Q2 2022 Ventas Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Ventas 2022 second quarter earnings Conference call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time. Please press star one.
As a reminder, today's call is being recorded.
Now hand, today's call over to B J quaint SVP of Investor Relations. Please go ahead.
Thanks.
Good morning.
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As a reminder.
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And other matters.
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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 so our most recent SEC filings all of which are available on the Ventas website.
Certain non-GAAP financial measures will be also discussed on this call first reconciliation of these measures to the most closely comparable GAAP measures. Please refer to our supplemental posted on the Investor Relations website.
Section of our website and with that I'll turn the call over to Debra Cafaro, Chairman and CEO .
Okay.
Thanks, P J and good morning to all of our shareholders and other participants I want to welcome you to the Ventas second quarter earnings call I'm delighted to be joined by my colleagues, including our newest edition P. J Grant who has already made many contributions to vantage in his short tenure.
Today I'll recap our strong second quarter results highlight the momentum in our life Science research and innovation business and address the macro trends in the economy and labor market.
We believe that then patches in an advantage position to deliver value in this dynamic business environment because of our high quality diversified portfolio and our teams industry insights and deep experience.
Let's start with results dentists delivered a very positive second quarter with 2072 cents of normalized <unk> at the higher end of our guidance range.
<unk> performance was at or above our expectations led by 9% year over year shop same store net operating income growth.
I'm excited to showcase our differentiated life Science research and innovation business, which now spans 11 million square feet and accounts for 10% of our property portfolio.
This portfolio has significant momentum and deliveries leasing and investment activity.
With our strategic partner Wexford than past enjoys the nations, leading track record and reputation at the large and growing intersection of research medicine and universities.
Importantly, 77% of our rent is from high credit tenancy with 50 per cent from universities with a weighted average credit rating of double a and the balance from investment grade or a billion dollar market cap companies.
I'm really proud of what we've accomplished since 2016, when we began to invest in this business and how we've grown it since then.
Here are some examples of our strong RNA momentum.
Starting with deliveries, we recently delivered the 100% leased Drexel University Health Science, that's building on budget and ahead of schedule.
This 280 plus million dollar project located in a thriving use city innovation district in Philadelphia was developed by our strategic RNA partner Wexford.
Drexel's, how science building is ready to welcome Drexel School of nursing and health professions at school of Medicine, and its graduate programs for bio medicines when school opens this fall.
The project is expected to provide a 7% cash and 10% GAAP yield.
We also intend to deliver one new city square by year end is 400000 square foot multi tenant lab and research building continues to expand our presence in the U S City and innovation district in Philadelphia adjacent to University of Pennsylvania, and it is already 80 person.
At least we expect the building to exceed 90% leasing with highly regarded life science and institutional research tenants in early 2023.
The lease up pace and rental rates are both substantially ahead of our pro forma and the project is now expected to deliver over a 7% stabilized cash yield on cost of nearly $300 million.
We also see terrific leasing momentum across other portions of our life science or an eye portfolio.
Our portfolio caters to the top 5% of research universities in the nation and these institutions are aggressively expanding their research functions, creating incremental demand for lab space. We are currently in discussions with a handful of universities about taking significant amounts of additional lab.
<unk> space.
In addition, we are leasing space quickly and demand is high from commercial tenants, who are attracted to university innovation centers.
For example at pit phase two scheduled to open shortly we recently signed a lease for 66% of the building with a premier Global Technology Company.
In Miami, we've already leased or committed 80000 square feet that expired mid 2022 to new tenants at higher rates.
Finally, we have momentum in our in our investment opportunities that will create value and deliver future growth.
Today, we announced two exciting new developments that are great. Examples with these two projects. We currently have $1 $6 billion of total RNA development in progress.
All leverage our significant competitive advantage with Wexford at the intersection of research Medicine and universities.
The first new project as the Pearl located in fast growing Charlotte North Carolina.
Sponsored by atrium health, a top 10 health system. The Pearl Project will House Research lab medical and academic uses including the Wake Forest University School of Medicine.
Atrium health, which is rated a three is leasing 70% of the project and will be our 37% partner.
The Pearl will also serve as the exclusive North American headquarters for Air Cat, The French training Institute in advanced surgical techniques and robotics for World class searches, we expect delivery of the Pearl in 2025.
On the West Coast Wexford and Ventas had been selected by the University of Washington to develop a 300000 plus square foot project anchored by the University for its research programming and clean energy Medicine and life Science, you Deb rated a double a by Moody's.
<unk> is a world class research University that receives more federal research funding than any other U S public University.
Seattle is the number six life science market in the U S and this project will expand our RNA footprint to six of the top seven life science markets.
We look forward to sharing more details with you as this exciting project progresses.
Behind these new projects are RNA development pipeline contains an additional $1 billion of potential development opportunities.
I hope that gives you a picture of the momentum we see in our attractive life science or an eye business. It is a great example of our ability to enter a new space thoughtfully expand and grow it successfully through different market conditions and align with excellent partners.
Regarding our capital allocation approach and activities, we've shown $1 $3 billion of investment activity year to date, consistent with our stated priorities and balanced approach.
Yeah.
We've also announced additional investments in the senior housing space at an attractive yield with future growth potential and a fully leased medical office building utilizing capital from our fund to acquire this stable M O b.
As we look forward in the third quarter of 2022, we are again projecting that our earnings will benefit from outstanding year over year growth in our shop segment, which is expected to increase NOI, 12% at the midpoint.
Higher than second quarter's 9% year over year shop NOI growth rate.
We do expect expenses and wages in Q3 to remain elevated reinforced by today's jobs report.
We will also recognize the benefit of $20 million of HHS grants in the third quarter, which we receive to reimburse us for a portion of the expenses, we incurred to keep residents and workers safe during the pandemic.
So that benefit will be muted by our two cent impact we expect from higher interest rates as a consequence of the fed tightening.
The demographic backdrop is supportive of our business and we believe we are well positioned to succeed.
First supply and demand conditions are favorable with acceleration in the growth of the 80 plus population.
Our senior housing product is highly affordable and need based and the senior market. We serve has significant resources.
With senior housing starts and inventory under construction well below cyclical highs, particularly in independent living or senior housing business is set up for continued net absorption and pricing power.
With this favorable supply demand backdrop in senior housing, we will use the power of our high quality diversified portfolio and our team's commitment experience and insights to continue to create value for stakeholders.
Thanks for your time and I'll turn it over to Justin.
Thank you Debbie.
I'll start by highlighting how well positioned our senior housing portfolio is within this sector, which is benefiting from very strong demand drivers.
We are the second largest owner of senior housing in the world with communities located in 47 States seven Canadian provinces and the U K managed by 37 distinct market, leading operators as Debbie mentioned the supply demand fundamentals in senior housing are compelling we.
<unk> experienced an acceleration in the 80 plus population growth over the past two years and 2023. It will represent the highest increase in 80 plus population on record.
We also have outsized affordability in our respective markets, where our target customer net worth is four times the average cost of a stay in our setting.
The senior population has significant savings and home equity that are utilized to pay for our services if the need arises.
On the supply side. According to a national investment center for senior housing units under construction as a percentage of inventory of four 8% is not been this low since the first quarter of 2015 and deliveries of 4600 units is down 49% from the second quarter of 2017 peak.
And aside from the second quarter of 2020 has not been this low since 2016.
99% of Ventas senior housing markets are not exposed to new starts as we face an aging demographic, which is the strongest we have seen these.
These facts point to a considerable upside and are well positioned senior housing portfolio.
We are seeing early evidence of the benefits of our strong market position for instance year to date through July net move in activity.
<unk> continues to grow and we have had positive net move ins for 16 of the past 17 months and NOI has been solid as our year over year same store shop portfolio grew 14, 2% in the first quarter and eight 7% in the second.
Turning to the second quarter shop results and our year over year same store pool.
We are pleased to report another quarter that was consistent with our expectations, while delivering solid year over year and sequential NOI growth pricing power has been impressive and 5% year over year growth Revpar is the strongest we've seen in the last 10 years, primarily driven by in house rent increases.
<unk>, which are running approximately 8% in the U S and 4% in Canada carry rate increases at 10% and re leasing spreads that have improved from negative 14, 7% since the low point in the first quarter of 2021 to nearly flat and June same.
Same store average occupancy grew year over year by 390 basis points to 83, 7%, which was in line with our guidance leads move ins continued to perform above pre pandemic levels. The key selling season of May to September is off to a strong start we have netted for.
<unk> hundred 70 and move in through July , which is 307 higher than the same period in 2019 July average occupancy grew 30 basis points over June these.
These positive results in occupancy and rate drove same store revenue to increase by over 10% versus the prior year.
Turning to expenses.
As we anticipated expenses were $3 $8 million per day.
Same store operating expenses grew six 1% on a per occupied unit day basis, and 11, 3% overall year over year, driven by higher occupancy and continued macro and flashing are inflationary impacts on labor and other operating expenses labor expenses remained elevated as expected.
As we navigated the inflationary wage pressure and macro staff shortages.
I am encouraged that our managers have successfully implemented a number of labor initiatives that we identified last fall.
Initiatives include centralized line staff recruiting applicant tracking technology enhancements and application process improvements. The result is an advancement in that hiring and the stabilization of our workforce. We have had 11 months in a row of positive net hiring and we experienced that.
Double digit reduction in contract labor costs in the second quarter.
That hiring is critical to our ability to stabilize the workforce and reduce reliance on more costly and less reliable contract labor.
NOI grew eight 7% year over year near the high end of our shop guidance range led by the U S at 14% with Canada, Canada demonstrated positive growth again with 1%.
The incremental margin from Q1 to Q2 was 80%.
While overall margin expanded 60 basis points from 23, 8% to 24.4.
NOI grew six 1% in the sequential same store pool.
Bob will cover our Q3 shop guidance shortly.
Covid conditions have remained relatively consistent.
The last few months, we still have new cases occurring for staff and residents, causing marginal impacts on move ins and staffing most notably in Canada, where the regulatory environment is more stringent.
Before I wrap up I'll give a quick update on Ventana Oh I.
We continue to utilize ventas operational insights to engage with our operating partners more closely using our operational and analytical expertise this quarter, we address digital marketing capabilities and three modules.
Clinical website audits, UX audits, which are user experience evaluations and hyper local S. C. O. This initiative is meant to optimize our digital bank, which is the fastest growing of all our lead sources and now represents over three quarters of all lead volume I am pleased.
With how well received Ventas O I has been among our operating partners since we introduced it at the beginning of this year and we continue to develop it to be a model for mutually beneficial capital partner and operator relationships.
I'll summarize by saying that we have made significant progress toward our post COVID-19 NOI recovery opportunity with a lot of upside remaining.
The occupancy low point was 78% in March of 2021, we've already grown significantly since then to 84% and given our strong market position and supportive macro backdrop. We are excited about the continued organic growth opportunity and our senior housing portfolio.
Bob.
Thanks, Justin I'll start with an overview of our second quarter office and enterprise results before closing with our outlook for the third quarter.
Our office segment, which includes our medical office and research and innovation businesses performed well in Q2, delivering three 2% year on year same store growth.
Medical office year on year quarterly same store growth was two 8% led by contractual escalators strong retention and new leasing and favorable expense controls.
<unk> occupancy rose 50 basis points from prior year, and 10 basis points sequentially.
<unk> increased quarterly same store of four 6%.
Benefiting from escalators leasing and higher parking.
Same store occupancy and iron is a strong 93, 2%.
We were very pleased with our overall enterprise performance in the second quarter with results top to bottom at the higher end or better of our guidance range.
Notably we delivered <unk> of <unk> 72 per share, which is at the higher end of our guidance range of 69 to 73.
And that result was led by shop, where cash NOI grew nearly 9% year year over year has justen described with.
With occupancy revenue and NOI, where we called it a quarter ago, despite a challenging backdrop.
When combined with strong performance in office and Triple net total property same store NOI increased three 5% year over year above the high end of our guidance range.
Our performance trajectory and proactive steps to deliver results are being recognized for example, all three rating agencies have made positive ratings moves in the last month.
It will be plus stable.
In 20 of our lending relationships provided a $500 million five year term loan refinancing and upsizing the prior term loan at better pricing.
We're very pleased that we took smart steps to enhance our portfolio quality and to reduce near term debt extend maturities prior to the run up in rates and now have 89% fixed rate debt that.
Debt duration exceed six years, our average cost of debt is three 5%.
Limited near term maturities and robust liquidity of $2 5 billion.
In terms of Q3 guidance, we expect net income to range from <unk> to <unk> peripheral a diluted share.
Q3 normalized <unk> is expected to range from 73 to 78 per share.
The bridge from Q2 <unk> per share of <unk> 72.
To 76 at our Q3 mid point is as follows.
A net increase of <unk> <unk> from.
<unk> of HHS grants received in July .
Last two pennies from higher interest rates on our floating rate debt and a stronger U S. Dollar.
Plus a penny of property growth led by the opening of the Drexel RNA development Debbie described earlier.
A note to enhance comparability, we now present shop same store and cash NOI results, excluding the benefit of HHS grants received in all periods.
Let's drill into the shop assumptions for Q3.
We expect sharp cash NOI to grow in the range of 9% to 15% year over year or 12% at the midpoint, which.
Which represents an acceleration from the 9% year over year NOI growth posted in the second quarter.
Revenue is forecast to grow 8% at the midpoint led by occupancy increasing 250 to 300 basis points as well as through improving rates.
Despite continuing broad inflationary expense pressure, our NOI guidance growth of 12% at the midpoint implies margin expansion.
Our Q3 revenue is expected to grow sequentially led by average occupancy, which is forecast to increase 100 basis points versus the Q2 average and.
It incorporates a continuation of positive occupancy growth trends observed in July .
This revenue growth is effectively offset by sequential operating expense increases in Q3.
Notably, including broad inflationary pressure and an extra day in the quarter.
Therefore shark cash NOI. The ahead of seasonal patterns is effectively flat.
Final Q3 guidance assumptions include no new unannounced material acquisitions or capital markets activities, and 404 million fully diluted shares.
For more information on our guidance assumptions I would direct you to the business update deck posted to our website.
Can I go Debbie's comments I'm excited to have Vijay grant on the Ventas team.
Vijay has hit the ground running and the improved and streamlined supplemental package posted as part of Q2 earnings is the latest evidence of the IR enhancements that are underway at Ventas.
To close we believe we are in an advantaged position in the dynamic macroeconomic backdrop with.
With the portfolio and the team to deliver sustained value creation.
That concludes our prepared remarks before we start with Q&A, we ask each caller to stay to one question to be respectful to everyone on the line.
With that I will turn the call back to the operator.
Thank you.
As a reminder, if you want to ask a question press star one on your telephone keypad. If you like to withdraw your question Press Star one again.
Your first question comes from the line of Steve <unk> from Evercore ISI.
Thanks.
Yes, maybe for Justin.
You laid out a lot of positives.
Whether it's the re leasing trends getting better care pricing.
The move in the in place rate increases.
<unk> seems great and I guess I'm just wondering why you know your occupancy gain is less in Q3 than it was in Q2.
What's sort of holding that back is that conservatism is there something that you sort of see about the occupancy gains.
Sure. So I'll just reinforce a few of those positives first southern.
The one thing I mentioned is at 16 of the last 17 months, we've had positive net move ins.
Our year over year comparison has been really strong.
In fact in the U S. In the second quarter was 470 basis points year over year.
We're expecting that to be 320.
Year over year in the third quarter, Canada by the way it was $2 50 year over year in the second and respecting that to be 200 year over year in the third.
One thing I'll mention is that the sequential growth is expected to be 100 basis points.
We are 70 basis points from the last quarter. So we do have some sequential occupancy growth as well.
But everything has been pointing up and were certainly benefiting from that and we have a lot of upside ahead of us over time.
Your next question is from the line of Joshua <unk> with Bank of America.
Yeah, Hey, everyone.
On Canada, I guess, it lagged and QQ, what's the underlying assumptions for <unk> and maybe just a little bit more color on kind of what was driving that performance.
Hi, it's Justin So, yes, Canada first of all it's 94% occupied.
It's a very stable strong consistent performer for us it did have growth in the second quarter.
Just to break down the guidance that Bob gave.
Canada in the third quarter is expected to have cash NOI growth of between 2% and 5%.
And that includes revenue year over year of 6% and I mentioned already 200 basis points of occupancy on a year over year basis, and so youre anticipating growth in Canada.
They've had.
We've had not a lot of activity that was COVID-19 related in the second quarter, but it was where we did have it some restrictions on move ins is disproportionately affecting Canada.
And then Meanwhile, the U S.
Is really the growth engine, where our cash NOI is expected to grow between 13% and 21% in the third quarter revenue, 9% year over year, and 320 basis points of occupancy so really strong stable performer in Canada growth engine in the U S.
Okay.
Your next question is from the line of Mike Lisman.
Citigroup.
Hey, Thanks for taking the question I just wanted to go on to the disposition guidance I noticed that it declined a $100 million quarter over quarter. Just curious if you can expand on that a bit maybe asset that youre targeting for sale and then sort of what you might be seeing on the transaction market more broadly.
Yeah I'll hit on the on the guidance.
Thats it to John on the second question, but we went from $200 million to $100 million in the back half.
It's really a timing question as much as anything frankly in terms of expectations of.
When asset sales will close.
With with various portfolios on the market, but the theme.
Im looking for opportunities to upgrade the portfolio using those disposition proceeds to reinvest will continue in the back half and into next year.
You wanted to touch on transactions.
Jeremy I think we had a good start in 2022, we've done roughly about $1 billion three of new investments.
I think we're seeing a fair amount of.
Deal volume is still out there I think we're being.
Carefully and what we choose.
We are seeing still seeing a fair amount of volume of transactions that we do like.
Your next question is from the line of Michael Carroll with RBC markets.
Yes, Thanks, I wanted to touch on the Revpar growth expectations within your shop portfolio I think we all understand the real estate part, but on the care part with pricing up 10% in the second quarter or is that fully keeping up with inflation and how often or Ken your operators pass those increases to residence given how quickly the infill.
<unk> expectations are changing.
So as it pertains to the care, we are seeing the actual cure rate that's charge has been raised 10%.
And that that is.
A huge step in the direction of keeping up with inflation.
The thing that occurs as I'm sure you know is it as residence age in place and their needs grow we will have.
We will have characterized as increase in conjunction with resident needs, which helps to pay for the labor required to take care of residents and so this is the it's really the highest we've seen in terms of care charge increases they can happen more than one time a year.
They tend to only have a one time a year, but there's.
It was encouraging to see.
The execution on care prices on top of the strong in house rent increases plus the street rates or.
Our growing as well.
Okay.
Your next question is from the line of Rich Anderson with SM BC.
Hey, Thanks, good morning.
I want to talk.
About the sequential again and specifically looking at same store versus total.
So you did 70 basis points on the same store pool.
I think I have that right.
And but when you when you look at the total portfolio, which is substantially more assets.
The increase was.
I'm looking at the sequential rate excuse me.
The increase was somewhat less.
So what what what.
What is the maybe Justin can you bucket.
The 546 assets that are total versus the $3 21 that our same store and whether or not the.
The difference is an incremental upside to vent us beyond the same store picture or is there something about new senior and some of the new acquisitions and transitions that are going to take more time for you to see the occupancy build that we're all anticipating.
Yes, that's a good observation rich.
A couple of hundred communities that are in that kind of non same store category they have seen.
Unique characteristics one is that they are lower occupied.
So they run below the rest of the pool and it kind of mid 70 S. They have more upside. Therefore, they also have been growing faster.
We had double digit sequential growth Q1 to Q2 as all of the performance is good and we do expect that that pool to grow and be a big contributor to that to that U S growth engine that I mentioned.
Your next question is from the line of Watson Umbria with BMO capital.
Hi, Good morning, I, just wanted to change tact a little bit.
Notwithstanding the credit affirmation by the rating agencies I just wanted to get a senses.
Plan for the balance sheet with a leverage kind of ticking up at seven three times.
What the plan is and when do you expect to be kind of back to within your target range, which is.
Hi Def.
Definitely lower than that just curious.
And visibility there and timing.
Yes, I'll take that one one.
First off we were really pleased to see all three agencies take that positive rating action to triple B, plus and really the predicated that across the board was the trends we're seeing in senior housing and you'll know the fact that we have been above the range due to COVID-19 is the impact on shop NOI in the recovery therefore of the NOI has.
<unk> been continues to be the key to get back in the range in the meantime, we have been doing smart things along the way.
Dispositions to upgrade the portfolio, reducing near term debt as an example, we'll continue to do those types of things depending on market conditions, but fundamentally the predicate of getting back into that ranges is shop NOI growth rate.
Great.
Great the net debt to EBITDA the EBITDA growth.
Getting back in the range correct.
Your next question is from the line of Vikram <unk>.
Joe from Zillow.
Good morning. Thanks, so much for taking the question. So I guess I just wanted to step back and think about.
Maybe a bigger picture trend.
You can maybe help us walk through or tell me, where I'm wrong.
You just made out.
Owen I really strong producing four plus percent NOI growth.
Steady.
And you laid out why the senior housing portfolio is very well set up into 2000 <unk>. So.
Given all of this if I want to boil it down to underlying earnings growth of SaaS growth.
Over a multiyear period and we're not I'm not asking for 23 number is what im trying to understand is where would I be wrong.
Take all of that and say over a three year period, you've been average, 5% plus fad growth.
Ultimately the.
Underlying question is all of this translate into earnings.
Yes.
Okay.
Well sure.
Short answer is yes, we do feel across the portfolio with different driver is non correlated drivers of demand and growth that we will see portfolio cash flow growth and NOI growth <unk> and fad to your point.
Im not giving you a forecast of course on on timing and slope, but absolutely that is that as the portfolio view of the organic growth opportunity.
Is better than I've seen in my years at Ventas and I think some time before that.
And so growing reliable cash flows.
Certainly as the projection.
Your next question is from the line of Steve <unk> with Barclays.
Hi, Thanks, good morning.
Just on slide six in the presentation, where you show the $3 8 million per day of shop operating expenses and.
<unk> that should be the same number in <unk>.
I just wanted to unpack that a little bit further.
When there could be more favorable operating leverage if that does come down and I guess at the end of the day. The question is.
On an absolute basis will that $3 8 million number actually come down or does it just stay flat to up or hopefully just grow at a slower pace, maybe as you exit 'twenty two and move into 2023.
Yes.
Yes, that's really a macro.
Question and obviously, we're in a very.
Dynamic macro environment changing by the minute as we saw with today's job's, France, I think looking into the third week. We do continue to see those inflationary pressures I think we need to incorporate and policymakers mines.
Our longer term view now with the new news today of where we expect to see CPI and wage expectations over the next year, but that is that is the three <unk> is really a function of the macro we are doing everything we can our operators are doing ever.
They can to manage that growth.
Gross including the net hiring that Justin talked about which is pretty fundamental.
Your next question comes from the line of Adam Kramer with Morgan Stanley .
Hey, guys. Thanks for taking my question and good morning, just wanted to maybe you kind of drill in on slide nine and I appreciate the disclosure there around around pricing and reservoir.
Looking at some of the releasing spread trends, we really kind of positive trends here the last year plus.
I guess kind of a question is where can we go from here.
And again, you know not not asking you to kind of drill down on the specific timing for when this may turn positive but.
How.
How kind of how much can you kind of push releases releasing spreads and.
And where can we kind of take that from here.
And then on the care side, you know, 10% is really really strong number how high can we kind of pushed that number as well.
Yeah.
Hi, So this is Justin so yes first of all yes. The trend has been a great, particularly the re leasing spread trend.
You might remember that.
Even before the pandemic that was typically a negative number around kind of mid mid single digit negative.
We're doing much better than that now.
That really helps demonstrate the demand at the doorstep in the pricing power and to see that that number actually.
Shown in the second quarter on the slide you mentioned, but it was almost flat in June .
That's really encouraging we do have groups of communities that are positive already from a re leasing spread standpoint.
And that's certainly possible, but theres always going to be a consideration around price and volume.
It will come over time, so this doesn't necessarily.
It's not necessarily going to look like walking up a set of stairs there could be some movement in the trend and then on care.
That's really.
It's just another form of pricing.
You know on their in house rent increases really gave confidence around the pricing power of the re leasing spread helped as well and care is an important component in the assisted living business. So.
It's an area that gets focus as well in terms of pricing.
Really the goal of an opportunity is really to just keep a differential eventually between that that revenue increase in the expense increase in and drive the NOI growth and doing that in a way that is taking the best possible care of people.
Your next question is from the line of Nick <unk> with Scotiabank.
Thanks, Good morning, everyone. So I wanted to turn to the development program.
New store with Le Groupe Maurice you also have a new oral <unk> development can.
Can you just remind us from a size standpoint, how we should think about incremental starts going forward I think when you did le Groupe Maurice originally you talked about two to three redevelopment starts per year.
And then our R&R I know is sort of a lumpier.
You've got a big one this quarter and then I guess, just reminding us as well just from a funding standpoint, how we should think about this is this.
Or are there already.
Instructions loan setup within the joint ventures to you have to fund most of this thanks.
Well, thanks, Ed good to talk to you I would say, yes, youre correct about with Groupe Maurice This has been a great investment for US both in terms of the asset and the existing operating assets that we acquired and then the development pipeline and you're right. We have grown that at about two to three a year.
And did announce a new deal and these are really outstanding assets and one thing we really like about the developments there.
Is that when they open their already significantly pre leased and that's a unique model that's been really effective in terms of the <unk> business. These two new projects are super exciting.
We'll continue to fund those.
Optimally I would say in general we do get construction financing for 50 that 50% to two thirds of the building and some of them, we do on balance sheet and some of them, we do under our vantage investment management platform and with these new developments we would.
Expect them.
To optimize our capital structure for that.
The best way, we can for Ventas.
Your next question is from the line of Mike Mueller J P. Morgan.
Yes, I'm curious for the two new development announcements how long ago did you start discussions for those and did your expected returns I guess your return expectations evolve over the past few months.
These discussions with these major research universities are our Alon alon processes.
The good news is again this demand from universities for.
State of the Art lab space is just voracious and we're able to continue with Wexford to target really this top 5% of research universities.
Yields continue to be I think very attractive on a risk adjusted return basis.
And we've been successful in delivering projects on time on budget and so we have a very good track record there and the ability to modify yield based upon ultimate cost working with those universities. So it's a very good model with significant pre leasing and.
The risk reward is quite good which is why we keep doing it we're lucky that we have this competitive advantage in this in this business.
Okay. Thanks.
Thank you.
Your next question is from the line of Daniel Bernstein with capital one.
Dan.
Okay.
Okay.
Okay, operator, let's we'll let Dan come back on but let's go to the next caller.
The next caller.
John Pawlowski with Green Street.
Alright, good morning.
Good morning, Thanks for the time I wanted to go back to Steve and Rich's question about the trajectory of shop occupancy.
100 bps sequential improvements.
Good in a normal year, but were still coming out of the basement. So.
Some were all wondering what's holding back specific specifically in the U S. The trajectory of occupancy given we should have a lot of pent up demand.
Why aren't we seeing 150 bps 200 bps 250 bps type of trajectory of occupancy given the jump off point, we're coming from.
Okay.
Well.
I guess the way I would frame it is it's a function of.
Supply and demand.
We've had it's not just kind of a recent phenomenon that we've been experiencing this now movements. It's been happening for 16 out of last 17 months.
If there if there was some pent up demand I think I would point to.
The early part of 'twenty, one where we had a pop one vaccines were executed in April stands out for instance.
But I think what we're seeing overall is just really strong demand fundamentals and like I mentioned, it's growing in it and we have even more.
More growth ahead of us in next year and beyond so.
We're well positioned we're playing into it our portfolio has been significantly outperforming the overall Nic data out of the sector data.
Industry puts out so.
Where we're at.
And we are growing at a pace, we haven't seen before.
And then the sequential occupancy projected growth is higher than the second quarter sequential occupancy growth. So we're pleased by that and Greg good year over year growth projected in the third.
Yeah.
Your next question is from the line of Dave Rodgers with Baird.
Yes, good morning wanted to drill down a little bit on commercial and leasing spreads a little bit for Rmi and medical office can you kind of give us a sense for where those leasing spreads are coming in today and I guess for MLB in particular would be interested if you're seeing an increased level of spreads in those conversations and then being able to push through additional.
Escalators in our leases so any additional color there would be helpful.
Pete very happy for the question I had a question yeah, yeah yeah.
Yes, terrific well, we've been having a high degree of success in <unk> in particular.
And really all across office in growing occupancy you know for <unk>. We were one of the few that had occupancy growth last year also in the first quarter and then again in the second quarter. So we're very pleased with our leasing success.
Have much less space to lease just based on the lease explorations in this quarter.
But we're leasing quite a bit more space than we did last year at this time, so it's a great dynamic leasing spreads and escalators or are both increasing significantly.
For the entire portfolio the leasing lease escalator has gone up by 10 basis points just in this quarter and we don't disclose.
The re leasing spreads because I still haven't been able to make heads and tails of how it really works with some of our competitors, but it's positive.
Thank you.
Thanks.
Your next question is from the line of <unk> <unk> with credit Suisse.
Hi, Yes, good morning, everyone. So a quick question about the triple net portfolio.
And I guess the.
<unk>.
Occupancy on the senior housing.
Housing side.
Well below where your occupancy.
So kind of curious why that continues to lag as much as it does and if there's kind of any additional risk of having to address.
Even though rents with some other tenants that still have to kind of meet the week.
Weak rent coverage.
Justin is going to take that Tayo.
Yes.
The occupancy is really just a function of the going in occupancy so when I say that I mean, leading <unk>.
Heading into the pandemic period.
Was running lower already.
We have higher absolute occupancy in our shop portfolio.
The triple net portfolio.
As you know.
Obviously, a little lower occupied it's carried a little bit more expense as well, but the.
<unk>.
Kind of the credit situation and the stability of the cash flows have improved dramatically and we've put a lot of effort in over the last year and a half two.
To improve.
Our position with with those leases.
And we mentioned last quarter, some cobra to cleanup that's occurred now.
So the trajectory of the sector continues in a positive way, we expect the triple net portfolio to continue to improve and perform well.
Okay. Thank.
Thank you.
Your next question is from the line of Daniel Bernstein with capital one.
Can you hear me now.
We can.
Oh sure.
I guess im the new Bluetooth headphones that are giving you problems.
So I actually wanted to go back to seniors housing and the projections for <unk>.
When you look at the percentage of move ins versus 2019, they've kind of been coming down over the last few quarters have you seen any and historically, we've seen some impacts from wind on move ins right. When the stock market goes down when home sales velocity kind of slows have you seen any evidence of that kind of a deer in headlights effects.
And the last quarter or two in <unk>.
And does that play into your projections for <unk>.
Yes, so I mean, one thing we do watch as consumer sentiment is something we keep an eye on because it although it's not usually strongly correlated to senior housing because senior housing is more needs driven it is something that that maybe.
Maybe could have impact on the fringes.
So the growth we've experienced has been pretty consistent.
We've had.
Very consistent.
Lead and move in activity move outs have been relatively low which is obviously helpful and supportive of of net move ins.
So you know.
Right now I mean, we just gave guidance on the third quarter, we're expecting growth and there is good support for that.
And we're always watching all the macro market kind of key indicators, Debbie mentioned, a lot of them and there's others as well so.
Well we've.
We are mindful of the of the macro environment.
Okay.
Thank you.
Okay.
Your next question is from the line of Mike Griffin with Citigroup.
Hey, Thanks for taking the follow up just a quick question on spot occupancy growth I noticed the occupancy build is kind of late in the second quarter, maybe that explains the higher average expected in the third quarter, but kind of curious about your thoughts there and maybe your expectations around that.
Yes, Michael the I'd say the spot in the average or pretty close to each other.
So, yes, we had a nice and.
Of the second.
But hopefully the same in the third so average is a good proxy.
Our final question will come from the line of <unk> with BMO capital.
Alright.
Just a question maybe for Justin.
Looking at page 17 of the <unk>.
Investor Day.
Focusing on affordability it looks like you have significant headroom.
To potentially push pricing is that.
Something that the operators are receptive to or just curious if that is a push for the LOI.
Platform and an opportunity in your mind.
Those are so much of my favorite topics one.
I would say.
That's the first.
I know you did I don't even think we have time to go through it all.
I would say the first one the first part on affordability.
I know you know this but the big opportunity in this sector is price transparency, which we really don't have today, so you'll hear language like price discovery, where we're pushing.
Pricing in markets and just testing for resistance and obviously this year there hasn't been much because.
We're pushing on all fronts.
And the affordability really really points to that as well and.
Our operating partners have been just magnificent I think and playing into that opportunity and having the confidence to push in and it's an area that.
That we're we're definitely improving in.
And then from an OE standpoint, we definitely do focus on pricing. It's a huge part of the focus even before we call. It Oh I officially last fall we were highly engaged with our operators to plan for for the pricing execution that we've seen this year. So it's it's always a hot.
<unk> and its a big opportunity for the sector over time as well because we deliver a tremendous service to our residents is comprehensive in it and it and it's very valuable and.
And we can afford it and they can afford it bottomline, yes exactly yes.
The definition of a good calculation alright, thanks, Justin I think we do have a couple more follow ons and we can take those before we close.
Your next question is from the line of.
<unk> <unk> with credit Suisse.
Yeah.
Hello.
Okay.
Yes, we can now tell you okay, great. Thank you.
For taking the follow on I guess, no one ever really seems to ask about post acute but.
But just kind of curious what's happening over there slight decline in coverage.
You guys a lot of kind of news in general on the hospital side.
Uh huh.
This was industry wide. So just curious again, it's a small part of your portfolio, but curious what you're seeing on that side.
Well you've seen from the public hospital operators you know all the providers are.
In a transition period now I think they are coming out of kind of a COVID-19 period and going into a more normal kind of senses and census environment and acuity environment. So.
As wage pressures abate.
Thank you will see improvement there and volumes continue to increase certainly higher employment.
There is beneficial to the acute care business. So thats positive. They just got a rate increase obviously.
That'll take effect October one and then in post acute I think youre also sort of starting to see some normalization in both.
The volumes and the beginning of some normalization in wages, but a long way to go there.
That's going to take that's going to take more time I would say that in the yeah. The hospital business, which is always at the top of the food chain.
Got it thank you.
Thank you.
Our final question comes from the line of John Pawlowski from Green Street.
Thanks for keeping the call going Pete I'm, hoping you can expand on the <unk>.
The line in the press release talking about frictional vacancy coming into life Science could you help quantify that and what caused the move out.
Right.
Yes, thanks for the question.
John So.
We have we have really good occupancy 93% in <unk>.
Our same store pool for ini.
Covid. We also have some we have some tenants that are pure office tenants and innovation space and we disclose this last quarter that we had a couple of move outs in that area, where people are just reconsider the space they need in the type of space. They need is actually caused create an opportunity for us too.
Convert some of that space into the high demand lab space and so we have.
You know over the next quarter or two some transitions will be converting to lab space and repopulating some of those tenants.
Vacancies, but we are bullish about the full year, we're bullish about 'twenty, three and beyond and as I mentioned for example in Miami.
And we've already backfill at 8000 feet.
Mediately at higher rates. So yes is there a fee it's done a great job on that and.
Thanks for the question.
Alright, well I want to thank everyone for your time and attention for your interest in the company, we're all here and ready and committed to continue delivering value. We know it's a dynamic environment.
But we're excited about the future. So thank you very much.
Thank you. This concludes today's call. Thank you for joining you may now disconnect.
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