Q3 2022 Ventas Inc Earnings Call

November 4, 2022

It's Carl.

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 would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.

At this time I would like to turn the conference over to B J Grant SVP of Investor Relations. Please go ahead.

Yeah.

Thanks, Andrew Good morning, everyone and welcome to the Ventas third quarter financial results Conference call yesterday, we issued our third quarter earnings release supplemental investor package and presentation materials, which are available on <unk> website at IR Dot Ventas Dot com.

As a reminder, our remarks made today may include forward looking statements and other matters forward looking statements are subject to risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements.

For a more detailed discussion of those factors. Please refer to our earnings release for this quarter and to our most recent SEC filings all of which are available on <unk> website.

Certain non-GAAP financial measures will also be discussed on this call and for a reconciliation of these measures to the most closely comparable GAAP measures. Please refer to our supplemental posted on the Investor Relations website.

And with that I'll turn the call over to Debra Cafaro, Chairman and CEO .

Thanks, P J and good morning to all of our shareholders and other participants welcome to <unk> third quarter 2022 earnings call.

We're very pleased with our enterprise and property results. This quarter led by our shop growth, let's begin with some highlights.

Normalized <unk> per share was <unk> 76 cents right in line with our forecast with 13% shop growth led by an outstanding 9% increase in year over year revenue and nearly 5% total company year over year same store cash NOI growth.

71, normalized <unk> X HHS grants grew 3% from last year's comparable period.

We are very pleased that we have delivered on our guidance once again and more importantly that we continue to realize sustained growth in our senior housing business that is accelerating.

With year over year shop growth of 9% in the second quarter, 13% this quarter and 15% to 21% projected in the fourth quarter. This is what we have been waiting for.

Our strong numbers validate our longstanding commentary that we are at the start of a multiyear recovery and growth period in senior housing driven by positive and improving supply demand fundamentals and.

And propelled by the actions and decisions, we've taken Justin and the team's experience accuracy insights and credibility and of course, our operator's efforts.

I'd like to take this opportunity to thank them.

Looking ahead to the fourth quarter. In addition to shop growth our normalized <unk> guidance of 71 at the midpoint represents four 5% growth versus Q4 2021, excluding material unusual items overcoming the macro interest rate and FX hedge.

Wins that we and virtually all other real estate companies are experiencing.

Turning to capital allocation, we continue to focus on our priorities of life Science research and innovation and select senior housing and working with longtime partners.

We are driving in expanding our differentiated life Science research and innovation investment business, we have $2 $3 billion in Rmi projects recently delivered and in progress.

Recently, we delivered core and shell of our new state of the Art 400000 square foot lab building in Philadelphia is Premier life Science ecosystem at one city square.

It is on time and on budget and currently over 90% leased or committed to leading gene and cell therapy companies and a premier research University.

We are very proud of what we and our partner Wexford have created in service of the major universities research companies and innovators in this growing life science market.

We own significant additional land in one new city available to meet robust demand.

Recently, we also began a new 255000 square foot lab building to be anchored by the University of Maryland Baltimore.

<unk> be part of the University of Maryland system is rated double a plus and they ranked in the top 15 of U S universities for R&D spend.

The project enhances our existing position in a market with the nation's most favorable ratio of current life science tenant demand two under construction lab space.

The project is projected to produce a stabilized cash yield of seven 5% and open in 2024.

Universities, which represent half of our consolidated RNA portfolio tendency continue to demonstrate significant demand for lab space and our portfolio is well located and position to capture it.

Before I wrap up I'd also like to highlight two strategic investments, we've made that demonstrate value creation in unique ways connected to our core real estate investments as we've built valuable businesses and aligned with quality partners.

Notably we've seen the success of our Ventas investment management or Vim platform, which is fantastic third party institutional capital management business with over five $5 billion of a AUM.

This has proven to be an effective strategy to continue to grow in attractive asset classes.

And build a valuable business and create a recurring revenue stream.

We expect to earn the first promote revenue from them approximating <unk> <unk> per share in the fourth quarter of this year.

We can we intend to continue growing our <unk> business, which provides strategic benefits to our public shareholders and leverages, our platform and industry expertise.

Second our $1 $4 billion strategic investment in ardent a high quality health system has been very successful in addition to our well performing ardent real estate, we have a $50 million investment in a 10% equity stake in the ardent Opco alongside Sam Zales E G.

Hi.

Recently hei entered into an agreement to sell our minority equity investment in ardent to new investors and evaluation representing over a four time equity return.

As a 10% owner, we expect to sell a two 5% stake.

Because the transaction remains subject to regulatory review, we have not included any potential gains in our guidance.

Are these demonstrates the importance of creating valuable partnerships and carefully choosing successful operating partners.

Finally, we believe we are in an advantaged position to succeed demographic demand fuels, all our asset types.

Senior housing supply demand fundamentals are highly favorable and improving while we like most companies across the real estate space are affected by higher interest rates. We are happy to be in a business that has pricing power upside from occupancy and margin expansion and has been hit.

Storage really resilient in a variety of economic environments.

Thank you and I'll now turn the call over to Justin.

Thank you Debbie.

I'll start by covering the third 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 strong year over year growth.

NOI grew 13% year over year, which is above the midpoint of our shop guidance range led by the U S. At 17, 4%, while Canada demonstrated positive growth again with five 9%.

Same store average occupancy grew year over year by 260 basis points to 84, 7%.

Same store shop revenue in the third quarter grew ahead of expectations, increasing nearly 9% year over year due to continued acceleration in revpar growth and positive trends in occupancy.

Pricing power has been impressive.

And five 4% year over year growth Revpar is the strongest we've seen in the last 10 years, primarily driven by in house rent increases and re leasing spreads that have improved to a positive one 4% in Q3 from negative double digits. During the low point in the first quarter of 2021.

Underpinning the releasing spreads are improvements in street rates, which increased 11% year over year in the third quarter. This.

This pricing power is being driven in a U S portfolio that is only around 80% occupied which is a real testament to the underlying demand for senior housing and bodes well for future pricing.

As expected expenses were $3 million per day.

Operating expenses remained elevated as contemplated in the Companys guidance for the third quarter year over year same store operating expenses grew seven 6% driven primarily by occupancy growth and continued macro inflationary impacts throughout the quarter on labor utilities repair and maintenance and food costs.

Improved to positive one 4% in Q3 from negative double digits during the low point in the first quarter of 2021.

Underpinning the releasing spreads are improvements in street rates, which increased 11% year over year in the third quarter. This pricing power is being driven in a U S portfolio that is only around 80% occupied which is a real testament to the underlying demand for senior housing and bodes well for future pricing.

Leading indicators in the U S remains very strong as we experience leads as a percent of 2019 at 109% move ins at 107% and outs at 98%, Canada continues to deliver growth and high occupancy at 94%.

We are benefiting from positive operating leverage shop.

As expected expenses were $3 million per day.

Shop, NOI margin expanded 90 basis points in the third quarter due to stronger than expected revenue growth that outpace continued elevated expenses I have to say a big thank you to our operating partners, including Atria Le Groupe Maurice Sunrise and our regional operators, who are delivering great results.

Leading indicators in the U S remains very strong as we experience leads as a percent of 2019 at 109% move ins at 107% and outs at 98%, Canada continues to deliver growth and high occupancy at 94%.

<unk>.

Now I'll cover Q4 shaft guidance and our expanded same store year over year pool, which includes 478 communities.

We are pleased that our strong year over year growth expectations are reflected in this much larger pool, which represents 87% of our shop portfolio.

We are benefiting from positive operating leverage.

This larger pool includes assets transitioned from triple net transition from other operators and acquisitions made in the prior year.

Both the legacy same store communities and the new entrants to the pool are expected to contribute attractive growth with.

With the preexisting pool, showing the strongest performance.

<unk>.

Now I'll cover Q4 shaft guidance and our expanded same store year over year pool, which includes 478 communities.

Shop same store cash NOI is expected to accelerate from 13% growth in the third quarter grow in the range of 15% to 21% year over year in the fourth quarter.

We are pleased that our strong year over year growth expectations are reflected in this much larger pool, which represents 87% of our shop portfolio.

We anticipate year over year revenue growth of approximately 8% at the midpoint of the same store cash NOI guidance range, driven by continued strong rate growth and occupancy growth of 100 to 150 basis points.

This larger pool includes assets that have transitioned from triple net transitioned from other operators and acquisitions made in the prior year.

Year over year revenue growth is expected to be partially mitigated by continued to broad inflationary expenses.

Both the legacy same store communities and the new entrants to the pool are expected to contribute attractive growth.

The guidance midpoint operating expenses are expected to be consistent on a per day basis with the third quarter in 2022.

With the preexisting pool, showing the strongest performance.

The bottom and top ends of the NOI range are principally driven by variability in operating expenses.

Shop same store cash NOI is expected to accelerate from 13% growth in the third quarter grow in the range of 15% to 21% year over year in the fourth quarter.

Our guidance assumes attractive margin expansion.

Moving on to asset management.

That's also why which is our approach to collaborative oversight, where we leverage our operating expertise.

We anticipate year over year revenue growth of approximately 8% at the midpoint of our same store cash NOI guidance range, driven by continued strong rate growth and occupancy growth of 100 to 150 basis points.

And best in class data analytics to the benefit of our operating partners continues to differentiate our platform and is creating tangible value in our senior housing business I am pleased to report that we had a very productive third quarter engaging with our operators on the underlying fundamentals and two important deep dive topics rate increases.

Year over year revenue growth is expected to be partially mitigated by continued broad inflationary expenses at the guidance midpoint operating expenses are expected to be consistent on a per day basis with the third quarter in 2022.

And recruiting.

The bottom and top ends of the NOI range are principally driven by variability in operating expenses.

Rate increases this coming year, it will be our highest on record we started our process early and collaborated with our operators to develop recommendations down to the unit and resident level.

Our guidance assumes attractive margin expansion.

Moving on to asset management.

These customized right recommendations are grounded in data should limit controllable move outs, and we will be a huge contributor to revenue growth.

Vince Soi, which is our approach to collaborative oversight, where we leverage our operating expertise.

And best in class data analytics to the benefit of our operating partners continues to differentiate our platform and is creating tangible value in our senior housing business I'm pleased to report that we had a very productive third quarter engaging with our operators on the underlying fundamentals in two important deep dive topics rate increases.

It's really important to note that pricing power is greatly enhanced when we are delivering care and services, resulting in highly satisfied residents and families.

Historically, we have seen around 5% in house rent increases in the U S. We saw 8% in 2022, and we expect over 10% in 2023.

And recruiting.

Rate increases this coming year will be our highest on record we started our process early and collaborated with our operators to develop recommendations down to the unit and resident level.

Certain operators, notably Sunrise have already implemented early in place rent increases and the results are positive and a good preview of what should be successful execution in the first quarter and beyond.

These customized rate recommendations are grounded in data should limit controllable move outs and will be a huge contributor to revenue growth.

We continue to address labor challenges in innovative ways. Our recent focus has been on community level staff recruiting to help our operators compete for talent more effectively in doing so we secret shopped over 50 job titles across 15 different operators to evaluate reputation career websites the.

It's really important to note that pricing power is greatly enhanced when we are delivering care and services, resulting in highly satisfied residents and families.

Historically, we have seen around 5% in house rent increases in the U S. We saw 8% in 2022, and we expect over 10% in 2023 certain operators, notably Sunrise have already implemented early in place rent increases and the results are positive and a good preview of.

<unk> process and application follow up while I was pleased to see that our operators scored well relative to industry benchmarks. We came away with several actionable recommendations to attract fresh talent to our communities.

Ventas Oi also continues to be a powerful tool in our capital allocation process.

What should be successful execution in the first quarter and beyond.

Our asset management teams are leveraging access to extensive industry and market specific data to help drive decision, making around revenue generating capex projects portfolios.

We continue to address labor challenges in innovative ways. Our recent focus has been on community level staff recruiting to help our operators compete for talent more effectively and doing so with secret shopped over 50 job titles across 15 different operators to evaluate reputation career websites the.

Portfolios are evaluated on an asset by asset basis with communities prioritize based on near term occupancy and rate upside as well as long term supply and demand outlook, a significant investment of time and capital into this process has resulted in over 100 individual renovation projects.

<unk> process and application follow up while I was pleased to see that our operator scored well relative to industry benchmarks. We came away with several actionable recommendations to attract fresh talent to our communities.

Currently underway within our shop portfolio with a material number of those completing in the next several months.

Ventas Oi also continues to be a powerful tool in our capital allocation process. Our asset management teams are leveraging access to extensive industry and market specific data to help drive decision, making around revenue generating capex projects.

I'll conclude by highlighting my continued confidence in the growth opportunity in our senior housing business.

There are very encouraging facts that continue to support this view.

<unk> outlook remains very strong the growth rate of the 80, plus population will be the highest on record as we've noted before 99% of events are senior housing markets are free from competitive new starts we have had positive net move ins for 18 of the past 19 months and pricing power has consistently demonstrated.

Portfolios are evaluated on an asset by asset basis with communities prioritize based on near term occupancy and rate upside as well as long term supply and demand outlook.

Significant investment of time and capital into this process has resulted in over 100 individual renovation projects currently underway within our shop portfolio with a material number of those completing in the next several months.

Great it through in house rents and street rate increases.

All working together to drive NOI growth.

Now I'll hand, the call over to Bob.

I'll conclude by highlighting my continued confidence in the growth opportunity in our senior housing business.

Thank you Justin.

I'll start with an overview of our third quarter office and enterprise results before closing with our outlook for the fourth quarter.

There are very encouraging facts that continue to support this view the supply demand outlook remains very strong the growth rate of the 80, plus population will be the highest on record as we've noted before and 99% of Ventas senior housing markets are free from competitive new starts we've had positive net move ins for 18 of the past 19.

Starting with office same store cash NOI grew 3% year over year, which represents a beat to our third quarter guidance.

<unk> led the way with growth of three 4% driven by 90 basis points of occupancy gain.

Retention was strong at 93% in the quarter supplemented by new leasing exceeding 200000 square feet.

Months and pricing power is consistently demonstrated through in house rents and street rate increases.

Medical office same store occupancy is now at 91, 8% and has increased year on year for five straight quarters.

<unk> working together to drive NOI growth.

Now I'll hand, the call over to Bob.

Mob same store quarterly quarterly performance has now exceeded 3% for four of the last five quarters.

Thank you Justin.

I'll start with an overview of our third quarter office and enterprise results before closing with our outlook for the fourth quarter.

For Rmi year to date same store cash NOI performance is a strong four 8%.

Starting with office same store cash NOI grew 3% year over year, which represents a beat to our third quarter guidance.

While we posted same store growth of one 5% for the third quarter.

<unk> led the way with growth of three 4% driven by 90 basis points of occupancy gain.

As we told you earlier in the year, we're in the process of converting space into labs, where we have seen opportunities from tenant departures as a result of COVID-19.

Quarterly retention was strong at 93% in the quarter supplemented by new leasing exceeding 200000 square feet.

At the enterprise level. Despite the market volatility were very pleased that we once again delivered results that were in line or better than our original guidance ranges.

Medical office same store occupancy is now at 91, 8% and has increased year on year for five straight quarters.

Our total property same store cash NOI increased four 8% year over year at the high end of our guidance range.

Mob same store quarterly Cat quarterly performance has now exceeded 3% for four of the last five quarters.

And that result was led by shop, where same store cash NOI grew 13% year over year as Justin just described.

For Ini year to date same store cash NOI performance is a strong four 8%.

With the sharp P&L top to bottom, where we called it a quarter ago.

While we posted same store growth of one 5% for the third quarter as.

Q3 normalized <unk> of <unk> 76 per share is right in line with our guidance.

As we told you earlier in the year, we're in the process of converting space into labs, where we have seen opportunities from tenant departures as a result of COVID-19.

And as a reminder, we received <unk> of HHS grants in the quarter, which were included in our initial guidance.

At the enterprise level. Despite the market volatility were very pleased that we once again delivered results that were in line or better than our original guidance ranges.

From a balance sheet perspective, we saw our leverage improved to six nine times in the quarter.

As we look ahead, we're benefiting from the proactive steps we took prior to the run up in interest rates to reduce near term debt and extend duration.

Our total property same store cash NOI increased four 8% year over year at the high end of our guidance range.

Some ventas stats to call out include $2 5 billion of available liquidity.

And that result was led by shop, where same store cash NOI grew 13% year over year as Justin just described with the shop P&L top to bottom, where we called it a quarter ago.

123, consolidated debt maturities and amortization, just 500 million or less than 2% of enterprise value.

Q3 normalized <unk> of 76 per share is right in line with our guidance.

And 11% of our consolidated debt is at floating rates.

Let's talk to you for guidance.

As a reminder, we received <unk> of HHS grants in the quarter, which were included in our initial guidance.

We expect net income to range from <unk> 12 per fully diluted share.

Q4, 'twenty two normalized <unk> is expected to range from 68 to 74 per share.

From a balance sheet perspective, we saw our leverage improved to $6 nine times in the quarter.

As we look ahead, we're benefiting from the proactive steps we took prior to the run up in interest rates to reduce near term debt and extend duration.

Which represents nearly four 5% growth at the midpoint when compared to the fourth quarter of 2021.

<unk> for unusual items in the prior year.

Some ventas stats to call out include $2 5 billion of available liquidity.

<unk> is contributing <unk> <unk> of growth year over year, while interest rates and FX are a <unk> <unk> headwind.

2023, consolidated debt maturities and amortization, just 500 million or less than 2% of enterprise value.

Total company same store NOI growth year over year of 6% to 9% as expected.

And 11% of our consolidated debt is at floating rates.

It's accelerating shop same store NOI midpoint growth of 18% leading the way.

Let's talk to you for guidance.

Bridging from Q3 to Q4 guidance mid point is as follows.

We expect net income to range from <unk> to <unk> 12 per fully diluted share.

Q4, 'twenty two normalized <unk> is expected to range from 68 to 74 per share which.

Starting with Q3 of <unk> 71 <unk>.

Adjusted for the <unk> of HHS in Q3.

In the fourth quarter, we expect two pennies of sequential growth from shop.

Which represents nearly four 5% growth at the midpoint when compared to the fourth quarter of 2021 adjusted for unusual items in the prior year.

Materially outperforming normal seasonal trends.

We also expect to earn our first promote of approximately a penny from our third party capital business.

Sharp is contributing <unk> <unk> of growth year over year, while interest rates and FX are a <unk> <unk> headwind.

The <unk> of sequential good guys explained by shop in the promote our offset principally by a two penny reduction in <unk> due to higher interest rates on our floating rate debt.

Total company same store NOI growth year over year of 6% to 9% as expected.

With accelerating shop same store NOI midpoint growth of 18% leading the way.

Other notable assumptions in our fourth quarter guidance include no, new or unannounced material acquisitions or capital markets activities.

Bridging <unk> from Q3 to Q4 guidance midpoint is as follows.

404 million fully diluted shares.

Starting with Q3 of <unk> 71.

Finally, we do not expect to receive any HHS grants in the fourth quarter.

Adjusted for the <unk> of HHS in Q3.

In the fourth quarter, we expect two pennies of sequential growth from shop.

For more information on our guidance assumptions I would direct you to the business update deck and the supplemental posted to our website.

<unk> outperforming normal seasonal trends.

To close we believe we are in an advantaged position in a dynamic macroeconomic backdrop with the portfolio and the team to deliver sustained value creation.

We also expect to earn our first promote of approximately a penny from our third party capital business.

The <unk> of sequential good guys explained by shop, and they promote our offset principally by a two penny reduction in <unk> due to higher interest rates on our floating rate debt.

That concludes our prepared remarks for Q&A, we ask each caller to stay to one question to be respectful to everyone on the line.

Other notable assumptions in our fourth quarter guidance include no, new or unannounced material acquisitions or capital markets activities.

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. Please press Star then the number one on your telephone keypad.

404 million fully diluted shares.

And finally, we do not expect to receive any HHS grants in the fourth quarter.

We will take our first question from Juan Sanabria at BMO.

For more information on our guidance assumptions I would direct you to the business update deck and the supplemental posted to our website.

Okay.

Hi, good morning.

Hoping we could talk a little bit about rate and Revpar, specifically mentioned.

To close we believe we are in an advantaged position in a dynamic macroeconomic backdrop with the portfolio and the team to deliver sustained value creation.

You mentioned just in the.

Sunrise has moved up.

Some of their rate increases so.

So could you give us a little window into how seasonality.

That concludes our prepared remarks for Q&A, we ask each caller to stay to one question to be respectful to everyone on the line.

The new seasonality now as some of the right timing has shifted away from the traditional first quarter and maybe bucket ties where the rate increases are expected to happen.

With that I'll turn the call back to the operator.

Going forward.

Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

Sure in fact, one there's a page in the deck, we put out there.

That is page 12 that describes this a little bit.

We'll take our first question from Juan Sanabria at BMO.

And on the bottom right, we actually Esther.

Hi, good morning.

SMA the percentage of units that are eligible for increases and we mentioned that 7%. We're actually pulled forward. So they would have normally been a first quarter increase they've been pulled forward to before that that includes sunrise, which is mostly a fourth quarter increase.

Just hoping we could talk a little bit about rate and Revpar, specifically mentioned just a minute.

Sunrise has moved up.

Some of their rate increases.

So can you give us a little window into how seasonality or the new seasonality now as some of the right timing has shifted away from the traditional <unk>.

<unk> targeted around 9%.

First quarter, and maybe bucket ties where the rate increases are expected to happen.

They were really responding to.

Going forward.

The need to create value and one thing we're very pleased with is that our revenue growth is outpacing expense growth and Sunrise took an action to ensure that that continues to happen they've made a decision to poll early.

Sure in fact, one there's a page in the deck, we put out there.

That is page 12 that describe this a little bit.

And on the bottom right, we actually estimate the percentage of units that are eligible for increases and we mentioned that 7%. We're actually pulled forward. So they would have normally been a first quarter increase they've been pulled forward to before that that includes sunrise, which is mostly a fourth quarter increase.

We also have other operators, obviously that are targeting increases that over 10% as we're stating on this page in and those start in the first quarter and then there's a big group or about 42% that get them in the first quarter and then throughout the rest of the year, we will see a 39% that are eligible for anniversary rent increases.

Sunrise targeted around 9%.

And then there's the remaining just moved in late in 'twenty two so they don't get a 2023 increase.

They were really responding to the need to create value and one thing. We're very pleased with is that our revenue growth is outpacing expense growth and Sunrise took an action to ensure that that continues to happen they've made the decision to pull early we.

So obviously, we're very focused on this and.

And we will continue to be in the pricing power has just been superb.

Thank you.

We'll move next to Joshua <unk> of Bank of America.

Also have other operators, obviously that are targeting increases that over 10% as we're stating on this page in and those start in the first quarter and then there's a big group or about 42% that get them in the first quarter and then throughout the rest of the year, we'll see another 39% that are eligible for anniversary rent increases.

Yes, good morning, everyone.

I wanted to explore the dynamic with like a weed.

It's fallen but move ins had ribbon risen during the quarter as a percentage.

Could you kind of explain what's going on there.

And then there's the remaining just moved in late in 'twenty two so they don't get a 2023 increase.

Hi, sure this is Justin.

I think what youre, referring to is is just the percentages that were reporting.

So.

Obviously, we're very focused on this and.

As a percentage of 2019, which has been really good because we've been outperforming that pre pandemic levels and it is a good metric because obviously, we're in a recovery mode post pandemic and it's been interesting to see how we perform relative to 2019.

And we will continue to be in the pricing power has just been superb.

Thank you.

We'll move next to Joshua <unk> of Bank of America.

Yes, good morning, everyone.

But trending is really on an absolute basis.

I wanted to explore the dynamic with the like.

And I think our staff that might help you as from Q2 to Q3, our leads were down 1% our move ins on an absolute basis were up 4%. So I would basically say not much to report there.

He had fallen but move ins had ribbon.

Arisen during the quarter as a percent of 19.

Explain what's going on there.

Hi, Sharon this is Justin.

I think what youre, referring to is it's just the percentages that we're reporting.

Yeah.

Okay.

Josh This is Debbie.

Obviously, the leads are well over 100% of 19 levels and move ins are at one 109 I believe it.

As a percentage of 2019, which has been really good because we've been outperforming that pre pandemic levels and it's a good metric because you know obviously, we're in a recovery mode post pandemic and it's been interesting to see how we perform relative to 2019.

Of 2019 levels, which is very very strong.

Yes, I wasn't sure if you guys were getting better conversions.

Okay.

But trending is really on an absolute basis.

Yes, so we've had.

And I think our staff that might help you is from Q2 to Q3, our leads were down 1% our move ins on absolute basis were up 4%. So I would basically say not much to report there.

Our conversion rates have been.

Relatively they move around a little bit, but relatively consistent around 9%.

And <unk>.

Move in activity as I mentioned actually was higher than the third quarter than it was in the second on an absolute basis. So we're very pleased with how we're positioned from a leading indicators in the national movement standpoint.

Okay.

Josh This is Debbie.

Do you see the leads are.

Well over 100% of 19 levels and move ins are at one nine I believe.

And occupancy and ultimately a pricing power as well.

Of that 2019 levels, which is very very strong.

Okay.

Great. Thanks, guys.

Thank you.

Yes, I wasn't sure if you guys are getting better conversions.

We will take our next question from Michael Carroll with RBC capital markets.

Okay.

Yes. Thanks.

Yes, so we've had.

10% annual rate increases is pretty encouraging I mean has there been any pushback from residents I know last year. When you did the 8% there wasn't much pushback I'm just wondering if this year is there any difference related to that.

Our conversion rates have been.

Relatively they move around a little bit, but relatively consistent around 9%.

And <unk>.

Hi, it's Justin so the process I described in the prepared remarks was really designed to first of all make sure that we're getting US right, we're down to the community level and looking at units.

Residents a number of factors to consider what is the rate increase.

Ultimately our pricing power as well.

Okay.

Great. Thanks, guys.

That was most important secondly, how.

Thank you.

How is this being communicated and the process that our operators are using to make sure that there is a feedback loop, that's really strong and well executed.

We will take our next question from Michael Carroll with RBC capital markets.

Yes. Thanks.

10% annual rate increases is pretty encouraging I mean has there been any pushback from residents I know last year. When you did the 8% there wasn't much pushback. So I'm just wondering if this year is any different related to that.

We have an early look obviously with sunrise pulling forward.

Right letters going out as well for some of our operators that are giving increases in January and so far so good and it's been relatively quiet and which is really encouraging.

Hi, it's Justin so the process I described in the prepared remarks was really designed to first of all make sure that we're getting us right.

We'll move next to Steve <unk> Evercore ISI.

We're down at the community level and looking at units.

Thanks, Good morning, Justin I guess, maybe just sticking on that kind of move in move out I noticed that the move outs are at 98%, which is the highest.

And residents a number of factors to consider what is the right increase.

That was most important secondly.

How is this being communicated and the process that our operators are using to make sure that there is a feedback loop, that's really strong and well executed.

It's been in some time and I guess I would expect that number to continue to trend up as you get more people in the facilities, there's going to be just more move outs, but are you surprised that it's almost back at 100% when you're maybe not back at 100% of 2019 occupancy.

We have an early look obviously with sunrise pulling forward.

Right letters going out as well for some of our operators that are giving increases in January and so far so good.

Yes, that's a great question, because it does stick out a little bit you'll notice. If you look on the trending that we've been going all way back to the first quarter 'twenty, 194% 90, 190, 190, 690, 792 and now 98.

Been relatively quiet and which is really encouraging.

We'll move next to Steve <unk> Evercore ISI.

Thanks, Good morning, Justin I guess, maybe just sticking on that kind of move in move out I noticed that the move outs are at 98%, which is the highest it's been in some time and I guess I would expect that number to continue to trend up as you get more people in the facilities. There is going to be just more move outs, but are you surprised that it's.

<unk>.

Absolutely would agree that as our absolute number of residents go up through occupancy growth that we'll see higher move outs again.

There is I don't think this is necessarily the start of a trend I think is just an outcome within a quarter.

And over time, they will eventually they'll go back to 100%, but that would mean that our occupancy is back to where it was not a pre pandemic.

Almost back at 100% when you're maybe not back at 100% of 2019 occupancy.

<unk>.

Yes, that's a great question, because it does stick out a little bit you'll notice if you look on the trending that we.

We'll move next to Michael Mueller of J P. Morgan.

We've been I'm going all way back to the first quarter of 'twenty, 194% 90, 190, 196 to 90 792 and now 98.

Yes, hi.

Wondering.

Excuse me I'll talk about what you're seeing.

We're thinking about in terms of private market pricing changes for life science and mob.

Absolutely would agree that as our absolute number of residents go up through occupancy growth that we will see higher move outs again.

Hi, Mike This is Debbie.

There's I don't think this is necessarily the start of a trend I think is just an outcome within a quarter.

I think that we still are in a period of volatility as far as capital costs.

And over time, they'll eventually they'll go back to 100%, but that would mean that our occupancy is back to where it was not a pre pandemic basis.

And as you well know and historically when we see this type of volatility.

There is a period of price discovery, which we are still in I would tell you that the life science market in particular continues to.

We'll move next to Michael Mueller J P. Morgan.

Okay.

Yes, hi.

Just wondering Keith.

That have very tight cap rate expectation.

Excuse me I'll talk about what you're seeing or thinking about in terms of private market pricing changes for life science and mob.

Dan.

That's because there is really good demand continuing for.

Certainly our types of lab buildings, and so thats showing through and it's holding holding up frankly very well in the context of the volatility we've seen on capital costs.

Hi, Mike This is Debbie.

I think that we still are in a period of volatility as far as capital cost.

And as you well know and historically when we see this type of volatility.

And <unk> I think we're still seeing.

Sure.

Low to mid fives.

There is a period of price discovery, which we are still in I would tell you that the life science market in particular continues to.

Okay, but okay, I will I will close and say Theres very limited data yet and we still are in the price discovery period, and so more to follow one.

Have very tight cap rates and expectation.

And that's because there's really good demand continuing for.

We get to a point where people are transacting more frequently we will have more data to report on.

Certainly our types of lab buildings, and so thats showing through.

Okay. Thanks.

Yes.

It's holding holding up frankly, very well in the context of the volatility we've seen on capital costs.

Okay.

We will take our next question from Vikram Malhotra at Mizuho.

Thanks for taking the question I just wanted to clarify.

And <unk> I think we're still seeing.

The sort of move out levels.

Low to mid fives.

And maybe think about the trends into 'twenty three.

Okay. Okay, I will I will close and say Theres very limited data.

Is the length of stay changing in any way versus pre Covid do you have a lot of like maybe older older residents coming in that do not have media through this year.

And we still are in the price discovery period, and so more to follow one.

Is that sort of impacting the volume.

We get to a point where people are transacting more frequently we will have more data.

Moving then if this trend continues.

It's not a one quarter aberration.

Report on it.

Yeah.

Okay. Thanks.

<unk> continues does that impact the occupancy ramp into 'twenty three.

Yes.

Okay.

We'll take our next question from Vikram Malhotra at Mizuho.

Yeah.

Hi, it's Justin So first of all actually our length of stay has been very stable.

Thanks for taking the question I just wanted to clarify.

The sort of levels.

There has been I remember we had questions last year is it shortening is there some kind of higher acuity person coming in that never happened.

And maybe think about the trends into 'twenty three.

Is the length of stay changing in any way.

And so I would it's pretty consistent with where it was even before the pandemic and it's been consistent so not much to really report on from a from a length of stays standpoint.

Speak of it you have a lot of like maybe older older residents coming in that do not have maybe it was this year.

Is that sort of impacting the volume.

Moving and if this trend continues.

One thing I'll also mention which is.

It's not a one quarter aberration.

Indicative of the man at the doorstep in the pricing power is that.

Trend continues does that impact the occupancy ramp into 'twenty three.

Our re leasing spreads have been so good.

Yeah.

Hi, it's Justin So first of all actually our length of stay has been very stable.

So as residence have been moving again, they've been paying more.

You know there has been I remember you know there we had questions last year is it shortening is there some kind of higher acuity person coming in that never happened.

Then the last resident that occupy that unit and as I mentioned my prepared remarks that actually went positive.

And this past quarter so.

Pricing power has been great internally through in house increases, but it's also been really strong from a street rate standpoint, as well and thats the elimination of.

And so I would it's pretty consistent with where it was even before the pandemic and it's been consistent so not much to really report on from a from a length of stay standpoint.

The move outs really.

One thing I'll also mention which is indicative of that.

The pricing power basic the pricing part driving some of that is that what you were saying.

Man at the doorstep in the pricing power is that.

Now it is just that when.

When you have someone to move out and you have a new person paying more for that unit when they move in.

Our re leasing spreads have been so good.

So as residence have been moving again, they've been paying more.

Yes, and yes.

People moved in during a period of the pandemic.

Then the last resident that occupy that unit and as I mentioned my prepared remarks that actually went positive.

At lower rates, obviously, that's where you start to get this positive momentum on releasing.

And this past quarter so.

Pricing power has been great internally through in house increases, but it's also been really strong from a street rate standpoint, as well and Thats the lemonade Anthony of the move outs really.

And then can I just follow up just to clarify the trajectory I know you said Sunrise had or wanted to ask one of the operators already has a 10% bump in place.

I expect it to be 10% if you see the similar level of pricing power into next year, just given where the expenses remained flat, meaning no reliance on temp labor is where it is today.

The pricing power basic the pricing probably driving some of that is that what you were saying.

Now it is just that when.

When you have someone to move out and you have a new person paying more for that unit when they move in that.

And you see modest growth just given inflation why shouldn't the gap between.

That's a healthy.

People moved in during a period of the pandemic.

Revenue and expense growth had another way should the margins see material expansion next year.

At lower rates, obviously, that's where you start to get this positive momentum on re leasing.

Yeah, so that yes, absolutely.

And then and then can I just follow up just to clarify the trajectory I know you said sunrise had or one of them one of the operators already has a 10% bump in place.

Right now we are we're pricing off of the current inflationary environment. So if that changes and certainly that could be.

Added if to NOI growth.

Or expect it to be 10% if you see the similar level of pricing power into next year, just given where the inexpensive debt remained flat, meaning our reliance on temp labor is where it is today.

But we've been this this sector historically has had a pretty healthy spread in terms of increases over CPI.

And CPI, obviously is much higher these days and we've been we've continued to build that spread in.

And you see modest gorilla, just given inflation why shouldn't the gap between.

Pricing power has really always been our strength and it's magnified now because.

Revenue and expense growth had another way should the margins seem that unit expansion next year.

The emphasis on the expense growth obviously rare.

Our revenue has been outpacing expenses significantly so we're in good shape.

Yeah, so that yes, absolutely.

We're seeing really nice margin expansion of 90 basis points in the third quarter. The implied guidance again, obviously with with operating leverage we're going to see more margin expansion. Despite the labor discussion and everything else, we're pricing that plus and we know this is a high operating leverage business. So thats a good formula.

Right now we are we're pricing off of the current inflationary environment. So if that changes and certainly that could be.

Added if to NOI growth.

But we've been this this sector historically has had a pretty healthy spread in terms of increases over CPI.

Thank you.

And CPI, obviously is much higher these days than we felt we've continued to build that spread in.

We'll move next to Michael Griffin at Citi.

Great. Thanks, Justin in your conversations with the operators have you noticed that there has been any improvement.

Pricing power has really always been our strength and it's magnified now because.

The emphasis on the expense growth obviously.

Turnover of the workforce and then I just wanted to clarify something on the contract labor side I noticed that moved up to about 3% of the expense stack versus two 5% last quarter should we read into that that there is more contract labor utilization or is that just a rounding issue.

Our revenue has been outpacing expenses significantly so we're in good shape.

We're seeing really nice margin expansion 90 basis points in the third quarter. The implied guidance again, obviously with with operating leverage we're going to see more margin expansion. Despite the labor discussion and everything else, we're pricing that plus and we know this is a high operating leverage business. So that's a good formula.

Well, let me start with the first part the one thing I mentioned in my prepared remarks, we've had 12 quarters now of positive net hiring.

Gives me 12 months four quarters of <unk>.

Thank you.

Net hiring and so that that's obviously a really good indicator.

We'll move next to Michael Griffin at Citi.

Great. Thanks, Justin in your conversations with the operators have you noticed that there's been any improvement in that.

Given given the backdrop.

One thing I'll mention is that the contract as a percentage of total labor has actually been coming down and you'll see it on that same page you mentioned its page 13 of the deck.

We were as high as eight 7% in the first quarter of 'twenty, two it's down to five 9% in the third quarter.

There is so it's good to see that there is some relief in terms of agency.

Well, let me start with the first part the one thing I mentioned in my prepared remarks, we've had 12 quarters now of positive net hiring.

Overall labor expense you can see off to the right. It's indicated on these bar charts has been relatively stable.

Stable after initial period of being elevated and we are seeing.

Excuse me 12 months four quarters of <unk>.

Positive net hiring and so that's that's obviously a really good indicator.

Agency reduce in certain key markets that we've highlighted before that that are big users of agency and we're starting to see that come down North Carolina's one that jumps out I know, we've mentioned before Philadelphia as well they both had double digit reductions in agency.

Given given the backdrop.

One thing I'll mention is that contract as a percentage of total labor has actually been coming down and you'll see it on that same page you mentioned its page 13 of the deck.

The L a MSA.

We were as high as eight 7% in the first quarter of 'twenty, two it's down to five 9% in the third quarter.

<unk> also had a double digit reduction in agency and so where we've had heavy users we're starting to see some.

There is so it's good to see that there's some relief in terms of agency overall labor expense you can see off to the right. It's indicated on these bar charts, it's been relatively stable.

Some softening and an improvement.

It's been a relatively slow process, though but it but it's a process.

The improved results.

Stable after initial period of being elevated and we are seeing.

Alright. Thanks.

Next we'll go to Steven Valiquette at Barclays.

Agency reduce in certain key markets that we've highlighted before that that are big users of agency and we're starting to see that come down in North Carolina is one that jumps out I know, we've mentioned before Philadelphia as well they both had double digit reductions in agency.

Alright. Thanks.

So you guys show on page nine in the slide deck that the same store shop pool changed dramatically from <unk> to <unk> with the increase in the properties. So.

I guess, what the same store cash NOI accelerating from that 13% to 15% to 21%.

The L a MSA.

Yes, im guessing that probably even the <unk> same store pool would probably see acceleration just with the price increases you were talking about I just want to reconcile kind of what the trend would be.

<unk> also had a double digit reduction in agency and so where we've had heavy users we're starting to see some softening in improvement.

It's been a relatively slow process, though but it but it's a process.

Without the <unk>.

Yes in our interest engine assets as far as an acceleration how much does that impact yet.

The improved results.

Great. Thanks.

Thank you. Thank you for asking that because Justin addressed it and we want to be crystal clear on it.

Next we'll go to Steven Valiquette at Barclays.

Alright. Thanks.

So you guys show on page nine in the slide deck that the same store shop pool changed dramatically from <unk> to <unk> with the increase in the properties. So I guess, what the same store cash NOI accelerating from that 13% to 15% to 21%.

We are seeing that.

Jack thing that accelerated sharp year over year growth in the fourth and what we're really happy about is this is representing now.

The lion share of our senior housing business and that's really good for investors. It creates a lot of transparency and gives a really good insight into how the business is performing and Justin can answer your specific question.

I am guessing that probably even the <unk> same store pool would probably see acceleration just with the price increases you were talking about just trying to reconcile kind of what the trend would be.

Without the.

Yes in our transmission assets as far as an acceleration how much of that impacting so yes. Thank you. Thank you for asking that because Justin addressed that and we want to be crystal clear on it.

On.

What's carrying the day here yes.

The third quarter pool, so we kind of referred to as the existing pool that was the year over year pool in the third quarter.

We are seeing that they're projecting that accelerated sharp year over year growth in the fourth and what we're really happy about is this is representing now.

<unk> to be in.

In the fourth quarter, which is now expanded that pool is is the strongest performer.

The lion share of our senior housing business and that's really good for investors. It creates a lot of transparency.

In this fourth quarter projections so.

Yeah.

Everyone's contributing in a very positive way.

You mentioned, new senior we have a number of transition communities in some acquisitions that are in there as well theyre all contributing.

It's a really good insight into how the.

The business is performing and Justin.

Can you answer that your specific question.

Yes.

In the greater pool's financial growth.

And on that.

But particularly the third quarter pool that was existing us is driving the most of the growth.

What's carrying the day here, yes so.

The third quarter pool, so we kind of referred to as the existing pool that was the year over year pool in the third quarter continues to be in the in the fourth quarter, which is now expanded that pool is is the strongest performer.

Okay. That's helpful. Thanks.

We'll move next to rich Anderson at SMB C.

Thanks, Good morning.

Can you hear me okay.

Yes, rich okay, great. Thanks.

In this fourth quarter projections so.

So I guess I wanted to.

You asked about.

Everyone's contributing in a very positive way.

The asset class that hasn't been mentioned much in this call which is medical office.

You mentioned, new senior we have a number of transition communities in some acquisitions that are in there as well theyre all contributing.

Your priorities or senior housing and life Science, you, even even mentioned senior care is.

In the greater pool's financial growth.

As a possible area to look at but not medical office so much.

Particularly the third quarter pool that was existing us is driving most of the growth.

And I'm curious you mentioned your price discovery commentary.

Could we see some change there of substance for Ventas, maybe MLB conversions to life science may be MLB to the Vim fund may be MLB sales I am certain you have an audience for that portfolio Thats, 20% of your business can you comment at all on word.

Okay. That's helpful. Thanks.

We'll move next to rich Anderson at SMB CE.

Thanks, Good morning can.

Can you hear me okay.

Yes, rich okay, great. Thanks.

So I guess I wanted to.

Ask about the asset class that hasn't been mentioned much in this call which is medical office.

Things might go with <unk> for <unk> in the next year or two or three.

Hmm.

Well, Mike My colleague Peter is here and he's done a great job on running that business and it's producing good results and we've always liked the business, but we really like the portfolio that we have.

Your priorities or senior housing and life science, you've been even mentioned senior care is.

As a possible area to look at but not medical office so much.

And I'm curious you mentioned your price discovery commentary.

It's really high quality.

Could we see some change there of substance for Ventas, maybe MLB conversions to life science may be MLB to the vim funds may be MLB sales I am certain you have an audience for that portfolio Thats, 20% of your business can you comment at all on word.

Mostly on the campuses of.

Successful hospital systems large creditworthy systems that are in a position to grow and that's the main criterion for successful medical office building. So we really like the business. It has good metrics.

It's performing well.

Things might go with M obese for Ventas in the next year or two or three.

Dan.

If.

Hum.

We're happy with the business that we have and.

Mike My colleague Peter is here and he's done a great job on running that business and it's producing good results and we've always liked the business, but we really like the portfolio that we have.

For the current time intend to keep it and grow it.

As Pete has been bringing him.

Over 3% growth here on same store.

It's really high quality.

Okay.

Okay sounds good to me.

Mostly on the campuses of.

Thank you.

Okay.

We'll move next to Jonathan Hughes at Raymond James.

Hey, good morning, Jeff.

Justin I was hoping you could talk about the shop occupancy guidance is there any impact in there for potential increase in Covid <unk> flu cases, weighing on occupancy, meaning that without that potential for a spike in Cape town like we've seen in the past two winters in the Spike. We're currently seeing in Europe that guidance might have been higher.

It's performing well.

And Dan.

If.

We're happy with the business that we have and.

For the current time, and Ken <unk> Keybanc and growing.

Or is there a little impact in that guidance.

As <unk> been bringing him.

Theyre, mostly vaccinated pandemic with more endemic and movement.

Over 3% growth year on same store.

Restrictions came on Michael.

Okay.

Okay. It sounds good to me.

Sure so.

Thank you.

The fourth.

Okay.

We'll move next to Jonathan Hughes at Raymond James.

Fourth quarter expectation.

It has around you mentioned the year over year growth range of 100 150 basis points.

Hey, good morning.

Justin I was hoping you could talk about the shop occupancy guidance is there any impact in there for potential increase in COVID-19 and flu cases weighing on occupancy, meaning that without that potential for a spike in Cape town like we've seen in the past two winters in the Spike. We're currently seeing in Europe that guidance might have been higher.

The sequential gross around 30 basis points.

<unk>.

Sort of consistent with what we would've seen pre pandemic, it's a little higher it's a little bit more growth.

And but but it's relatively.

Relatively flat so if.

If you look at history.

Or is there a little impact in that guidance.

You mentioned flu and <unk>.

Residents there.

<unk> such as that normally thats more of a first quarter event.

Vaccinated pandemic with more endemic.

If it doesn't effect.

Restrictions came on Michael.

Have an impact.

The fourth the fourth quarter kind of expectation took into account what we know on the ground today.

Sure so.

The fourth.

Fourth quarter expectation.

It has around you mentioned the year over year growth range of 100, and 150 basis points.

And a little bit just what we've seen historically from a seasonal standpoint, I mean, basically what the portfolio isn't showing.

The sequential gross around 30 basis points.

Signs of clinical conditions, and we've assumed that that status quo continues in the fourth.

That's.

Sort of consistent with what we would've seen pre pandemic, it's a little higher a little bit more growth.

And.

But it's you know relatively flat so.

Okay.

And then forgive me, but I'm going to try to sneak in one more related to Steve's question on move outs.

If you look at history.

You mentioned flu and <unk>.

If the volume of about two days the same as 2019 and occupancy lower doesn't that mean, we're seeing more move outs on an occupancy adjusted basis.

<unk> such as that normally that's more of a first quarter event.

If it doesn't effect.

You know have an impact.

I think the fourth the fourth quarter kind of expectation took into account what we know on the ground today.

Regarding a faster rebound is there some kind.

Any change in resident behavior here that.

And a little bit just what we've seen historically from a seasonal standpoint, I mean basically the portfolio isn't showing.

It is ongoing just trying to understand that those comments you made earlier.

Yeah sure so first.

Signs of clinical conditions, and we've assumed that that status quo continues in the fourth.

First of all it's not there yet.

It's at 98%, so I would I would.

Say that I wouldn't I'm not reacting to one quarter of results.

Okay.

And then forgive me, but I'm going to try to sneak in one more here related to Steve's question on move outs.

Be indicative of a trend or something that we should consider to be forward looking its.

If the volume of about the.

The same as 2019.

Move outs, so they've never really.

Lower doesn't that mean, we're seeing more move outs on an occupancy adjusted basis.

<unk> also never really moved in a perfect straight trend so.

Venting a faster rebound is there some kind of change in resident behavior here that.

As a little bit elevated in the third quarter.

And eventually as occupancy gets higher we'll see we'll see move outs go out go up as well as we said.

Yeah.

Ongoing just trying to understand that.

One thing I wanted to clear up too because I mean, I mentioned the number earlier I talked about the conversion rates and on the slide on page 10 bottom left to see conversion rates.

Those comments you made earlier.

Sure so.

First of all it's not there yet.

Amazon at 98%, So I would I would.

These conversion rates refer to the U S.

Say that I wouldn't I'm not reacting to one quarter of results.

I mentioned a different number this number is 8% in the third quarter.

Be indicative of a trend or something that we should consider to be forward looking.

That was higher than where it was in the second quarter. So that kind of brings home. The whole point of you know we had a little slightly less leads but higher move ins now due to conversion rates I just wanted to clear that up and then move out resident behavior is stable and consistent with.

Move outs, so they've never really.

<unk> I've never really moved in a perfect straight trend so.

As a little bit elevated in the third quarter.

And eventually as occupancy gets higher and we'll see we'll see move outs go out go up as well as we said.

With historical patterns.

Yeah.

Thank you.

One thing I want to clear up too because I made I mentioned, a number earlier I talked about the conversion rates and on the slide on page 10 bottom left to see conversion rates.

We'll take our next question from Ronald Camden at Morgan Stanley .

Hey, just going back to the same store NOI guide for shop.

These conversion rates refer to the U S.

I appreciate that the pool changed a little bit slightly.

I mentioned a different number this number is 8% in the third quarter.

Yes, I guess the first question is just when I think about the acceleration from Q4 Q, how do we break that out between sort of the occupancy versus the pricing.

That was higher than where it was in the second quarter. So that that kind of brings home. The whole point of you know we had a little slightly less leads but higher move ins now due to conversion rates I just wanted to clear that up and then move out resident behavior is stable and consistent.

Driving most of that and then as we look into 'twenty three not really asking for guidance there, but how do we think about the comp.

For this year and potentially.

With historical patterns.

Into next year. Thanks.

Yeah.

Thank you.

Sure Let me, let me break down the price volume question I think inherent in the fourth quarter guidance, we've got occupancy growing 100 to 150.

We will take our next question from Ronald Camden at Morgan Stanley .

Hey, just going back to the same store NOI guide for shop.

Revenue growing eight implied in that is something like six revenue Ie reservoir growth. So rate growth is really a strong contributor to the revenue growth that's flowing through not only <unk>.

I appreciate that the pool change a little bit slightly.

Yes, I guess the first question is just when I think about the acceleration from Q4 Q, how do we break that out between sort of the occupancy versus the pricing.

Offsetting inflationary pressure, but driving margin expansion and that's pretty much to the playbook for the fourth quarter led by the legacy pool as Justin was describing but.

It's driving most of that and then as we look into 'twenty three not really asking for guidance there, but how do we think about the comp.

The new entrants contributing as well so that's the way it plays out clearly what we've seen this year.

For this year and potentially.

Into next year. Thanks.

From a baseline if you're thinking about year over year is significant HHS grants I'd start there, we got a $54 million.

Sure Let me, let me break down the price volume question I think inherent in the fourth quarter guidance, we've got occupancy growing 100 to 150.

Of HHS and the current year, notably in the first and third quarter nothing in the fourth no expectation of any more HHS.

Revenue growing eight implied in that is something like six revenue Ie reservoir growth. So rate growth is really a strong contributor to the revenue growth that's flowing through not only.

Importantly, we've seen this nice trend of occupancy.

Nice pricing power and this expense dynamic that is a macro dynamic.

And that's been what we've seen really for the last few quarters.

Offsetting inflationary pressure, but driving margin expansion and that's pretty much to the playbook for the fourth quarter led by the legacy pool as Justin was describing but.

Great. Thanks.

You bet.

Next we'll take Nick <unk> at Scotiabank.

The new entrants contributing as well so that's the way it plays out clearly what we've seen this year.

Hi, good morning, everyone. So I just wanted to go back to the pricing in senior housing.

From a baseline if you're thinking about year over year is significant HHS grants I'd start there, we got a $54 million.

Appreciate all the detail on page 12, there is helpful. I guess, if we put together all of these numbers. It suggests I think that revpar growth should be stronger next year, but.

Of HHS and the current year, notably in the first and third quarter nothing in the fourth no expectation of any more HHS.

Importantly, we've seen this nice trend of occupancy.

Oftentimes, it's a little bit confusing to buildup, how revpar growth works in senior housing and I'm not sure. If you're you know at some point do you face difficult comps next year do you also.

Nice pricing power and this expense dynamic that is a macro dynamic.

And that's been what we've seen really for the last few quarters.

Is it harder to put a 10% rent rent increase out to residents.

Great. Thanks.

You bet.

Labor inflation comes down right, because I think that was a lot of justification for very high renewal rates was that labor costs were going up so just trying to understand putting all this together, how we should think about potential revpar growth next year.

Next we'll take Nick <unk> at Scotiabank.

Hi, good morning, everyone. So I just wanted to go back to the pricing in senior housing.

Appreciate all the detail on page 12, there is helpful. I guess, if we put together all of these numbers. It suggests I think that revpar growth should be stronger next year, but.

Hmm.

Okay.

Nick This is Debbie and we tried to put the final and therefore, you that Justin described on pricing and how it affects the installed base, obviously street rate.

Oftentimes, it's a little bit confusing to buildup, how revpar growth works in senior housing and I'm not sure. If you're you know at some point do you face difficult comps next year do you also.

We're also affect kind of your Rev. Poor that those are the components of it.

Is it harder to put a 10% rent increase out to residents.

And in terms of.

Really.

Wanted to turn it over to Bob because pricing is his favorite his absolute most favorite topic I would just point out that seniors are seeing you know social security and Cola increases that were nearly 9%. This year and that's really supportive of the continued pricing and most importantly, you would expect.

Okay.

Nick This is Debbie and we tried to put the final and therefore, you that Justin described on pricing and how it affects the installed base, obviously street rates.

Regardless of conditions as we take capacity out of the system as supply is low.

Demand is high we increase from the 80% ish occupancy level, where we are today that pricing should get stronger even.

We're also affect kind of your reservoir that those are the components of it.

And in terms of.

You know really.

Irrespective of all most of economic conditions, and so that is where you really could see some additionally positive momentum. If you are able to price higher but there is a softening of operating expenses and labor that is the.

Wanted to turn it over to Bob because pricing is his favorite is absolutely most favorite topic I would just point out that seniors are seeing you know social security and Cola increases that were nearly 9%. This year and that's really supportive of the continued pricing and most importantly, you would expect.

That would be.

A very favorable backdrop.

Regardless of conditions as we take capacity out of the system as supply is low.

Rob you want to talk about pricing just add that the move in versus move out rate is fundamental and you mentioned this earlier, but as we are increasing in place rates at 10% plus all else equal the street rate needs to rise consistent with that to keep your neutral on the re leasing spread on a revpar it right and so the encouraging support to that is that.

Demand is high we increase from the 80% ish occupancy level, where we are today that pricing should get stronger even.

Irrespective almost of economic condition, and so that is where you really could see some additionally positive momentum. If you are able to price higher but there is a softening of operating expenses and labor that is the you know.

Describes occupancy.

Going up means scarcity of rooms that gives you pricing power, but that's the dynamic that needs to hold true.

Then get into.

Subtleties in Rev for things like change in acuity for example.

The in place increase does not equate to revpar growth.

That would be.

A very favorable backdrop.

There is both the street rate versus move in move out rate. There's the acuity mix. There is geographic mix those tend to tick down the.

Bob do you want to talk about price I would just add that the move in versus move out rate is fundamental and you mentioned this earlier, but as we are increasing in place rates at 10% plus all else equal.

The headline Revpar number, but we have not seen revpar growth like this.

Street rate needs to rise consistent with that to keep your neutral on the re leasing spread on revpar right. So the encouraging support to that is as that'd be describes occupancy.

A decade. So we are in we are in somewhat uncharted territory, but those are all considerations to take into account.

Okay.

We will go next to Tayo Okusanya at credit Suisse.

Going up means scarcity of rooms that gives you pricing power, but that's the dynamic that needs to hold true do you then get into.

Okay.

Hi, Yes. Good morning, everyone. My question is kind of along the lines of Nick's question, then just about operational insights in particular.

Subtleties in Rev for things like change in acuity for example, the.

The in place increase does not equate to revpar growth.

Justin again.

Both the street rate versus move up move out right. There is the acuity mix. There is geographic mix those tend to tick down.

What you have with.

With all the data you guys are analyzing about trend.

I'm curious about that.

The headline Revpar number, but we have not seen revpar growth like this in a decade. So we are in we are in somewhat uncharted territory, but those are all considerations to take into account.

Dynamic pricing that one point and maybe is that the driver for boys.

Pricing on the on the shop side I'm also kind of what you're seeing just around the home price appreciation that we saw.

Okay.

We'll go next to Tayo Okusanya at credit Suisse.

Tolerating, whether that having any real impact on demand in any of your market.

Okay.

Hi, Yes. Good morning, everyone. My question is kind of along the lines of next question and it just about operational insights in particular.

Okay.

Hi, yes, good questions.

You know that.

We are piloting dynamic pricing.

Justin again.

And in several communities and so far so good.

Little bit what you have with all the data you guys are analyzing about trend.

It's a predictive model in its early stages, so it needs to.

Yes.

Evolve over time and before it is really big impact.

Curious about.

Kind of the dynamic pricing that one point and maybe is that.

But we're using a number of sources to evaluate.

Driver.

Oh boy.

Pricing power, where does that street rates were to set in.

Pricing.

On the on the shop side, and also kind of what you're seeing just around the home price appreciation.

In house rate increases, we have a really close partnership with our operators is there ultimately making these determinations.

Decelerating, whether that having any real impact on demand in any of your market.

Okay.

You asked about what was the second.

Hi, yes, good questions.

The second question.

So you sound like you're in market yes.

We are piloting dynamic pricing.

Is that changing demand at all so we've been tracking the housing market and one thing that I think is a really good indicator of where the market stands as days on market.

In several communities and so far so good at.

It's a predictive model in its early stages, so it needs to.

Evolve over time and before it has a really big impact.

Obviously, I think most people know that during the summer months that there.

But we're using.

Number of sources to evaluate price.

Houses, we're not sitting there we're moving really quickly.

<unk> power, where to set street rates, where it is set.

The normal days on market back in like pre pandemic Erez was like 60 days.

In house rate increases.

Haven't really close partnership with our operators is there ultimately making these determinations.

We were seeing low double digit days on market for houses within our markets now that's closer to around 30 days or so I think it's just above 30, it's been going up and obviously you would expect that it would.

You asked about what was the second.

Second question.

Thanks, Jason and markets.

Is that changing demand at all.

But what's important is that there is an enormous home equity Theres also other sources of income that that our seniors are pulling from the affordability in our markets is like four times over our average length of stay so we feel really comfortable that our residents have the ability to pay for our services in our care.

We've been tracking the housing market and one thing that I think is a really good indicator of where the market stands as days on market.

Obviously, I think most people know that during the summer months that there.

Houses, we're not sitting there we're moving really quickly.

And the indication on the ground is that is that that's continuing.

The normal days on market back in like pre pandemic areas is like 60 days.

And one of the good indicators as really the lead number which is running way ahead of pre pandemic levels.

We're seeing low double digit days on market for houses within our markets now that's closer to around 30 days or so I think it's just above 30, it's been going up and obviously you would expect that it would have I think whats important.

In the third quarter, we have it on here it was one.

109%.

Great. That's helpful also sought out repeat on the amyloid beta results.

<unk> is that there is an enormous home equity.

Oh, he's smiling tayo. Thanks Tayo.

There is also other sources of income that that our seniors are pulling from the affordability in our markets is like four times over our average length of stay so we feel really comfortable that our residents have the ability to pay for our services in our care.

[laughter].

We will go next to Austin, where Schmidt at Keybanc capital markets.

Great. Thanks, everybody.

To hit on how the 10% in place rent increase breaks out between the U S and Canada I'm just curious within that breakdown you provided and the business update.

And the indication on the ground is that is that that's continuing.

And one of the good indicators as really the lead number which is running way ahead of pre pandemic levels in.

How does the 50% or so of early in place increases in the <unk> increases breakout between those two regions.

In the third quarter, we have it on here it was one.

Okay.

109%.

Sure so.

Canada I don't think it made the deck, but I'm happy to share with you.

Great. That's helpful also sought out with Pete on the amyloid beta results.

Oh, he's smiling tayo. Thanks Tayo.

That.

Last year last year, we were 8% in the U S were 4% in Canada and those were both relatively high increase as some of the highest that we've that we've put forward. This year in Canada, we're expecting around 7%.

Okay.

We will go next to Austin, where Schmidt at Keybanc capital markets.

Great. Thanks, everybody wanted to hit on how the 10% in place rent increase breaks out between the U S and Canada and I'm just curious within that breakdown you provided and the business update.

So a pretty big increase and it varies by region because there are certain limitations that we have to consider.

But.

How does the 50% or so of early in place increases in the <unk> increases breakout between those two regions.

It will have a healthy growth as well.

Okay.

Note that the U S is the 10% right.

Yeah.

Canada has described it to 7%.

Sure. So Canada I don't think it made the deck, but I'm happy to share with you.

Hello.

The increases and what is the timing of the increases in Canada.

That.

About the year versus the U S. Yes, a lot of candidates and anniversary.

Last year last year, we were 8% in the U S were 4% in Canada and those were both relatively high increases some of the highest that we've that we've put forward. This year in Canada, we're expecting around 7%.

Got it that's helpful. Thank you.

Next we'll move to John Pawlowski Green Street.

Good morning, Justin I'm curious for your views.

So a pretty big increase and it varies by region because there are certain limitations that we have to consider.

Weather labor broader labor availability in the senior housing industry has improved enough, where you can get back to pre COVID-19 occupancy without needing to incur another big step change in labor costs from here.

But.

It will have a healthy growth as well.

Important.

No.

The U S is the 10% right.

Canada has described it to 7%.

That's a great question.

Hello.

It's something that we've been very interested in because obviously you're in a situation, where we're growing occupancy and on a year over year basis.

The increases and what is the timing of the increases in Canada.

Throughout the year versus the U S. A lot of candidates the anniversary.

Got it that's helpful. Thank you.

On a full year over year basis, I want to say we've added.

Next we'll move to John Pawlowski at Green Street.

Another way to put it is since.

We're like halfway back to our pre pandemic levels. So we've added like four or 500 basis points of occupancy.

Good morning, Justin I'm curious for your views.

Whether labor broader labor availability in the senior housing industry has improved enough, where you can get back to pre COVID-19 occupancy without needing to incur another big step change in labor cost from here.

And we continue to have the ability to care for people safely one thing that definitely works in our favor is that operating leverage that that we mentioned earlier Bob highlighted it I think nicely in the Q&A and that is important because most of our operating expenses now are built and you get it in over 80% occupied.

That's a great question.

It's something that we've been very interested in because obviously you're in a situation, where we're growing occupancy and on a year over year basis.

Labor all of the other expenses.

Tend to start growing at a much slower rate.

And you have more flow through.

No.

Thats the operating leverage working for you. So as we move into this next phase of growing from 80% occupancy up to.

Full year over year basis, I want to say we've added.

Another way to put it is since.

We're like halfway back to our pre pandemic levels, we've added like four or 500 basis points of occupancy.

90, or wherever we wherever we land.

Youll see it less expenses needed to support those new residents and Thats one of the big benefits of this operating models the operating leverage.

Okay, but as of now are you seeing any.

Any kind of issues that could prevent that 88 to 99% to 90% occupancy would that type of occupancy change need to coincide with reliance on agency labor or just increased staffing needs.

Labor all of the other expenses.

Tend to start growing at a much slower rate.

And you have more flow through.

I mean, it will depend on market conditions at that time.

Thats the operating leverage working for you. So as we move into this next phase of growing from 80% occupancy up to.

And what.

What the labor participation rate is an and.

90, or wherever we wherever we land.

Our overall unemployment trends and so that that's a key factor in what we're doing and with Justin is working with the operators on as he described is making sure that our operators get at least if not more than their fair share of the available labor pool to put our communities in the best possible position to win.

You'll see it less expenses needed to support those new residents and Thats one of the big benefits of this operating models the operating leverage.

Okay, but as of now are you seeing any.

Any kind of issue that could prevent that 88% to 99% to 90% occupancy would that type of occupancy change need to coincide with reliance on agency labor or just increased staffing needs.

Okay. Thank you for your time.

Thank you.

We will take a follow up question from Juan Sanabria at BMO.

I mean, it will depend on market conditions at that time.

Okay.

Alright. Thank you just two quick follow ups.

And guess.

Follow ups given we're at the end of the call.

What the labor participation rate is an and.

Could you comment on any expectations for colony I believe.

Our overall unemployment trends and so that that's a key factor in what we're doing and with Justin's working with the operators on as he described is making sure that our operators get at least if not more than their fair share of the available labor pool to put our communities in the best possible position to win.

That loan could be paid next year, and so just thinking about the modeling and the implications of that.

And then secondly, maybe more broadly any thoughts on Brookdale, obviously, a large triple net tenants.

Reports out in the press and your appetite to have.

Greater exposure, there or not so just any thoughts around book there would be appreciated.

Okay. Thank you for the time.

Thanks, Glenn in terms of the colony loan.

Thank you.

We will take a follow up question from Juan Sanabria at BMO.

It's performing it matures in 'twenty three.

Alright. Thank you just two quick follow ons given.

Has the borrower has a one year extension subject to certain conditions, and it's freely pre payable and well structured.

Follow ups given we're at the end of the call.

First could you comment on any expectations for colony I believe.

In terms of the way it could be prepaid and so that's the update on colony.

That loan could be paid next year, and so just thinking about the modeling and the implications of that.

And then secondly, maybe more broadly any thoughts on Brookdale, obviously, a large triple net tenants.

And Brookdale I think you know I would refer any questions on that to Brookdale.

The ports on the press and your appetite to have.

That's right. Thank you.

Greater exposure, there or not so just any thoughts around book that would be appreciated.

Youre welcome.

Okay.

And we will take our final question from Vikram Malhotra Mizuho.

Thanks, Juan in terms of the colony loan.

Hi, Thanks for taking the follow up.

Yes.

Performing it matures in 'twenty three.

I know.

From your giving sort of.

Has the borrower has a one year extension subject to certain conditions, and it's freely pre payable and well structured.

First quarter guidance.

But I'm wondering two things one would you consider giving full year guidance and number two just for the fourth quarter can you just maybe highlight any.

In terms of the way it could be prepaid and so that's the update on colony.

Bigger picture of ins and outs that sort of maybe more albeit that this whether it's rates or what you may be thinking about FX.

<unk>.

And yeah, Brookdale I think I'd refer any questions on that to Brookdale.

Just so that as we think about the trajectory, which historically.

Numbers have been pressured versus <unk> is there any big blocks, we can think about.

That's right. Thank you.

Youre welcome.

Well. Thank you for the question Vikram, we are very focused on delivering a strong end to the year of 2022.

And we will take our final question from Vikram Malhotra Mizuho.

Hi, Thanks for taking the follow up.

I know.

In line with our <unk> growth in our shop growth projections, we're very excited about that and very focused on once again delivering that.

From your giving sort of fourth.

Fourth quarter guidance.

But I'm wondering two things one would you consider giving full year guidance and number two.

Those results in accordance with our projections.

For the fourth quarter can you just maybe highlight.

I would say that we embrace the opportunity.

The bigger picture of ins and outs that sort of maybe more albeit that this whether it's rates or what you may be thinking about ethics.

To give full year guidance.

As and when it's appropriate for 2023 and as we sit here today, that's our expectation. The reason we embrace that opportunity. It will mean that we really are back to a normalized environment and theres nobody around to welcome that as much as we do so thank you for the question.

Just so that as we think about the trajectory, which historically.

The numbers have been pressured versus <unk> is there any big blocks, we can think about it.

Well. Thank you for the question Vikram, we are very focused on delivering a strong end to the year of 2022.

In line with our <unk> growth and our shop growth projections, we're very excited about that and very focused on once again delivering those results in accordance with our projections.

And with that I'd like to really and and close the call and thank everyone very sincerely both my colleagues as well as our participants here.

We've been waiting a long time as I said to them.

I would say that we embrace the opportunity.

B looking at such good results good projections I'm very proud of the team.

To give full year guidance.

And we very much appreciate our relationship and dialog with you look forward to seeing you soon thank you.

And that concludes today's conference call. Thank you for your participation you may now disconnect.

And with that I'd like to really and and close the call and thank everyone very sincerely both my colleagues as well as our participants here.

We've been waiting a long time as I said to them.

B looking at such good results good projections I'm very proud of the team.

We very much appreciate our relationship and dialog with you look forward to seeing you can thank you.

And that concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Q3 2022 Ventas Inc Earnings Call

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