Ventas Q3 2023 Earnings Report

Ventas EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.74
• Beat/Miss: N/A
• One Year Ago EPS: $0.76

Ventas Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.12 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Ventas Announcement Details

• Quarter: Q3 2023
• Date: 11/2/2023
• Time: After Market Closes
• Conference Call Date: Friday, November 3, 2023
• Conference Call Time: 10:00AM ET

Ventas (NYSE:VTR) (NYSE: VTR) is a real estate investment trust (REIT) that specializes in healthcare-related real estate. The company acquires, owns and manages a diversified portfolio of properties serving the healthcare continuum, including senior housing communities, skilled nursing facilities, medical office buildings, life science and research centers, and other properties leased to healthcare providers and operators. Ventas generates revenue through long-term leases, property management and selective development activities focused on meeting the real estate needs of the healthcare sector.

Ventas’ business model combines property ownership with active asset management and capital markets activity. The company leases space to a range of tenants that include senior living operators, healthcare systems, and research organizations, and it pursues a mix of ownership structures such as wholly owned properties and joint ventures. In addition to traditional real estate ownership, Ventas has historically provided structured financing and capital solutions to healthcare operators as part of its broader strategy to support operator stability and portfolio performance.

Founded in the late 1990s, Ventas has grown into a large, publicly traded REIT focused primarily on North American healthcare real estate, with additional selective investments in other developed markets. The company emphasizes portfolio diversification across property types, geographies and tenant relationships, and it pursues acquisitions, dispositions and strategic partnerships to reposition assets and create long-term value. Ventas is overseen by an experienced management team and board of directors that guide its capital allocation, risk management and operational strategies in the healthcare real estate sector.

Ventas Q3 2023 Earnings Call Transcript

Key Takeaways

• Ventas reported normalized FFO of $0.75 per share in Q3, up 6% year-over-year, and raised its full-year 2023 normalized FFO guidance midpoint to $2.98 per share.
• Its senior housing operating portfolio delivered a same-store cash NOI growth of 18.2%, with spot occupancy gains across U.S. and Canadian SHOP communities (nearly 96% occupancy in Canada) and broad-based move-in momentum exceeding pre-pandemic levels.
• A 170-project NOI-generating CapEx program in senior housing is underway, driving early returns of about 20% ROI and contributing to sustained margin expansion in the SHOP business.
• The outpatient medical and research portfolio achieved over 3% same-store cash NOI growth, maintained a 91.7% occupancy rate, and secured marquee leases at Wake Forest, ASU, Siemens in Charlotte, and Penn’s 1U City campus.
• Ventas has raised nearly $3 billion year-to-date at an average cash interest rate below 5%, leaving $3.1 billion of available liquidity (3× 2024 maturities) and reducing its floating-rate debt to 8% of total debt.

Presentation

[Operator]

Thank you for standing by, and welcome to the Ventas reports third quarter results conference call. I would now like to welcome BJ Grant, Senior Vice President of Investor Relations, to begin the call. BJ, over to you.

[BJ Grant, Senior VP of Investor Relations at Ventas]

Thank you, Manny. Good morning, everyone, and welcome to the Ventas third quarter financial results conference call. Yesterday, we issued our third quarter earnings release, supplemental investor package, and presentation materials, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of 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 the Ventas website.

[BJ Grant, Senior VP of Investor Relations at Ventas]

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 A. Cafaro, Chairman and CEO of Ventas.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Thank you, BJ, and good morning to all of our shareholders and other participants. I'm happy to welcome you to the Ventas third quarter 2023 earnings call. We're pleased to deliver a strong quarter of normalized FFO of $0.75 per share, representing 6% year-over-year growth, and total company Same-Store cash NOI growth of nearly 8%. Our results reflect both the actions we have taken to drive performance and the powerful demand across our diversified portfolio that is unified in serving the needs of a large and growing aging population. We are also pleased to raise our full-year 2023 normalized FFO guidance midpoint to $2.98 per share. Our senior housing operating portfolio fueled our performance, proving the significant benefits that our communities and operators provide to residents and their families.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Same-store year-over-year cash NOI growth exceeded 18%, driven by Ventas's operational insights platform in collaboration with our operators. Our Canadian SHOP communities ended the quarter at nearly 96% occupancy and delivered 6% year-over-year NOI growth. Across the SHOP business, move-in significantly exceeded 2019 levels, and the portfolio experienced broad-based occupancy gains in both assisted and independent living. Spot occupancy accelerated in the third, gaining 180 basis points from the beginning to the end of the quarter. The multi-year growth and recovery cycle in senior housing is in full swing. In addition, our outpatient medical and research portfolio continued to distinguish itself by delivering solid, compounding, consistent growth in the third quarter. As we step back and look across commercial real estate, we continue to believe that Ventas occupies an advantaged position.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Here are five key reasons why: First, because our portfolio is unified in serving the needs of the nation's large and growing aging population, demand is strong and getting stronger. By 2030, 20% of the U.S. population, more than 70 million individuals, will be 65 or older. The over 80 population alone is expected to grow 24% in the next 5 years. All of our asset classes benefit from these demographic demand trends and provide powerful tailwinds to our enterprise in a variety of economic scenarios. In senior housing, we're facing the most favorable supply-demand fundamentals the industry has ever experienced. Senior housing starts are at cyclical lows and likely to go lower due to tightening credit conditions. In our SHOP markets, we have virtually no new starts.

[Debra A. Cafaro, Chairman and CEO at Ventas]

This favorable supply-demand relationship creates a compelling backdrop for multi-year growth ahead in senior housing, occupancy, and rates, particularly in light of the affordability of senior housing and the value proposition it provides. Second, investment opportunities continue to grow in the senior housing space, and we are well positioned to capitalize on these opportunities. There's a huge pool of quality senior living communities with attractive return profiles that are coming to market as a result of debt maturities and higher debt service costs. These communities tend to have meaningful runway for occupancy and NOI growth in the hands of well-capitalized, experienced, and knowledgeable owners like Ventas. This trend should accelerate in 2024 and 2025. We have the scale, team, relationships, capital access, analytical and operational insights, and experience to expand our senior housing portfolio and create NOI growth.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Third, we've continued to build out our Ventas Investment Management, or VIM, platform. VIM provides Ventas another way to expand the opportunity set that benefits our institutional investors and public shareholders alike. This quarter, we invested over $200 million through our open-end fund. Fourth, Ventas has assembled the nation's leading business at the intersection of medicine, research, and universities. Our high-quality outpatient medical portfolio is well occupied and affiliated with leading healthcare systems across the country. Our research business represents a differentiated, credit-driven model centered on serving the nation's top universities. And our excellent internal property management and leasing function enables us to deliver an outstanding experience to our tenants and drive leasing activity. We continue to see meaningful institutional demand in our university-based research portfolio, and I'd like to give you just a few recent examples.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Atrium Health Wake Forest Baptist recently announced its intention to create a new 160,000 sq ft eye institute at our redevelopment site in the Innovation Quarter at Wake Forest. At Arizona State University, the National Institutes of Health, or NIH, recently leased space for medical research, demonstrating the desirability of our site and creating a magnet for other researchers. In addition, Siemens Medical Solutions recently leased space at our $500 million Charlotte, North Carolina, project, which is already 80% pre-leased. And last, we are pleased to welcome Dr. Drew Weissman, recent Nobel laureate, to our Penn site at One uCity later this year. We are proud to serve these world-class medical and scientific leaders as they pursue life-changing discoveries. Fifth, and finally, we continue to demonstrate access to multiple capital markets at attractive pricing to maintain financial strength and flexibility.

[Debra A. Cafaro, Chairman and CEO at Ventas]

We have raised nearly $3 billion year to date in various capital markets ahead of the recent rise in interest rates. These actions enhance our liquidity and underscore the competitive advantages Ventas has because of our size, scale, and diversified enterprise. Across Ventas, we are laser-focused on maximizing fundamental performance and generating superior total return for shareholders by enabling exceptional environments that meet the needs of individuals, families, and communities. In closing, we are pleased to improve our 2023 outlook and to see that while we certainly have more work to do, our total returns to shareholders over the last 1- and 3-year periods, and since the beginning of 2022, have outperformed both the healthcare REIT and the REIT indices. The whole Ventas team remains intent on delivering outsized value to its shareholders and other stakeholders.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Now, I'm happy to turn the call over to Justin.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Thank you, Debbie. I will start by reporting our third quarter SHOP results, which were very good. Broad-based demand, combined with the implementation of the Ventas OI active asset management playbook in collaboration with our operators, delivered healthy top and bottom line growth in SHOP during the quarter. Our SHOP portfolio continues to deliver double-digit same-store cash NOI growth for the fifth quarter in a row. The NOI growth of 18.2% was led by the U.S., with 24% growth, and our 95% occupied Canadian portfolio contributed 6%. Occupancy accelerated throughout the quarter, with 180 basis points of spot occupancy from June to September, led by the U.S. with 210 basis points. U.S. SHOP occupancy growth was supported primarily by strong demand, with move-ins that were 120% of 2019 levels.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Furthermore, we saw 130 basis points of average sequential occupancy growth from the second quarter to the third. Revenue growth was 7.6% year-over-year, driven by the occupancy growth as well as RevPOR growth of 6.2%, which was led by the US with 6.4%, as we continue to focus on optimizing price and volume to maximize NOI. RevPOR would have been 20 basis points higher if adjusted for the Sunrise special assessment that occurred in the quarter last year. OpEx performed well with 4% growth, and margin expanded 230 basis points year-over-year. Now, I'll give an update on the Holiday independent living communities. We are pleased with the performance across this portfolio.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

The 75 Holiday by Atria U.S. IL communities are benefiting from the broad-based demand and saw spot occupancy increase by 190 basis points from July to September. We continue to see good performance in this more streamlined portfolio, which allows for enhanced focus and with a renewed sense of urgency to execute. We will continue to closely monitor the performance. The 26 IL communities that moved to proven operators grew spot occupancy by 140 basis points from July to September. These three operators are making early improvements to service, delivery, and performance. Our expert approach of moving communities to new operators ensures that lead banks are transferred immediately, websites are integrated, and management, including the CEOs, have access to the communities well ahead of the transition date to enable quick execution and results.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

We continue to advance the OI platform and its impact on the portfolio. I'm pleased to see outsized performance in our Sunrise portfolio, where our move-in volume is exceptionally high. Our transition communities are experiencing remarkable occupancy and RevPOR growth, and our NOI generating CapEx program, which is delivering initial returns of about 20%. As we look to finish the year, we are expecting attractive top and bottom line SHOP same-store cash NOI growth of 17%-19% for the full year. The key assumptions that drive the midpoint of our range are average occupancy, growth of about 110 basis points, and RevPOR growth of about 6%, which was total revenue growth to at least 7.5%. We expect operating expenses at around 4.5% growth due to increased occupancy. This, of course, implies continued margin expansion.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Embedded in this guidance is the impact of the Sunrise special assessment that occurred in the third and fourth quarters of last year. Had Sunrise repeated the special assessment in 2023, our SHOP full year NOI guidance midpoint would have been 200 basis points higher. This impact reverses out in Q1 2024, as Sunrise intends to return to the normal first quarter cadence during this rate increase cycle. We expect the fourth quarter to exhibit normal seasonal patterns and are projecting sequential and year-over-year average occupancy growth. The strong demand supporting our portfolio growth is indicative of the macro backdrop that Debbie described, and most importantly, a testament to the high quality care and services that we are offering our residents and their families.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Our operating partners are focused on delivering a valuable living experience for our residents, a meaningful work experience for our employees, and a value proposition that is attractive to our residents and their families as they choose to live in our communities. Moving on to investments. We made two investments in the quarter through our VIM platform's open-ended fund. We acquired a trophy portfolio consisting of two outpatient medical facilities, totaling 281,000 sq ft, located in Tucson, Arizona, fully leased to AA- rated Banner Health. The purchase price was $134 million. These buildings are crucial in Banner's delivery of care and services, providing multi-specialty clinical care. We also acquired two Class A private pay senior housing assets with 181 units in Connecticut and Massachusetts. The purchase price was $79.5 million.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

The assets were developed and sold by Benchmark Senior Living and two private equity firms. Benchmark is a strong regional operator with a long-standing reputation as a market leader in the Northeast. Our top investment priorities continue to be NOI generating CapEx in our existing real estate and senior housing acquisitions. Now, I'll hand over to Bob.

[Bob Probst, EVP and CFO at Ventas]

Thank you, Justin. I'll share some highlights of the Q3 performance in our outpatient medical and research and equitized loan portfolios, turn to the enterprise results for the quarter, discuss our balance sheet, and close with our updated and improved 2023 guidance. Starting with some highlights from our outpatient medical business. Outpatient medical continued its string of 3% or greater same-store cash NOI growth in the quarter, benefiting from operational excellence, as evidenced by tenant satisfaction scores, which outperformed 97% of our peers as surveyed by Kingsley. Meanwhile, our university-based R&I same-store cash NOI increased 3.3%, with occupancy growing year-over-year on the back of strong demand for space from our university tenants. This demand is evidenced by our recently completed developments at Penn and Pitt, which combined, are already nearly 90% leased or committed.

[Bob Probst, EVP and CFO at Ventas]

Ventas's experienced asset management teams continue to drive performance and value across all asset classes in the recently equitized loan portfolio or ELP. Underlying NOI performance in the ELP outpatient medical, Triple Net, and SHOP portfolios is trending well, and our timing of taking the portfolio over is proving to be prescient. Our 2023 ELP NOI expectation remains in line with last quarter. We also pruned the ELP portfolio through the sale of six skilled nursing assets for a gain in the quarter at an attractive price of $60 million or 135,000 per bed. Our overall enterprise reported strong third quarter normalized FFO per share of $0.75, representing an increase of nearly 6% year-over-year, adjusting for lapping $0.05 in prior year HHS proceeds.

[Bob Probst, EVP and CFO at Ventas]

Total company same-store cash NOI increased 7.9% year-over-year, powered by our SHOP portfolio growth of over 18% in the quarter. In terms of the balance sheet, our liquidity is significant. We have $3.1 billion of available liquidity, which covers our 2024 maturities by over 3 times, with our revolver undrawn and $400 million of available cash on hand. I'm really pleased with how we realize that liquidity, namely through proactive capital raising, well ahead of our 2024 maturing debt and prior to the run-up in base rates. We first took action in Canada in April, then raised over $1.8 billion in attractive convertible, secured, and bank debt in the summer and early fall.

[Bob Probst, EVP and CFO at Ventas]

As a result, we've now raised $2.8 billion of capital year to date at an average cash interest rate below 5%. We've used these proceeds to reduce our 2024 maturities, less available cash to just $800 million. We extended our debt duration. We entered pay fixed hedges at low points in base rates, and we reduced Ventas' floating rate to just 8% from 18% earlier this year. These are strong proof points of our advantage access to attractive capital and our skill in using that access to the benefit of our shareholders. I'll conclude with our updated and improved outlook for fiscal 2023. After another solid quarter, we are improving our full-year normalized FFO guidance to now range from $2.96 per share to $2.99 per share.

[Bob Probst, EVP and CFO at Ventas]

This guidance midpoint represents a $0.01 increase versus prior guidance and 5% growth year-over-year ex-HHS, led by broad-based property strength. As we raise our normalized FFO per share midpoint for the year, we note that 2023 is unfolding directionally, as we stated at the beginning of the year, marked by significant year-over-year property NOI growth, partially offset by the macro impact of higher interest rates in FX. At the full year guidance midpoint, the implied fourth quarter normalized FFO of $0.75 per share is consistent with the third quarter, with sequential property growth led by SHOP, offset by higher interest rates, FX, and back half dispositions. Total company full year same-store cash NOI year-over-year growth is maintained at 8% at the midpoint. Please see our investor presentation and supplemental disclosure posted to our website for further guidance assumptions.

[Bob Probst, EVP and CFO at Ventas]

To close, we are pleased with the strong quarter, improved full year guidance, and the commitment and skill of the Ventas team. For Q&A, we ask each caller to state one question to be respectful to everyone on the line. With that, I'll turn the call back to the operator.

[Operator]

At this time, I'd like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. We'll pause for just a moment to compile any questions. Again, if you'd like to ask a question, please press Star one on your telephone keypad now. Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt, Director and Equity Research Analyst at KeyBanc Capital Markets]

Yeah, thanks. Good morning, everybody. Justin, you highlighted the impact that the later timing on the renewal increases or the special assessments that you sent out for Sunrise last year is having on the portfolio. I'm curious, is there anywhere else that you've dialed back either the timing or magnitude of rate increases in order to drive occupancy here recently?

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Hi. Yeah, sure. So first of all, price volume optimization is an ongoing focus for us. You can see in our numbers, the RevPOR growth year-over-year has been solid. Obviously, there was an impact from Sunrise, so the 6.2 would have been 6.4, had not been for that, that bad year-over-year comp. So strong pricing power, really strong volume in the third quarter. So, you know, we're really putting together, I think, the right balance of, of price and volume to drive growth.

[Debra A. Cafaro, Chairman and CEO at Ventas]

I think it's important to note, Austin, also, that last year was an extraordinary measure that had never been taken, and so this is just returning to normalcy with the January 1 increases.

[Operator]

Our next question comes from the line of Steve Sakwa with Evercore ISI. Please go ahead.

[Steve Sakwa, Senior Managing Director and Senior Equity Research Analyst at Evercore ISI]

Yeah, thanks. Good morning. Debbie, or maybe Justin, you, you talked about kind of growing acquisition opportunities. I'm just wondering if you could kind of frame what kind of returns you might be seeing, either with going in yields or unlevered IRRs. And I guess to marry that, how do you sort of think about the funding of those? Is that going to be part of them, or is that going to be done on balance sheet with a combination of equity and debt? Thank you.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Oh, great, great question. We'll tag team that. First of all, we do see our cost of capital and the yield of senior housing investments, which we're most attracted to coming into line. You noted a number of advantages that we have in terms of funding. We have liquidity, we have the VIM platform, and of course, you know, we do see these the volume of senior housing coming to market and yields increasing so that we feel optimistic about the cost of capital and the yields coming into an attractive focus. And I'll just turn it over to Justin to talk about what kinds of opportunities are building in the pipeline.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

So we're seeing a number of opportunities that are really building, and particularly in recent months and weeks. Includes a number of seller institutional sellers that are dealing with debt maturities or fund maturities. And we're starting to see the returns become more interesting to us. We're seeing, call it 6%-8% in place, and it really depends on the type of asset you're buying. If it's something that has more growth, it might be, you know, low- to mid-6% that can grow to an 8% or better, and then a stabilized senior housing asset in the mid-7%. And we target, you know, low double digit, and in some cases, even mid double digit unlevered IRRs.

[Operator]

Our next question comes from the line of Nick Joseph with Citi. Please go ahead.

[Nick Joseph, Head of US Real Estate and Lodging Research Team at Citi]

Thanks. Maybe just following up on the acquisitions. We obviously saw a medical office M&A deal announced this week. So curious your interest in growing on the medical office side, and how you're thinking about current pricing within that space relative to the IRRs you can get in other asset types.

[Debra A. Cafaro, Chairman and CEO at Ventas]

We really intend to lean into senior housing, where we have significant expertise and really ought to be, you know, a great owner of senior housing with our platform and our relationships. And as Justin said, double digit, you know, low to mid double digit IRR, so we're very interested in that area. First and foremost, you saw that we did close in the VIM platform a medical office building, which has advantages for the VIM stakeholders in particular, in terms of being reliable, compounding cash flow.

[Operator]

Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

[Juan Sanabria, Managing Director and Senior US Real Estate Analyst at BMO Capital Markets]

Good morning. Hoping you could talk a little bit about what you're seeing with Kindred, given the lease expiration coming up there. And as part of that, if you could talk a little bit about how deep the operator pool is, if in fact there is a transition that has to happen at some point, and how we should think about the delta between EBITDARM and EBITDA coverage. Thank you.

[Debra A. Cafaro, Chairman and CEO at Ventas]

That was a multi-part question, Juan. Good morning.

[Juan Sanabria, Managing Director and Senior US Real Estate Analyst at BMO Capital Markets]

Had to be sneaky.

[Debra A. Cafaro, Chairman and CEO at Ventas]

So a portion of the Kindred lease for 20-some, 23 LTACs is up for renewal in 2025. We've talked about EBITDA coverage being about 0.9, and what's most important, obviously, is what the earnings capacity of these assets is likely to be post-2025 in terms of thinking about the outcomes. Right now, you can see that Kindred has adopted some initiatives for improving the operating performance, which we know are focused really on cost savings, in particular, labor and contract labor. And we're seeing that even in the quarter to date, those are beginning to show early signs of improvement. And so that's how we're really thinking about the 2025 renewal slash maturity.

[Debra A. Cafaro, Chairman and CEO at Ventas]

LTACs certainly have a pool of qualified operators across the country, from publicly traded Select to a variety of regional operators, and we're familiar with all of those.

[Operator]

Our next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

[Mike Mueller, Analyst at JPMorgan]

Yeah. Hi. I was wondering, can you talk a little bit about the pace of development leasing in the R&I portfolio that you're seeing? And has there been any material change in the past 3-6 months in terms of the pace?

[Debra A. Cafaro, Chairman and CEO at Ventas]

Mm-hmm. Yes. I mean, one of the things I talked about is, you know, at our largest project, which is in Charlotte, North Carolina, which is really at this intersection of universities and medicine and research, it's our largest project. It's in one of the fastest growing cities, and it is already 80% pre-leased. We just had Siemens sign a large lease there, and we're really at kind of the mid-construction phase. And so, that's the most significant, but we are seeing other leasing activity. We only have a couple of other developments underway, and we are seeing leasing activity there.

[Operator]

Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

[Ronald Kamdem, Managing Director and Head of US REITs and CRE Research at Morgan Stanley]

Hey, just, So last quarter, you had the operator transition, and it looked like that's progressing pretty well. So the, the question really is, you know, have you guys sort of changed sort of the way you think about the relationship with operators and evaluating it, and evaluating it? And how do you sort of get comfortable that, you know, in 2024, there isn't sort of another surprise on the transitions or that you feel pretty good about what's coming down? Thanks.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Hi, it's Justin. So first of all, just backing up a little bit, where we always start is evaluating, are we in the right markets? And so we've done a lot of work over the past few years to make sure that we're well positioned to benefit from the recovery. If we're in markets that we didn't think were going to provide attractive growth for our respective assets, we've had dispositions, and we've used that part of the toolbox. In terms of making sure that the assets are well-positioned, you know, we've obviously made investments into our communities, and then we have the operator selection. And, you know, operator selection has been just a regular part of our toolbox.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Certainly shouldn't be deemed as a surprise if we're tweaking and trying to make sure we have the right fit, you know, the best operator really to create value in those respective markets and assets. And to your point, you know, we are pleased with the results we're getting. You know, we had a recent transition. We had a number of things that we worked on to make sure that we could get quick results, and that was getting boots on the ground. We had the management teams and the CEOs of the companies in the communities right away. We secured the lead bank, so we could start executing on leads right away.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

We transferred the website, and, you know, the early results are good, and we're going to stay close to it, and we're really pleased with the execution thus far.

[Operator]

Our next question comes from the line of Joshua Dennerlein with Bank of America. Please go ahead.

[Joshua Dennerlein, Senior Equity Research Analyst and REITs Director at Bank of America]

Yeah. Hey, everyone. Good morning. Just kind of thinking about the SHOP business as we go forward, how are you guys thinking about pricing power? I understand the dynamic that's going on with the Sunrise timing, but just kind of thinking about pricing power broadly.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Hi, it's Justin. So the pricing power over the past few years has really been very, very good. You know, we have, you know, at a relatively low occupancy, you know, this broad-based demand is allowing for appropriate pricing, really to ensure that we can cover all the costs associated with delivering care and services, and to deliver growth for the business. And we remain very focused on that, both from an internal pricing standpoint and external. And, you know, if we can get it right, we tend to look for a RevPOR, ExpPOR spread, you know, usually around 2%-3%. And that's where we're focused. And the price volume optimization is working because we're really getting growth in RevPOR, and we're seeing the occupancy growth as well.

[Operator]

Our next question comes from the line of Rich Anderson with Wedbush. Please go ahead.

[Rich Anderson, Managing Director at Wedbush]

Thanks. Good morning. So I want to talk about capital. Justin, you said top priorities are senior housing investing. We went through that, and then CapEx spending. Can you talk about, you know, the cadence of how that might transpire from 2023 to 2024 in terms of the types of dollars you're thinking about spending and how much more could come in 2024? Just trying to get a sort of a range, you know, to quantify that a bit. And also, if you comment on the SHOP guidance of 18% at the midpoint, SHOP same-store NOI guidance, how much of that is juiced by the deployment of CapEx? So you get the revenue benefit and the occupancy benefit, but you don't get the cost hit, at least out of the gate.

[Rich Anderson, Managing Director at Wedbush]

I'm just curious if you can comment on that. Thanks.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Why don't I start with the second part of the question, and then Bob will jump in on with the first part? So, you know, we have a number of projects, you know, that are underway. We have 170 projects that should complete by the end of this year. We started on this endeavor in October of 2022. So relatively quick execution on a number of improvements across our communities, mostly mid-market focused, and also unit upgrades. We do have, you know, obviously, the ability to measure the results. And what we do is we just simply take like communities and compare the results in those that have CapEx versus those that didn't.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Where we're seeing outperformance in our communities that have benefited from the CapEx, the early results are showing a 20%+ ROI, but we're also seeing growth across the broader portfolio. So, you know, we're benefiting from the broad-based demand across the portfolio. We're leaning into the markets and assets where we want to improve our market position through investment, and it's all, you know, really coming together and working for us.

[Debra A. Cafaro, Chairman and CEO at Ventas]

It's a multiyear return as well, that builds on itself.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

A multi-year investment, to answer that part of the question. In page 20 of the investor deck, I think, is a good reference here, Rich, because we really started this investment in 2022, really about a year ago, and are looking at completing about 170 projects by the end of this year. You see the increased redevelopment CapEx spend of $230 million this year as a consequence. We expect that to remain at a higher level next year as we finish out the suite of opportunities. With the returns Justin quoted, we want to continue to invest there, but that will be finite and then, you know, over time, come back down to, quote, "normal." So that's, that's the flow.

[Operator]

Our next question comes from the line of Connor Siversky with Wells Fargo. Please go ahead.

[Analyst at Wells Fargo]

Hey, good morning. Jesus on for Connor this morning. Thanks for having me on the call today. So just on the equitized loan portfolio, how should we be thinking about the rest of the assets in the mix here? So how far along is Ventas in identifying the, and processing the CapEx needs of the outpatient medical assets? A couple quarters back, you were talking about using a playbook from a previous portfolio. So just wondering if you can quantify the amount and timing of these investments, and how are these leasing conversations progressing for the portfolio? And just a quick follow-up, looks like the SNFs, you guys had some pretty favorable cash yields in the assets sold. Any color on the coverage level or remaining lease term on these assets? Thanks, guys.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Good morning, Jesus. I'm going to ask Pete to talk about the opportunity in the medical office building portfolio, outpatient medical, that he's taken over and is deploying the Lillibridge playbook. There's a lot of opportunity, and we're obviously off to a good start there. Pete, I'll turn that over to you and-

[Pete Bulgarelli, EVP of Outpatient Medical and Research at Ventas]

Sure. Yeah, thanks. So we're really excited about the portfolio. So far, we have transitioned 32 buildings onto our Lillibridge platform out of 88. So we've made great progress in the first quarter. As it relates to leasing, we have replaced about half our leasing agents. We've replaced 12 out of 23 leasing agents for people that we think are really gonna run with this portfolio. We started this portfolio at 77% occupancy. We just completed our first quarter of running this portfolio. We had an 85% retention rate, and we've got 200,000 sq ft worth of new leasing in our pipeline. So we're very optimistic. And I'll give you just a, to me, it's a fun anecdote. We have this building that we inherited called Eagles Landing in suburban Atlanta.

[Pete Bulgarelli, EVP of Outpatient Medical and Research at Ventas]

It's a 45,000 sq ft building. It was empty, 0% occupancy when we picked it up, and it's now 30% leased, and we just signed an LOI on another 20,000 sq ft in the building yesterday. So we're gonna be at 75% occupancy very shortly in that building. So we're optimistic about the portfolio. As it relates to capital, we are investing some capital to improve some of the infrastructure of these buildings, and we're well underway on those as well.

[Operator]

Our next question comes from the line of Michael Stroyeck with Green Street. Please go ahead.

[Michael Stroyeck, Analyst at Green Street]

Good morning. Can you just provide some additional color surrounding the decline in occupancy within the MOB portfolio? Any info on the type of tenant and assets seeing the decline, and just what drove that would be helpful. Thanks.

[Pete Bulgarelli, EVP of Outpatient Medical and Research at Ventas]

Sure. So look, our occupancy is at 91.7%. We've had some really nice gains over the last couple of quarters in occupancy. We're really happy with our retention. Retention is 82%, TTM and 88% for the quarter. We've got a very strong new leasing pipeline of 600,000 sq ft for the MOB portfolio, and we have two off-campus, non-strategic, 30,000 sq ft buildings that we're considering selling. And, if those were not in the portfolio, occupancy would be essentially flat.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Thanks, Pete.

[Operator]

Our final question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

[Vikram Malhotra, Managing Director at Mizuho]

Thanks for taking the question. Just considering the success you've had with the transitions at Holiday, I'm wondering, you know, is there a, you know, plan to maybe take another bucket, and transition them, or are there any signs that there's maybe a, you know, incrementally a group that, you know, A, B, C, sort of B, B asset, B, B performance, given how successful the transitions have been? And just related to that transition, can you also just address where you stand on the Brookdale lease, which I think is due in a couple of years?

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Okay. Hi, it's Justin. Let me start with the first question. So we do have, you know, we have 75 communities in our same store that are operated by Holiday by Atria. Those communities were performing relatively better, and they continue to do that. I can tell you that, you know, they're now managing a more streamlined and focused portfolio with a high sense of urgency. They wanna do well. I mean, this is a company that's very focused on this. They've been extremely focused on sales execution and getting tour conversions up, and they've had good results in the third quarter. And we're gonna stay very close to this and monitor it closely, and expect to see good results.

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

And then in terms of Brookdale, we are really happy to see improved performance across our portfolio, and it's been consistently improving and has good coverage, and we'll look for more progress in that portfolio moving forward.

[Vikram Malhotra, Managing Director at Mizuho]

Thanks.

[Operator]

Our next question comes from the line of Nick Yulico with Scotia Bank. Please go ahead.

[Nich Yulico, Managing Director at Scotiabank]

Thanks. I just wanted to ask a little bit more about, you know, pricing trends and how to think about, you know, going forward, particularly in the IL segment. You know, I mean, if we're just seeing kinda broader, you know, multifamily, you know, broader housing prices come down from an inflationary standpoint, is there a dynamic there on pricing for independent living that, you know, may be different versus assisted living going forward? Any thoughts on that?

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Sure. And we certainly track the relationship between pricing and multifamily across all of our markets, and particularly as it pertains to independent living. But quite frankly, you know, this price-volume optimization I've been speaking to has been working for us, and we've seen really both move together, price and volume moving together. And so I'd say the pricing power remains significant, and we're pleased to see the pickup in occupancy as well.

[Nich Yulico, Managing Director at Scotiabank]

Thanks.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Thanks, Nick.

[Operator]

Our next question does come from Michael Carroll with RBC Capital Markets. Please go ahead.

[Michael Carroll, Managing Director at RBC Capital Markets]

Yep, thanks. I just wanna circle back on the investments. I know that Ventas has been kind of highlighting that there's more investment opportunities, but how active can the company be, I guess, over the next year or so? I mean, are there larger portfolios out there that you're interested in or tracking, or can you actually start pursuing some smaller deals and maybe kind of lump them in with some of your current operators that might want additional scale in their specific markets?

[Justin Hutchens, EVP of Senior Housing and Chief Investment Officer at Ventas]

Yeah, sure. So we are looking at smaller opportunities, you know, to really, you know, continue to expand our existing relationships and add new relationships, and using our variety of different sources of capital to do that. I mentioned Benchmark. That's an exciting new relationship for us. And certainly we have the capability to do larger transactions as well. So we see most of what's on the market and a lot of what's not on the market, and we're very interested in expanding in senior housing.

[Operator]

We do have another question from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt, Director and Equity Research Analyst at KeyBanc Capital Markets]

Great. Thanks for taking the question. I just wanted to circle back on the public M&A deal this week. I know you've said now a couple of times you want to lean into senior housing, but just curious, I mean, are you underwriting that transaction? And is it something that, you know, you'd be interested in pursuing at this point?

[Debra A. Cafaro, Chairman and CEO at Ventas]

We'd love to help you out, but we have a firm policy on not commenting on others' transactions. We have a great outpatient medical and research business, as I described, and we're really interested in investing in senior housing. So I think you should defer those questions to the companies themselves.

[Operator]

I would now like to turn the call over to Ventas management team for closing remarks.

[Debra A. Cafaro, Chairman and CEO at Ventas]

Thanks so much. We're very pleased to deliver a strong quarter for our shareholders and improve our outlook. All of us at Ventas really appreciate your attention, your interest in our company, and we look forward to seeing you in Los Angeles. Thanks.

[Operator]

I'd like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's call, and you may now disconnect.

Participants

Executives

• BJ Grant, Senior VP of Investor Relations
• Bob Probst, EVP and CFO
• Debra A. Cafaro, Chairman and CEO
• Justin Hutchens, EVP of Senior Housing and Chief Investment Officer
• Pete Bulgarelli, EVP of Outpatient Medical and Research

Analysts

• Austin Wurschmidt, Director and Equity Research Analyst at KeyBanc Capital Markets
• Joshua Dennerlein, Senior Equity Research Analyst and REITs Director at Bank of America
• Juan Sanabria, Managing Director and Senior US Real Estate Analyst at BMO Capital Markets
• Michael Carroll, Managing Director at RBC Capital Markets
• Michael Stroyeck, Analyst at Green Street
• Mike Mueller, Analyst at JPMorgan
• Nich Yulico, Managing Director at Scotiabank
• Nick Joseph, Head of US Real Estate and Lodging Research Team at Citi
• Rich Anderson, Managing Director at Wedbush
• Ronald Kamdem, Managing Director and Head of US REITs and CRE Research at Morgan Stanley
• Steve Sakwa, Senior Managing Director and Senior Equity Research Analyst at Evercore ISI
• Vikram Malhotra, Managing Director at Mizuho
• Analyst at Wells Fargo