Q1 2023 Ventas Inc Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Ventas first quarter 'twenty twenty-three earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Did you ask a question during this time simply press Star then the number one on your telephone keypad.
Draw. Your question Press Star one again I would now like to turn the conference over to you P. J Grant senior Vice President of Investor Relations. Please go ahead.
Thanks, Regina good morning, everyone and welcome to the first <unk> first quarter financial results Conference call.
Yesterday, we issued our first quarter earnings release supplemental investor package and presentation materials, which are available on the <unk> website at IR, Doug Fantastic Dot com.
As a reminder remarks 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 in such statements for a more detailed discussion of those factors. Please refer to our earnings release for this quarter and so on.
Our most recent SEC filings all of which are available on the web Ventas website.
Certain non-GAAP financial measures will be also 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 the Ventas first quarter 2023 earnings call.
I'm excited to speak with you today as we recap an outstanding first quarter.
Underscore the momentum we have across our large and diverse enterprise and reaffirm our full year normalized <unk> guidance of $2.90 to $3.04 per share.
Our diversified business is unified in serving a large and growing ageing population.
Within commercial real estate, we are highly advantaged due to favorable demographic demand the unprecedented organic growth opportunity, we are already starting to realize and our scale liquidity and access to capital.
As a team we are enthusiastic about the future and focused on delivering superior performance.
The success, we achieved in the first quarter was powered by our high quality shop business, where the U S communities grew 22% bolstered by the growth of our highly occupied Canadian communities.
Our other asset classes are also contributing reliable compounding growth with MLB is outperforming and our university centered life science or an eye business benefiting from strong tenant mix with significant demand from universities health system investment grade companies.
Government institution.
The multiyear growth and recovery cycle in senior housing is well underway.
We have already started to capture the significant NOI upside opportunity in our current results.
Looking forward, we project, an incremental 300 plus million dollars of additional NOI opportunity available from simply read reaching pre pandemic margins and occupancy of 88% in the portfolio.
Beyond that target, we believe that above 90% occupancy and higher margins are also attainable because current supply demand conditions are materially more favorable than they were during the last peak period.
With 99% of our shop communities located in markets without competing new supply.
Barriers to new construction starts and our senior housing team using operational insights to collaborate with operators and drive results. These conditions presents a compelling multi year growth opportunity.
Turning to capital.
30, plus billion dollar scale of our platform, our liquidity and our diverse geographic footprint and business model give us access to multiple sources of attractive capital.
We remain committed to a strong balance sheet and our triple B plus ratings.
Our third party institutional capital management designates then is it also a competitive advantage for ventas with over $5 billion in assets under management, then provides a way for us to capitalize on attractive investments through cycles in.
In the current environment, then provides us and our Vin stakeholders with interesting investment opportunities.
Over all on the investment front, we're focused on assets with outsized embedded growth at or below replacement cost pricing and high quality stabilized assets and portfolios with good risk reward and a variety of economic conditions.
Now, let me spend a minute on results.
First quarter normalized that peso with 74 cents per share with year over year total company same store cash NOI growth of over 8%.
Our performance was fueled by significant property NOI growth led by shot.
People go rally and his team once again delivered excellent MLB performance generating our seventh consecutive quarter of year over year occupancy growth and industry, leading NOI margin.
As well as extending our track record of over 3% same store NOI growth to six of the last seven quarters.
Now, let me touch on some other key highlights of our enterprise.
Our non property strategic investments continue to generate value.
We just closed on the partial sale of our equity investment in ardent health services, yielding approximately $50 million in total proceeds.
This transaction is a testament to our partner Sam Zell, its ability to make outstanding investments attract quality investors and find excellent management teams.
The price represents a greater than four times equity multiple and then taxes original investment basis.
We retained an approximately seven and a half per cent stake in Oregon, with an implied valuation of $150 million.
On May one we completed our previously announced plan to take ownership of the santerre portfolio consisting of M O B's shop communities and Triple net lease health care facilities.
We believe that the conversion of our cash pay mezzanine loan into real estate ownership should produce F. S. Though within our previously announced guidance guidance range and that the value of the assets at March 31, approximated $1 $5 billion, which is the sum of the debt stack.
Yeah.
Our experienced team is now focused on maximizing both the value and the NOI of the portfolio overtime.
It's important to realize that the expected episode contribution we are forecasting from this Ah is.
Is substantially consistent with what we would have generated if our mezz loan had been paid in full at maturity and we reinvested the proceeds and debt pay down.
Our strong ESG practices also drive value for Ventas to stakeholders, we were proud to receive the 2023 energy star partner of the year sustained excellence in Energy Management Award the highest honor awarded by Energy Star.
We are also committed to best in class corporate governance practices and are proud of the excellent independence and diversity of our board.
Finally, we were honored to recently celebrate fantastic 25 year anniversary.
I want to publicly thank all my Ventas colleagues and board members past and present partners and stakeholders, including those of you listening today, who have made this significant milestone possible.
With our momentum and a cohesive experienced team at Ventas, we are optimistic about the prospects for our next 25 years and now I'll turn the call over to Justin Thank you Debbie.
I'll start by covering our shop trends in the first quarter.
Our shop portfolio continues to deliver exceptional results exceeding our expectations with strong year over year growth driven by pricing power and cost control.
<unk> NOI grew 17, 4% as margin expanded 200 basis points, notably the U S led the way with 22, 4% growth attributable to strong performance in our legacy atria and Sunrise portfolios and our transition communities with assisted living being the biggest contributor to.
The growth our Canadian portfolio, which grew 5% continues to be a beacon of stability and high performance with exceptional margins and consistently high occupancy above 90% and each and every quarter since the first quarter of 2019. This portfolio remains a reliable source of growing cash.
Buoyed by Le Groupe Maurice is performance.
The revenue growth and our portfolio remains strong with a notable 8% year over year increase the revenue growth was largely driven by the continued acceleration of Revpar, which is a testament to the strength of our business model and our operators unwavering commitment to delivering exceptional value to their residents.
Our pricing power continues to be a driving force behind our success in fact, we've experienced the strongest year over year Revpar growth. We've seen in the last 10 years with an impressive six 8% increase this growth was primarily due to in house retina care increases as well as improving releasing spreads.
<unk>.
In addition.
We also saw robust sequential revpar growth of four 1% in spite of the fact that one of our large operators pulled forward their rent increases to the fourth quarter, which causes a less favorable comp. These results are a testament to our continued efforts to optimize pricing.
Occupancy grew 80 basis points year over year and was down 90 basis points sequentially in line with typical seasonality as expected.
Moving on to expenses operating expenses grew 5% year over year, which is in line with expectations within Opex labor, which is 60% of this spend is playing out as expected as the permanent employee base is increasing and replacing contract labor that hiring has continued its positive trend for six consecutive quarters.
Contract labor to reduced by 59% year over year.
We believe there is still room for improvement in this area, which will result in cost reduction and also improve the consistency and quality of care delivery.
At Ventas, we've been committed to staying ahead of the curve when it comes to optimizing our portfolio and executing on our strategy through our REIT market right asset right, operator approach, which is anchored by Ventana <unk>, our best in class data analytics platform and are formed by experiential insights through this.
Approach.
We're leveraging data and insights to select the most promising markets for capital investments and operational improvement by carefully selecting communities are well positioned for success within those markets identifying specific operational improvements and partnering with the right operators to drive exceptional performance for instance, let's take a clue.
Sure look at the strong performance in the U S.
Like to highlight that NOI growth of 22, 4% was broad based across the U S. I'll discuss this in the context of our legacy portfolio.
Which contains 234 long help communities, representing 71% of the U S same store shop NOI.
And our transition portfolio.
Which contains 200 communities that have transitioned to new operators since the beginning of 2021 and represents 29% of the U S same store shop NOI.
The legacy portfolio had strong growth at 20% and our transition portfolio delivered an even better NOI growth rate of 30% on a lower NOI base are meticulous and strategic approach in selecting the right operators for the group of transition assets is backed by our Ventas, Oh, I methodology and <unk>.
Capex investments, which is paying off and generating outstanding NOI growth, notably.
Discovery senior living so Dallas and priority life care are among the numerous operators that contributed significantly to the growth in the first quarter.
In the future growth prospects for this group of communities across all of our operators are truly exciting.
I'll double click on discovery is an example of the value creation, thus far backed by <unk>.
We transitioned 16 assisted living communities to them in the fourth quarter of 2021. These communities are located in a tight geographic area and an existing discovery markets. When comparing the first quarter of 2022 to 2023 their portfolio achieved 770 basis points of occupancy growth and grew NOI by.
Many multiples thus far we completed 13 of the 15 planned NOI generating capex projects in this portfolio in the fourth quarter of 2022, we look forward to more successful performance as these communities have benefited from our strong operational turnaround and should also benefit from the repositioning.
In their markets moving forward.
We've seen similar results in the primary life and so Dallas portfolios. These are great. Examples of events also why in collaboration with an operator with a strong regional focus delivering excellent results. We invested in the right markets with the right operators and assure the assets are positioned well for success.
We've also shared a few community specific examples in our earnings deck.
We are pleased to announce as expected that we are delivering over 100, NOI generating capex projects in our shop portfolio, which when combined with the operational improvements that are already well underway will significantly enhance the market position of our communities in terms of rate and occupancy over time, we are already.
<unk> excellent early returns, which is a testament to the effectiveness of our strategy and our commitment to delivering exceptional value creation, and we have more attractive opportunities planned in the near future.
With the right investments and strategic focus we believe that we have an extraordinary opportunity to drive NOI recovery in the shop portfolio that Debbie mentioned with the potential to generate over $1 billion in NOI on the portfolio reaches 88% occupancy and a 30% margin. While there is still work to be done.
Done to realize this potential we are pleased with the progress we've made so far.
In the first quarter of this year, our annualized run rate for NOI in the shop portfolio was $682 million continuing the trajectory of growth and success.
Looking ahead, we are reaffirming our full year guidance of 15% to 21% NOI growth and our year over year shop same store pool, we expect a significant occupancy ramp throughout the year supported by an accelerating aging demographic and muted new supply.
As we approach the key selling season, which starts now.
We are encouraged by the very strong lead volume year to date in the quarter is off to a good start.
Now.
I'll comment on investment activity.
Our pipeline remains active and our team is evaluating a select group of potential investments high quality stable assets and those trading below replacement cost with growth potential are still commanding relatively low cap rates of five to six.
We are seeing market disconnects as asset pricing is not fully reflecting the rising cost of capital. We are however, seeing recent examples where the bid ask spread is tightening, especially in class a senior housing.
We are prioritizing smaller high quality high performing relationship oriented transactions.
NOI generating capex remains our highest and best use of capital as we continue to drive the sharp recovery.
With that I'll hand over to Bob.
Thanks, Justin I'm happy to report a strong start to the year with results ahead of our expectations.
I'll share some highlights of our Q1 performance discuss our balance sheet and close with our reaffirmed 2023 normalized <unk> guidance.
Starting with some highlights from our office segment.
Our medical office business outperformed once again in the first quarter with same store cash NOI growth of three 1%.
Fantastic mob NOI growth and margins are best in class.
Meanwhile, our University based R&R same store cash NOI increased over 3%.
Adjusting for $1 million of holdover rent received in the prior year.
In terms of overall enterprise performance, we reported first quarter attributable net income of <unk> <unk> per share.
Normalized <unk> per share in Q1 was ahead of our expectations at 74.
Led by property strength across the business with total company same store cash NOI, increasing eight 1%.
Q1, normalized <unk> increased 4% year over year adjusting for HHS funds received in the prior year.
The year over year growth is largely explained by excellent shop, NOI growth, partially offset by higher interest rates.
Excluding the year over year impact of higher interest rates on floating rate debt.
<unk> grew 11% in the first quarter.
Now a few comments on our continued focus on financial strength and flexibility.
We have the benefit of scale liquidity and access to diverse forms of attractive capital.
And we have an enviable multi year organic cash flow growth opportunity.
These strengths were evident in significant proactive measures taken so far this year.
Some examples.
We've raised nearly $1 billion already this year from diverse capital sources at attractive rates through a combination of senior loans secured financing and asset sales.
And they have already substantially completed our 2023 refinancing requirements.
We've now turned our focus to forward maturities.
Last month, we proactively tap the Canadian bond market.
Upsizing after strong demand.
To a $600 million Canadian five year senior note issuance at $5, 398%.
With proceeds principally used to repurchase our first strategy of debt maturing in April 2024.
In addition to raising new funds, we are actively manage interest rate risk in a dynamic rate environment.
Notably in March we executed 400 million of pay fixed two year interest rate swaps at an attractive rate of 379% improve.
Improving our floating rate debt exposure by 160 basis points to approximately 10% in Q1 at the low end of our 10% to 20% target range.
We have robust liquidity of $2 4 billion incur.
Increasing to over $2 6 billion, when including additional asset sales expected in 2023.
Our leverage at Q1 was six nine times net debt to adjusted EBITDA.
Which was consistent with the prior quarter.
Cash flow growth from our unprecedented organic NOI growth opportunity remains the most powerful driver to return to our pre COVID-19 five to six times leverage target.
A few comments on our capital plans vis vis <unk> <unk>.
We expect to fund repayment of the nonrecourse senior loan, which has been extended through June of 2024 on a long term basis over time.
Through a variety of capital sources, including asset sales.
We remain committed to a strong balance sheet and our triple B plus credit rating.
I'll conclude with our 2023 outlook.
We are reaffirming our previously issued normalized <unk> guidance for full year, 2023, and $2 90.
To $3 <unk> per share or $2 97 per share at the midpoint.
As a reminder, this normalized <unk> range represents outstanding year over year organic property growth led by shop.
Actually offset by higher interest rates.
We have also reaffirmed our enterprise and segment level same store cash NOI guidance ranges.
Two points in our reaffirmed guidance that I would like to underscore.
First our current normalized <unk> guidance range on sand here is consistent with our prior range in February .
But with a different P&L composition.
Taking ownership of the sand tear portfolio on May 1st has the effect of increasing NOI from the assets as well as higher interest expense from the senior debt.
Second normalized <unk> guidance also now incorporates <unk> <unk> of dilution.
The proactive refinancing in Canada, which was not included in prior guidance.
A final thought on normalized <unk> phasing.
We expect <unk> in the second quarter of 2023 to be roughly stable to the first quarter <unk> 73.
When adjusted for the <unk> Triple net catch up catch cash rent collection in Q1.
Sequential growth in shop is offset by higher interest rates.
As the key selling season in shock kicks in and interest rates plateau.
<unk> growth is expected to pick up in the balance of 'twenty three.
To close we began 2023 with a strong start.
The entire Ventas team is enthusiastic about the future and focused on delivering superior performance.
For Q&A, we ask each caller to stick to one question to be respectful to everyone online.
And with that I'll turn the call back to the operator.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad. Our first question comes from the line of Michael Griffin with Citi. Please go ahead.
Thanks, It's actually Nick Joseph here with Michael just maybe on the Santander portfolio, you talked about maximizing value NOI over time, just hoping you could quantify the opportunities that you see with the portfolio and how operationally you can get there.
Okay.
Good morning, it's Debbie.
Well I think what you will see is the biggest part of the portfolio is really the MLB.
That has also been the most stable but are at probably 70.
75%, 80% occupancy now and so once we.
Really put those under Pete in the teens.
Expert oversight, we think theres upside there.
On the shop, we would expect.
Those assets, which are mostly full.
For large scale communities to benefit from the multiyear recovery and also the application of ally again over time.
And then on the Triple net healthcare, they've obviously been affected by Covid.
Theyre, mostly Smith, and we would expect to see those trends.
You are seeing in the sniff business improve over time.
Thank you.
Thanks.
Your next question comes from the line of Nick <unk> with Scotiabank. Please go ahead.
Thanks, Good morning, everyone. Maybe a question for Bob I know last quarter and in the March presentation, you talked about.
Sequential.
Somewhat flat <unk> in the first quarter I think around 71 since you did.
74, you had that penny triple net catch up but it looks like there was about another two pennies of additional benefit there just hoping to understand a little bit more.
That outperformance was driven by thanks.
Sure Nick.
Well said, so 74, I would I would definitely highlight the penny.
On the Triple net catch up rent.
So that's <unk> <unk> of outperformance really across the property portfolio. It was general strength literally across the board.
And hence the 8% same store growth. So it was it was broad based strength, which which we're feeling good about.
Your next question will come from the line of Jim camera with Evercore. Please go ahead.
Good morning, thinking about the progression for the shop, NOI recovery $300 million plus.
Is that still fair to say, that's a three to four year type of objective and what capital might be needed to achieve that in terms of a little bit higher occupancy and margin. If any just try to think about the flow through of that NOI potential.
Thank you.
Hi, it's Justin.
Well first of all.
We're.
Really encouraged by what we consider to be this early strong performance.
It should be a multi year recovery.
As Debbie mentioned the supply demand characteristics are extremely favorable execution into this has been strong thus far.
So we would expect this to continue for a period of time and we have a lot of upside were only 77% occupied in the U S. We've taken actions to make sure we're well positioned to grow operationally and supported by the Ventas ally approach and we've made Capex investments I've mentioned that theres been about a 100.
That are really.
Leading.
Like right now.
And so that will start benefiting us now and in the foreseeable future. We do have more planned.
Overtime to help reposition and that's going to be mostly focused in this fall that I mentioned, which is the transition group.
Have a very well invested very strong performing legacy group that is has really strong market position, which will also contribute to the growth and would require much less capex investments. So I don't think it's a really big number I think you know we're spending about $1 million per community, we have 100 that debt.
That are already completed and theres more to come and we'll talk about that in upcoming quarters.
Your next question comes from the line of Mike Mueller with Jpmorgan. Please go ahead.
Yes, Hi, I was curious do you anticipate keeping everything tied to the <unk> portfolio, particularly the sniff investments.
Hi, This is debbie.
Thanks for the question I would say that we're really focused on maximizing the value and the NOI of all the assets, including that portfolio as I mentioned.
The vast majority of that or Smith, they were affected by Covid, but I will tell you that they have.
<unk> are having some positive trends a lot of those sniff certain states with good Medicaid reimbursement increases that are generally considered attractive states.
But I'll also tell you we haven't been shy in the past about selling nursing homes. So.
You can draw your own conclusions there.
Okay.
Thanks.
Your next question comes from the line of Conor Seversky with Wells Fargo. Please go ahead.
Good morning out there thanks for having me on the call quickly on the Mlps in the sand to our portfolio. There is a note in the deck referencing the lillibridge playbook.
Could you provide any indication or expectation as to how much capex could go into these assets and then what you expect the occupancy ramp to look like.
Yeah.
Sure Conor. Thanks This is Pete.
We find the medical office building portfolio within <unk> to be interesting.
75% overlap with.
The mob NOI.
NOI in similar Msas to ours.
75% affiliated with health systems, and we've got a 67% overlap.
So we like the fact they are on campus, we like the average age and Walt is about the same as ours.
But as you indicated I mean occupancy is an opportunity at 77% right now and also something that's relatively low and seems like an opportunity to us as an annual escalator average of two 2%. So we think theres opportunity now both of those occupancy and escalators take time.
Have to roll through the leases as they go and so I think it's a multi year opportunity for us, but there is significant upside in this portfolio.
And Pete maybe you can just address kind of the pyramid of how you've attacked our portfolio to generate those industry, leading kind of margins and retention and so on there is a playbook of a pyramid, yes, absolutely yeah, we view it as a pyramid and do you have the right assets.
We feel like most of this portfolio is.
Is good for us we need to be sure that the buildings are competitive in the marketplace.
We need to be sure that the tenants are excited to be there and so we need to have high tenant satisfaction and strong relationships with the systems, we need to have a center of leasing excellence.
Need to run these buildings efficiently and that's the lillibridge playbook, we've improved performance dramatically.
In the core portfolio over the last four or five years, we expect to do the same with center here.
Okay. Thank you for the color on that and then one quick follow up if I may Justin had mentioned that the yields on senior housing assets are pretty sticky in the current environment. So as youre addressing this select acquisition pipeline I mean can we expect to see more <unk> within that pool.
Yes sure. So there is.
We're interested in high quality high performing.
Relationship oriented transactions as our first priority.
That can definitely include <unk>.
We would expect to see some class a senior housing as part of that as well.
We are interested in pursuing high growth assets as well.
Anticipate there'll be a market for that around senior housing and in the upcoming quarters. So.
We're casting a wide net in terms of managing our pipeline, but being more narrowly focused in the near term and using our our wide variety of sources of capital to pursue the higher quality assets.
Okay. Thank you for the time.
Thank you.
Your next question comes from the line of Steven Valiquette with Barclays. Please go ahead.
Great. Thanks, Hey, good morning, So just quickly on page 10 of the <unk> supplement you showed the same store trailing five quarter comparison for the shop portfolio, which is helpful and we're looking at the <unk>.
To <unk> trend last year sequentially, you had about 70 bps sequential occupancy improvement last year for <unk>.
What kind of thinking about the sequential trends for <unk> for this year.
Curious if you think that 70 bps is a good proxy for sequential occupancy gains so that same store pool. This year and also are there any notable differences in our sequential trends that you expect in the U S versus Canada thinking about that thanks.
Yeah sure good question.
So we're we're really pleased that we gave full year guidance this year and we're not getting into the descriptions around our performance expectations in <unk>.
In each quarter.
Last year in terms of occupancy growth is pretty solid it was even more than in the prior year.
I did mentioned in my prepared remarks that we have aggressive occupancy ramp that we're expecting.
In support of the our performance expectations. The key selling season starts now so and we're well positioned we think to play within that so we'll see how that plays out.
Okay.
Just on the second part of that question, just conceptually between U S and Canada.
Calling out there one way or the other and when thinking about it or is there nothing that sticks out at the moment.
Canada has an absolute much higher occupancy at 94%, although they are still growing.
Yes, they do experience a key selling season similar to the U S. But they are they are working off of a much higher base.
Got it okay alright. Thanks. Thank.
Thank you.
Your next question comes from the line of Michael Carroll with RBC capital markets. Please go ahead.
Yeah. Thanks, just I wanted to follow up on the 100 Capex projects that you mentioned over the past few quarters within the shop portfolio I'm not sure. If you highlighted the yields on those deals and do you take those projects out of the same store I guess, if not is there an earnings drag coming into the portfolio right now is you're doing those renovation.
<unk>.
Great question, we are not reporting the yields we did give examples.
All of our early examples of communities. There's there's a few that are highlighted in the earnings deck.
Obviously, we picked some of the better ones.
We have leads that are about 150% versus prior year and our NOI was up 400% year over year and these these communities at a relatively low NOI with a lot of upside benefiting from the operational turnaround and the capital investments.
We're pleased to see the results in communities like these we expect that this is not necessarily a need near term driver of value creation. We think it's also more of a longer term.
River, when we look to invest into communities with this type of Capex were looking at least for a double digit return usually it's like 10 to.
The 15% return on that capital investment.
That's there is theres a lot of moving parts to determine what the actual outcome was when you're measuring that.
And.
To the other part of the question. These are in our same store pool and they do not come offline. So.
Youll see the full benefit of <unk>.
This execution in the same store pool is they're not particularly disruptive to the community. They think carefully kind of stacked out so as to minimize current disruption in cash flows and occupancy.
Okay.
Your next question comes from the line of Juan Sanabria with BMO capital markets. Please go ahead.
Hi, good morning.
Hi.
Good morning, Debbie just wanted that congratulations on the 20th anniversary.
Thank you I was here for 24 plus.
Yeah.
Just wanted to ask a couple of questions on San Terry So excuse kind of multi part question, but I guess.
What is the expected leverage impact.
Is that inclusive of keeping this snips, which sounds like they.
They may be sold in.
The Smiths can you give us a sense of the total number of units or the rent coverage there.
And just the last one if you don't mind I'll just.
Is the seniors housing our sharp PS is that traditional seniors housing or <unk>, because they sounded like they were chunkier assets. Thanks.
So I'm gonna get Bob to answer the first and that's on a status quo basis status quo day, one leverage is about 30 basis points impact one.
Okay.
And then in terms of the senior housing I would say.
As I mentioned the vast majority of the NOI is coming from these large scale communities, which are all rental base.
And they are in good markets and so those are some people call them rental CCR. These other people call them senior housing communities nomenclature, but theyre very large communities with high replacement class in good markets.
With our preexisting operator that we have.
And so so that's the answer that question then on the Smiths Theres about 5000 beds in the healthcare Triple net portfolio.
<unk>.
In terms of coverage, we want to we'll do that at the appropriate time once we feel confident in.
In the reported operating results and at the appropriate time consistent with our policies.
Thank you.
Thank you.
Your next question comes from the line of Tayo Okusanya with Credit Suisse. Please go ahead.
Yes, good morning all.
Maybe I'd just be happy birthday.
With me as well.
Yes.
Life Sciences.
I'd like to again during the quarter the same store numbers kind of large increases in same store opex.
Some occupancy pressure.
As well.
Kind of talk us through some of them.
What happened specifically during the quarter I think it's a portfolio where in the past few quarters I've been occupancy losses.
Just trying to understand exactly what's happening and what one can expect going forward.
Okay.
Sure. Thanks Tayo.
This is Pete.
Good to hear from you.
So look as from.
From an operating perspective.
In the same store pool, and there was a decline of 1%.
They have described that because of the holdover rent in the first quarter last year.
Suggested for three 2% there is another adjustment you should be aware of and that affected the opex, which also affects <unk> NOI.
Last year, we in the first quarter, we had a tiff credit a large tip credit.
Which is.
Counted for as a contra expense and so as a result as opposed to an eight 8% opex growth.
Was five 6% if you look at it for mature organic perspective, which is below inflation. So I'm happy with that Opex number and then if you run it through NOI.
Once again organically not thinking about the holdover rent not thinking about the tiff onetime tip credit.
Same store NOI growth was 5%.
Im pretty happy with 5% NOI growth in this environment for life Sciences.
Actually even more happy about is really our leasing momentum right now.
Leasing in the first quarter of 'twenty three was well over twice what it was in first quarter of 'twenty two.
Essentially ahead of fourth quarter 'twenty, two as well it was interesting about.
Our leasing pipeline.
Is it 60% institutional and its really because our focus is on the University based life Sciences markets Theyre dominated typically by government entities universities health systems, so on and so forth and so they don't they don't move very quickly, but they do move and this is kind of.
Regardless of inflation, either way or life.
Industry conditions, and so we feel very good about our pipeline and we think.
It bodes well for the future.
Gotcha and then all these one timers normalize out so if we can get the kind of true underlying strength and also any commentary about occupancy as well would be helpful. Just kind of given some of the occupancy declines in the past few quarters yeah.
That those two prior year items, it would be 5% same store cash NOI growth.
Yes.
Yes and.
We have had some office.
Office tenants decide either not to renew their lease or downsize as we said in previous calls it is an opportunity in some cases for us to transition.
<unk> transitioned to lab lab space and we're seeing good momentum in those lab conversions. So we're optimistic about that.
Thank you.
Your next question comes from the line of Ronald Camden with Morgan Stanley . Please go ahead.
Hey, just a quick one looking through the presentation, just two things that jumped out.
One was the pricing power slide I think you guys have 11%.
Plus.
Rent increases I think last quarter, you added 10% so.
Number one am I am I supposed to take that that pricing is actually accelerating going into the selling season.
And then number two if I may if I look at the NOI opportunity slide.
Youre talking about a potential long term target now a $1 billion in NOI I think previously that number was $900 million, maybe can you just walk us through what's driving that delta.
Yes, Bob do you want to do you want to take the question.
Question sure yes.
Chose to simplify the methodology honestly too.
Determine what the potential is after a lot of questions around what the assumptions are and basically just say look pre COVID-19 occupant.
Occupancy was 88% and margins, where NOI margins were 30% on the portfolio is at that time.
And hence to get to that level, what's the NOI opportunity and that's that's the $300 million and on the portfolio today.
That equates to a $1 billion of NOI and so it's really both simplification and aligning with some peer disclosure frankly.
That drives the change.
And so that's the recovery opportunity as we think about the unprecedented kind of organic growth that could be in front of us to get back to that level and then as I mentioned the conditions on the ground right now are more favorable than they were at a time.
Prior to 2014, when Occupancies got into.
Into the.
Low ninety's and so that's the that's kind of a dream scenario. If we can we can do that and the conditions do exist on the supply demand side.
To potentially.
Overshoot, the pre Covid targets.
Great and what about it.
Pricing, yes, I can.
Jump in it's Justin.
On the pricing you mentioned the slide we're showing that the contributor as we have discussed rent increases over 11%.
By the way.
We have over half of our residents that will have contributed to those rent increases now.
At this stage, so thats, great care pricing up 9% year over year in the street rates up. So I mentioned Revpar is up six 8%. We have all of these positive contributors to that Theres little nuances.
For instance in care pricing last year, there was a big Spike in agency and therefore, a move to accelerate the growth in care pricing.
In response to that we're comparing to that number on a year over year basis, and so its just normalized a bit street rates.
These are.
Very strong they are also contributing to our positive releasing spreads that we've had in the first quarter, where our new move ins are paying more than the people moving out on a same unit basis, which is great.
We would also.
Point out that.
We continue to expect to see that improve over time as Debbie mentioned, there is that really strong supply demand backdrop, and one thing that should happen in time is the street rate growth rates should start to match closer to in house rent increases maybe in some cases, even getting.
Ahead, we're just not there yet there is still a lag right, it's definitely growing and the market supporting the higher pricing at the street rate level.
And we would expect that over time to become even better.
Okay.
Our next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Hi, This is George on for Vikram. Thank you for taking my question could you provide more color on capex for the remaining of the year and any anecdotes of benefits to senior housing.
Thank you.
Sure. So I'll focus on re Dev capex, because that's really the emphasis of our shop investment adjusted was highlighting we expect $230 million this year of <unk> spend.
That's really not only the completion of the projects, which really started last year and are completing for the key selling season, but also the pipeline of opportunities behind that we see and that adds up to $230 million.
As a use of cash in our view.
Is one of the highest return opportunities that we have so we're going to we're going to invest behind those assets.
Your next question comes from the line of John Pawlowski with Green Street. Please go ahead.
Good morning, Thanks for the time, Justin just curious what type of growth rates are your senior housing operators expecting this year on wage increases for the full time employees.
Yeah sure. So we've we've.
First of all.
Expenses are exactly on track, where we expected a 5% growth.
Within that the labor is the biggest piece of 60% of the expenses.
We're pleased to see that the agency costs has come down that's down to three 3% of total labor, which is the lowest it's been so you have that happening and then as the net hiring it's been improving youre, bringing in new people you're Onboarding you are paying for the Onboarding and so there's an offset that you see.
And when I said that.
There could be opportunity for improvement really what what im speaking about is the opportunity for agency to to continue to trend down if it does.
And then getting past the period, where you have this onboarding costs and so we'll see how that plays out we certainly haven't changed any guidance or anything like that in and so far we're right on track with the 5%.
Overall.
Okay, but on a per FTE I'm, just trying to get a sense for kind of calm.
Comp comp.
Comp per occupied bed moving forward, what's kind of a structural per FTE wage growth. Your operators are seeing this year.
Yes, it is higher than it is higher than the 5%. So that's consistent with what we're seeing in the macro environment as you look at.
Wage inflation, which is improving but is improving.
Relatively slowly and so the benefit that we're seeing overall in labor is that the year over year growth rates are moderating considerably in the aggregate our ability to predict them has been.
Very good I would say.
And within that agency is is coming out.
A good pace.
And we're getting that installed base, which is very positive, but we're assuming there is reasonable wage unit inflation.
In that installed base.
Still coming out ahead and Thats, the key point and as Justin said Youre care is better in your culture and your communities that or I should get a higher installed base.
So I hope that answers your question.
Thank you.
Okay.
And your final question comes from the line of Austin, <unk> with Keybanc capital markets. Please go ahead.
Great. Thank you just wanted to hit on the shop occupancy again, I'm curious I know you guys had expected some seasonality, but did the level of sequential occupancy decrease in <unk> surprise you at all given how strong the leading indicators were to start the year and then I'm. Just curious if there were any move outs concentrated with any segment or region.
The portfolio or.
Pushback related to rent increases that drove some of that thanks.
Sure. So first of all the first quarter occupancy was exactly as expected.
We had predicted that we would have typical seasonality we did.
So we're right on track in that regard.
To your comment leads have been very strong move.
Move ins in the first quarter.
We're higher than.
Prior year and higher than 2019, Theres been move out some of that I mentioned on the last earnings call were driven they're financially driven move outs, which is typical particularly when rents were pushing as high as they were this year. So no surprises whatsoever in terms of the execution so far in and we'll look forward to seeing.
How the key selling season plays out.
Great. Thanks Joseph.
With that I will turn the conference back over to management for any closing remarks.
Thank you operator, and I want to say, thank you very much to all of the participants for your interest in and support of our company, we're really happy to deliver an excellent quarter on your behalf and we look forward to seeing you in person in queue.
Ladies and gentlemen that will conclude today's conference. Thank you all for joining you may now disconnect.
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