Ventas, Inc. (NYSE:VTR) Q1 2024 Earnings Call Transcript

Ventas, Inc. (NYSE:VTR) Q1 2024 Earnings Call Transcript May 2, 2024

Ventas, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Katleen and I will be your conference operator today. At this time I would like to welcome everyone to the Ventas First Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

Bill Grant: Thank you, Katleen, and good morning, everyone, and welcome to the Ventas First Quarter financial results conference call. Yesterday, we issued our first quarter earnings release, supplemental investor package and presentation materials, which are available on the Ventas website at IR.ventosread.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 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 the Chairman and CEO of Ventas, Debra Cafaro.

Debra Cafaro: Thank you BJ. On behalf of all of my colleagues, I want to welcome our shareholders and other participants to the Ventas First Quarter 2024 earnings call. Today, I’ll discuss our good start to the year, describe the actions we are taking to execute on our strategy and create value for our stakeholders and share our improved outlook for 2024 as the multi-year growth opportunity in senior housing builds. As a reminder, our three-pronged Ventas strategy is composed of first, deliver organic growth in our senior housing portfolio, second, capture value through investments focused on senior housing, and third, drive cash flow throughout our portfolio. We entered this year with momentum. And in Q1, our enterprise delivered $0.78 of normalized FFO per share and over $2 billion in annualized NOI.

Our strong results came from nearly 7% same-store property NOI growth, led by shop at over 15%. Notably, demand-driven occupancy gains in our shop portfolio are accelerated, fueled by favorable supply demand fundamentals in our markets and the actions we’ve taken in concert with our care providers. Move-ins across the portfolio were elevated as we gained 240 basis points of occupancy in our same-store shop portfolio year-over-year. As the second largest owner of senior housing, we are benefiting from the multi-year senior housing growth opportunity that continues to gain traction from both demand-led occupancy and RevPOR growth. Accelerating demand for our senior housing community underscores the valuable benefits they provide to residents and their families.

The over 80 population is expected to grow by 5 million individuals through 2030, yet new construction starts in senior housing are the lowest in over a decade, as is the percentage of inventory under construction. In our shop portfolio, 99% of Ventas’ communities are free from competing construction starts. All of these trends combine to support a highly favorable, long-term runway for growth, in the biggest part of Ventas’ business, senior housing. We also want to expand our footprint in senior housing by capturing value-creating investments in the space. On this second prong of our strategy, we are making good progress. Year-to-date, we have closed or placed under contract about $350 million of investments that meet our targets of going in yields, expected unlevered IRRs, occupancy growth potential, affordability, and pricing below replacement costs.

Over my career, it has been rare to see such a compelling investment environment where we can acquire attractive assets in favorable markets at high going in yields and high growth. Due to market conditions, our efforts, and our team’s relationship, our pipeline of investment opportunities continues to grow, and we expect to make further progress on our investment plan in the balance of the year. Across Ventas, we are also focused on the third element of our strategy, driving cash flow throughout our portfolios. In addition to SHOP, which is now generating over $800 million in annualized NOI, there are two other areas I’d like to cover. Kindred and our outpatient medical and research business. First, respecting the Kindred lease for 23 LTACs, representing approximately 5% of our NOI.

The trailing rent coverage remains stable, and Kindred has projected improving revenue and expense performance trends for 2024. We continue to have active discussions with Kindred and other parties to optimize Ventas enterprise value and NOI from our properties following the April 2025 lease maturity. We and Kindred recently agreed to a one month extension for the lease renewal notice date to the end of May. We know you are keenly interested in hearing the outcome of our discussion, and we look forward to providing you with more information as soon as we can. Our competitively advantaged outpatient medical and research business continues to shine and benefit from strong institutional demands, and it’s delivering complementary, compounding contributions to our enterprise.

As a leader in senior housing, whose portfolio is aligned around serving a large and growing aging population, Ventas is advantaged across commercial real estate because demand for our assets is strong and getting stronger. The Ventas team is focused on the opportunity for value creation right in front of us. On that point, we are pleased to improve our outlook for the full year. We are raising Ventas’ 2024 normalized FFO guidance to between $3.10 and $3.18 per share, and increasing our full year 2024 total company same-store cash NOI guidance to 7% at the midpoint. And with that, I’m happy to call over to Justin.

Justin Hutchens: Thank you, Debbie. I am pleased to report that our SHOP portfolio performance is off to a strong start. Total SHOP same-store cash NOI growth was 15.2%. Our same-store SHOP communities delivered solid results across all key metrics, including occupancy, REVPOR and OpEx. The first quarter same-store SHOP occupancy group by 240 basis points year-to-year led by the U.S., which saw 280 basis points of occupancy gains. We have had a strong start to the year with broad-based contributions across community types, geographies, and operators. In our same-store portfolio in the U.S., move-ins were elevated at 113% versus prior year led by independent living move-ins at 127%, outperforming normal seasonal patterns. We have had nine consecutive months of tours outperforming prior year levels, contributing to the positive move-in momentum we have been experiencing.

REVPOR performed in line. Operating expenses were lower than expected due to continued strength in net hiring and cost efficiencies realized by our operators, leveraging insights from our Ventas OI platform. OpExPOR was 1.6%, 4.5% when adjusted for the leap year. I’m really happy that our operators are delivering excellent care and services and great results. I’d like to highlight Sunrise, [Indiscernible], Discovery, and Le Groupe Maurice in particular for their superb all-around performance to start the year. Like I said, we are experiencing broad-based contributions from our operators and we continue to leverage Ventas’ OI’s vast datasets and powerful analytics and insights to drive performance outcomes. Notably, our SHOP portfolio delivered double-digit, same-store cash NOI growth for the seventh quarter in a row.

Growth in the first quarter was led by our U.S. communities, which grew same-store cash, NOI 18%. This strong performance in the U.S. was complimented by our high-quality Canadian portfolio, which is 95% occupied, and continues to deliver a valuable and stable cash flow with 9% year-to-year growth. Given the strong start to the year, we are happy to raise our full-year guidance expectations on our same-store SHOP portfolio, which we now expect to grow 12% to 16% in NOI year-to-year. The key assumptions that drive the midpoint of our range are average occupancy growth for about 270 basis points up from 250, led by the U.S. with over 300 basis points, which is higher than we originally anticipated. We still expect REVPOR of about 5%, which puts the total revenue growth at around 8%, and OpExPOR growth is expected to be slightly lower than previously forecasted at approximately 2.5%.

Our total SHOP expectations were originally to add 118 million of NOI growth, and we have raised that expectation to 130 million. April occupancy is already off the strong start, driven by both tours and move-ins, volumes that are higher than prior year levels, so we’re optimistic about our ongoing occupancy performance. Remember that we are just now entering the critical key selling season, so we’ll have to see how that plays out. Looking forward, we are energized by the 1,000 basis points of potential occupancy upside in our markets over the course of the next few years. I’m excited about the very strong supply demand fundamentals combined with well-invested properties and excellent operators supported by our Ventas-OI platform to drive growth.

Moving on to investments, senior housing is now just over half of the Ventas portfolio NOI, with shop representing 40% and growing due to the exceptionally strong organic growth, and now we are expanding externally as well. We have been actively capturing value-creating external growth opportunities focused on senior housing. So far, we have closed our under contract for approximately 330 million of senior housing investments, out of which 130 million has already closed. These opportunities are exactly in our sweet spot. I am particularly excited by the unique opportunity to invest in relatively high yielding, high-quality senior housing communities coupled with outsized growth. These investments have a blended going in yield and high sevens coupled with mid-teens on levered IRRs. Additionally, we are investing in attractive discounts for replacement costs with an average cost of $241,000 per unit.

Our approach to executing our investment strategy is guided by our right market, right asset, right operator framework. We are investing in markets with a compelling supply demand profile, strong affordability, and meaningful expected net absorption. We prefer communities that are supported by need-driven demand and offer a combination of services, including independent living, assisted living, and memory care. These communities help us employ a strategic expansion of Ventas strengths in our active value-creating asset management playbook, driven through the Ventas-alive platform supported by our best-in-class data analytics. We are primarily expanding with existing operators with proven performance. Additionally, as part of our data-driven selection process, we welcome new operators with strong track records, with capabilities tailored to the service offering at the community, as we have more than doubled our SHOP operator pool over the past few years.

I’ll highlight the Magnolia Springs acquisition, which includes seven communities that are 10 years old on average. They’re currently 89% occupied and are located in markets projected to grow around 1,100 basis points over the next few years, supporting more significant revenue growth. The communities average 100 units each and offer a combination of assisted living and memory care services in the Indianapolis Cincinnati and Louisville market areas. Affordability on average in the markets is very strong at a projected seven times length of stay. The going-in yields projected to be low sevens and the unlevered IRR is projected to be mid-teens. The discount to replacement cost is estimated to be around 40%. The communities will be operated by [Indiscernible] who has a proven track record of delivering outstanding care services and performance.

Moving ahead, we plan to continue to execute on our growing pipeline of senior housing communities. We are actively evaluating many attractive opportunities. In summary, occupancy momentum is strong, and we are off to a strong start to the year. We look forward to continuing SHOP organic growth and executing on our compelling investment pipeline. Bob?

Robert Probst: Thanks, Justin. I’ll share some highlights of our first quarter performance, provide an update on our balance sheet and capital activities and close with our increased 2024 guidance. I’ll start my first quarter comments with our Outpatient Medical & Research segment, or OMAR, which reported same-store cash NOI growth of nearly 5% in the quarter. In outpatient medical, Eaton [ph] team executed 900,000 square feet of new and renewal leases in the first quarter, 50% higher than prior year. Meanwhile, the outpatient medical assets from the equitized loan portfolio increased occupancy by 300 basis points since taking ownership last year due to the effective asset and property management initiatives from the Ventas team.

Our university based research same-store cash NOI increased over 5% in the first quarter. with occupancy growth across the same-store portfolio. Our overall new leasing pipeline has increased by 30% to 1.4 million square feet with strong institutional and university demand for university-based life science buildings. In terms of first quarter enterprise results, we reported a net loss attributable to common stockholders of $0.04 per share. Normalized FFO per share in Q1 was strong at $0.78, representing 5% year-over-year growth. Our total company same-store cash NOI grew nearly 7%, led by SHOP, increasing 15%. Strong SHOP organic growth also drove a 20-basis-point sequential improvement in our net debt-to-EBITDA in the first quarter, further supporting our leverage trajectory was $94 million in equity raised at an average price of $44.04 to fully fund senior housing investments.

The SHOP growth included in the balance of the year guidance is expected to drive continuing leverage improvements in 2024. We had some notable capital markets activity so far this year. First, we extended the maturity to 2028 on our $2.75 billion revolving credit facility with improved pricing and strong oversubscription from our banking partners. We thank for their support of our platform. Second, we raised $650 million in 5-year Canadian senior notes at 5.1% in the first quarter, taking some 2025 maturing debt off the table early at attractive rates. We also used cash on hand to repay a portion of recent maturing debt, leaving us $700 million of 2024 debt maturities left to refinance this year. I’ll close with our updated 2024 guidance. We improved our outlook for net income attributable to common stockholders now range from $0.03 to $0.11 per diluted share.

We increased the midpoint of our full year normalized FFO guidance to $3.14 per share from the previous midpoint of $3.125. The increase in our midpoint can be explained by a $0.03 per share improvement in organic SHOP NOI, partially offset by higher interest rates. We’ve also raised both our property NOI and same-store cash NOI year-over-year growth midpoint expectations for each of our segments. Total company same-store cash NOI is now expected to grow 7% year-over-year compared to our prior midpoint of 6.25%. We have not included any incremental investments in our outlook beyond the $350 million closed or on our contract discussed today. We’re increasing our full year capital recycling proceeds to $300 million, as we enhance our portfolio and build additional sources to fund an attractive pipeline of senior housing investments.

Finally, we expect to spend $250 million in FAD CapEx in 2024. For additional 2024 guidance assumptions, please see our Q1 supplemental and earnings presentation deck posted to our website. With that, I’ll turn the call back to the operator.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of James Kammert of Evercore. Please go ahead.

James Kammert: Good morning, thank you. I know it’s a bit of a fluid target, obviously. But Justin, you mentioned a couple of times very optimistic about the occupancy potential growth across your core markets right, if they — I guess, you’re making what sort of assumptions there regarding the pace of that in terms of incremental absorption how many years would that take? I mean, you said about 1,000 points in some of your core markets upside occupancy?

Justin Hutchens: Yes, sure. So stepping back obviously, there’s been a lot of focus by those of us that participate in the senior housing sector on supply and demand, which has been excellent. Debbie highlighted that, I think, nicely in the opening remarks. We’ve added a page to our earnings deck, you’ve mentioned that articulates 1,000 basis points of upside in our markets over the next few years. We use a variety of data sources to determine and back testing in those proprietary, but we feel comfortable that’s a good outlook. Clearly we haven’t included pacing, but certainly like the opportunity to continue to perform well within those markets and then to expand into new markets through our external activities and capitalize on the exciting upside.

James Kammert: And just a sort of a follow-on to that. If you had for every 100 basis points of occupancy, is there any algorithm we can use to think about how that improves margin, because there’s obviously a fixed component cost that gets levered.

Justin Hutchens: Yes. So there’s certainly a lot of margin expansion opportunity for us because we’re, overall, both the mid-80s in the U.S. around 80% occupied. In our total SHOP portfolio of just under 80%, both in infant living and assisted living. So there’s a lot of occupancy upside ahead. And with that comes the operating leverage that we benefit from in our business. And so there’s really good margin expansion ahead. There are some rules of thumb. Maybe we’ll include that at some upcoming conferences.

James Kammert: All right. Thank you. I’ll leave it there. Thanks.

Debra Cafaro: Thank you.

Operator: Your next question comes from the line of Michael Carroll of RBC Capital Markets. Please go ahead.

Michael Carroll: Yes, thanks. I wanted to touch on Kindred. I know you made some prepared remarks, Debbie, about it. But can you talk about the reason for the extension option by one extra month? Is this something that Kindred asked for that they needed more time kind of assessing if they wanted to exercise that option or not?

Debra Cafaro: Good morning, Mike. Happy to talk to you about it. I mean look we’re engaged in active discussions with Kindred and others. And we’re really working to get to the right outcome. And so we believe that, that was really in the best interest of everyone to get to a good outcome, which we define as kind of optimizing Ventas value and NOI.

Michael Carroll: Okay. And then just kind of on that. I know in the past few quarters, you kind of highlighted that Kindred has been putting in new operational efficiency initiatives to deliver, I guess, better results, has those been put in place yet? And are you seeing returns? If you look at like the trailing 12-month EBITDARM coverage ratio on that portfolio for the past three quarters, it’s kind of held steady at that point 9 times. So it doesn’t seem like coverage has yet picked up, but I know that’s a trailing number. So I didn’t know if we have more recent data on the most recent quarter kind of highlighting some upticks there.

Debra Cafaro: I mean you’re right on the — Kindred has initiatives underway to improve both revenue and expense performance, and we are seeing sequential improvement, but the heat map, of course, is a trailing look. And so that’s really how you ought to think about it. So you hit the nail on the head.

Michael Carroll: Okay, great. Thank you.

Debra Cafaro: Thank you.

Operator: Your next question comes from the line of Michael Griffin of Citi. Please go ahead.

Michael Griffin: Thanks. And maybe just following up on Michael’s question. Could there be an additional extension for Kindred, or do you think end of May is when we will have a decision.

Debra Cafaro: Yes. Good morning. So I think that, we’re in these active discussions with Kindred and others, and we’re really focused on getting the right outcome for Ventas for the enterprise and also for the properties. And I would be — we’re working very hard to get to that kind of outcome. And so I’d be less focused on the notice date and just more focused on the work that we’re doing, we have a great team working on it. We’ve been working on it for a while. This is very similar to what happened last time, and we’re on it to get a resolution that as soon as we can, and we look forward to telling you as soon as we can.

Nicholas Joseph: Thanks. And I probably should. So this is Nick here with Michael. I guess the second question, just if it is retentive, as you talk to kind of other parties, what would the downtime be for the portfolio, if it goes down that route?

Debra Cafaro: Right. It’s interesting to see that well-respected players like Ensign have now entered the LTAC space. It seems to be enjoying a bit of a moment and that’s positive. I would say that there would be a transition kind of on day 1, if there were other tenants for some or all of the properties. So that’s the way to think about it. There’s no downtime. It’s not like outpatient medical or anything. There’s a direct operational transfer if that were to occur.

Nicholas Joseph: Perfect. Thank you very much.

Debra Cafaro: Thank you.

Operator: Your next question comes from the line of Tayo Okusanya from Deutsche Bank. Please go ahead.

Omotayo Okusanya: Hi, good morning everyone. Congrats on a great quarter. In terms of acquisitions, again, you have an interesting page in your deck, just kind of talking about all the upcoming debt maturities in senior housing and how you look at that as a potential opportunity — should we be thinking about acquisitions purely at three simple transactions? Or can we possibly see you doing more on the structured finance side as well?

Justin Hutchens: Primarily fee simple. That maturity chart really articulates the interesting opportunity because we have tremendously good fundamentals, but you have an asset that’s refinancing generally at a lower LTV and higher cost. So it’s putting pressure on existing owners. And it creates an opportunity for buyers like us to make high-quality acquisitions but with a better capital stack. And there’s a variety of sellers as well. There’s private equity sellers and operators and multifamily and institutional sellers that we’ve been seeing in our pipeline, including that which we’ve been executing on.

Omotayo Okusanya: Okay, that’s helpful. And then if I could sneak one more in. In terms of Brookdale, which is the other rent lease that’s coming up, again, coverage is great and all that’s fine. But curious if structurally that could changed from being a triple net portfolio to much more of a Ragea [ph] portfolio, just given how well your SHOP portfolio is doing and how strong senior housing fundamentals are generally.

Debra Cafaro: Tayo, thanks for asking that. Brookdale is about 7% of our NOI. And you’re right, the coverage has been improving, and it’s at about 1.3 times on a trailing basis. And again, the trends in those markets also support a lot of intermediate-term occupancy increases. And so there are lots of positive outcomes for Ventas as we think about that, which is as you mentioned, at the end of 2025.

Omotayo Okusanya: So I guess structurally, you expected to stay the same as a triple net?

Justin Hutchens: I think when we say we have a lot of positive options. I mean these communities are in markets that also have a tremendous upside from a supply-demand standpoint, the demand metrics are excellent. For the same point Debbie made on Kindred, the trailing coverage is always a little out of date. So there’s even better performance, I’m sure to come. So we like the opportunity really in any structure to own these communities. And that’s the positive opportunity that we’re facing.

Omotayo Okusanya: Thank you.

Operator: Your next question comes from the line of Juan Sanabria of BMO Capital Markets. Please go ahead.

Juan Sanabria: Hi, good morning. I just wanted to just wanted to ask around acquisitions, and it seems like you’ve got another group of properties maybe you’re looking at. How we should think about funding that? And how you think about your cost of capital with leverage still relatively high but definitely improving.

Robert Probst: Juan, I’ll take that one. Thanks. Starting with the financial returns that we’re seeing on these investments, which Justin articulated are really, really attractive even at the current cost of capital. We talked last earnings call about the fact that on balance sheet financing can work given those returns, and in fact, baked that into our guidance. And that’s what we executed on in the first quarter. We fully funded those senior housing investments with equity. And as we look forward, given the pipeline, what we’ve incrementally added to guidance is more disposition proceeds at the source. So another couple of hundred million across asset classes as a source of funds just because we see the opportunity in front of us. So pretty much doing what we said and building more dry powder would be my summary.

Juan Sanabria: Yes. And a follow-up for Justin on the 1,000 basis points of occupancy upside on the U.S. portfolio. I guess, first, is that a same-store comment or an overall portfolio comment and kind of where is the starting point now. And what do you see as the kind of the structural ceiling for occupancy knowing there’s always some churn of customers or seniors in and out of the communities.

Justin Hutchens: Great question. So first of all, it’s obviously U.S. focused and it’s a total SHOP, and we’re running just under 80% occupied in both our independent living and assisted living products in the U.S. It’s about two third assisted living in the U.S. in our total SHOP portfolio. We do see a lot of upside. The structural upside opportunity in my view, through experience and philosophically is 100% occupied. And we have several communities that are at 99%, 100% occupancy. And so there’s nothing like a completely full community to really demonstrate the operating leverage and also just deliver great care and services. And so that’s the goal. And we have operators that are starting to deliver on that goal, certainly in Canada, it’s starting to happen in the U.S. in certain markets, and we’ll keep driving. And it’s just great to have so much demand at our doorstep and to be able to look forward and have confidence around the opportunity.

Juan Sanabria: Thank you.

Operator: Your next question comes from the line of Ronald Kamdem of Morgan Stanley. Please go ahead.

Ronald Kamdem: Great. Just two quick ones. So one, trying to connect the dots on the occupancy here. You put a lot of bread crumbs in the presentation obviously starting with 1,000 basis points occupancy upside than we’re seeing here that you finally hired senior VP and senior housing. The Ventas OI and sort of the occupancy gains you’re getting on that CapEx investment. I guess the question to be direct is, is 275 to 300 basis points of occupancy gain a year. Is that the new normal, and if not, like what would be sort of stopping that?

Justin Hutchens: So a couple of comments in response here. So I mentioned that our U.S. is projected to be over 300-basis-point occupancy growth this year. So that’s a set to think about. I also mentioned that we’re just at the beginning of the key selling season. So we’ll be seeing how that plays out. You make a good point. We’re optimistic about the trends leading into it. So we’ll see where that goes. We have made a new hire, Senior VP of Senior Housing and Chief Revenue Officer for Senior Housing. This person will introduce when she starts in the first part of June, but her job really will be to lead the SHOP platform to drive performance and has a very, very strong background in top line performance in senior housing and in hospitality, and she’s held leadership roles in global Fortune 500 companies.

So really excited about the addition of the team and continue this momentum and work with what is really a tremendous existing team. That’s really been driving the OI platform. And I think the new addition will just make us even stronger.

Operator: Your next question comes from the line of Joshua Dennerlein of Bank of America. Please go ahead.

Joshua Dennerlein: Great. Hey guys, good morning everyone. The SHOP occupancy update in 1Q that was better than you guys were expecting and then you revised the outlook higher for the year. My question revolves around, is that driven by like the market being better, so like the beta being driven from the aging of America? Or is there some kind of like alpha overlay that you guys are doing internally that’s driving better customer demand, and that’s why you’re getting this like uplift. If the latter, could you just maybe elaborate on what you’re doing to drive that outlook?

Debra Cafaro: It’s both. And I sort of take the macro and then I defer to Justin on all of the kind of OI-driven actions and initiatives to deliver outsized performance within a demand-driven macro.

Justin Hutchens: That’s great. And it all starts with the macro for sure. And then within that, we’ve been working for quite some time to make sure we’re well positioned to take advantage of this great opportunity. A couple of examples. One is just price volume optimization, and this is really the opportunity to ensure that we really — we maintain our market position. A good example would be Sunrise and Atria, which are well invested, well established operators in local markets. And as we adjust pricing over time, we want to make sure that we’re maintaining the relative position in the market. We back tested this, and over the past year, we’ve had big increases in average move-ins in those companies. And then there’s other examples.

[Indiscernible] jumps out to me as one where we made — we took actions to invest in the properties and put the new operator in place. And then we’ve tracked the performance relative to market and they’re outperforming market. And so that’s an opportunity. The overall CapEx investment we highlighted in our earnings deck where we’ve had year-over-year growth of 470 basis points of occupancy and a street rate growth of over 9%. So it’s a combination of a lot of activity and actions and helping to give our operators some strategic support as they do the great job of executing on a day-to-day basis.

Joshua Dennerlein: On a different note, you guys have the Brookdale warrants. I know they’re exercisable through year-end 2025. Just how are you guys thinking about essentially exercising those? I know they’re really in the money, which is how do you think about using those as a potential source of capital?

Robert Probst: Yes, I’ll take that one. You’re right. We have 16 million warrants at $3 a share. So clearly deeply in the money. And that is, again, another source of funds as we think about the opportunity to both create value recognized gains and invest behind senior housing real estate. And obviously, about 1.5 years left in terms of duration, but a clear opportunity.

Joshua Dennerlein: Thanks for the time.

Operator: Your next question comes from the line of Nick Yulico of Scotiabank. Please go ahead.

Nicholas Yulico: Thanks, good morning everyone. Maybe just a bigger picture question on kind of the focus for the company right now in terms of — there is a lot of opportunity to invest in seniors housing. If we fast forward a year from now, is Ventas going to be a larger company, more assets owned, higher senior housing exposure. How should we think about that sort of investment pipeline, how you could capitalize on it? Because I think year-to-date or what’s in the pipeline is somewhat neutral. You have acquisitions, dispositions roughly matched. How do you think about sort of growing the portfolio right now?

Debra Cafaro: Yes. I mean, we’re — again, we’re executing on the strategy. The driver of organic growth is obviously driving the bus. We’re going to as the second largest owner of senior housing with the platform that we have and access to capital, we’re layering on external growth focused on senior housing that part of the portfolio is definitely going to grow. And we’re committed to taking advantage of this multiyear opportunity and the kind of returns that we’re seeing in the market for good assets at high yields with high growth potential, we are going to find a way to make those acquisitions and make senior housing a larger part of our overall portfolio. I mean it’s already over half with job at 40% and growing. And I think you’re going to see those trends continue.

Nicholas Yulico: Okay, thanks Debbie. Second question is just I know you have the slide in there again on the attractive time to invest in senior housing. And talks about year 1 FFO per share neutral/accretive for the investments, realizing that, obviously, there’s a long runway here when you’re thinking in the long-term. But how should we think about your focus on — at what point is it year 2? How should we think about accretion happening because obviously, earnings growth is important, people focus on that. Thanks.

Debra Cafaro: Definitely. And we are, too. Bob?

Robert Probst: I think going in yields relative to cost of capital, roughly neutral, so not in the immediately accretive. But I would point you to the IRRs and the growth potential in these investments, mid-teens and an example used. That says there’s attractive growth in the near term, which would drive accretion.

Debra Cafaro: Yes.

Robert Probst: And that’s what’s so exciting to us.

Debra Cafaro: And it would be near-term accretion.

Robert Probst: Near term.

Nicholas Yulico: Alright. Thanks Deb.

Debra Cafaro: Thank you.

Operator: Your next question comes from the line of Vikram Malhotra of Mizuho. Please go ahead.

Vikram Malhotra: Good morning. Congrats on a strong quarter. Just two questions. Maybe Justin one for you. I guess I wanted to be clear, the acceleration trends you’ve mentioned last quarter and at prior conferences in SHOP. Is that occupancy? Or is that same-store NOI growth as you go through the year? Because you had a really strong 1Q, but the midpoint of the guide still suggests some decel through the year. I know you’re being conservative, but I just want to understand the mechanics behind. Is it occupancy acceleration or SHOP acceleration or both?

Justin Hutchens: Well, first of all, occupancy is accelerating. It’s been underway, and that’s part of the guidance expectations that we gave. Good point. We had a real strong start to the first quarter from an NOI standpoint. So that kind of changes the trajectory of what we’re expecting in terms of stepping up throughout the year. And also another good point, key selling season starts right now. So we’ll give ourselves time to see how that plays out and go from there.

Vikram Malhotra: So just to clarify, are you still, like you said last quarter, just I want to make sure, is it same-store NOI growth acceleration? Or is it the occupancy acceleration. You just said the trajectory change, but are you still anticipating accelerating same-store NOI growth?

Robert Probst: Yes. I would point you to, first off, occupancy. We posted 240 so far year-to-date. We’ve got 270 year-over-year. So clearly there’s going to be incremental year-over-year occupancy growth embedded in the forecast. Our range has gone up at the midpoint to 14% on NOI. We posted 15% in the first quarter, pretty close. I think we keep coming back to this key selling season notion. We’re just starting that. We want to see how that one plays out.

Vikram Malhotra: Got it. Okay. And then Debbie, if I don’t know if you can maybe throw us some more tea leaves here just on the Kindred outcome. I guess, is it fair to assume the fact that you’ve extended by 1 month, and you’ve mentioned there are potentially other parties. It’s unlikely that — or it’s more likely that Kindred is part of the solution, meaning it’s like an all renewal or partial with other players and them just not renewing at all is off the table, just given the fact that you extended it by another month.

Debra Cafaro: Well, again, happy to give as many tea leaves and more as soon as we can. I would say that we are in active discussions with Kindred and others. It’s more likely that Kindred would be part of a solution going forward. But we’re continuing to keep working on every alternative so that we can reach the goal, which, again, is optimizing value for Ventas shareholders and the NOI from these properties. So we’re very focused, and we’re very on it.

Vikram Malhotra: Great. Thank you.

Operator: Your next question comes from the line of Richard Anderson of Wedbush Securities.

Richard Anderson: Thanks, good morning everyone. So Justin, you talked a little bit about what you do with assets once you own them price optimization, investing in the properties. And also perhaps transitioning to other operators that are proving themselves to be worthy. If you do $1 billion, how much do you think will fall in the transition category? And would you be expecting any meaningful downtime whereas you get the full benefit, maybe not this year, but a year from now?

Justin Hutchens: Good question. So I’m going to step back and just talk a little bit about the pressure tick. Obviously, we’ve talked a lot about markets and first step is always to make sure we’re entering the right markets to support upside opportunity and affordability. And then from there, we focus on the particular asset. We’re focused on need-driven assisted living and memory care, and a lot of the campus is also including independent living, high-growth, need-driven product. Then it’s who’s really in the best position to manage that. And we make the decision really not because we’re trying to cause the delay. It’s because we’re trying to cause better performance sooner. So when we move a new manager in, that’s our expectation.

We’ve had very good results with transitions. There’s always risk associated with the transition. Obviously, we have a lot of experience having transitioned well over 150 communities over the past few years, managing through that and getting good outcomes. And so it’s going to come down to like the decision really is going to be putting ourselves in the best position to drive performance in that community.

Richard Anderson: Okay. And then second question, I think, Bob, you mentioned a lot of what’s or everything that’s been done so far has been funded with equity. Just back of the envelope, I’m looking at like an AFFO yield of about 6%. But then when you talk about dispositions, and I think you called it OMAR, which is a new one. What — how much how comparable are disposition cap rates to your equity cost in your view and how much of it comes out of OM and how much comes out of AR, like I’m curious…

Robert Probst: Yes. It’s a memorable acronym OMAR, outpatient medical and research.

Debra Cafaro: The A is for an.

Robert Probst: Yes, an. OMAR. For you to remember. So step back, the guide of dispose of $300 million includes OMAR, but is also across asset classes, including senior housing and others. So I would say the blended cap rate is roughly mid-single digits on that, not dissimilar to the number you quoted. So again, as we think about reinvesting maybe neutral in the short run, but again, upgrading the portfolio and with the growth potential in the investments really accretive over time. So hence, capital recycling increase is another source of funds that we’re very focused on.

Richard Anderson: [Indiscernible]

Operator: Your next question comes from the line of Michael Mueller of JPMorgan. Please go ahead.

Michael Mueller: Yes, hi. I was wondering, can you give us some high-level color on how the SHOP outlook varies maybe from the AL to the IL segment.

Justin Hutchens: Yes, sure. So most of our NOI growth is coming from AL. We have — that’s going to be on the much higher end of the average, particularly in the U.S. So the IL growth really — there’ll be some growth and some contribution this year, but really more of a 2025 opportunity that we see it in terms of big contributions in the U.S. Occupancy trends have been excellent across our independent living portfolio in the U.S. I mentioned that we ran at 127% of prior year move-ins in the U.S. in the first quarter in independent living. We’ve had multiple months of occupancy growth. April looks good and kind of living and so there’s good leading indicators in that portfolio that will ultimately drive the NOI, but AL is really leading the way right now in the U.S.

Michael Mueller: Got it. Thank you.

Debra Cafaro: Thank you.

Operator: Your next question comes from the line of Wes Golladay of Baird. Please go ahead.

Wesley Golladay: Hey guys, good morning everyone. I just want to follow up on that last question regarding the IL picking up next year. Is that just more so operating leverage kicking in next year?

Justin Hutchens: Yes, exactly. So IL is a high-margin business. It has relatively high fixed costs because you’re not delivering care, you’re offering more limited services. So the operating leverage is very, very high. And the higher the occupancy, the more you benefit from that, and we have a long runway in terms of occupancy upside. So we look forward to some continued growth there and then see how that plays out, driving NOI moving forward.

Wesley Golladay: Okay. And then I want to go back to that slide. You have about the $19 billion of loans. How much of those loans do you think will have some issues on the refinancing front? And has your view on the amount of distress changed over the last, call it, six months. On one hand, you have rates just continue to grind higher, but then the recovery is also accelerating.

Debra Cafaro: Right. I would say that there is a large percentage of those loans that have some difficulty in refinancing without additional equity contributions. The assets are good, the markets can be good, the growth can be good. But because LTVs are lower, and as you say, rates are higher and the NOIs, many of them have not recovered to pre-COVID levels or they were newly constructed assets that really were delivered in COVID and therefore, aren’t meeting their original pro formas. There’s really good upside, but the refinancing mass doesn’t necessarily work without significant paydowns. And so those owners, which again, I think, is a significant percentage of the $19 billion either have to decide if they want to reach in their pocket and put more equity in or if they can sell them for a reasonable value and just move on whether that’s really where they want to go.

And that’s really part of that opportunity. But as Justin said, there are many other market forces that are pushing sellers to market and that are creating the overall pipeline opportunity that we’re seeing.

Wesley Golladay: Thanks for the time everyone.

Debra Cafaro: Thank you.

Operator: Your next question comes from the line of Michael Stroyeck of Green Street. Please go ahead.

Michael Stroyeck: Thanks and good morning. Maybe one on the outpatient medical business. What drove the sequential occupancy decline during the quarter, whether in terms of tenant credit, asset quality or anything you can provide? And then what were the consistent themes with those move-outs, if any, compared with the recent tenant move-outs we saw second half of last year.

Justin Hutchens: Yes. Thanks for the question. We’re actually really happy with our leasing. In the first quarter, we did 900,000 square feet of leasing, 50% more than prior year, which is terrific. And what I’m also happy to talk about is health system health has really come back. If you look at the [Indiscernible] data, the financials for the health systems are almost 40% higher than what they were a year ago. So they’re back. They’re executing on their strategy, and they’re upgrading their facilities and converting nonclinical space to clinical space. Now to your point about the 40 basis points, that equates to about 72,000 square feet worth of lost occupancy. I can tell you that almost immediately, we re-leased 55,000 square feet of that 72,000.

And in many cases, it’s to essentially the same entity. I’ll just give you two examples. One example is with a health system where an independent practice moved out and the health system who is associated with that practice and immediately lease the space back again. We have to build out the space. So occupancy goes down, but it’s essentially re-leased. Another example is a health system had on a particular floor, a bunch of small suites, they wanted to just let all those go and re-lease the space as one suites, so they can have larger and more efficient practice. So those types of things are going on as vacancy, we’re losing a little bit of occupancy as a health systems exit strategy and then that will result in better leasing, better rents later in the year or next year.

Debra Cafaro: Thank you.

Michael Stroyeck: Okay. That’s helpful. Maybe a second question, if I may. Going back to that IL versus AL discussion. So IL meaningfully outperformed in terms of occupancy gains during the quarter. Is that a reflection of just greater demand for the IL product are more attributable to an improvement in the operations of that holiday by Atria portfolio?

Justin Hutchens: Yes. So we’ve had — we definitely have had good recent momentum in our independent living portfolio that includes some Holiday communities includes former Holiday communities and include some of our existing mostly other ILs operated by our legacy Atria within our legacy Atria portfolio. So there’s been an intense effort to work with our operators to ensure that we’re getting the best performance within those communities, and that continues. And the whole playbook really has been used, everything from sales oversight insights, price volume optimization, CapEx investment and then the operators just really executing. And so we’re really happy to see the good results and look forward to more growth.

Michael Stroyeck: So just to clarify, it’s pretty broad-based across the IL portfolio.

Justin Hutchens: Yes, it is broad-based across IL portfolio.

Debra Cafaro: Yes.

Michael Stroyeck: Great. Thanks for the time.

Debra Cafaro: Sure, thanks.

Operator: Your next question comes from the line of Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt: Great, thanks. I just wanted to hit on REVPOR. You guys assumed a firm, the REVPOR growth for the year which does imply acceleration similar to occupancy in the quarters ahead, just kind of what gives you that confidence? And is that acceleration coming from primary markets that have kind of lagged the overall portfolio? Or is it other buckets that are driving that improvement?

Justin Hutchens: Yes. One thing I just want to point out is when we gave the metrics that are supporting the SHOP guidance, you’ll notice a lot of tilt [ph]. So it’s approximately 8% revenue, approximately 5% REVPOR approximately 2.70 of occupancy lift. And then we have an NOI range. And so we left a little room for movement amongst those metrics and see how the key selling season plays out. So I don’t think we’re necessarily saying we’re going from 4.7% to 5%. We’re just saying we expect to be around 5% and which was consistent with what we saw in the first quarter.

Austin Wurschmidt: Got it. That’s helpful. And then just on the street rate growth, broad-based for overall same-store portfolio. I mean, given some of the leading indicators you’ve pointed to showing strength, the occupancy acceleration. I mean what would lead you to kind of lean into that and maybe kind of test the waters on pushing that a little harder if you continue to see the strength in the demand that you see now for the last couple of quarters?

Justin Hutchens: Yes. So the part of the price volume optimization is really making sure we’re priced right and where there’s more demand in a market, an opportunity to move with market pricing more aggressively, we do that. So there’s certain markets and certain highly occupied communities that are attracting a higher street rate, higher move-in rate. So that’s definitely part of the plan. Now having said that, we have a lot of occupancy upside, and that’s the big opportunity for us is to continue to play into the demand drive volume. Balance it so that we’re getting the best out of just total revenue growth and then drive NOI.

Austin Wurschmidt: Then the guidance — I was just thinking that the guidance assumes that, that 7% kind of stays steady to your point on kind of the occupancy upside?

Justin Hutchens: I mean it’s a year-over-year stat. So I think you’ll probably see a little bit of movement within the metric. But what we’re expecting to see is growth in street rates, growth in movement rents and growth in occupancy.

Austin Wurschmidt: Got it. That’s helpful. Thanks for the time.

Debra Cafaro: Austin, thank you.

Operator: That concludes our Q&A session. I will now turn the conference back over to Debra Cafaro, Chairman and CEO of Ventas for closing remarks.

Debra Cafaro: Great. Great. I want to thank all my colleagues and also all of our shareholders, analysts and other participants today. We very much appreciate your attention and your interest in Ventas and look forward to seeing you soon.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.