Q4 2021 Ventas Inc Earnings Call
Okay.
Good morning, My name is David and I'll be your conference operator today.
At this time I'd like to welcome everyone to Ventas fourth quarter financial results Conference call.
Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad. If you like to withdraw your question Press Star one once again, we ask that you please limit yourself to.
One question to allow everyone an opportunity if you'd like to ask another question you may reenter the queue. Thank you Sarah Whitford director of Investor Relations you May begin your conference.
Thank you David Good morning, and welcome to the Vantiv fourth quarter financial results Conference call earlier. This morning, we issued our fourth quarter earnings release supplemental Investor presentation. These materials are available on the Ventas website at IR Deb Fantastic Dotcom.
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 for our most recent test your 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 to the most closely comparable GAAP measures. Please refer to our supplemental posted on the Investor Relations section of our website and with that I'll turn the call over to Debra Cafaro, Chairman and CEO .
Thank you Sarah and I want to welcome all of our shareholders and other participants to the Ventana its fourth quarter and year end 2021 earnings call.
2021 with a year that was bracketed by two very positive developments at the beginning of the year, we rolled out life saving vaccines and our senior housing communities to keep residents and caregivers safe from COVID-19.
And as we closed out 2021 and begin a new year, we look forward to posting growth in the first quarter and sustained improvement in our senior housing business through 2022.
And between those bookends, our Ventas team found a way to drive our business forward in a highly dynamic environment.
While prioritizing health and safety, we took proactive steps to capture upside in the senior housing recovery delivered strong organic growth in our office and Triple net healthcare businesses and state financially strong.
We also extended our long track record of value, creating external growth with $3 $7 billion in new investments focused on our strategic priorities of senior housing and life science.
As we enter 2022, we are reporting a fourth quarter that exceeded our expectations on the strength of senior housing and office performance.
Carrying that momentum forward, we expect total portfolio NOI growth once again led by our senior housing and office businesses with additional contribution from investment activity and deeply appreciated grants from HHS for assisted living community in the first quarter.
We're pleased that we can benefit from both organic and external growth in the first quarter consistent with our long standing value proposition for shareholders.
Let me put our investment activity in a broader context and discuss some of the highlights.
Since 2010, we've averaged over $3 billion per year, and average investment activity across asset classes executed in a variety of transaction types large and small.
2021 provided excellent examples of our approach and execution.
Consistent with our current capital allocation priorities at this point in the cycle, our 2021 investment activity was allocated 70 per cent to senior housing in attractive markets with significant growth potential 20% you are high value life sciences business, including the ground up.
Element of a new research facility anchored by University of California Davis.
<unk> 10 per cent to expanding our successful medical office building franchise.
Within the senior housing capital allocation sleeve, we completed both the new senior investment acquiring over 100 independent living communities and advantage submarkets at attractive pricing below replacement cost and we also closed the Canadian senior living deal with a handful of well performance.
<unk> assets with additional lease up upside.
The Ventas investment team is using its decades of industry experience strong and varied relationships and deal structuring ability to address an extremely robust pipeline as we enter 2022.
We continue to identify areas of competitive advantage and pick our spots consistent with our strategic priorities and our analytic assessment of risk reward.
We started the year off well closing over $300 million of investments in the medical office and senior housing areas. Both with good in place returned and both generated by ongoing relationships.
With significant opportunities in our sites. We are also confident in the array of funding sources available to us as we demonstrated by recycling over $1 billion of capital in 2021.
Slip between $850 million of divestitures of noncore senior housing and M O b assets at attractive valuations.
And over $350 million, a full repayment of well structured loans that yielded unlevered IRR exceeding 11%.
In addition to capital recycling these transactions improve the quality of our portfolio and the sustainability of our go forward cash flows, which also supports our well covered dividend.
We also grew our Ventas investment management business during the year and successfully accessed multiple capital markets Opportunistically.
Then it's a huge success story and now has over four and a half a billion dollars in assets under management with leading global institutional investors are perpetual fund alone raised nearly three quarters of a billion dollars and untapped commitments this year.
These embedded capital relationships provide another powerful tool to fund growth and build a valuable business at the same time.
Turning to our values that dove tail with shareholder priorities I'd like to highlight our enduring commitment achievement and recognition in.
In the area of environmental social and governance or ESG.
Our ESG leadership continued during 2021 as we substantially elevated our ESG profile.
Among other things Ventas made meaningful investments in energy saving technologies that are properties. We were named to Cdp's a list the top 2% of global companies for tackling climate change.
And also named NAREIT Health Care's leader in the light for the fifth consecutive year.
We have also ramped up our actions to improve diversity equity and inclusion in our company our industry and our country we.
We've taken definitive steps in recruiting investment and community engagement and adopted goals to drive ourselves even harder in the coming years.
Finally, our commitment to outstanding governance continues with rigorous and regular board refreshment, adding directors, who are independent and diverse and he'll bring a record of accomplishment and subject matter expertise to our company such as recently added directors Maury Smith and Marguerite Nader.
Sure.
In closing I'd like to give a huge shout out to my Ventas colleagues his talent resilience agility and commitment to doing their best over these past two years has been inspiring and to our operating partners, who have navigated the pandemic on the front lines with courage caring and committed.
Right.
We also deeply value and appreciate our lenders and equity investors, who support and encourage US we are committed to using all the tools at our disposal, including our high quality diverse portfolio experienced team and platform to excel for their benefit.
Justin.
Thank you Debbie.
The senior housing outlook remains bright.
Today, I will speak to the favorable trends informing our outlook for growth in the first quarter.
To provide an update on key portfolio strategy and actions and recap our strong fourth quarter results.
I'm happy to report that we expect occupancy revenue and NOI to grow in the first quarter.
Demand remains robust with January lead volumes at all time highs since the onset of the pandemic and clinical conditions are dramatically improving.
Core operational performance continues to deliver strong results as operators whether cost challenges in the macro supply demand backdrop should continue to power underlying growth.
I'm proud of the team and operator base, we've assembled as we've accomplished a lot over the last two years.
Our senior housing business is competitively positioned to capture the benefits of the ongoing sector recovery.
It could not be more excited for the path ahead.
During recent community visits my team and I witnessed firsthand the strength of the top of the sales funnel.
As tourists were abundant.
As Covid cases have declined and tours have picked up the energy at our communities has been evident.
We are expecting significant revenue growth of 10% in the first quarter supported by pricing power and robust underlying demand.
We executed our pricing strategy to drive outsized rent increases led by atria and Sunrise.
Leads.
And our year over year same store pool of 321 assets exceeded 16400 in January the highest volume achieved since before the pandemic.
We expect a strong supply demand backdrop to further support lead and occupancy growth.
Apply levels are expected to trend favorably.
As construction starts and deliveries have improved significantly versus pre COVID-19 levels.
Additionally, our footprint is well positioned as we went as new starts and just three of our top 20 markets.
Needless to say I am very encouraged by the fundamentals supporting our business and the opportunity for growth moving forward.
Bob will cover our first quarter guidance shortly but for shop. It includes 10% revenue growth at the midpoint and 6% to 15% NOI growth at the lower and upper ends respectively.
The main variable affecting the NOI range will be operating costs.
In January the surge in Covid cases, among employees pressured the availability of caregivers and what was already a challenging labor market. Our communities have continued to make progress implementing workforce management and efficiency initiatives.
Net hiring trends are showing early signs of improvement as recruiting resources have been bolstered labor monitoring capabilities have been enhanced and targeted competitive wage increases have been executed.
We are hopeful the improving clinical backdrop and the operating initiatives will take hold and support the high end of our guidance range, but the midpoint assumes the costs remain elevated.
Moving on to portfolio actions.
Having been here for two years now I couldnt be happier with the ability of <unk> to execute on key priorities related to senior housing.
We have been extremely action oriented executing on acquisitions dispositions transitions resolutions and targeted capital investments and strengthening our strategic approach to managing the senior housing platform the.
The Ventas advantage is that we have very deep operational experience in the senior housing sector.
We've married this operational expertise with our sophisticated analytical capabilities to execute strategic portfolio actions.
Enhanced performance management and drive targeted capital investment.
Building on the strength of our experienced best in class operating partners. We are fully engaged in our aligned interest to create value in our senior housing business.
Our latest initiative involves the deployment of our vent us Oh I in close partnership with our operators.
<unk> brings to the table and emphasis on operational insights.
G O spatial and all the analytics and capital allocation priorities.
I couldnt be more pleased with the excitement amongst the operators and my team as they've engaged in this together some.
Some examples of outputs include in depth pricing strategies workforce recruitment and retention management.
Targeted value, creating capex and formulation of best practices.
This approach takes the best of what Ventas has to offer.
In a collaborative effort with our operators to drive business results.
We've taken several decisive actions as we continue executing on our strategy of the right asset and the right market the right operator.
Since the start of 2021 vintage losses added six new senior housing operating partners, bringing our portfolio to a total of 37 relationships. This portfolio of balance along with the deep industry experience of our operators in their respective markets positions us to grow our relationships and strengthen our senior housing platform.
Over time.
Recent portfolio actions include the sales of 29 noncore senior housing properties in 2021, resulting in approximately $400 million of gross proceeds these.
These communities represented orphan assets in markets with elevated competition and in need of significant capital investment.
More recently, we completed the acquisition of mangrove Bay and are thrilled to add this premium of 160 unit senior housing campus to our growing portfolio, what a great opportunity to recycle capital out of non core assets at a two and a half yield and into a class a asset at five and a half and an attractive mark.
<unk>.
Turning to fourth quarter performance total shop NOI achieved the high end of our expectations in the fourth quarter of 'twenty, one and same store average occupancy in the fourth quarter of 'twenty, one versus the fourth quarter of 'twenty grew by 200 basis points to 83, 4% rate and revenue grew.
For the first time since the start of the pandemic as same store revenue increased three 3% year over year.
As we anticipated.
Operating expenses, excluding HHS grants increased sequentially by $8 7 million or two 6% the majority of which was driven by incremental labor expenses.
<unk> NOI, excluding HHS grants for the sequential same store pool declined modestly by just $1 million or 90 basis points.
And NOI for the year over year same store pool declined $3 8 million or three 6%.
Both are leading results among peers.
For the non same store pool underlying performance was stable.
In closing.
My enthusiasm for the outlook in our senior housing business remains high.
As we are well positioned to succeed in what we expect to be a favorable macro backdrop.
With that I'll hand, the call over to Bob.
Thank you Justin I'm going to jump straight to our first quarter outlook and finish up with a few summary thoughts on our balance sheet before turning the call to Q&A.
Our Q1 guidance as for net income to range from 7% to 11 peripheral the diluted share Q.
Q1 normalized <unk> is expected to range from 76% to 80.
We're 78 cents at the midpoint.
Incorporated in our guidance as <unk> of HHS grants received in Q1 'twenty two.
When excluding HHS grants in both periods and adjusting our Q4 for the one time three kindred M&A fee received in the quarter.
We are describing a Q4 of <unk> 68 cents to a Q1 of 17.
That growth can be simply described by <unk> sequential growth from our senior housing portfolio.
In terms of Q1, 'twenty two property expectations net of aegis grants.
We expect Q1 year over year same store cash NOI for the total same store NOI same store portfolio to grow in the range of two and a half to five 5%.
At a segment level, our shop guidance is to increase occupancy 410 basis points year over year.
To grow revenue by 10% led by occupancy gains and strong in place rate increases.
And to grow NOI in the range of 6% to 15% ex HHS grants.
At the guidance midpoint.
<unk> expects operating cost to remain elevated through the first quarter, even as COVID-19 clinical conditions moderate.
We expect our triple net portfolio to be down one 5% to flat in the first quarter with escalator led growth offset by modest rent reductions in the Triple net senior housing portfolio from the impact of the pandemic on some of our smaller tenants.
Over time, we anticipate the benefits of the senior housing recovery will accrue to these operators as well as to Ventas.
We expect a third of our portfolio that is the office business to grow Q1 same store NOI by an attractive 4% to 5%.
People go rally has led a series.
<unk> differentiated operational initiatives in Mlps in the last few years, which are really bearing fruit.
The results of these efforts were evident in the excellent fourth quarter performance for the mob portfolio, which grew same store fourth quarter NOI by three 4%.
The second quarter in a row, where same store growth exceeded 3%.
While <unk>, new leasing was up approximately 55% and customer retention was 92% for the quarter.
That strength is expected to carry into the first quarter.
Final Q1 guidance assumptions of note include no new HHS grants beyond the $33 million already received.
No new unannounced material acquisitions or capital markets activities, and 403 million fully diluted shares.
We have provided additional insights and disclosure in our business update deck and our supplemental.
Including our Q1 versus Q4 sequential shop assumptions as.
As well as a reported segment NOI SFO trending schedule to allow for easier insight into unique items in our results.
Some final comments on balance sheet leverage and liquidity in 2021, the company enhances portfolio and strengthened its balance sheet through $1 2 billion in asset dispositions and loan repayments used to reduce near term debt.
Meanwhile, we extended duration and increased our fixed rate debt to 91%.
By tapping into the bond markets in the U S and Canada, including a 10 year U S unsecured offering at two 5%.
The best 10 year health care REIT rate in 2021.
Net debt to EBITDA was stable at seven two times in the fourth quarter with the senior housing recovery now underway expected expected to improve that ratio over time.
And that's a good segue to close with our enthusiasm as we look into 2022 based on our strong senior housing recovery that is now underway.
And the confidence that we have the portfolio of partners and team to create value for all our stakeholders.
And that concludes our prepared remarks before we start with Q&A, we are limiting each caller to one question to be respectful to everyone on the line.
With that I will turn the call back to the operator.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will take our first question from Nick Joseph with Citi.
Your line is open. Thank you. Thank you and first of all thank you for the increased disclosure it is very helpful.
My question will be on senior housing.
Trends continue to trend favorably and assuming there is no disruption from another variant or anything how do you think about the ability to decrease the use of agency labor going forward.
Yeah.
Hi, Justin.
So if we step back and you look at the kind of the macro backdrop that was causing labor shortages. This was happening in the third quarter.
We anticipated that that would continue into the fourth quarter.
What happened in <unk>.
During that period as we had net hiring in our portfolio. So that we are encouraged about the hiring trends.
And then and then omicron happens and that really had a big impact in the first part of the first quarter you can see some trends in our business update where we show the clinical cases, among our employees and what's encouraging as you can see that those cases are coming down.
But we're not all the way out of the woods, yet so first thing we're going to look for us.
To have a healthy workforce.
The second thing is to continue those net hiring trends.
And then as that continues then we would expect the agency costs to be able to come down.
And next we'll go to Steve <unk> with Evercore ISI.
Great. Thanks, Good morning, I, just wanted to stay on senior housing Justin.
The leads in.
Certainly positive here and I'm just wondering if you could talk about the maybe the sales cycle.
And I realize you are forecasting for a modest decline in occupancy in Q1.
But I'm just wondering given the pent up demand that seems to be there. In fact, the cases are coming down. So quickly you know what's the chance that you could actually.
Move folks and maybe later this month and into March and exceed kind of the minus 20 basis points on the occupancy side.
Hi, sure so.
You've probably noted that leads are really high in fact, I would mentioned that there are the highest they've been since the onset of the pandemic.
Leads are going to be critical to supporting this the senior housing recovery Thats underway.
Getting to the kind of your question.
It certainly seems possible that the move ins that didnt move in late January .
Could flow over into February and we thought we would definitely qualify that as pent up demand.
As you know a lot of the move in activity has it happens towards the end of the month. So we'll we'll we're looking forward to see how that plays out.
Yeah.
Next we'll go to rich Anderson with F. N B C. Your line is open.
Good morning.
So.
Well tower had their call. This weekend and suggested that they would never be an elephant hunting type of company.
In terms of external growth.
I'm curious if you have a red line through that mentality as well and specifically I'm thinking about how you identified senior housing and life Sciences your strategic priorities.
Could could a scenario unfold, where mlps become given the pricing that's being attributed to that sector.
A significant source of funds to be redeployed into in some significant way that would qualify as elephant hunting.
Hi.
Rich good.
Good to hear your voice.
I think our Ren.
Competitive advantage has really always been our ability to do all different types of deals across our asset classes.
To do so in a way that's created value.
That includes sort of getting into Mov's early in building a great business and it includes of course allocating capital the senior housing and most recently our significant investment in value added life Sciences, I mean that has just been really.
Really incredibly positive for our shareholders. So.
We have sold <unk> as we talked about this quarter I think recycling that capital.
It has enabled us to upgrade our portfolio in a very positive way and we'll continue to look for opportunities to do that while at the same time, our investment activities well continue our long pattern of.
Really picking our spots, where we have a competitive advantage and think we're going to add value from good risk adjusted return.
Next we'll go to Nick <unk>.
<unk> with Scotiabank Your line is open.
Great. Thank you in terms of just going back to the agency labor costs.
I wanted to see if you guys have the number for the whole portfolio or at least yes, I know you break it out for the same store in the presentation, which is very helpful. It's seven 7% of labor.
But you had the bigger portfolio now with new senior and other so im just trying to understand like a full agency labor number that was in for the fourth quarter and and when you are saying for the first quarter that it's going to be elevated or is it just literally like the same amount of agency labor in the first quarter.
Hey, Nick it's Bob <unk>.
I direct you to page 16 of our Investor deck I think there is a nice description of the Pie chart of.
Of revenue and it's decomposition and you can see within that in house Labor is 42% contract labor is 4% you can apply that to the entire portfolio or a subset of the portfolio. It will give you the same relative composition and Youll see the picture down below of what that means for the year over year pool.
Though contract labor is important and it has accelerated and indeed in January accelerated even further.
The underlying costs really are driven by the in house labor and that is really the key and hence that's why we're so focused on.
Bringing that in house should we do that successfully that's clearly upside given the cost per hour.
But ultimately it's a much smaller piece of the overall cost and then in house labor, but clearly an opportunity there and you can apply that percentage to wherever probably like to get the answer.
Next we'll go to Jordan Saddler with Keybanc capital markets. Your line is open.
Thank you and good morning can you guys discuss just and you touched on the non same store portfolio in the quarter.
Sure.
I think the comment I heard was that performance was stable.
Hum.
Curious if you could kind of flesh that out for us a little bit specifically as it relates to the 90 transition properties.
It took place.
What's going on with those and then what's embedded in your guidance for one Q sequentially for the transition portfolio.
Let me, let me take the numbers for us are and I'll, let Jason give some of the color. So the outperformance at the high end of our range that we delivered in the fourth.
It was led by senior housing within led by the non same store portfolio. There are two pieces of that in the fourth there's new senior and the transition IV assets, both those pools performed well at the higher end of our expectations.
Which we're really pleased with the assumption carrying that Zen into.
Into the first is continued stability, notably within the transition 90, the the new senior assets I'd highlight are in the sequential pool in the first.
And so as you look at the guidance for the sequential pool Youll see the impact of new senior which is which is growing nicely.
And that's that's the outlook so.
Just any commentary on the 90 and how it's growing yes, the only thing I'd add is that.
As planned we successfully transitioned all of those communities by the first of the year to seven different operators and everything has gone relatively smoothly.
Next we'll go to Steven Valiquette with Barclays. Your line is open.
Alright, thanks, and good morning, everybody.
So just a question or two here on the Triple net portfolio sort of anti was during the corner with the SEBI positive SS NOI in the fourth quarter and Triple net.
The guide for that to be down one 5% to flat in the first quarter of 'twenty two.
But with senior housing on the road to recovery overall can be.
Soon that the rent resets are hopefully behind us now within the Triple net portfolio.
Okay.
Okay.
Thanks.
Thanks for your question I think we have a page on this also and the business update.
And we have really been action oriented as Justin talked about and have addressed.
The lion's share of our senior housing portfolio, which is really 50% brookdale.
You've seen the EBITDA guide they have there.
Because of the length of the pandemic. There are a couple of small operators that are still challenged by.
The length of the pandemic and really the outcome there is pretty dependent upon you know a.
HHS support, but more importantly, the recovery in the senior housing business, which we expect to be robust and we expect to get the benefit of that over time.
And next we'll go to Juan Sanabria with BMO.
Your line is open hi.
Just hoping to follow up on Stephen's question.
The triple net portfolio, what percentage is kind of cash one times EBITDAR.
Can you quantify the potential upside.
As those leases to market.
The.
The contract rents.
Yes sure. So there is.
As Debbie said.
Yeah.
The operators that have had.
Elongated challenges or is this just a few and they.
Each represent less than 1% of our overall portfolio.
Those.
Those operators will benefit from HHS funds will benefit from operational improvements and the recovery of senior housing just as our shop portfolio does as well. So we're anticipating that the triple net what would behave.
Similarly to our shop portfolio, we do have some cash flow paying tenants and thats.
In a range of around 15% to 20%.
Next we'll go to Vikram Malhotra with Mizuho. Your line is open.
Hi, good morning, Thanks for taking the question.
Maybe just stepping back.
Debbie and Justin just thinking about sort of the external growth piece of it as you outlined the track record and what you've done in 2021.
As we look to 'twenty, two and 'twenty three can you talk about just how you think about growing in seniors housing in particular with what youre seeing fundamentally the longer term growth opportunities.
And maybe talk about on balance sheet versus maybe.
Using them more of a JV structure.
Yeah.
Good I'm going to ask John Cobb two to address the senior housing question and I would.
Most of our senior housing to be on balance sheet.
Yes. This is John Cobb, Yes, I mean, I think most of our pipeline, which is fairly robust today really kind of mirrors, what we talked about in 2021, we're seeing a lot of senior housing we are seeing some select <unk>.
Life Science development opportunities with our partners Wexford.
We're seeing a few medical office buildings, mainly with our existing partners that we have in our portfolio, but by and large it's senior housing we're seeing some really good high quality portfolios out there.
Yes, we expect to transact in 2022, so we're very excited and looking forward to.
At these transactions.
Hopefully you are acquiring them.
Okay.
And next we'll go to a Tayo Okusanya with credit Suisse. Your line is open.
Okay.
Tayo.
Go ahead your line is open.
Hello, Good evening.
Please go ahead, yes.
Yes.
Good morning, everyone.
Good quarter, good to see things heading in the right direction.
Yes wanted to move up housing talk a little bit about the office portfolio.
And then two really strong same store NOI growth yet again from the MLP.
Somewhat weaker on the life Sciences side I Wonder if you could talk a little bit about what happened.
And he has kind of performed this strong performance was somewhat on the performance and then how to think about that going forward in 2022.
Well you made people girl each year. So Pete can you address the fourth and the first he has to figure out how to turn on my Mic is just so rare.
Yeah. So let's first talk about <unk>, we had terrific really second half in 2021.
As Bob already mentioned, we did a significant amount of new leasing really for all of office, we did $3 7 million square feet of total leasing.
The new leasing was substantially higher than 2020 for <unk> and even higher than 2019.
Our retention as Bob mentioned was 86% for the full year for the quarter was 92% and most exciting for December was 95% what I would say is it.
It just wasn't a lot of leasing and <unk>. It was really high quality leasing just to give you an example or two.
Our weighted average lease term for new leases, we're nine years.
And what that did in the <unk> for the quarter and what that did is extended the whole portfolios. Walt from four eight years to five years same thing on escalators or escalators for new leasing were two 9% for the quarter and that increased the whole portfolios.
Escalators by 30 basis points.
So very substantial.
That allowed us to do is to grow for the first time.
In a long time two quarters in a row at 3%.
Per quarter. So if you project forward on <unk> in the first first quarter of 'twenty. Two we would expect that trend to continue really on the basis of.
Having higher occupancy late in the year and that carrying over and I can tell you in January we're on track in movies to achieve what we said we're going to do so then moving to Rmi and I'll go back to the fourth quarter.
I think you need a little context in <unk>, we had a very good year, we grew by 13, 9% for the full year.
And without the termination fee we will.
We still grew by almost 4% and if you look at the supplemental revenue was fine we had good revenue for R&R in the fourth quarter, but we had some higher expenses than normal in the fourth quarter.
Mainly around as building start up you go from raw dirt to building to an occupied building real estate taxes take a while to kind of catch up and Thats one of the factors in the fourth quarter, we had a very large tax payment in the fourth quarter.
Dearly many of the buildings kind of came back to life. They became occupied again in the fourth quarter. As a result utilities went up significantly in addition to.
In Baltimore and in Philadelphia, two of our larger locations there were large utility rate increases.
So now so we're very happy with the RNA performance in 'twenty. One. So if you project forward to 'twenty two they will cover the balance of what I already described for <unk> it'll be largely on rate.
Are you on occupancy growth carrying into the first quarter and strong expense control. So I'm very bullish about the office business are really in 2022.
Sorry for the long answer I got carried away.
Yes.
All right next we'll go to Joshua <unk> with Bank of America. Your line is open.
Hey, everyone.
Wanted to ask about maybe the residential or the resident renewals going out now I know for January one.
8% just curious how that trended for people Rolling later, and then maybe just an update on the re leasing spreads and how we should think about them going forward.
Yeah, I'm glad you raised that because obviously as we talked about revenue growth and the the in place January one rate increases are extremely important I think it's important to note that that applies to a part of our portfolio and we will continue to.
Have pricing opportunities as we deal with the anniversary.
Renewals and and rate increases as we deal with new residents coming into the portfolio as occupancy is increasing and also the care component, which can increase throughout the year. So those are all opportunities that we have in front of us and obviously it was a good.
Start with the 8% increase in January .
And then I would just add that as well.
We're working to.
Identify what the appropriate pricing is moving forward.
As I mentioned, Vantassel, Io, which really stands for operational insights.
And really taking the best of our data analytics, combining with our operating experience and the experience and expertise of our operating partners. We collect vast amounts of geospatial data and demographics, well penetration rates, new construction to train our demand and supply forecasting models.
Which have been remarkably accurate.
As it pertains to decision, making on pricing acquisitions dispositions. So we have.
That approach at our disposal and the levers that Debbie mentioned around care Street rates.
The anniversary rent increases that will happen throughout the rest of the year and the demand that we're seeing from the leads obviously demonstrates the value proposition and a strong.
Consumer demand for these services and so that is a tailwind as well that should support these efforts.
I'll add I don't know if you mentioned this the re leasing spreads have been improving market prices firming. It's obviously fundamental yes. So the combination of the in place increases and improving re leasing spreads the care component, which can be price throughout the year and.
And the anniversary pricing dynamic inflationary environment, there's a number of different levers at our disposal. Thanks, Josh.
Next we'll go to Richard Hill with Morgan Stanley . Your line is open.
Hey, you have Adam on for rich good.
Good morning, guys. So hope you guys are all well I just wanted to ask about the kind of the expense control the agency labor recognize kind of the pressures there.
Kind of wanted to see if you could maybe kind of quantify the kind of December versus January versus February to date impacts how trends gone.
The agency labor usage increase over these three months decrease kind of if you could just kind of quantify the sequential moves I think it would be kind of helpful to think about how kind of the quarter is playing out and what kind of the outlook would be for the next couple of quarters.
Yes.
Sure again, I will direct you to page 16.
The business that because I think it's nice to be able to see how labor breaks down and for this pool. There are 16 million of contract labor in the fourth quarter.
Call. It just 5 million ish on a run rate basis, we saw that accelerated to call it $6 million.
In December and into January .
And that's why we've effectively carried forward in our assumptions.
Each pool is different but thats kind of gives you a flavor of it clearly is a clinical situation improves the staffing.
Continues to get traction that would be an opportunity but that's.
That's how we dimensionalize the cost.
Next we'll go to Michael Carroll with RBC capital markets.
Yes. Thanks, Louis just did a good job detailing your recent capital recycling transactions, I guess, where does <unk> stand in that overall process.
Much of the current portfolio specifically in the seniors housing kind of falls in that non core bucket that the company would likely to eventually sell out of.
Hi, it's Justin.
I'm happy to report as I was mentioning all the actions we've taken that the heavy lifting is really behind us there will always be some noncore assets that we're looking to sell or transition or invest in or do something that to create value, but but it'll be a small number moving forward.
Okay next we'll go to Mike Mueller with JP Morgan.
Okay.
Yes, hi for the $205 million of <unk> shop, Labor, where do you think that number goes to you are fully staffed at market prices, but without the heavy contract labor component.
Okay.
The real question I think that you have to answer for that is what's happening to the $189 million of in house labor right again, I think the focus is very much and rightly so been on contract labor, but the key in terms of total cost is in house labor.
And that gets to the macro question of where the labor market and therefore inflation go.
Which I'm not going to pretend I know the answer to I think the economists will tell you many of them that that will that macro situation will improve in the back half we subscribe to that.
But very tough to call and.
So.
We're not going to make make a long term for it and in the near term, we're projecting essentially a run rate in the in the quarter right.
Next we'll go to John Pawlowski with Green Street.
Hey, thanks for the time.
Just a quick question for you and apologies if you've chatted about this in recent quarters, but im hoping you can help quantify the operating upside of recent initiatives you've rolled out and you are currently rolling out a new to the company. So just trying to understand.
How much higher the earnings the NOI power of the Port the shop portfolio it will be under your purview versus about possible.
Hi, yes.
There's been a lot of actions over the last couple of years certainly some priorities were accelerated based on the fact that we were going through the pandemic.
And the goal of all of the actions, whether we're acquiring are disposing or making a decision to invest capex transitioning assets under new management is to create value and create a just a greater opportunity to drive NOI over time so.
I think really time is going to tell we're off to a good start we're pleased with.
We set expectations in the fourth quarter, and we were able to meet those expectations.
And we are excited about the growth in the first quarter.
After a good start.
Next we'll go to Daniel Bernstein with capital one your line is open.
Good morning.
Nobody could excited I'm gonna asking him Ob question.
[laughter].
Okay.
Go ahead.
Not just you guys, but that your peers have.
We've also spoken in the last several quarters about better re leasing spreads better.
Annual REIT.
Annual rent bumps and <unk> and so.
Given inflation narrow environment kind of what how.
Do you think.
The rent bumps can improve going forward I mean can we push north of 3% on rent bumps can we see higher releasing spreads.
Kind of what's the willingness of tenants and <unk> to accept at in the past that hasnt been the case, but recently it seems like it has been.
I mean, one thing it's really important to remember in the MLB business is that the assets are priced and have a low cap rate because of the reliability.
Of the cash flows as we've seen over the past two years the benefit of that and the reliable growth. They also have higher margin and much lower labor component and so you have to look at both sides of the equation I think when you're thinking about about the risk reward of the asset class and so Pete.
Pete can answer we ask him every 15 minutes, if they can get higher escalators.
So I will let him answer that Daniel I think it's a great question.
As Pete and given that our portfolio is largely on campus there aren't a lot of options just sitting there waiting to compete with you use.
Usually it requires new construction to.
To compete and certainly with inflation and the environment. We have today the cost of building a new <unk> and then you're required leasing.
Rates have gone up.
So our leasing team are is all over is varies as relocation in city specific as far as what's happening with the demand of them of medical office space as well as construction costs, but in many cases, we're competing against brand New medical office buildings, which does give us room to raise our <unk>.
<unk> honestly, our initial rental rates, yeah, I remember, you're pushing through the expense increases to the tenants as well. So you really have to look at the revenue and the expense side to really evaluate the benefits of the MLB. Yes, we only have a couple of percent of our leases that are gross leases.
The rest are some some fashion of pass throughs of expenses. Thanks Danielle.
And next we have a follow up from Juan Sanabria with BMO.
Alright, just a quick modeling question.
For 2022, realizing you're not giving full year guidance for earnings, but just wanted to get a sense of what you guys are expecting from a.
Our fad Capex and G&A perspective for those two line items.
Sure. So I'll start with G&A, we did give 37 million number for the first quarter.
With stock comp amortization, which is our SSO treatment on that so a $37 million.
And if you look at just 2021 G&A.
Obviously that that was a very good year in terms of year over year and cost management. We hope this year, we get back to normal business as usual to some degree.
Which will obviously have an impact in terms of <unk> and things like that.
Going up.
But first quarter very much in line with first quarter year over year frankly.
In terms of Fad Capex really those things a few things I'd highlight of obviously with the acquisitions, we've done, particularly new senior and a higher shop portfolio base, there's more fad capex dollars.
Secondly, and just we should touch on this more opportunities for us I think to really focus using our Oi is now branded to identify opportunities to invest in the portfolio and so we will see some acceleration there yeah and I'd just say consistent with some of my other comments in that the goal is to create value.
Capex as a tool at our disposal and with the use of our analytics and operational expertise combined with the operating partners local market experience we.
We can make smart choices and anticipated returns on that investment.
Okay. Thanks, we have a follow up from Jordan.
We have a follow up from Jordan Saddler with Keybanc capital markets.
Okay.
Thank you quick quick one for you Justin and then a follow up Bob just shape of the recovery. This year just mathematically Im curious.
If you've taken a look at the portfolio uplift potential.
Throughout the year.
Could this year.
Look similar to last year in terms of the occupancy gains given sort of the the shrinks and lead you're seeing early on I know, it's very difficult to look out, but I'm kind of saying mathematically given sort of the.
A bit of an increase in occupancy already how are you thinking about sort of.
Potential uplift in occupancy throughout the year in the shop portfolio and then Bob just on the.
Asset sales are actually there is a loan maturing this year, let's say almost $500 million I'm, just curious about timing or expectations or will it be repaid or extended.
Yeah I'll take.
That's around that can be extended and so.
So.
That's our expectation at the current time.
And then in terms of occupancy I think we're projecting significant year over year occupancy in the first quarter, which has been outperforming yet following seasonal patterns and so.
That that is something to think about when you're looking at this low for the year.
Next we have a follow up from Tayo Okusanya with credit Suisse.
Hi, yes, thank you very much.
This one toward just maybe Bob.
Talk about the.
Leasing spreads improving but youll move negative.
The question I have is with.
That negative I guess I'm still somewhat surprised that you can push.
Sure Hi, it is higher.
Especially kind of given again industry wide occupancy is still kind of well below where it was.
Pre pandemic.
Trying to understand those dynamics. So why is it that you don't get that much pushback when they are still high vacancy industrywide at market rates or some kind of below where renewal rates are.
That's a great observation.
Yes.
Thanks Robert.
Yes.
Goodbye.
Good morning.
Ann Marie.
Yes.
Hi.
Yes.
Right right.
Thank you.
And that portends, well for the future as occupancy increases.
Justin do you want to talk about the normal re leasing spreads and how.
Sure, yes, so the releasing spread again Bob mentioned this.
We saw a tightening through the end of 'twenty one.
Even all the way back to pre pandemic levels, which were negative mid single digits.
That the high class problem is that we have the large increases that happened in January and then you start comparing to relatively higher rents and so.
Technically the releasing spread widens, but it doesn't mean that your pricing power it doesn't continue to improve.
And one thing that we do look forward to that.
Backdrop seems to support is the opportunity given the demand at the doorstep to eventually get to a place where we have positive re leasing spreads again, which we've had in other parts other.
Throughout the sector's history, we've seen that at times and certainly there seems to be support moving forward for that to happen again.
Thank you.
And next we'll go to a follow up for Vikram.
<unk> with Mizuho.
Alright, thanks, so much.
Justin I guess, maybe one broader question as we look into second half 'twenty two 'twenty three.
Our new senior and just your other acquisitions you now have more of a tilt towards IL versus al in the RIDEA pool eventually.
Same store pool, what does that mean from an expense growth standpoint, and then a pricing power standpoint for the second half in 'twenty three.
Well.
Certainly independent living is a high margin business has relatively low labor costs compared to assisted living.
It is a little less less need driven so you may not see.
The occupancy pop, but we expect a higher ceiling in occupancy in independent living over time, because there's less newsome fly that faces it.
And that's consistent with historical track record of independent living as well. So we look forward to revenue growth in the independent living.
Communities and certainly assisted living.
Is need driven it performs well it seems like no matter what the backdrop is as long as there is a way to pay for the service with which.
Given the housing.
Values and wealth demographics, there is and so we expect that to continue as well and and the opportunity really is to price and labor costs over time, and we're as we said we're off to a good start given our Hyatt in house rent increases.
Right.
Independent living is really neat.
Getting through this period.
Barry.
Yes.
Getting kind of that demographic.
The independent living.
That customer.
So that's another part.
Thank you.
All right.
Great Okay.
One more question.
Next we'll go to Nick Joseph with Citi.
Hey, it's Michael Bilerman here with Nick.
Good morning.
I was hoping to go just in terms of acquisitions in terms of the fund as your cost of capital has improved both from a debt and equity perspective, how do you sort of look at that opportunity to buy within the fund relative to on balance sheet and how are you balancing that as youre looking at the <unk>.
Action market for opportunities.
Yes. Thank you, yes, so the fed has a great tool obviously, our van business is going strong and it gives us a great tool to continue to grow.
Was very the fund itself was very thoughtfully conceived in order to be a net add it is a component of our growth strategy. So that it really is designed to address.
<unk> disciplined about capital cost and capital allocation and so it's really designed to address many of the opportunities that we're really not as attractive to us on balance sheet because of the relationship between our cost of capital and the pricing of that type of assets.
A great example, with our South San Francisco Life Science building are John Hopkins Life Science building, which were put in the fund.
With great success, and those are things that we may not have been able to.
Acquire had we've been doing it on balance sheet, but now we have 20% interest in it we have asset management fees, we have ultra.
Ultimately other types of economic incentives if the if.
If the performance is good which it has been so a very thoughtful kind of defined strategy.
Yes, Dan.
To grow our business for the benefit both of our public shareholders and the.
Third party institutional capital.
And that concludes today's question and answer session I will now turn it back over to Debra Cafaro, Ventas Chairman and CEO .
Well, it's been a great call and I were very glad to end the year on a very good quarter and look forward to another positive one in the first I really wanted to thank everyone for joining our call today I can't tell you how much. We appreciate your ongoing support and interest in the <unk>.
And we look forward to seeing you in person soon thank you.
And this concludes today's conference call you may now disconnect.
Yes.
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