Q4 2023 Ventas Inc Earnings Call
Thank you for standing by and welcome to the Ventas fourth quarter 2023 earnings call I would now like to welcome Vijay Grant Senior Vice President of Investor Relations to begin the call P. J over to you.
Thank you my deep and good morning, everyone and welcome to the Penthouse full year 2023 results conference call.
Yesterday, we issued our full year 2023 earnings release presentation materials, and supplemental investor package, which are available on <unk> website at IR Docs penthouse REIT Dot com.
As a reminder, our remarks today may include forward looking statements and other matters.
Forward looking statements are subject to risks and uncertainties and a variety of topics 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 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 investor package posted on the Investor Relations website.
With that I'll turn the call over to Debra Cafaro, Chairman and CEO of <unk>.
Thank you BJ I want to welcome all of our shareholders and other participants to define that as fourth quarter and full year 2023 earnings call.
I'm pleased to share our strong results for 2023.
Scott sorry advantage condition crass commercial real estate, driven by large and growing demographic demand and introduce full year 2020 for guidance.
Senior housing multiyear growth opportunity continues to power our expectations.
Let's start with results, we reported favorable results for the fourth quarter and full year 2023, we produced full year normalized <unk> was $2.99 per share representing over 5% year over year growth above the midpoint of the guidance range, we initiated in February.
As anticipated our reserve results were fueled by unprecedented organic property growth in our shop portfolio, which grew same store cash NOI over 18% last year.
Enterprise same store cash NOI growth was supported by compounding contributions from our outpatient medical and research and Triple net lease portfolio.
We finished the year on a high note in the fourth quarter, delivering 76th sense of normalized SSL, representing 7% year over year growth and reporting accelerating same store shop occupancy.
During 2023, and then pass team accomplished a great deal altogether, we raised over $4 billion in attractively priced capital took effective portfolio actions.
That's good contacts in our assets to position our portfolio to capture demand in strong markets made.
Made meaningful progress toward our ambitious ESG goals.
Successfully integrated a 1.6 billion dollar portfolio and expanded our VM business.
As a result, we delivered over 15% one year total return to shareholders.
Posted two years in a row of T S. Our outperformance versus the health care REIT and broader REIT indices and achieved upper quartile performance for the last three years among health care REIT.
We still have more work to do.
We are focused on driving total returns for our shareholders.
As durable demand fuels, the multiyear growth opportunity in senior housing, we believe that <unk> offers an attractive combination of growth and value.
Let me provide a few regions. We believe we are uniquely positioned to create value.
We enter 2024 with momentum.
Because our asset classes are benefiting from demographic demand that is strong and getting stronger. We are pleased to project another consecutive year of normalized F. F. L grows in the mid single digits, and then third consecutive year of same store shop cash NOI growth.
Double digits.
Notably our projected 'twenty 'twenty four normalized <unk> growth of 5% per share puts us in the top 20% of all reads that have issued guidance to date.
In 2024, we expect to benefit from steady growth from our outpatient medical research and Triple net lease portfolio.
As we look into 2025, we have two large lease renewals one with Brookdale in senior housing and another with kindred for a portion of our L tax.
And Brookdale case, our communities are enjoying positive operating trends.
And they have significant net absorption potential.
In kindred situation rent coverage remains challenged and it's too early to say what the ultimate outcome in 2025 will be.
Kindred remains focused on performance improvement that could benefit 2024, and 2025 financial results.
In all cases, we are fully prepared to maximize NOI over time.
In shop January is already starting positively with 200 basis points of year over year same store occupancy growth.
In 2024, we expect year over year normalized Jeff that though and shop same store cash NOI growth to accelerate and then second half when they shop NOI exit run rate that should support continued sharp growth in 2020 five and beyond.
This highly positive context in support of our growing our senior housing presence through both organic and inorganic growth.
In pursuit of delivering consistent superior performance our strategy is to one <unk>.
Can you to deliver compelling profitable organic growth in senior housing.
To capture value, creating external growth focused on senior housing.
And three drive strong execution and cash flow generation throughout our high quality portfolio that serves a large and growing aging demographic.
Our optimism for a long durable growth opportunity in shop is found it compelling supply demand dynamics.
Led by a step function in growth of the over any population in 'twenty 'twenty four and yet again in 2027.
The lowest construction starts in senior housing since 2009.
And our advantage platform. It has been team tools and financial strength data and operators to drive organic performance.
And then touch platform should also enable us to invest successfully.
As we discussed in November we intend to build on our compelling organic growth opportunity by layering on value, creating external investments focused on senior housing.
There is a confluence of market factors, giving us confidence that 'twenty 'twenty, four and 'twenty 25 should be rich with investment opportunities.
We're already seeing our pipelining spirit as high quality senior housing communities in good markets with embedded growth come to market and we have a line of sight to complete over $300 million of investments in the first half of this year.
Our criteria for investments include attractive going in yield priced at below replacement costs with projected loaded mid teens unlevered IRR that meet our rate market right asset right operator framework.
Our broader objective starting to drive enterprise NOI and normalized <unk> per share growth increased the scale of our shop business deliver strong returns on capital.
[noise] towards stable and growing dividend capacity and maximize value for shareholders.
In sum, we delivered on our commitments from 'twenty to 'twenty, three and we expect another year of normalized <unk> per share and property performance grows in 2024.
Our 5% projected normalized SSO growth favorably distinguish its been tough across the REIT universe.
With an attractive valuation and the growth engine of senior housing we.
We are focused on enabling exceptional environments for a large and growing aging population and creating value for our shareholders now I'm happy to turn the call over to Justin.
Thank you Debbie I am pleased to say our shop portfolio delivered double digit same store cash NOI growth for the sixth quarter in a row.
The same store NOI growth for the year was led by our U S communities with 24, 5% growth complemented by our high quality Canadian portfolio, which is over 95% occupied and continues to deliver a valuable and stable cash flow.
Our shop same store cash NOI growth was 18, 3%, which was above same store guidance midpoint expectations were.
We are happy with this attractive growth and strong finish to the year.
Double clicking on the year. The results were good our same store shop communities outperformed our expectations across all key metrics, including occupancy Revpar Opex and margin expansion.
All year same store shop occupancy grew by 120 basis points. The U S 140 basis points of occupancy gains in Canada, although already highly occupied grew by 90 basis points demand strength across geographies and asset types led to accelerating occupancy.
Growth this quarter with 170 basis points of year over year growth further.
Furthermore, we saw 110 basis points of average sequential occupancy growth from the third quarter to the fourth.
U S shop occupancy growth was supported primarily by a strong demand with move ins that were 109% of prior year levels in the fourth quarter Rev.
Revpar grew over 6% for the year contributing to revenue growth of almost 8% as a reminder, revpar would have been 40 basis points higher in 2023, and 130 basis points on the fourth quarter, if adjusted for the Sunrise Special assessment that occurred in 2022.
Yeah.
Opex for performed well and was led by the U S. The 2% growth year over year and two 6% overall.
Looking forward to 2024.
We are excited to continue on our multi year growth trajectory as we are expecting our third consecutive year of double digit NOI growth in our same store shop portfolio.
And then a ramped at the end of 2023 with fourth quarter occupancy accelerating while strong pricing and higher move ins feel better than typical seasonal results and help 'twenty 'twenty four to get off to a strong start.
Once again, we're expecting the U S to be the growth engine with continued accelerating occupancy performance with over 300 basis points growth and expect it to drive NOI growth in the mid to high teens year over year.
The overall shop portfolio is expected to grow NOI and 15%.
The growing demand at our doorstep continues to support strong price and volume growth and serves as a testament to the high quality and care and services and value proposition our communities provide to seniors and their families.
The key assumptions that drive the midpoint of our range, our average occupancy growth of about 250 basis points revpar growth of about 5%, which puts the total revenue growth around 8%.
January occupancy is already off to a strong start delivering 200 basis points of occupancy growth year over year. This performance demonstrates solid execution by our operators and continued demand.
We expect our performance throughout the year bolstered by a newly renovated properties and <unk> initiatives to drive a strong key selling season.
24, Opex, Florida is expected to grow in line with normal inflation.
We structured our business around rate growth and occupancy growth.
We're entering the sweet spot where price and occupancy are moving together to drive revenue.
Expansion will follow as higher occupancy and create operating leverage.
Our balance where they're living together and we anticipate further margin expansion margin expansion over time as higher occupancy creates operating leverage were.
We are capitalizing our active asset management playbook, and our operators execution, which delivered strong momentum to finish 2023.
Will propel us into 2024, we expect us to build sequentially throughout the year, which means we are poised for a strong year end NOI that should propel us even further in 2025 and beyond.
We are delivering on the organic senior housing growth, which is our one of our strategy.
And my number one priority.
Part two is expanding our footprint.
In addition to the excess success, we are having our existing portfolio, we look forward to capturing value, creating external growth focus on senior housing.
Tenant of our investment strategy is a right market right asset right. Operator approach, we are bringing all our tools to investment activities to help the selection process.
Our top investment priorities continue to be NOI generating capex in our existing real estate and senior housing acquisitions sellers are motivated to transact, creating numerous actionable deals.
We are targeting opportunities with low to mid teen Unlevered IRR ours, we see senior housing communities that are located in sub markets with compelling supply demand profile strong affordability and meaningful expected net absorption projections were primarily expanding with existing partners.
With proven performance revert to us and plan to increase our footprint in the fast growing IL al memory care combination communities.
Our pipeline is growing as we have several interesting potential investments in our sites. Our team is actively working on transactions exceeding 300 million that meet our criteria and I look forward to adding to that as the year progresses.
In summary.
<unk> is at our doorstep.
We are pleased to see the shop growth engine continued to be led by the U S and complemented by the low beta high quality and highly valuable Canada portfolio with compounding growth.
2024 is rich with opportunities through organic growth and external acquisitions the growth on both fronts throughout the year should support value creation in 2025 and beyond.
Looking forward to the exciting year ahead.
Bob.
Thank you Justin I'm going to share some highlights on our 23 performance touch on our balance sheet and close with our 2020 for outlook.
I'll start by saying we are pleased with all we accomplished in 2023.
<unk> finished the year strong with reported normalized <unk> per share of <unk> 76 in the fourth quarter.
7% increase versus the prior year adjusting for the promote received in Q4 of 'twenty two.
For the fiscal year 'twenty, three we delivered normalized <unk> of $2 99 per share or over 5% growth year over year when adjusting the prior year for unusual items.
The multiyear senior housing growth trajectory was on full display in 'twenty three with.
With shop, total NOI, increasing year over year by approximately $100 million.
We also reported total company same store cash NOI growth of over 8% year over year, which was one of the fastest organic growth rates in our company's history.
Our 2023 normalized <unk> of $2 99 per share was at the high end of our previous $2 96 to $2.99 guidance range.
And they included a penny per share cyber security revenue impact in the fourth quarter and our ardent opco investment that was not contemplated in prior guidance.
People in Raleigh in our outpatient medical and research team delivered another year of continuous compounding growth.
Same store cash NOI increased nearly 3% in 2023 at the high end of our guidance range.
Continued strong retention and leasing activity in outpatient medical led the way.
A key driver of that result is the remarkable record of tenant satisfaction and Ventas is low leverage property management business.
Which notched its fourth consecutive year of top quartile tenant satisfaction.
In 2023 volt Enbridge reached the 97th percentile for overall tenant satisfaction.
Placing it among the top five property managers.
I'd also like to share a few comments on our balance sheet.
Throughout 2023, we use our scale and access to diverse sources of capital raise over $4 million of attractively priced capital across multiple markets and geographies.
This capital raising in 2023, and part refunded 2024 maturing debt at attractive rates.
As a result, we had a robust year end 2023 liquidity position of $3 2 billion.
We have relatively modest 2024 maturing debt of $800 million net of cash on hand.
The attractive NOI and EBITDA growth in our shop business also improved Ventas is net debt to EBITDA ratio to six nine times in the fourth quarter.
A trend we expect to continue in 2024 and beyond.
Led by the multiyear shop NOI growth opportunity.
So, let's conclude with our full year 2020 for outlook.
Because of our asset classes are benefiting from powerful demographic demand.
We're pleased to project another consecutive year of normalized <unk> growth in the mid single digits and the third consecutive year of same store shop cash NOI growth in the double digits.
For 2024, and we expect net income net income attributable to common stockholders of <unk> <unk> per share at the midpoint.
Our 2020 for normalized <unk> guidance range is $3 seven to $3 18.
We're $3 13 per share at the midpoint.
Which represents 5% year over year growth.
The 14th <unk> per share increase year over year can be bridged by three items.
We expect a <unk> 28 per share contribution from outstanding year over year property growth.
Again by shop, which is expected to grow NOI by over 100 million for the second consecutive year.
This property growth is partially offset by an 11 cents per share increase and higher interest expense and the three sites the impact of 2023 capital recycling.
In terms of same store, we expect our total company same store cash NOI to grow between five and seven 5% in 2024.
Led by shop same store cash NOI growth of 10% to 15%.
Our guidance also includes new senior housing investments of $350 million, which Justin mentioned in his remarks.
The low and high end of our <unk> guidance range are largely described by our property NOI expectations and potential changes in interest rates.
A final note on phasing.
We expect same store cash NOI and normalized <unk> year over year growth to ramp through the year.
Driven by higher interest interest expense in the first half of 'twenty four versus 23.
And the occupancy acceleration and the key selling season and shop.
Resulting in an exit run rate that should enable attractive shop growth 25 and beyond.
More fulsome discussion of our 24 guidance assumptions can be found in the earnings and outlook presentation posted to our website.
To close the entire Ventas team is ready to win together with all of our stakeholders.
And that concludes our prepared remarks for Q&A we are.
Each caller to stay to one question to be respectful to everyone on the line.
With that I'll turn the call back to the operator.
The floor is now open for your questions.
To ask a question at this time simply press the star followed by the number one on your telephone keypad.
Now take a moment to compile a roster.
Our first question comes from the line of Michael Carroll with RBC capital markets. Please go ahead.
Yeah. Thanks, Hey, Debbie can you provide some additional color on your kindred lease I know in that business update then tosses highlighted kindred has implemented some improvement our performance improvement initiatives and you also highlighted that select medical had some really strong EBITDAR growth in <unk> and <unk> 23.
Are you implying that kindred can grow into this coverage ratio or is that just kind of data points highlighting that there is some improvement in that coverage that could occur over the next handful of quarters.
Hi, Mike.
Would tell you that obviously the most important thing we think about in the renewal in 2025, it's about what the earnings capacity of those assets is it at.
At that time and beyond.
The kindred has communicated to us that they have significant initiatives underway on both revenue and expense to improve operating performance incentives. Some of those we can see are starting to take hold we give select as an example.
Because it's a public.
Company in the same business and it shows that significant improvements.
Our possible.
And.
It's really too early to say whether.
Weather and to the extent kindred.
Our initiatives will in fact take hold to improve EBITDAR in 2024 and 2025.
But they are surely working on it.
Our next question comes from the line of Nick <unk> with Scotiabank. Please go ahead.
Oh thanks.
Maybe just a question on the on the guidance for for Bob.
The interest expense.
Going up this year.
Nick: Is there anything you can just sort of give us there in terms of.
Some of the assumptions on refinancings I wasn't also sure if you're assuming any change in leverage in terms of debt reduction.
But perhaps you could just unpack that a little bit more thanks.
Sure Nick.
Yeah, So I mentioned, the 11 cents year over year.
A big piece of that is refinancing our debt into a higher rate environment.
We had $1 2 billion of debt coming due this year.
And you call. It in the mid threes kind of range from having issued that directly years ago. So refinancing that in the current environment is dilutive at the volume that that also we had the year over year impact of ERP transaction mid year last year. So we have effectively the first half of that that we're lapping in 2000 and for it so it's.
Together those two things describe the increase year on year on interest interest expense.
I would note we've included interest expense guidance.
Which is which is new to us in order to try to help analysts model that because I know it can be tricky, but those are the drivers.
Our next question come through the line of Rich Anderson with Wedbush. Please go ahead.
Thanks good.
Good afternoon.
Speaking of Kindred, but also brookdale in Santa your process, if I can call it that.
What are the what are the chances that there could be some activity in 2024 to two.
Sort of reset.
The situation in those portfolios such that maybe there'll be a temporary drag to deal with this year. So that when 2025 does come around.
Kind of address that and you won't have sort of this other.
Nick: Issue to deal with in 2025 next year more of a cleaner picture.
Are you thinking that you could do some have some activity this year preemptively on any one of those three buckets.
Rich, it's Jeff So let me start with Brookdale.
So brookdale.
<unk> has the opportunity to extend the lease at the end of.
This year, yes.
No and then the lease will run through the end of 'twenty five in revenue.
Really starting in <unk> and 'twenty six.
That portfolio is performing well.
It said continued improvement has good coverage is growing coverage and resides in markets that you know we take out around a thousand basis points of upside over the next few years. So we're in a strong position there.
Well we'll.
We'll see how that plays out but.
It's a good situation.
And as far as you know what.
Oh I'm sorry go ahead Sam.
To your situation.
Understanding youre kind of working through but maybe there is some some incremental work that has yet to be done there is asset sales or things that you don't want long term I'm just curious if there could be some preemptive work there.
Well, yeah, I mean as you.
No tenant skincare has gotten off to a favorable start.
And yes, we are we've already sold some assets at favorable pricing I think we will continue to pick our spots and be opportunistic on that.
And then in terms of kindred I think we'd be able to certainly say that we will have more visibility this year, whether or not the financial impact of this year and next year right. Now we're thinking about next year, but you know that it's too early to say really what form that would take but we have the burner.
As stated our belief that runs into may of 2025, and that's a valuable asset.
Okay. Thanks.
Our next question comes from the line of Jim Cameron with Evercore ISI. Please go ahead.
Good afternoon. Thank you kind of just building actually on Rich's question in a hypothetical if kindred were to not extend come this may.
What would the process be and how much. It has been tough investigated sort of alternative operators in what may be cost might be associated with that or any transitional worries that might arise as you've kind of shift the portfolio again hypothetical just trying to better understand thank you.
Hi, Ken.
Ken: Yeah, it's kind of funny to be talking about this 25 years. After I started because this is where that goes.
Bye bye.
But look we are really well prepared.
<unk> done that we have.
You know lots of our plans.
Plans and.
And some plans I wouldn't say.
It's only really 23 assets in total so I think that that makes it kind of manageable.
Of course, you know, we will we will try to optimize the NOI of the assets in.
It's a puzzle and we have lots of tools that we've used before and.
That's really what we're focused on and I can assure you there are.
Well always be kind of alternatives that we have.
And are ready to execute.
In this scenario.
Thank you.
Our next question comes from the line of Michael Griffin with Citigroup. Please go ahead.
Nick Joseph here with Michael just on the acquisition opportunities that you're seeing you mentioned mid teens IRR, but just curious what the going in yields are I'm sure. It's a range, but just kind of what you're thinking there what the discount to replacement cost you're seeing an opportunity says and then just what the funding plans would be for any external growth in 2024.
Ken: Sure.
Hi, Justin I'll start with the first part.
We are seeing good opportunities in senior housing, we do target opportunities that have a discount to replacement costs.
Seeing around 20%, 30% discounts in the pipeline.
Terms of return expectations, you mentioned the low to mid <unk>.
Teens Unlevered IRR ours, we also I would say there is the cap rate is a component of that Tennessee around seven right now.
And theres, a little bit of movement up and down depending on the growth of the asset so.
The goal is to be neutral or accretive year, one and that have growth in the asset which supported by this strong and growing demand in the senior housing sector.
And maybe I'll touch on the funding question you know given those returns Nick.
I think that can be an attractive proposition for shareholders.
And indeed, we have built into our guidance both $350 million of investments in on balance sheet financing in order to do that and we think we can achieve both.
Attractive investment Alder alternatives and Delevering in the process with those with those types of investments.
Okay.
Our next question comes from the line of one Santa Maria with BMO capital markets. Please go ahead.
Good afternoon.
Just a question on <unk>.
Hello.
A question on.
I guess the other line items below kind of interest expense anything unusual.
Between 'twenty through 'twenty, four or any changes I should say that we should be thinking about.
About some of the Brookdale noncash amortization.
Running through the numbers that presumably goes away.
On that lease the initial lease matures. It correct me, if I'm wrong, but just trying to see if theres any kind of unusual items for the fourth quarter from 23 that maybe you're skewing.
Results relative to expectations from the street and if you wouldn't mind, commenting on expectations on Fad gave normalized episode, but any piece.
These parts on that that would be great as well.
Sure.
So in terms of as you say below the line items first thing to say is the guidance doesn't assume any any changes in the 25 lease situation. So it's business as usual in 'twenty four.
Our guidance assumptions.
You are correct to say there is.
Brookdale.
Amortization from the consideration, we received and that restructure number years ago are being amortized if and to the extent we have.
A restructured deal there that would be affected but ultimately going to be an outcome. It depends on the deal itself.
In terms of fat I would I would say fad growth.
This is operating fad.
We'd expect to grow in line with with <unk> year over year.
Our next question comes from the line of Joshua Denner line with Bank of America. Please go ahead.
Yeah, Hey, guys.
As you at the time I was just looking at the presentation you put out.
Joshua Dennerlein: And that's on slide <unk>, where do you think there's a.
Footnote related to class action litigation in your shop segment.
You go over just what that what that's related to.
Hi, Josh I'm sure.
Yes, it's Justin so.
The.
It's an issue and in California.
And the adjustment relates primarily to the class action suit involve some of our shop properties. We don't really view suits like this to be as ordinary course in our business. They do come up from time to time, especially in California, because they don't relate to the core business performance, we think adjustments of the <unk> as appropriate.
Okay.
Our next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.
Yeah, Hi, looking at the shop occupancy guide for this year can you just talk a little bit about the.
I guess the cadence of occupancy does it assume more of a normal year for sort of seasonality or.
Michael Mueller: How does it compare to what you experienced in 'twenty three.
Hi, Justin So great question I appreciate it.
There's a page eight in the deck for anyone that has a ton of them. It helps articulate this.
So we had 120 basis points of occupancy growth year over year and 2023.
We had acceleration of move ins and occupancy in the third quarter, which led to solid growth in the fourth quarter, which was at 170 basis points year over year in January we're already starting at 200 basis points of occupancy year over year.
And we are seeing better than typical seasonal results ending the fourth quarter and starting the year, so far which is really encouraging and supportive of the 250 basis points at the midpoint.
And our shop guidance so.
We have a good run of of.
Of occupancy growth and also move ins have been really strong as well I mentioned that around 110% versus prior year in the fourth quarter. We've continued to see strong move into you know at the beginning of the year as well.
Our next question comes from the line of Michael Stroik with Green Street. Please go ahead.
Thanks.
So going back to kindred and I'll try to ask this in a slightly different way I know, it's too early to say what the ultimate outcome will be but hypothetically. If you did go down this path as of today, what magnitude of rent reductions do you believe will be required in the near future in order to return those rents to a stable level.
Either for kindred or the next operator, assuming operations on those properties.
Hi, Hi, Michael now remember, we own the assets and we on the EBIT arm in those assets.
And that's an important that's very important and again.
It's too early to say.
We have favorable trends in the brookdale situations.
And kindred, we hope to have favorable trends as you look out to 2025, so theres a lot more that goes into it when you think about what the outcome is going to be.
And then well be happy to share more with you as the facts develop.
Our next question comes from the line of Conor Seversky with Wells Fargo. Please go ahead.
Good afternoon, and thank you for the time.
Thank you wanted to go back to <unk>. Thank you I wanted to jump back to a conversation on the Q2 23 earnings call excuse me in regard to the <unk> loan portfolio, specifically the outpatient medical assets.
You outlined that you were going to put in place a capital improvement plan to bring occupancy back into those assets. So I'm wondering at this time, if you could quantify what that capital improvement plan looks like.
What occupancy expectations are for those outpatient medical asset.
And then what return profile could look like for that capital improvement plan.
I mean, I think that that keeps the topic sentence and we'll get to the answer is those assets overlapped with our our al portfolio in many respects.
Our portfolio is over 90% occupied and managed by Pete and the team very effectively this was under 80%. So there was there is in was significant occupancy upside as we get in there and self manage those assets and now I'll turn it over to tier two.
Thanks for your question, yes. Thanks, Paul This is Pete.
Yes, we're excited for the Yale portfolio. It gives us I think over the long haul.
Outside we've been extremely active.
And absorbing that portfolio and and.
Renewing that portfolio, we've transitioned 44 of our locations to lillibridge management using the literal playbook.
We've surveyed all the tenants we have specific asset plans for each of the buildings.
And we're really happy with the results so far we have.
Increased occupancy by about 1% and were also well above planned.
Michael Mueller: And our underwriting.
So as it relates to how we look forward on this portfolio.
We expect in 2004 to have about a 3% increase in occupancy and so were very happy about that and I Wouldnt, we will do some upgrades in the in the common areas and so forth and you'll see you've seen some of the ice capital and in the supplemental here, we'll do a bit more of that.
It will have kind of normal as you go tenant improvements and commissions. So I don't expect anything extraordinary out of the out of the capital being used for that for the Yale.
<unk> portfolio.
Yeah.
Our next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Hi, good afternoon. Thanks for taking the question just.
Two quick I guess senior housing questions. If you can indulge me.
First just the comments about <unk>.
Exit into 'twenty four looking.
Vikram Malhotra: Better or I guess acceleration.
I'm wondering kind of what gives you that confidence because if I may be wrong, but I think the.
The occupancy comps will get harder and the expense go up also get harder. So I'm just wondering what gives you the confidence of acceleration number one and just number two on senior housing you guys had a great investment in Canada, a while ago.
Uh huh.
The the Maurice investment I'm, just wondering though the portfolio is now generating like 4% same store arguably into next year.
Is there an opportunity in your minds to recycle that into say maybe are you at that that where you could get higher growth. Thank you.
Hi, Jonathan So let me start with the you know the jumping off point at the end of the year. So whats happening this year as we have significant occupancy growth in our plan.
Jonathan: Occupancy as you know a lot of your commentary on the key selling season, we're off to a pretty good start for us already.
Already outperforming just typical seasonality, but what's most important.
What's coming next which is that kind of made a September period, which which provides occupancy growth typically we see in the numbers that the demand is there we see in the underlying performance that we're executing on the demand. So that gives us the confidence that we'll be able to grow occupancy and then would you have to build during the year.
Clearly you know that you end up ending the year at a higher NOI in that NOI.
The point, we're making is its a good launching pad for 2025 growth.
When you run that through and then you then you start adding more occupancy on top of that the other thing that happens is margin expansion.
Right now were you.
<unk> two next year as well as occupancy grows the operating leverage goes up margin expansion could or should be more than 25. So.
Yes, we think there is good support for this growth and we're executing and.
It's not.
It should help with 25 number and then the demand is such that that the runway should be even longer so.
Like what we're seeing there.
In terms of Canada.
We do have.
Really really good portfolio there.
I'm really glad you asked about it because it is a.
Core like asset very high quality physically it's very high quality in terms of.
Execution and occupancy and margin it's been a consistent performer for US there is good demand in these markets is a great operator, primarily most of the NOI.
<unk> in Canada.
And we look forward to continuing with that and with that relationship and the compounding growth that it can offer and also opportunities to expand that footprint over time.
Also as we do new investments, obviously, the percentage that that represents of the overall shop portfolio, and then test well shrink because the denominator will be growing.
And emphasized on U S. Senior housing so that well will that change the impact as well yeah actually I'll take this opportunity to make one of my other favorite points and that is that the the U S. Okay. They grew at 24, 5% and for US last year in our same store pool and we're.
<unk> mid to high teens NOI growth in 'twenty four.
That's the growth engine and that's comparable to the other portfolios that have similar upside in <unk> and <unk>.
Stability, where Canada is.
What it is its high quality and stable.
But when you blend the two obviously.
Jonathan: Hampers, our growth a little bit and it is being hampered by a very high quality high performing portfolio in the U S is growing as well as anyone.
Our next question comes from the line of Austin were Schmidt with Keybanc capital markets. Please go ahead.
Great. Thank you.
It sounds like kindred to no go here, but at least after all these years I guess, it's only 5% of NOI for this master lease and not 50% plus.
Debbie.
99.
Right that even before my time.
But you did you did highlight I want to hit on the acquisition piece, a little bit and you highlighted $300 million of investments you have confidence in completing in the first half of this year.
There's a chance it sounds like maybe that could increase.
Given the target rich environment that that you you know kind of.
Laid out I guess can you and you or Bob discuss about the funding plans for those assets and maybe where equity fits into the plan and I'm. Just curious given that line of sight why not issue under the ATM late last year, given kind of the favorable move in the stock and more attractive.
Cost of capital yet.
Well stated I think Bob do you want to talk about funding.
Yes, as I mentioned earlier look the returns.
These investments that we're seeing you make this attractive.
From day, one to our shareholders in our view even at the current cost of capital when you look at the numbers.
And we started this discussion with investors really laid last year at NAREIT, where cap rates have changed.
And <unk>.
Thank the consensus view at that point continues to be that's a good investment and so effectively we've built that into our guidance and this $350 million.
And I mentioned in the opportunity of <unk> alongside that that is also assumed that being said in a very disciplined way and I think that's an important part of the narrative.
And so there is a there is some there are assumptions around that but we'll be very prudent and I'll always a function of the market.
And I am glad you asked it too because you know I think with with fantastic really giving SSO guidance into 'twenty for that really is in the top 10 of all about right. Now we are aiming to have a an improved multiple that benefits everyone.
Shareholders and that represents a cost of capital that can be very effective as we build on the organic growth story and layer on attractive.
Investments focused on senior housing.
Okay.
Our next question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.
Hey, just a two parter for me.
Just was looking through the DAC, one I realize that the slide on the NOI recovery opportunity. It looks like you guys removed it.
<unk>, which was a pretty helpful. Slide So I guess the question number one would be.
You know that conviction of getting back to a billion, presumably the occupancy still feels pretty good with the guidance, but has anything changed about either the views on the margins or the occupancy have a recovery story to sort of pull that slide and then question number two sort of part two.
Is really the sources and uses question because I don't see the redevelopment capex or the asset dispositions guidance that you guys provided last time, so could you be a little bit more specific we know you're going to do 300, plus or minus of acquisitions, but maybe a little bit more specificity about how youre thinking about redevelopment.
Capex dispositions and even an equity issuance.
Yes, I like that slide two but after I think that's been the young Chan, yeah, and I I like it but what was really dawned on us quite frankly is it's not high enough.
Yeah. It really is that you know we were focused on 88% occupancy at getting back to pre pandemic cash flows.
We're kind of moving beyond that because we see the ceiling can be a lot higher than the demand backdrop supports that so we want to put a ceiling on the opportunity. We think it's more over time, we've got a good run rate established we're putting up a $100 million around 100 million a little bit more per year in the shop portfolio. So.
We decided to move on and focus on looking forward yes.
One of the things that before I'll hand over to Bob I just wanted to mention on the you mentioned capex projects I just want to throw in senior housing.
We did complete 167 projects by the end of 'twenty three that those those started in October of 'twenty, two and so we had a really strong run of getting our portfolio. A refreshed we think theres about another 70 that completes by this may for the key selling season, and then another group of 82 or so.
Hopefully by the beginning of next year's key selling season.
We're well past halfway done and like.
The opportunity to do more and increase our opportunity to be competitive.
That's a good segue to some of the assumptions you you asked about it our guidance, especially reader, let's start there. So we said our number one use of cash is investing behind senior housing readouts.
Youre seeing the growth that's coming from that and attractive returns. So last year was $210 million round numbers of readout.
Because the projects are starting to come down and I had mentioned in previous calls we're going to normalize over time, we would expect some reduction in that readout spend this year.
I'll call it $175 million.
In 2024, and again that should normalize over time as these projects complete.
Other assumptions capital recycling, we are assuming after 450 million of dispositions last year.
Our current guidance is $100 million, so a significant reduction and those are very focused on some senior housing noncore assets in that $100 million.
And then finally on the equity assumption to just underscore what I mentioned earlier, we do have in our assumptions both investments and the funding of that in the share count as listed in.
And the assumptions that comes out of that.
Our next question comes from the line of Rich Anderson with Wedbush. Please go ahead Sir.
Sorry to keep things going but what the heck.
I wanted to ask perhaps an unanswerable question.
So you guys.
Lead the league and et cetera, normalization between NAREIT <unk> and normalized <unk>, there's a lot in there.
You have 13 sense of normalizing factors in your guidance.
Jonathan: To what degree can we.
Does that offer an opportunity for I don't know.
Ed.
If something were to materialize in during the year. It sort of allows you to maintain your guidance.
There's a lot of movement and in your presentation, that's really difficult to tell.
Two to model, let's put it that way.
Is there a way to either tighten it up or does it offer opportunity to say well, we can do something with kindred this year, and where we're not going to have to choose.
Change our guidance and in the in the process.
I know unanswerable, but I do feel like.
It's way more complicated than perhaps it needs to be is the main point.
I mean, one one part I would comment on is that we.
<unk> are very disciplined about it and don't lead the league and then and this is Barry and we don't want to lead the way again.
We can talk about that further.
It's a it's a very defined category and we use it as such so.
Yeah.
Alright.
Let me tell you that he is measuring between NAREIT <unk> and normalized <unk> it across peers.
I would suggest to you that you know there theyre very similar in terms of our numbers and Brian benchmark well I would.
Benchmark.
How often do you hit that number how it how confident you are to hit that 13 set number I guess is the question how how predictable is that to you.
Yeah.
Which 13th set number rich.
I think I'll start between NAREIT and normalized <unk> I'd say some of those are market based importantly, you know I'll just.
Just highlight one which is brookdale warrants yeah.
We have $16 million.
Brookdale warrants and that is mark to market every quarter and Theres a lot of volatility in that.
That flows through between NAREIT and normalized investment yeah, yeah, that's impossible to predict.
But we think in terms of.
Portraying the underlying performance of the business is absolutely the right rate adjustment to make and normalize. So that's a good example.
Okay. Thank you.
Thanks.
Our next question comes from line of Vikram Malhotra with Mizuho. Please go ahead. Thanks.
Thanks, So much for indulging me I just wanted to clarify the legal costs that alert normalized.
Is that are those just legal fees and but there is there like an associated.
Potential fine that Ventas.
<unk> may be liable for.
And then it's hard to know where is that just.
Just a one off and we won't hear more about it from a from Huron.
Number one and number two if you could if you could just clarify the 300 billion acquisition, how should we think about accretion going forward in terms of like potentially cap rates and how you see that flowing to the bottom line. Thank you so much.
Okay. It's a typical litigation reserve and it affects us and other rights.
And then in terms of the acquisition investment opportunities I think again looking at the yeah. The pipeline that we have I think Justin talked about 7% plus or minus going in cap rates, which is affected by the growth rate leading to low to mid teens.
Right.
Which.
Depending on how we find will be yeah. That's how the accretion obviously in year, one will be determined were not counting on a lot of accretion in the year, one that rather well.
Jonathan: Rather enhancing our growth rate over time.
And we think that that those irr's are attractive.
We want to expand our presence in U S senior housing.
Our final question comes from the line of one Santa Maria with BMO capital markets. Please go ahead.
Hi, Thanks.
Quick follow up for me are focused around dispositions again.
I'm curious if you have a bit of a background number two.
Alright, I assets disposed off in the fourth quarter as to why you chose to sell those at cap rates looked a little elevated from the outsider's perspective, It and then just curious.
What are your latest thoughts on the sand Terry Smith business is are you kind of happy to hold.
What's remaining there which is still currently substantially I guess.
And comfortable with that exposure or how are you thinking about that.
Yeah.
Uh huh.
So on the latter part and as I mentioned, I think will be we'll pick our spots on disposing of a certain sense here assets overtime.
Including this yes, we've been.
We saw some very attractive per bed valuations and we're happy with that.
And.
First we're indebted purchase options that we got in the acquired portfolio.
Universities, who have a better cost of capital than guide today.
Exercise that.
So that's all that way.
Okay.
I would now like to turn the call over to Debra Cafaro, Chairman and CEO for closing remarks.
Alright, 90, thank you very much and I want to thank everyone for joining us today, it's a pleasure to speak with you and have a chance to answer your questions.
We really appreciate your interest in Ventas are supported them to us and we look forward to seeing you again soon.
This concludes today's call you may now disconnect.
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Okay.
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Okay.
Jonathan: [music].