Q3 2024 Ventas Inc Earnings Call
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.
Yeah.
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 the Ventas 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, and with that I'll turn the call over to Debra Cafaro, Chairman and CEO of Ventas.
I want to welcome all of our shareholders and other participants to the Manhattan third quarter 2024 earnings call.
I'll discuss does have this strong results in the quarter and Eric for your 2024 expectation.
Execute on our focus 123 strategy to capture the unprecedented multiyear growth opportunity in senior housing.
That's one of the largest participants in the longevity economy that has thrived in meeting demand from a large and growing ageing population.
Within this favorable macro environment, we are taking to clear actions to deliver results and growth now and into the future.
We are driving profitable organic growth in our senior housing operating portfolio generating our ninth consecutive quarter of double digit NOI growth from our in place shop visit.
Our team is using its experiential insights and data analytics to propel results and take advantage of this unique opportunity a favorable supply demand in senior housing.
Both rate and expand our senior housing footprint.
As a result of this investment activity, we expect shop NOI to increase by 12 percentage points and senior housing to grow to well over half of our business by year end.
These acquisitions fit squarely into our articulated strategic and financial framework and should create value for shareholders.
We've rarely seen such favorable investment market conditions, where the pool of available assets is large and growing and investments should generate relatively high year one yield.
And offer significant future growth importantly.
Importantly, we are well positioned from a balance sheet cost of capital and experience standpoint to be highly active and successful we intend to build on our momentum to continue to expand our participation in the unprecedented multiyear growth opportunity in senior housing.
And then how can we have a long history of taking a holistic view of delivering sustainable growth for all stakeholders last month, we released our 2023 24, corporate sustainability report, which details our key initiatives as we enable exceptional environment benefiting our large anchor.
The aging population.
I am proud of our sustainability leadership and accomplishments and our team which are widely recognized.
Our integrated approach has enabled us to deliver nearly 19% annual P. S. R. Since the beginning of 2000.
In sum I feel great about where our business is and where it's heading.
Our enterprise enjoys durable inelastic demographic demand Halloween, a multiyear runway for growth our platform and team are driving outperformance and capturing market share.
Because of these favorable secular and structural advantage. It we are well positioned to deliver value for our shareholders and advance our important mission to help people live longer healthier and happier lives.
And the whole Ventas team is enthusiastically going after it.
Now I'm happy to turn the call over to Justin.
Thank you Debbie.
Justin: I'll start with our efforts to deliver profitable organic growth in senior housing.
The third quarter same store shop portfolio grew occupancy by an industry, leading 350 basis points year over year, leading to our ninth consecutive quarter of double digit NOI growth at over 15% and an overall operating margin of 26, 3%, which is up 170 basis points year over year.
Justin: We also had one of our best occupancy growth quarter sequentially with 140 basis points.
Leading indicators of leads and tours have been outperforming all year and continued to do so in October.
Revenue growth was around 9% across the portfolio in the U S. NOI growth was 17, 7%.
Sunrise since series and discovery continues to deliver excellent operating results in the U S.
Double clicking on an occupancy performance our Canadian portfolio is an all time high of 97% occupied and September led by a group Murray's and atria.
Occupancy outperformed the market.
Spot occupancy grew 370 basis points year over year in the top 99 markets, which is a 140 basis points faster than the Nic average. Furthermore, we grew 130 basis points sequentially in these markets, which is almost double the Nic average.
Moving on to guidance.
As the third quarter exceeded our expectations in October is off to a good start.
Our average occupancy growth expectations have increased to about 290 basis points, which is up 40 basis points versus the original guidance.
Year to date Revpar growth has exceeded opex by 300 basis points and we expect a continued healthy spread as pricing continues to outpace the moderating inflationary pressures we have experienced this year.
All of this considered we are pleased to re shop full year guidance expectations for the third time this year to 15%.
Furthermore, we believe rate growth will be favorable into 2025, as we anticipated significant demand.
Well positioned communities and the value proposition that is attractive to seniors and their families.
Moving on to Ventana to Hawaii.
Our shop performance stems from a right market right asset right operator approach enhanced by the <unk> platform, which Leverages, a 1 billion operational and financial data points and experiential insights. This platform empowers our shop operators with advantages in sales pricing.
Market positioning Capex and digital marketing to name a few.
Key drivers include acquisitions, new shop operators, Capex investment and strategic conversions from Triple net to shop.
All aimed at boosting occupancy and NOI in the favorable supply demand trends and senior housing.
So a wide platform also enables us to segment the portfolio and ways designed to increase NOI margin.
We are all familiar with the rule of thumb, a 50% incremental margin flow through in communities that are between 80, and 90% occupancy and the 70% flow through in communities that are above 90% occupied.
I don't think it's widely understood how higher occupied communities can power growth let.
Let me walk you through a case study to highlight this opportunity.
Do you want to follow along you can see this case study on page 12 in our earnings deck.
Justin: Our zero loss revenue day initiative aimed for full occupancy across select communities in our portfolio minimizing vacancy and maximizing NOI growth.
40% of our shop portfolio is in the 90% plus occupied category offering substantial outperformance potential.
Due to the operating leverage in our business scarcity value and lack of frictional vacancy, we have significant opportunity to drive NOI growth and highly occupied communities. It.
It is important to note that we typically don't experience frictional vacancy in senior housing due to their relative small unit size.
Links to the notice periods to vacate and low wear and tear on the units ultimately, allowing for sufficient time to plan and unit turn.
As occupancy grows across our portfolio the benefits of highly occupied communities are materializing.
Highlights eight communities in September that reached zero loss revenue days, maintaining 100% occupancy every day of the month. These properties saw a 440 basis point occupancy increase over the last year or 7% Revpar improvement, 12% revenue growth and over 25% NOI growth. These.
Communities, all deliver market, leading quality care and services, which is essential to attracting and retaining residents and employees.
The philosophy is simple.
Volatile and it underscores the value of running every unit daily maximizing NOI through operating leverage scarcity value and zero vacancy will not achievable for every property. We aim to continue to replicate this result with operators and targeted communities throughout our portfolio, including <unk>.
Our new acquisitions.
I'll summarize my shop commentary by highlighting our continued occupancy outperformance and double digit NOI growth.
We truly are seeing momentum in the business.
Next I'll comment on our triple net lease with Brookdale, which expires at the end of 2025.
Brookdale has the option to renew by November 30 of this year is a well covered lease with strong and improving coverage comprised of underlying assets sit in markets with a 1000 basis points of potential occupancy upside.
Due to the strong underlying performance of the portfolio and compelling projected tailwind there are a variety of outcomes that are positive prevents us which could include full renewal.
Full transition to shop.
Or something in between.
We'll update you about the progress of this lease when we know more.
Now I'll move on to investments.
We continue to execute on our focused strategy, which is to capture value, creating external growth concentrated in senior housing.
The market is presenting compelling opportunities we are in a great position to capitalize on these opportunities given our advantaged position as a large owner of senior housing with financial strength and flexibility.
Far reaching senior housing sector relationships and as successful transaction track record.
Our investment pace is accelerating with $1 7 billion of senior housing investments closed or under contract, which is $1 billion more than we stated a quarter ago.
The $1 7 billion is comprised of 43, new senior housing communities 16 different transactions with the medium size of $47 million.
We have targeted high performing communities with upside.
Demonstrating market, leading performance and should continue to grow NOI due to the strong market fundamentals increased operating leverage and competitive pricing.
The communities, we have purchased or generate large scale offering a variety of services, including independent living assisted living and memory care.
We are purchasing communities in attractive investment basis of 250000 per unit, which is a significant discount to replacement cost.
These investments are right in our strike zone.
Our stated financial criteria of 7% to 8% expected year, one NOI yield of low to mid teens Unlevered IRR and we continue to purchased below replacement cost the affordability and the new markets. We are entering as supportive where residents can afford greater than seven times our length of stay.
We also expenses significant net absorption opportunity during the next few years as a result of growing demographics and minimal new supply in the markets we have selected.
We continue to expand with our existing operator relationships as well as welcoming new high performing operators and align management agreements.
I'll spotlight, an investment where we acquired 20 senior housing communities currently operated by Grace management.
This strategic acquisition includes communities offering a mix of independent living assisted living and memory care aligning with our focus on value creating growth in senior housing. These communities are located market to support significant potential occupancy growth and price opportunity over the next few years at.
At 92% occupancy this investments should benefit from the high operating leverage opportunity as I noted earlier, we expect 7% to 8% year one yield in the low mid teens Unlevered IRR is consistent with our targeted financial metrics.
This investment expands our relationship with Grace, who has a strong performing existing ventas operator.
Our investment pipeline remains active as we continue to pursue high performing senior housing communities with attractive financial returns.
In summary.
Justin: We are effectively executing on both our organic growth priority in senior housing.
And value, creating senior housing investments.
Speaker Change: Thank you Justin I'll give an update of our financial results provide an overview of our balance sheet and close with our improved outlook for the year.
Fantastic reported net income attributable to common stockholders of <unk> <unk> per share in the third quarter.
Our Q3 normalized <unk> per share of 80 cents represents a 7% increase year over year.
Speaker Change: Our total company same store portfolio cash NOI increased seven 6% in the third quarter led by over 15% growth in shop.
Our outpatient medical and research segment or Omar same.
Same store cash NOI increased 2% in the third quarter and grew over 3% on a year to date basis.
Speaker Change: And our outpatient medical portfolio patent team remain active on leasing executing 1 million square feet of new and renewal deals in the quarter for a total of two and a half million square feet year to date.
Tenant retention of 85% as improved 300 basis points from the prior year.
As a result outpatient medical same store occupancy improved 20 basis points year over year in the third quarter.
Our University based research same store portfolio increased cash NOI by nearly 5% both in the third quarter and year to date.
Led by new leasing and higher rents.
Our core research portfolio is performing very well to strengthen our market and institutional demand.
As Justen described we have increased our investments in senior housing.
Speaker Change: With $1 7 billion of senior housing investments closed or under contract.
We funded the $1 4 billion of closed senior housing investments.
Tier $1 1 billion in equity issuance at an average price of $54 in 'twenty.
Speaker Change: And $300 million of completed dispositions.
I would note that since the second quarter, we have raised approximately $570 million of equity at an average price of $61 27.
Consistent with our strategy organic shop growth and equity funded senior housing investments have materially improved our balance sheet.
Our three <unk> net debt to EBITDA of $6. Three times has improved by 60 basis points since the start of the year and.
And we now have line of sight toward targeted five to six times range.
We also have robust current liquidity of $3 1 billion.
Speaker Change: We have addressed our 2024 maturing debt.
Proactively refinance the proportion of our 2025 debt maturities.
Including through a $550 million, 5% bonds issued in September prior to the recent run up in long rates.
I'll close with our updated 2020 for guidance.
We've raised our outlook for 'twenty four for the third time this year.
We now expect net income attributable to common stockholders to range from nine to 13 cents per diluted share.
We increased the midpoint of our full year normalized <unk> guidance to $3 16 per share from the previous midpoint of $3.15.
Speaker Change: Our improved full year midpoint is driven by a <unk> <unk> improvement from increased investment activity and higher shop same store growth expectations.
Speaker Change: Partially offset by a penny dilutive impact of our strong stock price performance on our exchangeable notes.
Speaker Change: I would note that $1 $2 billion of our $1 7 billion in senior housing investments are closing on a weighted average basis in the middle of Q4, thereby limiting the 'twenty 'twenty four accretion.
We have raised our total company same store cash NOI to now approximate seven 4% year over year at the midpoint.
As well as increased our shop same store cash NOI midpoint expectation to 15% growth year over year.
For additional 2024 guidance assumptions.
See our Q3 supplemental and earnings presentation deck posted to our website.
To close we are pleased with the results for them both in the quarter and so far this year and to once again have improved our full year expectations.
With that I'll turn the call back to the operator.
Thank you, ladies and gentlemen, we will now begin our question and answer session.
Dialed in and would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.
Your first question comes from the line of Nick Joseph from Citi. Please go ahead.
Thanks, Debbie you mentioned, the long runway and obviously, the improving operating fundamentals pricing expenses occupancy everything I guess my question is just.
What are the early indicators that that.
Supply could start to reemerge, we obviously haven't seen the starts data yet.
Wondering what youre seeing from the sector overall, as you talked to lenders or others within the industry.
Kind of what could spur that just given the really strong forward outlook.
Nick: Thanks, Nick good morning.
D J: D J.
As a percentage of inventory.
Thanks, Shannon and thank you Jeff.
Speaker Change: Yes.
Speaker Change: Jeremy we're here and we're seeing annual increases.
Speaker Change: And again the customer base.
Thanks, Andrew.
<unk> correctly.
Speaker Change: And so we're still.
Speaker Change: Yes.
Speaker Change: Configuration.
Speaker Change: <unk> 90.
Speaker Change: Hi.
Speaker Change: Demos.
Speaker Change: Yes.
Speaker Change: So there is a long runway.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Great.
Speaker Change: Thank you.
And occupancy.
Speaker Change: In addition, as required that Sandra Zhang senior population.
Speaker Change: Or extended over five years now.
Speaker Change: Yes.
Speaker Change: Yes.
Years from now.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Alright.
So it is a long runway.
Speaker Change: And we feel really good about it.
Speaker Change: Hi.
Speaker Change: Thank you.
Speaker Change: How many are organic.
Speaker Change: Brad.
Speaker Change: Okay.
Thanks, and then maybe just on that ramping investments in senior housing just given that kind of runway can you talk about the seller motivation at this point and kind of the opportunities set that youre seeing there.
I would think that a seller can also see the improvements.
From a fundamental perspective, so why sell now into this runway.
Speaker Change: Yes, good question Justin.
Justin Yeah. If you just look at the you know like for instance, the one 7 billion that.
Speaker Change: We've either closed or under contract.
Speaker Change: Ben.
Ben: What 16 transactions.
About nine of those are business developers. They are cashing in there were some repeat sellers. These are just you know groups, we've done transactions with it before it came back to us.
To to do it again, just given the good track record we have with them and then there's a handful of just.
P firms that were selling for a variety of reasons.
I think it's very clear that the fundamentals are really good and that's that's that's a that's a great.
Given all of the backdrop and the long runway that David described it creates a great buying opportunity for four for us given our capabilities there.
<unk> strength and flexibility, but it also has created a selling opportunity for certain players as well so.
The opportunities have been certainly growing in our pipeline and the assets perform better than that.
Thank you very much.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of James Cameron from Evercore. Please go ahead.
James Cameron: Good morning, Thank you.
James Cameron: If I could just drill down on your case study in page 12 of the very high all I can tell you that cohort of units or communities.
James Cameron: Was that a cross section and then thinking about the whole 111 communities.
Speaker Change: Cross section of operators.
Yes, so we do have it.
Speaker Change: It's a cross section that you know in the case study I really focused on eight communities, particularly in even though we're a cross section you had a mix of majority IL al a couple in Canada. Most of them were in the U S.
So it does speak for the opportunity I think really across the board and we're going to have really the best opportunity to be 100% occupied I really achieved zero vacant unit standard.
Speaker Change: In communities that are already established themselves as market leaders and we have many of those.
The acquisition pipeline that we pursued our with bonafide market leaders that have a lot of upside ahead, and so we're really pushing to support that outcome and we're pleased to see it start happening.
Okay, Great and then a second question if I may.
Just stepping back more securely.
Does all your wealth of data collection to tell you about sort of penetration rates for senior housing in your markets.
Track that or get some share some insight as to.
These by age cohort, how people are increasing or decreasing the usage of the product.
Speaker Change: Yeah.
Well I can tell you that you would do attract penetration rate are we tracking theres a number of factors that go into our net absorption projections penetration across the sector is at a 11% is basically exactly where it was pre pandemic.
Speaker Change: There's.
Penetration tends to follow affordability.
Speaker Change: Now it's one of the reasons why we tend to prefer markets had very strong affordability because you got it at a higher utilization of senior housing in those markets.
And it has trended up I mean, clearly you know a few years ago with penetration of fallen off a little bit it's back to where it was.
And really to get the results that we're anticipating over time in this multiyear kind of occupancy growth opportunity you really don't need to see penetration rate move much.
If at all so there is a strong aging demographics is very strong affordability. We're selected markets that that first and foremost said that have those characteristics and and.
And as Debbie said, we have the platform to really ensure good performance in these markets and it's certainly helpful to have strong tailwind.
Thank you again.
Thank you.
Your next question comes from the line of John Quealy Celski from Wells Fargo. Please go ahead.
Speaker Change: Thank you.
Just on the on the guide for shop.
And forgive me if I missed this but I noticed there wasn't updated Rev for export guide this.
This quarter Revpar came in at four forward export one three year to date.
Is that just kind of going back to your <unk> guidance I believe it was 5% to five.
Speaker Change: Are those both in line with your <unk> guidance or are you seeing maybe a little softer revpar, but also softer export thats kind of balancing that out curious if there's any conservatism heading into <unk>.
Right. So first of all.
Speaker Change: We focus on the spread between the two and that's been about been around 300 basis points.
And that's really how long do you expect that to continue so that was considered in.
The guidance.
Date that we gave that full year number you mentioned, that's a pretty good proxy for where we've been running them, so and that and the 300 basis point spread is reflected in the year to date performance.
Put another way I guess this is Bob I would say that year to date P&L elements of the supplemental is a good a good indicator of the piece parts.
Revpar in Opex for growth as we think about the year.
Got it. Thank you and then maybe just jump into your top tenants.
More specifically atria, but please touch on any others, if theres anything newsworthy, but just could you talk about <unk> performance and maybe bifurcate the IL and al portfolios.
Speaker Change: Yeah sure so atria.
Our largest shop, operator, do we have a legacy portfolio with them in the U S and Canada and then we have the holiday portfolio.
They've consistently been a really good performer in our legacy portfolio.
We've had a working relationship with them over time, where we've been really helping them to focus their footprint into cluster markets.
They're at one point you might have thought of atria as a national platform now I'd think of them as a superregional because they're well clustered we're getting solid execution in the legacy portfolio the holiday portfolio.
Been a work in progress, they're a big contributor to the occupancy growth we've had year over year, though so we like what we're seeing that's been around 400 basis points of occupancy growth year over year. So I wouldn't say, they're checking our boxes in the U S. I also mentioned in Canada that that they're one of the <unk>.
Orders in terms of driving high occupancy what Canada at 97% occupied atria has been a key contributor to that the other would be on the group Maurice.
There's a new CEO at atria as well Holly has been in place for a couple of quarters now she's brought a lot of enthusiasm and experience and direction to the company that that we're really pleased about.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Your next question comes from the line of Jeff Spector from Bank of America. Please go ahead.
Great. Thank you on my first question on the opportunities.
Is it time to lean into life science or will there be a time over the coming months to lean into life science again.
Speaker Change: Hi, Kevin.
Anthony: Thank you Anthony Anthony that's really neat.
Speaker Change: <unk>.
Speaker Change: This strategy.
Speaker Change: And certainly we believe and Jason.
But right now.
Speaker Change: Okay.
Thank you.
Okay. Thank you.
And then my second question Ken.
Can you discuss the margins during the quarter it looks like they compressed across the different formats.
And I apologize if I missed this but can you explain.
Speaker Change: Margins during the quarter.
Speaker Change: Yeah.
Speaker Change: And when we add up the class I can start with Shanghai. So shop had we had year over year, we've had about 150 basis points of margin expansion.
Speaker Change: That's.
What kind of expansion, we expect to see given the revenue growth for having relative to your expense growth overall, it's driven by occupancy and rate.
Speaker Change: You mentioned that Revpar Opex core metric there was a sequential change that was impacted by.
You know we have insurance renewals in the third quarter, the seasonal expenses that we face.
There's so there's just typically for us we don't see improvement from between second and third quarter, and so theres, a little bit of a client's sequentially, but on a year over year basis.
We are seeing margin expansion.
Speaker Change: Thanks, Justin.
Speaker Change: Yeah.
Your next question comes from the line of Ronald Camden from Morgan Stanley. Please go ahead.
Hey, just two quick ones.
Speaker Change: The acquisition sort of ramping in.
They are becoming more and more clear that 25 is going to be strong maybe any updated thoughts on when you think private capital private equity you will start to look at the space coming to the space and why you think they have not done it so far if everything is so good.
Yeah. So this is Jeff again, you know at definitely.
Let's say private capital is always circling.
The conditions on the passenger you really haven't been supportive of our private capital just due to the availability and cost of debt, that's what us and really in an advantaged position.
With respect that you know given the fundamentals.
You'll see the competition again.
We're clearly used to facing.
The competition and feel very comfortable that we'll get our fair share, but we have an advantaged platform for <unk> financial strength flexibility standpoint, we're advantaged from advent hospital ice standpoint, where we have the team and the capabilities to really drive outsized performance and also just to underwrite.
See see opportunities, where others might not so I was like really like our opportunity to continue to compete.
Speaker Change: Yes.
Great and then I guess my second question was.
Look you know almost 9% topline growth it's pretty impressive.
And we're obviously trying to figure out what next year and the year.
Beyond sort of brain I guess my question is when I look at this 250 basis points of occupancy gain in <unk>.
Almost four and a half <unk> core is there anything are there any obvious reasons why that that should start to slow or was there may be some low hanging fruit that we picked this year.
We shouldn't be thinking about just trying to think about the sustainability of these sort of very impressive numbers.
Speaker Change: Yeah. So I have to say you know first of all we're not going to.
I don't know avoid giving you 2025.
Hi, this is expectations in answering this one thing that did flatter expenses. This year as we had a you know a year over year comparison versus agency costs last year. So you know that.
That impacted the opex for labor poor metrics.
Agencies are pretty much out of our system now.
So that's a constant consider.
Moving forward, but the supply demand the pricing opportunity.
All the fundamentals that we're facing we expect to continue so.
Well look forward to talking more about our expectations moving forward.
Speaker Change: Got it thanks, so much.
Speaker Change: Thank you.
Your next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.
Hey, this is George on for Vikram can you just give us some details on how to transition assets are growing relative to the same store and when they would become part of it was the same store pool and separately, what's the average occupancy of the acquired assets. This quarter. Thank you.
Speaker Change: Yeah.
Our same store pool.
Thanks for the question.
Speaker Change: Alright, Thanks, Tim.
Our same store pool, it was really the lion's share of our total staff.
Speaker Change: Yeah.
Is that correct.
Of the overall for Jorge.
Yeah. So you know when we talk about transitioning communities a lot of those are in the same store.
The pool already Theres, some that would transition last year that.
Speaker Change: We'll come into the pool.
And you know in that case, we've had really good occupancy growth and we're looking forward to you know NOI opportunity moving forward.
In those in those communities.
Speaker Change: Honestly, it's largely represented already based on the pool that we have been reporting on them also.
Turning to your question around acquisitions or the acquisition of.
Occupancy has been around 90, 91% that's across the board.
And the reason for that is we're.
Targeting bonafide market leaders in the markets.
That has more upside so that we can drive occupancy and price.
Speaker Change: And in communities that are have a proven track record of delivering.
Best in class quality care and services and should continue to really outperform and so we like really like how the acquisitions are positioned.
Okay, and just a second question in terms of capital allocation you know given the Canadian portfolio is nearly fully occupied how do you think about monetizing our you know part of it or maybe the entire portfolio and redeploying the capital into higher growth portfolio assets.
Speaker Change: Yeah.
Thanks for the question, yes, you're right the Canadian ports.
Speaker Change: Yeah, Anthony credit box.
Speaker Change: Terrific. Thank you.
Speaker Change: To be a significant contributor to revenue and so.
Speaker Change: Yeah.
That portfolio.
Speaker Change: Thank you quickly leveraging it in a way that provides the greatest value.
Speaker Change: Good morning continues to work with.
The operators right.
And for farming.
Great. Thank you so much.
Speaker Change: Yes, I mean.
Aflac, Japan, Israel our shops.
Speaker Change: Okay.
Speaker Change: Okay.
Your next question comes from the line of Richard Anderson from Wedbush. Please go ahead. Thanks. Good morning. So you know back to the question about competition for assets and the lack of you know.
Sort of you know me.
Speaker Change: Maybe relative lack of P. Because of availability of debt. When you look at cap rates I think you did a you know on the activity. So far are 8% yields on your senior housing activity and and then you compare that to multifamily for a 5% industrial for a 5% you can argue your outlook is by far much better.
And in terms of visibility.
Speaker Change: It is.
The lack of competition, putting aside the P E component just that people can't do it.
You need a certain level of operating talent to go after some of these assets. So it's it's it's always going to be a limited competitive set or do you think it comes back and correlate to that question. If your cost of equity is in the range of five is that the way we should be thinking about 300 basis point type spread.
Do we think about 2025 estimates.
Thanks Rich.
Speaker Change: I think that there are multiple reasons.
Speaker Change: <unk> already done.
Speaker Change: Good opportunity now obviously.
Speaker Change: Our cost of capital.
Speaker Change: Help me.
There is limited competition because of that market that you really can't argue.
It's very important and differentiating and I'll grab that.
Speaker Change: Okay.
Yeah, Yeah no it is.
Does that require.
Speaker Change: Turkey and constantly innovate.
No more.
It sounds like a high ticket.
Thanks, Joe.
Yeah, we had said at Cagny.
Jeff and Kevin to operate it.
Speaker Change: Thank you.
All of this created significant.
Speaker Change: Yeah sure the name of lab.
He was really the premier global owner of senior housing.
John: John Thank you.
Speaker Change: Competition.
And of course, we always deal with.
Thank you for the last 25 years, and we know how to get more than our fair share.
Sure Mike.
Speaker Change: You really can't go on I think in theory important really bad and that is no.
Speaker Change:
Speaker Change: Yes.
Thank you.
Thank you.
And in terms of spread investing is kind of 300 basis points.
What are you thinking if you just do an inverse of the F O yield.
Speaker Change: Multiple.
Yeah, I mean look our parents.
We're very pleased.
John back to performance correct shareholder.
Speaker Change: We're here for them and that's obviously an area for them next year.
Are there any changes over time.
Yeah, right now, it's working for us and hopefully will continue.
Speaker Change: Keybanc.
Speaker Change: Got it.
Last question on Brookdale, I know youre, not going to say much but maybe a little bit more.
Could they go past their November 30th.
Speaker Change: Decision day.
Would you allow them to or is that the full stop you got to know by then I'm just curious what your flexibility is to allow the negotiation to extend into perhaps next year. Thanks.
Speaker Change: Well I mean, yes.
Speaker Change: Actual.
That's no longer yes.
Speaker Change: Bob.
Okay fair enough. Thank you.
Speaker Change: Okay.
Your next question comes from the line of Juan Sanabria from BMO capital markets. Please go ahead.
Good morning, just hoping you could talk a little bit about the shop lead indicators.
Would you be able to provide kind of a spot shop same store occupancy for October indoor comment on what.
The Oi or data would suggest about rent bumps Jan one, which I'm sure you're thinking about this.
This coming year versus what you experienced in 'twenty four.
But I'm going to I'm going to try to answer this.
Speaker Change: So.
Speaker Change: Without giving too much information up here.
Start with rent because we're just not going to get into the 25 number but we do think the environment is favorable for pricing.
And so we'll report more on that in the future in terms of the leading indicators we've had throughout the entire year leads and tours have been running higher than last year that was true through the third quarter. It was it's true in October.
So you know, that's obviously driving move ins and occupancy growth as I mentioned, we've had industry leading occupancy growth.
Speaker Change: And that really all starts with our ability to drive business to the doorsteps. So we're pleased with that performance and encouraged by that even this late in the season to see the activity that we see.
Speaker Change: Yeah.
Okay and then just.
Speaker Change: Zero vacant days.
Speaker Change: I guess a couple.
Questions here, you mentioned notice periods, how many people actually give notice that they're moving out of a thought.
Fair amount of people. Unfortunately pass away and is there an element where you start booking revenues for person moves in associated with.
Speaker Change: Breaking those days.
So others, so there's notice periods and the resident agreements that can range anywhere from you know 10 days to 30 days.
Speaker Change: Depending on the circumstances. So you do have visibility into when a unit become available.
There. There's also the opportunity for new residents are you thinking about the demand that you are experiencing in our community that zero, making units.
Prospective residents are going to want to you know.
Speaker Change: Make sure they have access to the unit so they take financial possession proactively.
Proactively that happens often times, but even even if they don't.
Speaker Change: You really think about what we're talking about we're talking about 400 square foot unit that has slightly furnished.
I have some personal lines, but nothing like we have in their own homes.
And your way of one one operator, it targets a 30 minute turnaround because its a deep clean a touch up paint.
If it needs more than that you might add a few hours to that.
Speaker Change: This is not a complex unitary it's extremely simple nobody can happen quickly you can plan for it.
And so that really leads to this opportunity to have zero, making units that combined with the demand at the doorstep and most importantly positioning yourself as a market leader because you are the best at what you do in your market.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Tayo Okusanya from Deutsche Bank. Please go ahead.
Yes good.
Good afternoon, most of my questions have been answered but.
Debbie and Justin curious as again kind of going through election season.
Anything else that you guys are looking at that could potentially impact healthcare as a whole maybe senior housing in particular.
Speaker Change: One of the things I'm kind of looking at is if we end up in a world where regulation makes it harder for people to be involved in health care.
But anything that kind of top of mind would be helpful.
Well, we're really focused hi, tayo I'm glad you you've got an even though most of your questions were answered, but I do think yet.
Speaker Change: We are in it.
Speaker Change: Or are both spot.
As we participated in this longevity economy, because we do have that yeah. It was consumer driven product that has significant demand and we have the platform that is driving outperformance there it should have limited impact really regardless.
What happens in the <unk>.
Action there.
Speaker Change: There may be impacts on long range, depending on who's elected that could affect kind of the real estate sector writ large, but as a public company, who is in an advantage position relative to private equity.
Speaker Change: Real estate right now I would think that we would be.
We would have a better position than there the real estate market you know public.
Speaker Change: Public and private the public I should have framed it with her.
And then beyond age because of asset classes.
Speaker Change: [laughter].
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Yes.
Your next question comes from the line of Michael <unk> from Green Street. Please go ahead.
Thanks, and good morning, maybe one on the outpatient medical portfolio.
Speaker Change: So now that that legacy LP portfolio as part of the same store pool can you just quantify how much NOI or occupancy upside actually remains across those assets and has there been any deceleration in NOI growth or occupancy gains in recent quarters now.
Speaker Change: The lowest hanging fruit within that portfolio, maybe already taken care of.
Yeah. Thanks, Michael This is Pete I think I appreciate the question.
So just to level set we've got about 79 buildings entered the quarterly same store pool for ERP this quarter.
We've been really hard at work in applying the lillibridge playbook to the answer portfolio. We've replaced 19 property management teams. If you replace half of leasing brokers replace virtually 100% of the contracts that relate to the services and the buildings. So you're starting to see a lot of results tennis.
Satisfaction wind from the bottom quartile two the third quartile. So we're really happy about that and then not surprisingly retention has been up as a result of happier tenant satisfaction.
Speaker Change: Occupancy is up.
And so as NOI growth. So we're really excited about all of that we think that this portfolio will be in the salary and for us going forward if anything our growth outlook on this portfolio is stronger than what it was when we first got it.
Speaker Change: And there's probably you know eight plus percent occupancy improvement potential to get it to the level that the rest of the portfolio and so upside there from occupancy.
Speaker Change: Absolutely.
Got it that's helpful. And then maybe on the secured loan investments during the quarter could you provide just some additional details surrounding the ROFO on that and then any details on the actual underlying properties in terms of location occupancy levels acuity mix.
Anything you can provide there would be helpful.
Yeah sure Justin Yeah. This is a unique opportunity to potentially on one of the highest quality senior housing assets in the country quite frankly. This is a it's marrano senior living it is a it's a high rise in Seattle.
Speaker Change: That.
You know it has a mix of independent living and assisted living and memory care product.
Speaker Change: High price point.
Speaker Change:
Very attractive physical plant, you're getting the rents are anywhere from 10 to 20000 per month.
Speaker Change: And it was a good opportunity to get a high yield loan its a senior secured loan. So we're the only lender we have a property as collateral and other credit enhancements.
But I think whats most exciting and interesting to us as potentially buying it. So we have a typical ROFO clearly where the right type of buyer for an asset like this.
And you know it's a.
Speaker Change: It was just a neat opportunity to put money out at a really nice return.
And bridge to potential ownership.
Thank you.
Alright, thanks for the time.
Your next question comes from the line of Michael Carroll from RBC Capital markets. Please go ahead.
Yes, Thanks, and I know you guys don't like to talk about individual operators, but did you did comment on holiday earlier in the call.
I was wondering if you can provide more details on how they're performing or the changes that they've implemented last August have those really taken hold and youre seeing.
Speaker Change: Better results that you think are sustainable going into 2025.
Yeah, I think the product is the best way to attack that is really just to talk about our overall independent living performance in the U S.
Speaker Change: Independent living has been a strong really equal contributor to the overall occupancy growth that we've had.
Holiday is part of that we've had other other operators operator in kind of a living as well.
Speaker Change: And there has been really strong demand.
There is there is it also tends to be a higher occupied asset.
And also has very high operating leverage and saw that as occupancy grows.
We expect it to be a big contributor from a NOI standpoint, but we've seen really good progress and momentum in the independent living product across the board.
Okay, and then I think earlier, Justin I think there was a question about the occupancy trends throughout the quarter I mean, I'm just trying to really understand like what's the typical seasonal trend you see in occupancy does it really starts to accelerate in mid summer then kind of tail off in the late summer and have you seen that.
And I believe there is no question about what was spot occupancy at the end of the quarter I don't know if you answered that if you did apologies, but if you didn't I mean is that something that you can disclose.
Speaker Change: We have three sequential average occupancy grants as Justin talked about I think you can repeat it here from the second to the third.
Speaker Change: Yeah.
Typically you would see the key selling season is made of September.
Most of the occupancy growth is going to come during that period.
It's also typical seasonality to see a downturn in occupancy in the fourth quarter, we are not seeing that.
And growth in occupancy in the fourth quarter based on the performance that we've seen so far so everything is off to a really good start in that regard. We you know we've talked about.
Speaker Change: Our outperformance as well and I think that's notable when you compare us to the top 99 markets, we'd been upper four we had 380 basis points of growth in the top 99 versus $2 30.
Speaker Change: Across the sector and then our sequential growth was really strong and so we're as I mentioned, the 140 basis points outperformance versus 70 basis points. So two times the sector sequential occupancy growth in the third quarter and as I mentioned, all the leading indicators in our expectations around occupancy remained very strong.
Speaker Change: <unk>.
So that's leading to a good fourth quarter so far.
Speaker Change: Okay.
Okay, great. Thank you.
Your next question comes from the line of Mike Mueller from Jpmorgan. Please go ahead.
Yeah, Hi, just as you look ahead to 2025 are you expecting to fully or substantially equity fund acquisitions again.
Speaker Change: This is Bob I'll take that one so we've been very successful in executing on the strategy, we laid out beginning of the year.
Which is investing behind senior housing to grow our participation and it's.
If the market is there to fund that with equity that has been working for US clearly it's been the playbook.
And you can see that not only in the growth in our in our senior housing portfolio, but also in a rich has improved 60 basis points year to date.
Speaker Change: The playbook is working and you know I like to call it more cowbell.
We like what we're up to and given the market conditions. So if that can continue.
Speaker Change: Got it Okay and then second question can you give us a sense at this point of the initial drag if the full brookdale lease transitions the shop.
Speaker Change: Well, yeah remember there.
I would comment on is that transitions is shop remember that we had.
Speaker Change: Well cover EBIT.
EBIT for our annualized standpoint to rent instead, there is an excess amount of EBITDAR compared to rent. So that would have to be taken into account as you consider what the impact would be of a conversion. Okay. I'll hop back on lease to shop and that's the same for our fault that pattern.
Got it okay. Thank you does.
Speaker Change: Does that make sense do you like it.
Yes, I think so what I'm, saying.
Speaker Change: Okay.
Gary mortgage Mitchell Irvine Kathryn.
Speaker Change: Got it okay. Thank you.
Speaker Change: Okay.
Your next question comes from the line of Wes Golladay with Baird. Please go ahead.
Hey, good morning, everyone. Just a quick follow up on that Brookdale com.
Would there be a ROI opportunity and particularly deferred capex on those assets.
Speaker Change: Hi, Justin So I mean, I think the best way to look at Brookdale. At this stage is that they have an option to renew them and so if they renew.
Then there's a 'twenty 'twenty six.
Speaker Change: A floor or a 3% escalator can be as high as 10% that's subject to a fair market lease review.
Speaker Change: If there's some kind of hybrid deal obviously, you know that'd be mutually agreed upon and if they don't then it's then then it becomes a shop opportunity and we do like the opportunity to run the playbook, we haven't messed up the platform. We have well established operators have been greater turnaround, we've proven we know where to invest.
And when to drive occupancy and they are in markets that have significant tailwind and so it's a good opportunity, but there's but all the options are really on the table right now and it's coming down to the deadline.
Speaker Change: Okay.
Neighbors Paul.
Okay Fantastic and then maybe revisiting kindred I know that there was some talk about you know the noncash moving around and now that everything's finalized can you tell us more about the or quantify the impact of the noncash rent for next year.
So this is Bob Yeah, we talked about this last quarter.
In terms of the noncash impact this year the pull forward effectively of the restructure of the lease and the extension of the lease.
Pretty much in line frankly, with where we were at this time last quarter in terms of our estimate.
Speaker Change: For this year.
The rent reduction and all those details are in the.
Speaker Change: In the press release, so I'd refer you to that for all the details, but it's pretty much as expected.
Okay. Thank you.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Nick <unk> from Scotiabank. Please go ahead.
Oh, Thanks, Good morning, just going back to the senior housing investments the.
The over 900 million net of closing.
Speaker Change: Or I guess, partially closed already.
Seven and a half per se.
Expected yield on that can you just talk about what to do.
Speaker Change: One.
So we can just understand how much NOI growth is assumed from the assets next year.
Speaker Change: Yeah.
Hi, Nick Debbie yes.
Yes, I mean, you could expect that the year, one yields are kind of seven and a half that you'd have them kind of at current yield and kind of 11 seven is going to that higher number over the next 12 months after acquisition.
So there's growth in the assets.
Speaker Change: Okay.
Okay. Thanks, and then.
Second question is just in terms of the L tax purchase can you just talk about what.
You know what triggered that what was the reason to do that after the resolving of the kindred lease.
Sure. So we had.
It's really a favorable resolution with kindred that had used a lot of the tools in our toolbox.
And our experience and these types of situations. So the goal of all of it was related to you know improved coverage on overall master lease with the investments really fit in.
Speaker Change: To that philosophy because.
They will bring out the coverage they have brought up coverage in the overall master Lee there well performing assets.
Speaker Change: We have additional.
Speaker Change: EBITDAR improvement and positive trends.
And so it varies and it significantly.
Speaker Change: Significantly improved you know tinder its credit profile so.
Speaker Change: So we think it helps that path, there's a good risk adjusted return and a made for a stronger tenant over all because it enabled you know kindred to improve its balance sheet and so overall it should fit in nicely.
Along with the warrant and our revenue base rent, which will give us a potential upside if performance or valuation improves. So it's an overall holistic approach us we would always do in these situations to get an outcome that is the best for our stakeholders.
Alright, Thank you Kathy.
Kathy: Thank you.
Your next question comes from the line of Austin <unk> from Keybanc capital markets. Please go ahead.
Speaker Change: Great Thanks, and good morning, everybody.
What's the average occupancy across the senior housing assets that you've closed or under contract to buy this year.
Just curious as your cost of capital improves or if it continues to improve if you would consider pursuing even lower yielding assets that may have a longer occupancy tailed to growth or whether or not the assets in that close to that 90% or 90% plus occupancy range or more attractive given the flow through profile you highlighted.
Speaker Change: Your prepared remarks.
Speaker Change: Oh, great question.
Speaker Change: What we really like right now is the investments that we're in.
That we've made and that are under contract really.
Speaker Change: Right down the fairway in terms of what our financial and strategic objectives, sorry, So as I mentioned in my remarks, we're getting.
I'm really high kind of immediate yields and they have significant growth embedded in them and that's a very attractive profile and we want to continue executing on that profile them. Because we think that's a really good risk adjusted return now.
Speaker Change: We could expand the aperture.
Along the lines of what you've described.
Speaker Change: But we have to feel that the risk adjusted return is the same or better than what we're currently doing which is pretty pretty darn exciting.
Speaker Change: Okay, that's fair.
Speaker Change: Thanks for the thanks for the thoughts there and then just going back to Brookdale I guess why would it something in between kind of outcome be on the table given the all or nothing renewal.
Speaker Change: The internal view around prioritizing senior housing acquisitions, I mean, it seems like a great Avenue. So just kind of help me understand what else something in between outcome might look like thanks.
Well I mean from our perspective, we like the opportunity to them.
Some or all of those communities in our shop portfolio.
But the reality is is brookdale has the option to renew.
So the decision really sits with them.
Speaker Change: If there is something in between could really be a win win where we can have some amount of of the communities move to shop and go pursue the opportunity with the playbook like I mentioned.
Speaker Change: That's hypothetical.
We really need to have happen is to see what Brookdale decision is and then we'll go from there yeah. There can always be something better than a five year, yes.
And that's what we always thus far.
Understood. Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
There are no further questions at this time I would like to turn the call over back to Debra Cafaro, Chairman and CEO for closing remarks.
John Thanks, so much I really want to thank all of our participants in the call for your interest in Ventas and your participation today, we look forward to seeing you in Las Vegas.
Speaker Change: Ladies and gentlemen that concludes today's meetings. Thank you all for joining you may now disconnect.
Speaker Change: [music].