proposition, our communities and care providers offer to seniors and their families.
The sharp recovery has begun and we started capturing the significant upside embedded in our existing senior housing portfolio from both pandemic recovery and the 17, 5% growth and the senior population projected over the next few years our.
Our diversified business model continues to provide uplift and stability to our enterprise.
We are investing nearly $4 billion and announced deals and development projects and our access to and pricing of capital are positive.
In closing the U S is in the midst of and impressive economic recovery that together with demographic demand for all our asset classes will benefit our business.
We embrace the opportunity to take on any near term challenges that are temporarily caused by the strength and speed of this recovery, especially because now unlike last year and the beginning of 2021 and our employees residents and tenants and caregivers are large leap day.
And healthy.
As a team at fantastic, we're incredibly pleased about the results, we've delivered and the strength and momentum we've demonstrated.
Justin over to you.
Thank you Debbie.
We remain excited about delivering industry, leading occupancy and NOI growth and.
And we are encouraged by recent trends and our senior housing portfolio on.
Although we are still on the early stages of the recovery. We are off to a very strong start ventas is well positioned to benefit from significant senior housing tailwind, including the sector recovery upside and supportive demand fundamentals and continued improvement and leading indicators.
And our view 3 topics today.
Our second quarter performance.
Second our perspective on the senior housing operating environment and third our continued execution of our senior housing strategy.
Start by covering our second quarter performance and.
And shop, leading indicators continued to trend favorably and accelerated during the quarter as leads and moving each surpassed the 100% of 2019 levels well move outs remain steady.
June marked the best month for leads and move ins to store the pandemic and July has sustained its strong momentum.
Strong sales activity has now driven 5 consecutive months of occupancy growth and clear.
On July.
And the second quarter approximate small occupancy from March 31 to June 30 increased 229 basis points led by the U S with growth of 313 basis points from accelerating leads and move ins and Canada. The trends were more muted due to a florida vaccine rollout with a proxy.
And that spot occupancy still increased during the second quarter, driven by 33 basis points of growth in June.
Leading indicators remained strong and our portfolio is the digital footprint of our operators has significantly expanded over the past year casting a wider net as traditional high converting leads sources, such as personal referrals Rapids and professional referrals continue recovery.
Turning to shop operating results same store revenue on the second quarter increased sequentially by $3.5 million and a strong occupancy growth was partially offset by the impact of a new resident move and incentives on pricing specifically at atrium I will touch on that more and a minute.
Operating expenses declined sequentially by $9.2 million or 2.3%, excluding the impact of HHS grants received and the first quarter driven by a better than expected reduction and COVID-19 operating costs, partially offset by a modest increase and routine operating expenses.
For the sequential same store pool shop generated approximately $111 million of NOI received and the first quarter.
Which represents a sequential increase of $12.4 million or 12, 6% when excluding the impact of HHS grants.
This marks the first quarter of sequential underlying NOI growth since the onset of COVID-19, and approximates a nearly $15 million NOI improvement on an annualized basis during.
During the quarter, we saw solid contribution to sequential NOI growth from both revenue and operating expenses and average occupancy increased 110 basis points and COVID-19 cost declined substantially and ahead of expectations.
Turning to Triple net sequential same store cash NOI was largely stable on the second quarter and 98% of all contractual triple net rent was received from the company's tenants. Our trailing 12 month cash flow coverage for senior housing, which is reported 1 quarter and arrears is 1.2 times and down versus the prior quarter, reflecting the timing associated.
And with coverage reporting, which now is effectively 4 full quarters of operations impacted by Covid.
Moving on to the current operating environment, which is full of green shoots.
Our market, leading operators continue to demonstrate their strong market position through broad occupancy gains and sunny.
Sunrise led the way with 627 basis points of spot occupancy growth from the low point and then March to the end of July.
Benefiting from a rejuvenated management team significantly well invested communities and a balanced approach demonstrating very strong occupancy gains and pricing power and.
We would like to congratulate sunrise, the CEO, Jack Callison for adding experience and depth to his management team with this recently announced hires.
Atria, which benefits from a higher absolute occupancy of 81, 8% in July and continues to deliver solid volume growth, while occupancy and July increased 529 basis points since the low point in mid March resulting from the combination of their industry, leading vaccine mandate and.
Price incentives to capture movements.
<unk> anticipates tightening and incentives moving forward as pricing power recovers and the occupancy stabilizes supporting all of this is atria has industry, leading vaccination rates, which are impressively high at nearly 100% of both residents and employees.
Looking ahead as Debbie mentioned, the third quarter is off to a strong start with July spot occupancy, increasing 74 basis points versus June and leads continuing to stand strong at a 105% of pre pandemic levels.
Our operators have been prioritizing resident safety and weather and several near term headwinds, including the delta variance and transitory wage pressures from staffing shortages and select markets.
Underpinning, our leading operating partner relationships and recent sales momentum is our attractive market footprint, which positions us to benefit from the compelling supply and demand outlook and the senior housing sector.
Our communities and the U S are poised for improving performance over time due to our strong president and Submarkets that outpaced the U S national average and aging population growth and wealth demographics, but with significantly lower exposure to new construction starts and construction as a percentage of inventories.
Approximately 30% of our shop portfolio on a stabilized basis is located in Canada. The senior housing sector, and Canada has performed exceptionally well with occupancy exceeding 90% every year from 'twenty to 'twenty, and 'twenty and demand outpacing new supply and 8 of that Alaska 11.
Years.
As a foundation to these attractive fundamentals the 75, plus population and Canada is projected to grow more than 20% over the next 5 years about twice the pace of the U S.
And the Ventas team has been busy executing our senior housing strategy driven by our experiential operating expertise and underpinned by our analytical capabilities to further strengthen our senior housing business. The underlying goal of our strategy is simply to execute portfolio actions that ensure we.
We are located and the right markets with the right operator with assets.
And with strong local market positioning.
A notable example of our strategy execution is the new senior transaction.
New senior has a track record of strong operating performance benefits from a geographically diverse footprint with favorable exposure to compelling market fundamentals and demographics and represents a well invested and high quality portfolio catering to an attractive market segment. The acquisition also represents an excellent opportunity.
To further expand our relationships with 2 long standing operators and holiday retirement, and atria senior living and with new relationships, such as Hawthorne and senior living.
New senior will strengthen our existing senior housing business from several strategic perspectives operationally and new senior will enhance the penthouses cash flow generation profile. Its margin has remained resilient and the 35% plus range during the COVID-19, and occupancy has whether the pandemic headwinds approximately 80 basis points.
Better than the Nic industry average and most recently and the senior has seen strong sales trends as we progress through the early stages on the senior housing recovery with powerful upside as the portfolio occupancy grew 100 basis points and June.
Geographically and you've seen it has a diverse presence across 36 states, which includes exposure to markets with high home values and high household income levels.
Ideal proximity to premium retail and high visibility locations and favorable supply outlook versus industry averages. This.
And this transaction is a reflection of our focus on adding high quality assets to our senior housing platform and maintaining balance across independent living and assisted living product types, and we see new seniors and independent living assets is complementary to our existing high and major market portfolio as it provides a lower average resident age and law.
Longer length of stay at an accessible price point with Revpar of approximately 2700.
Purpose built nature of these communities, which include consistent layouts with 120 use for building also will strengthen our ability to effectively and efficiently redevelopment redeveloped and invest and these assets over time.
Moving on to new developments, we continue to drive value from our development pipeline through our relationship with Le Groupe Maurice where we have opened 3 communities with more than 1000 units over the past year 2 of the 3 developments were delivered and the fourth quarter of 2020, both projects had substantial pre leasing activity and.
I've already stabilized at approximately 95% occupancy the third project, the 287, new and expansion of an existing Le Groupe Maurice community and Montreal was.
It was delivered in June of this year initial leasing activity has been strong with more than half of the new units occupied as of the end of July.
Our plans across a broader shop portfolio includes significant deployment of refresh and redevelopment capital strengthening our market, leading position, where we expect to realize occupancy growth and pricing upside over the next few years, we continue to actively manage our portfolio with the disposition of non strategic asset.
And the transition of operators and select markets to position, our senior housing business for long term success.
In summary.
Our recovery is off to a strong start we are well positioned and markets that benefit from outsize aging and wealth demographics with less exposure.
And we are executing our senior housing strategy to help ensure success and the near and long term.
I will now hand over to Pete.
Thanks, Justin I'll cover the office and health care Triple net segments together these segments represent over 50% of Ventas as NOI. They continue to produce positive and reliable results within these segments, we're seeing a changing business climate health system and universal.
Business confidence is rising leading to longer term commitments and strategic growth investments.
During the pandemic, we kept our business confidence we remain focused on growth and we continue to invest and incremental leasing resources and and creating a leasing center of excellence led by an industry veteran and she is now 2 years in.
We built a technical engineering team to assist our local property teams and running our buildings more efficiently also led by industry veteran and he is now 18 months.
We've doubled our capital invested and our mlps to ensure their competitiveness, including major Redevelopments and Phoenix, Atlanta, and Austin, Texas.
We expanded our tenant satisfaction programs under the leadership of our new property management leader. He is also 18 months it.
Because of this focus and proud to say that our mlps now rank in the top quartile with tenants overall satisfaction and surveyed by Kingsley and <unk>.
National Real estate survey leader.
Happy tenants equals higher occupancy.
Our focus on the fundamentals and growth is showing results, let me describe them now.
Office, which includes our medical office and research and innovation segments performed well delivering 10, 5% sequential same store growth.
This quarterly same store growth.
Was 12, 6% year on year, the Rmi portfolio benefited from a $12 million termination fee from a large tenant and the Winston Salem Innovation center anchored by wake Forest and.
Adjusted for the termination fee off the sequential same store growth was 90 basis points and.
And 2.8% per year on year same store quarterly growth a strong quarter.
Medical office same store sequential growth was 80 basis points and year on year quarterly same store growth was 2.4%.
For the quarter, we executed 230000 square feet and office, new leases and 460000 square feet year to date.
78% improvement from prior year met.
Medical office had strong same store retention of 94% for the quarter and 85% for the trailing 12 months.
The result is the total MLP occupancy increased 20 basis points sequentially.
Total office leasing was 750000 square feet for the quarter and 1.8 million square feet year to date. We are also pleased the annual escalators for the new MLB leases averaged 2.9% for the quarter.
Which cause MLP same store portfolio annual rent escalators to increase from 2.4%.
So the 2.6%.
Our R&R business continues to excel as it strives to provide effective facilities to support the record level of investment into life Sciences research same.
Same store sequential growth was 38, 9% and.
Adjusted for the termination fee same store sequential growth was 1.1%.
Year on year quarterly same store growth was 42, 6% adjusted for the termination fee year on year quarterly same store growth was a strong 3.9%.
Quarterly same store occupancy was now standing at 94% with sequential occupancy increasing by 10 basis points.
Looking forward, we have 3 RNA buildings, comprising of 1.2 million square feet of space under construction <unk>.
Actively there are 78% leased or committed.
Of the 2 buildings and are used city complex and Philadelphia. The Drexel building is 100% leased well 1 new city square is over 55% leased or committed we.
We are oversubscribed for the remaining space with 11 above pro forma proposals currently outstanding in Pittsburgh.
Our new building is 70, 70% pre leased and University of Pittsburgh and PMC was significant activity on the remaining space.
And our recently opened project with Arizona State University and Phoenix.
We are 86% leased or committed and expect to be 100% leased shortly.
These performance numbers reflect the quality of our well located on assets.
Now, let's turn to health care Triple net during.
During the second quarter, our health care Triple net assets showed continued strength and reliability with 100% rent collections.
Second quarter same store cash NOI growth was 2.5% year on year Trey.
Trailing 12 month EBITDA arm cash flow coverage through June 30th was strong across the portfolio health systems trailing 12 month coverage was an excellent 3.6 times and the first quarter, a 10 basis.
At this point sequential improvement as Debbie mentioned art and continues to perform extremely well and this dynamic market.
<unk> coverage improved 20 basis points to 1.9 times and the first quarter buoyed by strong business results.
Although skilled nursing declined 10 basis points to 1.8 times as the pandemic continued to impact Sensus total post acute coverage increased sequentially by 20 basis points to 1.9 times and the first quarter of 'twenty 1.
Finally, several of our partners have been approach for M&A opportunities Kindred is expected to merge with light points inspire recently entertained multiple offers by ramzi.
It is a testament to the underlying value of our health care operators and the associated real estate.
And that I'll turn the call over to Bob.
Thanks, Pete and my.
Our remarks today I will cover our second quarter results, our recent liquidity balance sheet and capital activity and finally, our expectations for the third quarter of 2001 store.
Starting with our results and the second quarter Fantastic weighted strong second quarter net income was <unk> 23 per share and normalized funds from operations of 70 <unk> per share normalized <unk> per share was 2 pennies above the high end of or and if a guidance range from 67 to 71 cents for the quarter and is consistent with our June update to be at the high.
And are better and that original range.
And the Q2 on terms driven by growth and office continued stable performance from Triple net and strong results from Arden and better than expected NOI and our shop portfolio.
Turning to capital, we've been busy and proactively managing our capital structure duration of debt and liquidity since our last earnings call.
First following the announcement of the new senior agreement, we raised $300 million and equity at an average gross price of approximately $58.60 per share under our ATM program.
300 million and equity raise and together with $800 million and new equity to be issued new senior shareholders per the fixed exchange ratio and Juan.
$2.2 billion of new senior debt to be assumed to refinance constitutes the overall $2.3 billion and funding of the new senior transaction.
Second and through August 5 we received $450 million of disposition proceeds and receipts of loans receivable.
Included in the $450 million received today as repayments of 2 well structured loans and July hardest redemption of 200 million of 975% senior notes due 2026 and holidays repayments of 66 million of 9.4% notes due 2025.
Medical office buildings sold during the second quarter also resulted in proceeds of approximately $107 million.
Using proceeds from these dispositions and the third quarter Ventas will improve its near term debt maturity profile further by fully repaid a total of 664 million and outstanding 3.5% senior notes due August 22, and 313% notes due June of 2023.
And as a result of the recovery and senior housing NOI and our capital structure actions, we're seeing strengthening credit metrics reported and Q2 net to EBITDA was better than expectations, improving 10 basis points sequentially to 7 times.
Within 10 basis points improvement underlying shop annualized EBITDA improved nearly $50 million or 25 basis point beneficial impact of the ratio and just 1 quarter.
Organic improvement was offset by the elimination of shop at its current HHS grants and Q2.
This provides a proof point of the anticipated material improvement and leverage resulting from the underlying and recovery in senior housing over time.
Pro forma from announced ATM issuance and capital activities Penthouses Q2, net debt to EBITDA and moves lower from 7 times to 6.8 times.
I would highlight that the new senior transaction is expected to be 30 basis points levering on projected new senior 2022, NOI and it is.
Supported by the forecasted growth and cash flows from the new senior portfolio.
Fantastic has ample liquidity totaling $3.3 billion as of August 10th the company had $2.7 billion of Undrawn revolver capacity.
600 million cash and no commercial paper outstanding.
Let's finish with our Q3 guidance.
Third quarter net income is estimated to range from flat to 5 peripheral and diluted share.
Our guidance range for normalized <unk> for Q3, and 70 to 74 per share.
The Q3 and <unk> midpoint of 72.
And can be bridge from Q2 on 73.
By and <unk> benefit from the art and loan prepayment fees in Q3 net of HHS grants and Q2.
Offset by 2 pennies from loss of interest income on the loan prepayments and the July and equity raise.
NOI reduction from assets intended for disposition described and lost money.
Key third quarter assumptions underlying our guidance are as follows.
<unk> Q3 spot occupancy from June 30 to September 30 is forecast to increase between 150 to 250 basis points with.
With the mid mid point, roughly assuming a continuation of occupancy growth trends observed in July.
Revpar is expected to be roughly flat sequentially and moving incentives are expected to narrow in the quarter.
Sequential shop revenue growth is expected to be offset by increasing operating costs due to an additional day and the quarter higher occupancy labor and routine and seasonal items, including repair and maintenance and utility costs.
No HHS grants are assumed to be received and the third quarter.
Stable performance as expected and the office and Triple net segments.
We continue to expect $1 billion and asset sales and loan repayments for the full year 2021 with line of sight for the remaining balance and the second half from this year.
Fully diluted share count is now 383 million shares, reflecting the equity raised and anticipation of new senior.
Guidance does not include any unannounced capital markets activity.
Our Q3 guidance excludes any impacts from the pending acquisition of new senior and.
New senior transaction is expected to close and the second half of 2021.
And once closed is forecast to be between 9 to.
And to 11% accretive to normalized <unk> per share and 2022.
I'd like to underscore that and we're still on a highly uncertain environment.
And so trends and shopper positives the pandemic impact on our business remains very difficult to predict.
10000 is excited about our business and our future and we believe we have the well diversified portfolio best in class and operators and experienced team to win the recovery that is now underway.
That concludes our prepared remarks.
Before we start with Q&A, we are limiting each caller to 2 questions to be respectful to everyone in line with that I will turn the call back to the operator.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone.
Try on your question press the pound key.
These standby, while we compile the Q&A roster.
Your first question comes from the line of Jonathan Hughes.
Hey, good morning.
Justin can you share some more details on your seniors housing occupancy versus rate philosophy and and.
And why when I look at the the rate it seems that there's a little bit more discounting here than some other portfolios.
Revpar was down about 2% year over year, some others were up low single digits I guess it just seems given demand is rebounding and length of stay is only a few years and affordability and it's probably as attractive now as it's been and perhaps ever and why it wasn't revpar growth, maybe at least flattish if not positive.
Hi, nice to talk to you.
Let me start with the year over year kind of comment you made.
So if you were to look at our year over year, Revpar and you exclude atria, which as I mentioned in prepared remarks had some discounting and I'll come back to that and exclude lgs, which performed really well on this past year. They operated on lower price point, and and active living product and Canada.
So there's a mix shift impact from LG on so if you were to take those 2 out our revpar would have increased 1.8%.
So L G M aside and let's get back to atria.
And you might remember that and atria starting back during the pandemic had positioned themselves to.
Gulfport volume on a few different ways very early on and they were the first to execute testing broadly.
And as they move throughout the pandemic. They they saw an opportunity for volume ahead of the worst part of the pandemic, which was emerging in the fall and and into the winter. So the offered price incentives.
And if you were to look at atria as occupancy growth. If you go a little further back from the low point and start back for instance December 31.
They've grown 372 basis points.
The rest of our shop or a shop and told them. It should be like 227 basis points and so they are and absolute bona fide leader and driving occupancy volume.
Chose to stay with the discounting.
And to the.
Recent months, we've noticed and the underlying trends that theyre starting to tighten.
They also have and higher.
A higher absolute occupancy than the rest of our portfolio and a lot of operators and the sector. So we believe that they are well positioned to start to push pricing and markets, where theyre seeing stabilization. That's their intent they started to do it but continue to do it and they have a long track record of driving both occupancy and price.
And we're on the very early stages of this recovery. So we're comfortable and confident that that over time, though they will deliver 1 other point.
And that is that we have a sunrise senior living and our portfolio Sunrises and 9000, revpar, they're sitting at 72% occupied they've been driving a lot of occupancy growth as well and the mix shift that I mentioned that kind of went the other way with LG and <unk> outperforming and we will shift the other way of Sunrise starts to grow so I think our revpar up.
And look we'll be fine on the long term.
Okay. Yeah. That's helpful. It's just tough for us to see the mix shift on our side, but.
And that color is really helpful. So I appreciate your share in that and then.
Just 1 more from me on the life science and the RNA pipeline.
Are you still planning to utilize some JV partners on on some of those future potential developments to help spread out risk and and lowered the earnings dilution or given the strength of that business is there maybe a desire now to keep those wholly owned.
And let that value creation and benefit dropped to shareholders.
Good morning.
And that's a great question. We're excited about this business that is going to continue to grow and Wexford has a lot of opportunities, but I would say is we've some of the answer will be some and some.
And pre identified projects that are and the pipeline that will do and joint ventures and.
And there they are carefully selected and to make sure we have a coherent strategy around the joint venture and there are others that are Wexford is working on that May go on balance sheet, depending on again the risk reward profile.
So I think we'll have a lot of benefits from this business initiatives going forward, both on balance sheet and.
With our joint venture strategy.
Okay.
ZIP off thanks for the time.
Thank you.
Your next question comes from the line of Nick Joseph with Citi.
Thanks, Good morning, I was hoping to get more color on the underlying assumptions for the shop occupancy.
Growth and third quarter, obviously, you've already had a july at about 75 basis points and <unk>.
Recognize the recovery won't be a straight line as you said, but how do you think about the near term risks from the Delta variant and the impact on at least near term senior housing occupancy.
Okay.
Sure I'll start on that Nick So just in terms of the numbers.
The outlook is 150 to 250 spot occupancy gains youre right to say 74, and the first month.
So at times 3 that is above the mid point and you're right to say, it's not a straight line and I mean, clearly the day.
The pandemic backdrop.
It's something we're thinking about no doubt about it as we think about occupancy and it's never month to month, if you look at it.
And I'll take 1 month times 3.
That said the strength and leaves and July is worth noting as well.
And that is what translates into move ins and the future. So we are still seeing very positive trends now 5 consecutive months of occupancy and strong leads but with a backdrop of caution and sometimes you have to think about it.
Thanks, and then you talked about the supply outlook on senior housing.
And being positive for the near and Dear.
Medium term.
Given the recovery that's underway when would you expect that supply to start picking up in terms of new starts.
Yeah, so and highest Justin.
There's a little bit of catch up in terms of supply from last year that we're experiencing on the short term and it's a bump in a row and.
But starts and deliveries are very low and so there is a window that.
And then we can look out we think a few years of runway to really have strong absorption and the sector.
Certainly capital will follow the fundamentals and we would expect to see development.
Chase this sector, but when they do there'll be faced with.
The strongest aging demographic that this sector has ever faced so we're certainly bullish and confident on the demand for senior housing.
Thank you.
Your next question comes from the line of Joshua Dinner line with Bank of America.
Yeah, Hey, everyone hope everyone's doing well.
Curious on art and since you got the loan repayment just just curious.
Maybe if you have any interest to kind of expand further into the hospital sector.
She feels like.
And just kind of curious there.
Well good morning. Thanks for the question you know Arden cash has been a great investment and many different way great risk adjusted return great performance and I think even better days ahead.
I would say that if we were able to find additional assets and the health system space that have the characteristics.
That we like about Rd, we certainly would commit additional capital there and those characteristics really are around you know growing market position and local market being 1 of the leaders having pricing power with commercial Payors and.
Those types of characteristics, obviously population growth and so on and.
And good strong experience you know care providers so.
We continue to explore opportunities in this space and if we can find anything even close to it as good as ours and I think we'd be happy to commit additional capital there.
Okay and.
And then on the disposition guidance to $1 billion did that originally included the art and repayment and.
Is that additional or kind.
Kind of a it takes the place and maybe some other sales that you were going to do.
Yes, Josh I was and the initial 1 billion net 200 million loan repayment that was and our our guidance originally and so no surprises there and on the balance being.
Property real estate dispositions continues to be the.
The assumption, both senior housing and Mlps, but that wasn't our our first guidance.
Okay, just 1 real quick follow up.
If colony was to I think colony could repay back their loans. That's not included where does that put you.
Correct that is not correct and that is not to and $1 billion that is not.
Got it.
You got it thank you.
Your next question comes from the line of Michael Carroll with RBC capital markets.
Yeah. Thanks, I wanted to stay on the Revpar outlook real quick and can you talk about how operators are setting rates today are they able to be more aggressive pushing rates I guess and August versus.
February beginning of this year, and and then and if not at what point will they be able to be more aggressively and does occupancy have to hit back into the mid 80% range.
Yeah, Hi, it's just and so.
And even throughout the second quarter, we could see underlying tightening, particularly and asking rents.
Operators tend to your short term incentives.
First and foremost and we think those will be those will persist as asking rents tightened.
Clearly the demand is really strong.
4.
And the independent and assisted living as that continues I would expect pricing power to return and particularly as communities and markets reach pre pandemic occupancy. So we think there is.
Plenty of potential ahead to drive pricing.
Of course.
As Debbie mentioned there is it may not be a straight line.
As we face this next phase and the recovery and.
And different operators will clearly pursue different strategies and we.
We support and work with them on those strategies and.
And we should see the benefit from that going forward.
Okay, and then back and and.
2014, or 15, when I'm in the shop portfolio had occupancy of 90 plus percent at that point, how aggressive are your operators are able to push rate I mean could we expect revpar or maybe not expect Jimmy could we see revpar get back into the mid single digits or something like that occurs.
Yeah.
Clearly different market moving forward and then it was then.
That would've been really at the beginning of facing new supply.
And.
And there was still some pricing power persisted during that time, but the outlook moving ahead, given the demographic backdrop and the the new supply backdrop that we're facing it certainly supports.
Occupancy growth and pricing power and yes, I mean, Michael you're reminding me of that of the very good times and thank you for doing that where occupancies were in the low to mid Ninety's and price.
Revpar was growing considerably.
And so as Justin said with the demographic growth and we have this window, where that supply is bank over a multiyear period and attack and then be baked at low levels that is a very constructive backdrop for getting back to very positive.
And outcomes revpar growth occupancy growth et cetera.
Okay, great. Thank you.
Our next question comes from the line, where everyone ahead for sure.
Yeah.
Your next question comes from the line of Steven Valiquette with Barclays.
Great Thanks, and good morning, everybody.
Good morning.
The new senior transaction and focus mainly on the independent living market and I'm curious to hear just any updated thoughts you have around.
Our strategy and senior housing by property type.
Just thinking about it on memory care versus al versus IL and be seen some operators and the largest operators talk about some of the biggest gains in occupancy and memory care, but just curious on your thoughts by.
Property subtype.
In light of the transaction, how you think about those 3 areas on the pace of recovery.
And.
Right and Justin will will answer that thank you I mean with the new senior pro format, I think we're going to be over 50%, including Canada and the IL product.
And which we really like and is it less labor intensive model for example.
We do like the diversification and our enterprise and we also liked it within our senior housing portfolio.
And I'll ask Jeff and really to describe the strategy and framework that we're thinking about as we as we build the portfolio with justin's kind of imprint upon it.
Thanks.
No.
First and foremost we just wanted to make sure as I mentioned on our prepared remarks, and I'd like to say, there's a lot that were and the right markets.
With the right asset and the right, operator, and managing that asset and so that might be memory care assisted living or independent living.
They really all the product types have.
Good characteristics, the assisted living and memory care more and the driven.
You have higher price points.
Also do run with higher cost and so depending on the revpar associated with your product and your margins can vary.
But it's a it's a product that does tend to recover quickly.
And it did after the financial crisis is doing really well.
After the pandemic so far.
So it's great to have exposure as long as you're on the right markets with the right operator to that product independent living has a longer length of stay. It also has less new competition facing it and.
And the case and you've seen here.
And the extreme affordability.
Relative to on a L product, it's about at least twice as good in terms of if you're a resident and making a choice within your local market for a new senior independent living versus for a L. So it reaches a broader audience and also has pricing upside through investment.
And faces the same strong.
Mcgrath <unk> wave that I was describing earlier, 1 other thing about independent living and because it faces less new competition.
It does have a higher ceiling pre pandemic it was outpacing.
And memory care by about 400 basis points.
We don't see any reason why coming out the other side that it doesn't also have and higher ceiling moving forward.
Okay. Great. That's helpful. Just 1 other real quick follow up on a new.
Senior transaction do you have a bullet point about ventas expect him to make a revenue generating capital investment for additional value and opportunities.
More about that and how critical that is as part of the overall transaction.
Yeah.
Yes. So this is just and again.
This is a product type that I mentioned that that's great characteristics to 120 units large units if you've been to a holiday community has kind of been to all of them because they are exactly the same big open.
Floor plan, when you walk in and open dining.
There is there are 3 stories and so it lends itself well to redevelopment and refresh investment so and we are happy to be situated in several markets that are great locations or high traffic locations are located close to premium retail there they are strong.
On income and wealth and aging demographics.
So.
And a lot of cases, we think we're pushing on an open the door to make additional investment and the goal on a targeted basis to make investment.
The occupancy growth, but also also push pricing.
And so we're in the process of evaluating those opportunities and.
And we will integrate that into our plans over the next couple of few years.
Got it okay. Thanks.
Go ahead Hugh.
Your next question comes from the line of.
Juan Sanabria with BMO capital.
Hi, good morning.
I was just hoping to talk good morning, I was just hoping to talk a little bit about.
Big picture strategy.
Just trying to gauge how much appetite you have to truly meaningfully grow the seniors housing and exposure at this point and the cycle. Given this this nice window you have.
And for the next few years versus kind of the long term.
David.
Desire to be diversified across asset types and different products and so.
Just curious how youre thinking about it given the opportunity set and seniors housing and that nice window from the next couple of years.
Yeah, well, we have definitely put our money where our mouth is in terms of the new senior investment of $2.3 billion and well.
Well invested well located senior living we're excited about that that will increase our share and.
Percentage NOI coming from the senior living.
And that area and will enable us not only to capture embedded upside and the ventas portfolio and senior housing but also.
Net senior so that's great and we will continue to invest where we think theres good risk adjusted return and upside in the senior living business. We do believe as you know and a diversified model and we will continue to invest and other areas of our business and that.
<unk> has performed exceedingly well for us and have really proven their value over the last year because the benefit of diversification really is that you net.
Never know really what the ex sterling and market and environment and are going to throw at you and.
And these different these different asset classes are unified by demographic demand that they perform differently in different.
Environment, and we've gotten the benefit of that so much so and the medical office area and the life Science area The hospital area.
Over the last year that we remain on <unk>.
Believes that that is the best the best profile to deliver the kind of value proposition, we wanted to deliver to our shareholders.
Great. Thank you Super helpful and then.
Thank you Sasha.
Justin.
Just curious on the latest thoughts on the flow through of incremental revenue.
And the NOI line and if I.
I could be sneaky, just any thoughts on.
Our latest data points on the Delta variant and if there's any implications on.
Operators visitation policies as a result of the on.
Certainty and Canada burnt store landscape.
Sure So I'll start with the flow through and.
Maybe just kind of refer to it as margin.
And 1 thing that's interesting and you can kind of and study our supplemental youll catch this that.
Our operating margin even on a much lower occupancy right now is only like 150 or 200 basis points off of the margin from a year ago on a much.
Higher occupancy and so margins kind of hanging in there.
We think if you fast forward and get the.
The portfolio back to a.
Pre pandemic occupancy.
And we thank you very very close potentially to within a 100.200 basis points of note.
The pre pandemic margin.
Plus there should be some pricing power plus there should be some more occupancy upside that we were seeing at that time. So so we feel good about the flow through.
And it's going to be we're in this period where atria.
And 1 of our best performing operators and as I mentioned in terms of occupancy, but they have another 700 basis points to go to get back to where they were pre pandemic and it's during this kind of next wave of occupancy fill that we expect to see the flow through really increase.
And margin and grow as well.
And then the second part of the question and do it the Delta right I mean right right now.
It's kind of business as usual, but as I mentioned in my remark and you clearly understand there is fluidity and the environment is very dynamic and so we wanted to be prudent and our thought process about the third quarter, but right now the communities are all <unk>.
And then for new move ins and visitation and we hope that that continues because the communities are so highly vaccinated and protected and that is the you know the comfort.
Comfort and happiness, frankly that we have sitting here today that we feel really good about.
Fingers crossed and good luck to everybody.
Exactly thank you.
Your next question comes from the line of Lukas Heart, which.
With Green Street.
Thanks, Good morning.
Can you provide any color on the in process senior housing disposition, just maybe level of interest and is there a sense of how pricing compares to pre COVID-19 levels.
And what we're making good progress we have a line of sight to as Bob said to the balance of the investments, which are you know <unk>.
Composed of medical office, and senior housing and <unk>.
Has the outlook for senior housing is very favorable.
There is significant interest and the asset class and we.
We think pricing will be in line with our expectations.
Great and then during the quarter it looks like a tenant exercised our purchase option can you provide a sense of how pervasive those types of options are on the portfolio.
And they are absolutely de minimis because there are.
This is a historical 1 frankly that we got from that.
And and.
And HP and going back to P. M. B. So this is a long standing 1 we did recognize and very significant gain on the sale.
And which was 30 or $40 million I cant remember on 100 million dollar deal so that looks good but.
But we have very very limited purchase options for tenants.
Great. Thank you.
Thanks Lucas.
Your next question comes from the line of Jordan Sadler with Keybanc capital markets.
Thanks, Good morning.
I wanted to quick follow up on the colony loan investment.
Any update there surrounding your expectations or the fact that you excluded it from the sales guide and to keep a still don't expect it to be repaid.
I think the ladder you know and.
And as you know from the colony call and Nathan is that portfolio to intended for disposition of the real estate portfolio that is.
Encumbered by our Atlanta, and Atlanta continues to perform well and my guess would be that it and.
And it's only a guess, but that a buyer of the real estate portfolio would likely assume the existing capital stack.
Okay.
Although I guess, if it if it goes to somebody.
Who.
It looks to parcel off the portfolio or it doesn't isn't doesn't want to own or hold the entire portfolio. There is a possibility that they might have to repay the loans right.
This means reported their entire portfolio.
Yeah, I mean, we.
It is supported by the pooled portfolio definitely.
And you.
It's a very well structured loan and.
And we always feel good when our loans get repaid even though we have to recycle the capital and.
But it is true.
And is the the merits of the investment if you will and so we're open minded I think either way it could be could be favorable for ventas.
Okay and.
And then just as a follow up relative to Pete's comments and his closing.
Through his comments he mentioned some of the partners being approached and pursued the kindred deal the inspire portfolios.
And any any anticipated.
Actions you guys might see within your portfolio as a result and.
And those transactions.
Yes, I mean whenever there is activity there can be opportunity and.
And we look forward to exploring those kinds of things we've had a good relationship with kindred for 22 years, and and we've done lots of really constructive things together and I would hope that that will continue.
Okay. Thank you.
Thank you.
Your next question comes from the line of Daniel Bernstein of capital 1.
Hi, good morning.
Congrats on a good core with chop.
So kind of a broad question here on seniors housing and theirs.
And some real success from the larger operators and Brookdale Sunrise obviously the.
Merger and Atria holiday.
You know it.
Current I just wanted to get your perspective on maybe the importance of scale and seniors housing going forward. Historically scale has not worked out too well versus regional operators in terms of performance, but maybe that's changing and just wanted to try and get your perspective on that and and maybe how the how ventas as a REIT can participate.
And that.
Mhm.
Well that's a great question, it's clearly from someone who's been around the industry for a long time.
As we said, it's a third owner of a tree and we do like the combination of the talent, the IL and that and the.
Al and capabilities coming together on.
A very advanced platform that atria has to become the second largest operator, so you know.
And that can really yield some benefits I would say with the data analytics and technology capabilities and the Tau and all coming together.
And so it's more about that and it is about the scale I would say.
And they're also can be benefits from.
The smaller operators.
Justin mentioned, we're going to have some and new relationship with high store and a notice where as you know the original holiday guys. If you will.
And I think there are some strong benefits that those local.
Operators can provide as well so.
And we look forward to having those relationships and building them out as appropriate.
Okay.
And then I guess the other question I just wanted to go back to labor I mean, you've heard from.
Some other Reits and operators that may be.
A lack of labor.
Could slow down or.
Occupancy gains and more.
Skilled nurse skilled nursing and seniors housing, but kind of wanted to get your thought and weather.
Yes, there is any limits in terms of near term on occupancy.
Momentum.
That could occur because of the shortage of labor.
Right well I mean again I think we as a country and we then passed with our strong second quarter and have a really and what I would call. My mother would call really a high class problem and.
Is that our economy is recovering and demand is recovering in such a speedy and robust way that both the labor market and the supply chain are having trouble kind of keeping up with it and that is an environment that.
We feel very comfortable kind of managing through to the other side because when you step back it's really all about that demand and the demographics.
And building that occupancy and pricing power and capturing that embedded upside and both ventas senior housing as well as now and these senior so.
No.
And we'd rather have this environments and many others and I think we can successfully really manage and.
Through it because of the demand that is.
And is right in front of us.
Okay.
Full perspective thanks.
Right and and to get to the specific question I mean, our communities are able to take.
Resident there hasn't been any capacity constraints today on.
And our ability to accept occupancy.
Alright, thank you.
Thank you.
Your next question comes from the line of Amanda Sweitzer.
Thanks. Good morning, you touched on higher conversion lead sources, continuing to recover and your prepared remarks can you just expand on where those higher conversion sources are trending today relative to pre COVID-19 levels and how much additional upside you think you could realize through those.
Yes sure so.
There's really kind of 2 things happening 1 is the digital footprint that is expanding and then the other is the traditional leads coming back so.
Referral agencies and Internet based leads are way over 100% 150, 160% of pre pandemic levels and so they've played a huge role and.
And driving leads that's.
Maybe a silver lining that came from the pandemic, where it force operators to invest into that source of referrals and it's a game changer really and and so we've seen those leads pick up now those do convert a lower rate though.
But the more on the merrier, so and in addition to that.
3 other lead sources are as respite and professional referrals and personal and referrals personal referrals and the second quarter for US we're at 110% of pre pandemic levels. So those have come roaring back and professional still down around 70, 475% and restaurants or just under that so so there is still a ways to go yet with professional and restaurants to.
And recover.
And what should we think is encouraging because the lead levels have been quite strong.
Well, that's great and helpful and.
And following up on some of your expense growth guidance and.
Particularly for the third quarter, just your expectation that increased shop expenses will largely offset the increased revenue growth.
And what did you see in terms of.
Sequential expense growth in July and how do you and Florida the potential COVID-19 related expenses that are included in guidance.
And I'll have to go with Allen for the third quarter. So.
You're right to say revenue growth pretty much offset by expense growth. There's a number of different buckets within the expense line and I think we're worth highlighting 1 is simply an extra day, which is meaningful.
And when you think sequentially third quarter versus second quarter.
That is that has a meaningful impact the next as I call. It typical seasonal cost increase and the third quarter and utilities is easy 1.
Repairs and maintenance and other but you'll see that our retail every third quarter.
The third bucket is really a function of occupancy growth and activity levels, increasing and the in the communities.
And then obviously you have incremental costs associated with that which is a good thing and.
And kind of overlaying all of that is back to this question of short term wage pressure and light and the labor market, which is effectively embedded in the same thing, but there's a series of different buckets that all together add up to that that third quarter expense.
And expense number.
That's helpful. I appreciate the time.
Thank you.
Your next question comes from the line of Mig.
<unk> <unk> with Scotiabank.
Thank you I guess I just wanted to follow up on the net expense question.
Maybe can you just give us a feel for.
You know how this is going to work in terms of as you get increased occupancy on the portfolio.
How much of an offset going forward, that's going to be from same store expense growth, meaning that if your occupancy and fed was up 400 basis points and the third quarter and not 200 basis points.
Would you then have same store NOI growth sequentially or just trying to think about how as occupancies going up as.
And as well some of your you know the flexing of labor that worked on the downside is now I guess going against you a bit on the expense side.
Yeah, and Nick I think it's.
It's right to say that as occupancy grows youre going to have some level, it's not a perfect linear.
1 for 1 relationship whereby you add and occupied occupancy you had ahead. It is more of a step change type function and theres always great debate as to what level that is.
I think qualitatively, we would tell you that where in that and we're growing labor as we're growing occupancy right now as a consequence of having come out the other side flexing labor as you say.
Which should reach a level, where then there is some there is some scale advantage. If you like that you can then hold off until you get to the next level of occupancy I can't give you a number on that but we're certainly and that upward trajectory right now.
Okay, I appreciate that and I guess, just following up John.
And you can.
Yeah, I mean, some of it is really related to this mismatch that I discussed in terms of you know shifting gears and the economy and that should be transitory.
Okay. Thank you and just following up on that I know earlier, and just and you were saying about the margin outlook you thought there's a good chance you get back I think you said within the 100.200 basis points of pre Covid margin as you know you're building the occupancy back and I guess the way it is that.
Right way to think about this that and the mean.
And time over the next year Youre still going to be about 100.200 basis points below on margin versus where you were because if I look at your third quarter guidance. It does feel like your margins could be about 20% and.
And sharp and yeah, and the third quarter, a year ago was almost 22% so that kind of fits that.
Piece, and it's still being down a bit which is and maybe it's COVID-19 expenses. It's all so I guess, the the web core being down year over year.
Yes.
Yeah I would.
I would kind of stretch out your timing a little further.
And as Bob mentioned Theres going to be kind of you know you'll have periods, we have revenue increase and a little bit of expense catch up Debbie mentioned that the near term and as a transitory effect as well.
So if you kind of push out the timetable and ways and we don't really have the crystal ball in terms of when we stabilize but I'll stick and work on a stabilized basis, when we get there to that pre pandemic occupancy margins should be within.
Reach of where they were and then and from there the pricing power and occupancy upside.
Support.
And even higher margins over time, so that's all I was saying and I didn't really mean to kind of painted as kind of and near term.
Picture, except to say that our margins in Q2.
We're only like 150.200 basis points off of a year ago.
Okay. Thank you everyone.
Thank you.
Your next question comes from the line of Mike Crum with Morgan Stanley.
Yeah.
Thanks, so much a morning. Thanks, so much for taking the question, so I guess and <unk>.
And going back to some of the occupancy and crews.
On near term, but also you know maybe over the next 12 to 18 months. So first I guess, if I look at your slides and look at the lead volume is very recently there are over 100% of 2019.
And your move outs are trending lower and.
And certainly the leads are higher than the last few months of the second quarter numbers. So why wouldn't the you know why would the occupancy uptick just be similar to what you saw in your view and and the second quarter why wouldn't the midpoint.
Of your guidance you know be the low point because your leads are just higher than what you've seen and the last called ex for months.
Yeah.
Well. This is Debbie you know again in July well first of all we.
We are really happy about that leads and July are the highest they've been since beginning of the pandemic that is a very important and meaningful statistic and and and certainly portends.
And me.
It means theres demand and it portends higher occupancy so that is really good and she said and in.
In July as we've talked about we had spot the spot growth of about 75 basis points and.
You know theres, a lot of uncertainty and the environment. So if you just roll that forward that's near the midpoint of the 150 to 250 and that's how our guidance is constructed.
Got it Okay. No I was just and you're right like the July lead should translate and do whatever August September I don't think it's more than that in terms of conversion time, but it just feels like the setup is 1 for you pretty easily get your mid to maybe even the high end of your of your numbers of your occupancy guidance and.
And just tied to that.
On a lot of smaller operators surveyed by Nick.
Do have a view that they could get back to pre COVID-19 occupancy next year I wanted to ask you from your perspective like you think that's too optimistic what's your sort of broad view on the puts and takes I recognize the strategies are different in terms of occupancy versus rent et cetera, but.
Where do you think.
And do you think those smaller operators on our maybe too bullish or what are the puts and takes.
Yeah, I mean, the pace and slope of the recovery and the clinical and environment broadly and the U S is really going to determine.
And how quickly we get back to that pre pandemic occupancy level and where.
And we're on a good path I think it is very sustainable and it has been so far.
And we are very encouraged by that as well as the demographic growth that's right in front of us.
And Justin mentioned Atria had about what 700 basis points of occupancy to continue to get back to pre pandemic levels and you know again, its really going to depend upon.
On this we were predicting the third quarter, we have visibility and line of sight to that and.
And thereafter, I think we you know we want to be conscious that it continues to be a pretty dynamic environment. So we're encouraged and I hope you're right about many of the same thing.
Yep.
Debbie if I can understand.
Sorry go ahead, and other kind of adequate.
Kind of a stat, you might be interested and it kind of supports that so.
Right.
As we currently said we are we only have just around or just above 20% of our communities that are at the pre pandemic occupancy.
Over 60% are achieving pre pandemic move and levels.
So we have great activity and we're really pleased with this early recovery, but we have a long way to go and support and so far really good support for it.
But there is still a ways to go yet.
Okay, great that'd be if I can just squeeze 1 bigger picture question.
And I'm struck by how you know the big 3.
Health care Reits are now different from maybe several years ago to where they were a lot more similarity.
And very strong momentum and the life Science Research segment, obviously senior housing and there's a lot of momentum as you've just laid out on this call I'm, just wondering and and from a strategic and maybe a differentiation or even value perspective, and we'll be segment. There seems to be a lot of demand on the private side GAAP rates are really low pretty good.
Good.
I know maybe 2 years ago, you set out to maybe sell its correct me if I'm wrong and he was $6.700 million of assets.
Why is this not a good time to maybe exit a fair amount of Mlps and become more pure play I guess on or focused on 2 segments life Science and you know what I'm, saying.
I Love the question. Thank you.
Again, we do believe that we've created a lot of value with our MLB portfolio as you point out.
Our differentiated strategy with our Lillibridge management platform that Pete runs and that's going really well and we have mentioned that as part of the $1 billion on 2021 capital recycling that it.
And fees and senior housing so youre right on there.
Do you think that we've benefited from the stability of the cash flows at the Mlps with our strategy of being on campus and affiliated and I think youre right that commands a very low cap rate, but its also provides a really good differentiate.
And <unk> and diversifying aspect to our overall cash flow stream and so we like that.
So we'll prune here and there, we'll recycle capital will take advantage and some of the value that we've created but we really believe that owning the MLB business as we do.
Is it is a benefit to our shareholders.
Okay, I'll follow up on that offline, but thanks, so much and have a great weekend.
Thank you.
Your next question comes from the line of Rich Anderson with M D.
D C.
And I'm, sorry to keep it going on I logged and about 2 hours ago and found out and it didn't take for some reason and so 1 question from me.
And must be you.
Fat fingers or something I don't know.
So welcome.
On the Juan.
And question I have and then I'll ask and the interest of time and this concentration risk with with atria following new holiday and following their own merger with <unk>.
And you see here I mean and their merger with holiday.
That's over 20% depending.
Depending on how you slice it.
Curious how how much of that is it.
And issue to you and and how quickly you'd like to whittle that down.
Through other investments outside of it the idea of concentration and the past you know at the time sounds good and I recognize a tree is a great operator, but.
People have come to regret concentration risks.
And as time has moved on and so I'm curious if that's something that's sort of high on your radar screen to get back down to something you know in the and.
And the mid teens or something like that over the next couple of years, but yeah. Thank you yeah rich. Thank you for asking that because that has always been something that.
It's near and Dear to my heart and Theres always this tension as you mentioned between really.
Yeah.
And your assets with the right operator, the right markets and certainly the best operators.
And atria has been that holiday has been a leading operator, so there's a tension between that and making sure you don't put all your eggs in 1 basket and you you manage share concentration wisely and so we do think that the combination of atria and holiday.
It provides strategic benefits to to us and as an owner of atrium, we liked that we liked and growth and atrium platform that having been said I think we do have a lot of flexibility and the new senior management contracts and our own holiday contracts.
And it gives us the ability through both growth and the way the management contracts are structured to moving the right direction on the diversification of manage your point.
Okay, great. Thanks, very much. So we have all the tools, we need cash to manage it and the right way what's your what's your what's your like.
Long term this is as much as I want to own.
A piece of my pie.
Is it is it 10 or 15% is that the kind of the threshold for ventas.
I mean, it won't change over time and with specific situations, but that's that seems directionally.
On the right kind of way to think about it okay. Great. Thank you.
Thank you.
And there are no other audio questions at this time.
Well thank.
Thank you all for sticking with us and for your interest and then passed we really appreciate it. We're so delighted with a great quarter of health and safety and results and we look forward to seeing you all in person Kim. Thank you again.
This concludes today's conference call and thank you for participating you may now disconnect.
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