Ventas, Inc. (NYSE:VTR) Q2 2023 Earnings Call Transcript August 4, 2023

Operator: Hello. And welcome to the Ventas Reports 2023 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

BJ Grant: Thank you, Sarah. Good morning, everyone. And welcome to the Ventas second quarter financial results conference call. Yesterday, we issued our second 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 factors may cause actual results to differ materially from those contemplated in such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and 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 posted on the Investor Relations website. And with that, I will turn the call over to Debra A. Cafaro, Chairman and CEO.

Debra Cafaro: Thank you, BJ, and good morning to all of our shareholders and other participants. We want to welcome you to the Ventas second quarter 2023 earnings call. We are pleased with our enterprise results this quarter of normalized FFO of $0.75 per share. This strong result reflects broad-based property NOI growth across our diverse portfolio, with all segments contributing positively and same-store year-over-year cash NOI growth of 7%. Our SHOP communities led the way, as we continued to benefit from the multiyear growth and recovery cycle underway in senior housing. Notably, our U.S. Assisted Living portfolio grew NOI 32% year-over-year. Our Outpatient Medical and Research and our Triple-Net leased portfolios complemented the SHOP growth.

We are also reaffirming the full year normalized FFO per share outlook we provided to you earlier in the year. At the midpoint of $2.97 per share, our guidance reflects 5% year-over-year growth and the sixth consecutive quarter of year-over-year growth. At a high level, the key drivers of our normalized FFO per share for the year are consistent with those we shared originally, that is, significant property-related growth approximating $0.29, partially offset by a $0.16 impact of higher interest rates. I’d like to unpack for you some of the recent developments and share some key highlights. We are off to a strong start with a portfolio of 153 properties we took ownership of on May 1 by converting our Santerre Mezzanine Loan to equity. The portfolio consists of over 40% Outpatient Medical buildings, over 40% Triple-Net Healthcare facilities and the balance SHOP communities.

There are three key components of our improved outlook for the portfolio. First, we have increased our expectations for annualized NOI from the portfolio to $104 million from about $93 million. This improved outlook is the result of our intense focus, our team’s experience and capabilities, certain positive operating trends and strong early returns. We believe the timing for taking ownership is advantageous and that our experience will help us maximize cash flow from this portfolio over time. Second, valuation, we stated last quarter that we believe the portfolio was worth about $1.5 billion, equal to the debt stack, third-party independent valuation experts now value it at 4% above that level. At our $1.5 billion cash investment basis, the per pound valuation on the portfolio is below replacement cost.

Third, we replaced the $1 billion senior secured loan on the portfolio with a permanent capital structure at an attractive all-in rate, further enhancing the portfolio’s FFO contribution and demonstrating another way that Ventas’ strength can drive cash flow improvements on the portfolio over time. In addition, as previously indicated, we are also selectively starting to dispose of certain of the assets and expect to sell about $60 million in SNFs later this year at a mid-8% cash cap rate. So while we have more work to do, we have had good success so far and our cross-functional teams are intensely focused on maximizing the value and the NOI of the portfolio. Looking at our broader enterprise. In SHOP, we continue to strongly believe in and experience the demand driven multiyear growth and recovery cycle.

We have runway in front of us to recapture about $300 million of NOI, as we return to pre-pandemic margins and occupancy, and perhaps, exceed that level, because of favorable and improving supply-demand fundamentals we expect over the next three years to five years. With virtually no construction starts in our markets and industry starts at the lowest level since 2011, the over 80 population is set to grow 24% over the next five years. Thus, we are well positioned to continue to enjoy outsized growth. Demand continues to be strong. Our SHOP performance in the quarter was led by U.S. Assisted Living. We benefited from strong RevPOR growth and moderating expense growth as anticipated and our highly occupied Canadian portfolio continued to shine.

Occupancy in our Holiday U.S. Independent Living portfolio lagged our expectations during the quarter. These are good assets in good markets, and Justin and his team are taking significant steps to drive performance, utilizing the proven Ventas OI playbook that has been so successful since Justin joined us. Our Outpatient Medical and Research portfolio, which is about a third of our business had another outstanding quarter with nearly 4% year-over-year same-store cash NOI growth. Both Outpatient Medical and Research contributed equally to this good growth and performance, which have been impressive and consistent under Pete’s leadership. Outpatient Medical has now delivered year-over-year same-store cash NOI growth of over 3% in seven of the last eight quarters and year-over-year same-store occupancy growth for eight consecutive quarters.

New leasing in the second quarter was up 35% over the prior year. Across our large 10-million square foot research portfolio, our university centered portfolio continues to benefit from a creditworthy tenant mix and a robust pipeline of leasing demand from universities and government institutions with 600,000 square feet leased in the first half to high quality tenants and we are actively engaged in late-stage conversations with multiple large users for over 0.5 million square feet. Finally, quality tenant interest continues to be high in our $425 million Atrium Health/Wake Forest University School of Medicine Development in Charlotte, North Carolina. With recent activity, we are closing in on 80% preleasing even though we are still in the early stages of construction.

Moving on to capital raising. We continued to prioritize our liquidity, financial strength and flexibility. We had significant successes in raising $2.4 billion in capital across diverse markets so far this year. These transactions evidence the competitive advantage of our scale and the skill and discipline we have in sourcing attractively priced capital even during dynamic market periods. I am pleased that we are now in a net cash position with over $3 billion of liquidity. Thanks, Bob. We also have an active pipeline of investment opportunities both for Ventas’ portfolio and under the umbrella of Ventas’ third-party institutional capital management platform. In particular, we expect to complete about $0.25 billion of investment within VIM later this year, focused on core outpatient medical buildings and stabilized growing senior housing communities.

With its existing capacity and investment objectives, VIM provides a competitive advantage for us as we use our platform to capture opportunities in a disruptive market for high quality assets. Overall, on the investment front, we remain focused on assets with outsized embedded growth potential and high quality stabilized assets and portfolios with good risk reward characteristics. Cap rates continued to show a wide dispersion even within asset classes depending upon the credit profile, growth potential and price per square foot or unit. We see some high quality outpatient medical buildings with strong hospital systems and good credit and life science assets trading in the mid-to-low 5s. While other assets with more garden variety characteristics or risk profiles have gapped out.

There is a significant opportunity in front of us to lean into the senior housing growth and recovery story as good assets with challenged financing profiles look for solutions. We are heading into the peak years for senior housing loan maturities through 2025 with over $20 billion in debt coming due. With occupancy still about 500 basis points below pre-pandemic levels and rising interest rates, we are beginning to see significant opportunities to generate higher returns on quality senior housing assets. We are well placed to capture these opportunities with our Ventas OI tools and analytics, our team, our ability to raise capital and our expanding group of operator relationships. Against a dynamic macroeconomic backdrop, we remain advantaged given our size, liquidity and the strong fundamentals across our portfolio.

Our asset classes benefit from a compelling demand outlook. While the external environment this year has been unpredictable and volatile, at Ventas we have been laser focused on execution, performance and growth, and delivering returns for our shareholders. Our team has really accomplished a lot across our enterprise and handles every macro and specific challenge that’s come our way with focus and enthusiasm. I greatly appreciate their commitment to Ventas and our stakeholders. Our enterprise momentum is strong. We are capitalizing on the large and growing demographically driven demand across our business and the unprecedented organic multiyear growth opportunity in SHOP and we are pleased to confirm our enterprise normalized FFO outlook for the balance of the year.

Justin?

Justin Hutchens: Thank you, Debbie. I will start by covering the Q2 SHOP performance. The demand story remained strong. As the top of the sales funnel, including leads and move-ins are consistently performing above pre-pandemic and prior year levels. Our SHOP portfolio continues to deliver double-digit same-store cash NOI growth, in line with our expectations for the quarter. SHOP NOI and was led by the U.S. with 32% growth and 14% overall. Margin expanded 160 basis points. Notably, the U.S. led the way with 18.5% growth and 230 basis points margin expansion, respectively. The Assisted Living results are driven by our legacy strong performers, including Atria and Sunrise. And our regional assisted living operator relationships that have joined us to transition communities over the past year and a half are delivering exceptional results as our strategy committed to ensuring we are in the right market, right asset, right operators is working.

Our NOI generating CapEx program continues as we have now completed over 100 projects with 70 more planned to complete this year in our U.S. AL and IL portfolios and the early returns are excellent. These projects are all part of our CapEx budget that we established at the beginning of the year. Our highly stabilized, high quality Canadian portfolio reached 94% occupancy in the second quarter and NOI grew 2%. The revenue growth in our portfolio remained strong. Revenue grew 6.7% year-over-year, driven largely by RevPOR growth of 6.6% and led by an exceptional U.S. RevPOR growth of 7.4%. Operating expenses grew approximately 4% year-over-year, which was better than our expectations. Within OpEx, labor was better than expected as contract labor continued its downward trend and partially offset by an increase in regular labor expense.

The key selling season is well underway and we had a strong ramp in June, driving 50 basis points of spot occupancy growth during the quarter. However, we didn’t see the strong performance at month end that we expected in Independent Living. Occupancy grew 10 basis points year-over-year, which was disappointing and driven by softness in our Holiday by Atria U.S. IL portfolio. We have identified 38 communities that are particularly lagging occupancy performance. Adjusting for these 38 communities, the total SHOP same-store portfolio would have achieved 17.3% NOI growth year-over-year versus 14% reported in the second quarter and the U.S. would have grown 24% versus 18.5% reported. These communities will benefit from executing the more aggressive measures in our OI playbook, including operator transitions and comprehensive redevelopments and these plans are already underway.

First, we will ensure we have the right operator in place by transitioning 26 Holiday by Atria communities to existing Ventas manager relationships in Florida, Texas and California. These regional operators have demonstrated strong performance, robust sales management and they have had a solid geographic overlap with the transition asset markets. Next, we will continue our successful NOI generating CapEx program. We have completed several of these projects in our Holiday by Atria portfolio that are delivering very good results. We have another round of projects planned to complete in our Holiday portfolio by year-end. Finally, we will ensure that we are utilizing our full OI approach, which has proven to be very successful in communities that are transitioned to new operators by collaborating with the right operators and combining their intent to local market focus and execution with our respective operating expertise, best-in-class data analytics, aligned management agreements, portfolio management and capital investments, we are driving performance.

Our best proof point of the successful execution is the transition 90 portfolio, where we completed the transition of 90 assisted living communities in early 2022 in regional clusters to seven different operators. We sold and are closed nine of those communities and invested CapEx across the portfolio. This portfolio has experienced net move-in growth in 13 months of the past 15 months and delivered year-over-year occupancy improvement of 370 basis points. RevPOR growth of 8.2%, and therefore, NOI has had extraordinary growth in a relatively short period of time with all seven operators contributing. These newly appointed operators have demonstrated they have the recipe for success in delivering on the value proposition for their respective residents in these markets.

This is a prime example of performing on our right market, right asset and right operator philosophy. We have the playbook, we are executing and we expect to continue to drive performance across our broader SHOP portfolio. Finally, for our same-store portfolio NOI, we are reaffirming our SHOP same-store growth range of 15% to 21% ex the 38 assets. We expect full year occupancy growth of 80 basis points to 120 basis points, which is approximately consistent with the first half of the year performance. In closing, we remain very confident in the multiyear recovery in senior housing as the table is set for net absorption across the sector. Bob?

Bob Probst: Thanks, Justin. I will share some highlights of our Q2 performance, discuss our balance sheet and close with our updated 2023 guidance. Starting with 20 — with Q2 total enterprise performance, we reported second quarter attributable net income of $0.26 per share. There are notable positive net income and NAREIT FFO impacts in the quarter arising from the equitization of the mezzanine loan and the sale of approximately 24% of our shareholding in Ardent. These impacts were excluded from normalized FFO as previously communicated. Normalized FFO per share of $0.75 in the second quarter was ahead of our expectations and increased 4% year-over-year. Meanwhile, total company same-store cash NOI increased 7% year-over-year, with all segments contributing to that growth, and our equitized loan portfolio had a strong start.

A few comments on the proactive steps we have taken this year to raise capital at attractive rates and to manage our balance sheet. The market backdrop is challenging, with rates continuing to increase and the 10-year treasury currently well over 4%. We have leveraged our access to diverse sources of capital, having raised $2.4 billion at a compelling 4.6% cash rate with near-term line of sight to a further $600 million in H2. We tapped into multiple capital markets and geographies, including the U.S. and Canada, raising secured, unsecured bank debt and convertible debt across multiple maturities, as well as raising equity and selling assets. And we held down our all-in costs through 10-year treasury interest rate hedges at 3.37% and two-year pay fixed hedges on floating rate debt at 3.88% that we executed post the SVB collapse.

All of these hedges are significantly in the money. The use of these capital sources is refinancing 2023 and 2024 debt maturities and most notably paying down in full the $1 billion Santerre senior secured debt, thereby replacing 2024 maturing debt with a longer duration, more permanent capital structure that is accretive to Ventas. As a result of all these efforts, our balance sheet is in a strong spot. We are in a net cash position with near-term liquidity exceeding $3 billion, which covers our limited maturing debt through 2024 by nearly 2.5 times and floating rate exposure is at 10%, the low end of our targeted range. These are strong proof points of our advantaged access to attractive capital and our skill in using that access to the benefit of our shareholders.

Finally, our net debt-to-EBITDA in Q2 improved to 7.0 times versus the 7.2 times we anticipated following the equitization of the Mezz. We are committed to a BBB+ balance sheet and we expect that the multiyear SHOP recovery will continue to further improve our leverage metric over time. I will conclude with our updated outlook for 2023. After a good first half of the year, we are reaffirming and narrowing our initial February normalized FFO guidance of $2.97 per share at the midpoint for full year 2023. On a year-over-year basis, our normalized FFO at the midpoint continues to represent 5% growth on an adjusted basis. Bridging versus our initial guidance, we now expect a positive $0.04 impact from the equitized loan portfolio together with the Outpatient Medical and Research and Triple-Net segments, offset by a minus $0.04 SHOP impact driven by U.S. IL occupancy.

A final step in the bridge is a positive $0.02 from proactive capital raising, offsetting a $0.02 headwind from a higher forward interest rate curve and incremental dispositions now included in guidance. Net total company same-store cash NOI year-over-year growth is now expected to reach 8% at the midpoint, 50 basis points above our initial guidance. Please see our investor presentation and supplemental disclosure posted to our website for further guidance assumptions. To close, we are pleased with the results for the first half of the year and we are committed to delivering performance and value for our shareholders in the second half and beyond. For Q&A, we ask each caller to stick to one question to be respectful to everyone on the line.

And with that, I will turn the call back to the operator.

Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Michael Carroll of RBC Capital Markets. Your line is open.

Michael Carroll: Yeah. Thanks. Justin, can you talk a little bit about how widespread the seniors housing weakness was in the IL portfolio? I know in your prepared remarks you sounded like — it made it sound like the Atria by Holiday portfolio was largely impacted, but 38 assets were where most of it was, is that a fair comment?

Justin Hutchens: That’s a great question. To be a little more specific about it, we have — all of our Independent Living communities in the U.S. that are not Holiday by Atria are doing great. They have double-digit NOI growth. They have occupancy growth that’s consistent with — more consistent with the Assisted Living growth that we have seen. The issue is really narrowed down to Holiday and let me describe that a little bit for you. We will have 85 communities with Atria that are Holiday communities moving forward. Over half of those by the end of the year will have benefited from the redev program that I mentioned in our prepared remarks, 17 or 18 of those are done already. We have many more plans throughout the year.

So the plan with those communities are staying with Atria to continue to redev program, which is generating very good results. The communities that are transitioning are going to operators that have a great track record in their respective states and have had an excellent track record for us thus far in the Ventas relationship. There’s 26 of those, they were particularly underperforming and we are confident we are putting them in good hands and we have an action plan in place to get those on track. So, I would say it, yeah, it’s really not an IL issue, it’s more of a Holiday by Atria issue and we have plans in place to address it.

Operator: Your next question comes from the line of Joshua Dennerlein with Bank of America. Your line is open.

Joshua Dennerlein: Yeah. Hey, guys. Appreciate the time. On the Santerre portfolio, it looks like it kind of was a $0.04 positive versus like the initial guide. What in particular in the portfolio is driving that outperformance?

Debra Cafaro: So this is Debbie. Thanks for the question. I would say, we are off to a strong start there. We are — the NOI expectations have been increased and that’s principally the reason, and that’s really from this intense kind of focus on asset management and integration and making sure we are taking all the steps we can to maximize cash flow and value.

Joshua Dennerlein: Sorry. Senior housing, is it from net lease…

Debra Cafaro: Oh! Yes.

Joshua Dennerlein: …. or MOB segment? Yeah.

Debra Cafaro: Sure. So Pete’s bringing the magic to the MOB portfolio, which is in very early stages and is the largest part of the portfolio. And then the Triple-Net Healthcare portfolio is going well and we are generating additional expectations from there. And I do want to take a minute and turn it over to Pete to talk about some of his early activities and you will get a sense for why it’s going as well.

Pete Bulgarelli: Thanks, Debbie. Yeah. Thanks for the question, Joshua. Just a reminder, the MOB portion of the equitized loan portfolio is 88 assets, about 3.2 million square feet. Also, just as a reminder, of the systems that are associated with these medical office buildings, 67% of those overlap with the systems from our legacy portfolio and of the medical office buildings, 75% of them are sitting in the same MSAs as we have existing medical office buildings. So our integration efforts are much easier to do and I’d tell you we have been really busy. We have been using the Lillibridge playbook. We have done an engineering assessment for each one of the buildings. We have strategic asset plans for each one of the buildings.

We have approved and are beginning to spend capital to improve the safety, efficiency and curb appeal of the buildings. We are transitioning OpEx contracts like cleaning and elevator maintenance and so forth. We think we have identified about 400,000 square feet of or $400,000 worth of savings for our tenants just by transitioning contracts. We have done a tenant satisfaction survey and we received the results and are working on action plans. And finally, we have transitioned some of the property management of these buildings. We have transitioned six this week to Lillibridge, which brings the total since May the 18 and the good news is on the MOB portion, we are about $500,000 ahead of our pro forma for this portfolio.

Operator: Your next question comes from the line of Jim Kammert with Evercore ISI. Your line is open.

Jim Kammert: Hi. Good morning. Thank you. As regards the $0.04, let’s just call it, earnings drag associated with the reposition or to be repositioned assets, what portion of that would be maybe like transactional, legal and other just sort of contractual issues that you may not recoup versus can you get all $0.04 of earnings power more back post transition? I am just trying to better understand. Thank you.

Justin Hutchens: Hi. It’s Justin. Yeah. The $0.04 we view as recoverable through performance improvements and it’s really all captured in the Holiday portfolio action plans that I described.

Debra Cafaro: Yeah. We want to get the $0.04 back and then a lot more.

Operator: Your next question comes from the line of Michael Griffin with Citigroup. Your line is open.

Michael Griffin: Thanks. Just going back to those assets you expect to transition. I mean, was the underperformance mainly due to kind of occupancy declines, labor issues that you saw at those facilities? Any kind of color around that would be helpful.

Justin Hutchens: Sure. Yeah. The biggest issue with this portfolio has been occupancy. We have had — where we have had some successes where we invested the CapEx and that’s been a good driver of price and NOI, particularly occupancy remains a focus really across this portfolio and especially in those markets that we are transitioning. The operators are transitioning to have proven to have a robust sales management platform and have executed quickly in the communities that they have managed for us so far. So we are really excited to for them to get started.

Operator: Your next question comes from the line of Jonathan Hughes with Raymond James. Your line is open.

Jonathan Hughes: Hi. Good morning. Why is the SHOP transition portfolio being done now and not before these headwinds became what seems to be pretty severe? And then the second one, why raise the relatively small amount of equity given the organic delevering visibility from the SHOP NOI recovery that’s expected to drive leverage down nearly a full turn? Thanks.

Justin Hutchens: Hi. It’s Justin. Fair question. I will take the first part. So the Holiday portfolio was an acquisition by Atria. They had acquired the Manager Holiday and they have been integrating for a period of time. We saw those integration efforts come to conclusion at the end of 2022. At that stage, we were really looking forward to the key selling season to see proof points that the merger integration had been working, and like I said in our prepared remarks, they fell short. So some of the actions were already underway, which includes the redevs. We are doing a more comprehensive redevs in several communities, as I mentioned and then we are transitioning to new operators. We are taking action, we had good visibility into the merger integration and now that we are at this stage, it’s time to step up ROI activities.

Bob Probst: I will take the second one, Jonathan, on equity.

Jonathan Hughes: And then…

Bob Probst: If…

Jonathan Hughes: Thanks, Robert.

Bob Probst: … I start with the commitment we have to our BBB+ balance sheet, which you know is real. Secondly, the Santerre equitization is 30 basis points levering, ceteris paribus, we highlighted in the last earnings call. As we also emphasized, we are putting a permanent capital structure on that equitized investment and that’s what we have been doing. And that includes equity, includes asset sales, it includes a variety of debt and so it’s really all part of balance sheet management and liquidity and leverage and that’s the rationale.

Operator: Your next question comes from the line of Mike Mueller with JPMorgan. Your line is open.

Mike Mueller: Yeah. Hi. As it relates to the full year SHOP same-store NOI guidance, are you expecting a second half of the year acceleration or did you consider pulling the top end of the range down?

Justin Hutchens: In regards to the guidance, really, I will just run through it and so we are looking at cash NOI 15% to 21%. That really preserved the existing midpoint and we have good visibility that, that’s the runway. Occupancy at the midpoint, around 100 basis points, it’s consistent with the performance we have seen year-to-date. RevPOR, the same, revenue a little less than the original guide and OpEx a little less as well. So it’s pretty consistent and there’s a little bit of growth in it, because, obviously, we have been running around — in this portfolio around 17% so in the second quarter. So a little bit of occupancy growth is contemplated.

Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Austin Wurschmidt: Yeah. Thanks. Justin, did I hear you correctly that year-to-date growth in occupancy was around 100 basis points if you exclude the 38 assets from the same-store pool, implying no real need for acceleration? And then I am curious with same-store revenue and same-store NOI guidance have been, had you kept the 38 assets in the same-store pool and then the balance of the portfolio, is that outperforming original expectations or performing more in line? Thanks.

Justin Hutchens: Yeah. So on the first point on the occupancy, I am basically just saying we are expecting it to perform consistent with where it performed in the first half of the year in terms of growth supporting 100 basis points year-over-year growth. In terms of the difference in pools, the 468 is obviously performing a little better in the quarter and it’s supporting our original full year guidance. So, therefore, the natural conclusion is there’s probably less performance if you kept those communities in, that’s demonstrated in the $0.04 that we talked about earlier, that $0.04 is really pointing to the Holiday by Atria portfolio, and therefore, the actions we are taking are really to address that performance.

Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

Juan Sanabria: Hi. Good morning. Two-part question I guess. One, just to follow up on Mike’s and Austin’s question. What is the same-store NOI growth year-to-date for the recast pool? And then secondly, there’s been some discussion on it as well about financial distress in seniors housing. There’s some anecdotes about some concessions or discounting being done on the new customer rates. So just curious what you have seen competitively or maybe some of your operators are doing themselves on the new rate front and if there’s — if you have seen any of that pressure on the new customer rates.

Bob Probst: Yeah. Juan, let me take the first one. Just the first half on this pool of 468 Justin described ex the 38 assets year-over-year growing in the 18%-ish range. We highlighted in the materials, the impact of the 38 assets coming out of the pool in the second quarter. That’s 330 basis points impact positively to the growth rate. As you think about the full year pool, that’s a good proxy of the impact, and so, hopefully, that puts some numbers behind it all.

Justin Hutchens: In regards to pricing, I can say within our portfolio that our releasing spreads are as good as they have ever been historically. They have been mostly positive to slightly negative even following big rent increases in the beginning of the year. We are in the key selling season now. Clearly, operators are wanting to take advantage of that. So there’s always some kind of price movement that occurs during this period, and certainly, it’s something that we constantly look at and operators look at where can we reprice to make sure we are striking that balance between volume and rate. So I would expect to see movement in certain markets amongst operators to try to compete.

Juan Sanabria: Thank you.

Operator: Your next question comes from the line of Ronald Kamdem of Morgan Stanley. Your line is open.

Ronald Kamdem: Great. Just a two-parter for me as well. So, one, it looks like you took out the pricing power slide from the 1Q deck, just going through right now. But can you remind us what in-place rent increases are, how are they trending, certainly, for the back half of the year and how you are thinking about? That is part one. And then part two is and I think others have asked this in a different way, I will give a stab at it. But just trying to really hone in on what changed over a three-month period, right, to take the SHOP occupancy down 50 basis points. It sounds like you are saying it was just the peak selling season did not progress as expected. But just wondering, shouldn’t there have been some signs or something, just maybe can you just hone in on just what really changed here?

Justin Hutchens: So — yeah. This is Justin. I will start with the second question first and that’s the change in occupancy. As I have mentioned, what we are looking for with all the integration activities behind the Holiday by Atria portfolio, we are really looking for is key selling season. Key selling season starts in May. June, July, August are going to be particularly strong months. So all eyes are on June and you really don’t know the net impact until the end of the month. When the end of the month came in, it was disappointing. And the way models work, you have to bake in results and so that would flow through the rest of the year. As I mentioned, we have actions underway to address that trending. In terms of pricing, pricing still remained very strong.

We didn’t feature it in this deck, because it’s really more of a first quarter phenomenon for us as we have high levels of in-house rent increases. We still see very strong increases on our anniversary. Those are really not — it’s not a big part of our portfolio, but it’s more independent living, and you generally see around 7% or so in those increases, so very strong. Pricing power is, in our view, is going to continue to be a big opportunity and only gets better as occupancy goes up. We are not even close to having scarcity of value. But what we have is a backdrop that has supply-demand dynamics that supports net absorption in the sector and we are going to play into that with price and volume and we think that opportunity will continue for some time.

Operator: Your next question comes from the line of John Pawlowski with Green Street. Your line is open.

John Pawlowski: Thanks. Good morning. I just wanted to follow-up on that last question there. Maybe I am misunderstanding page 18 in the investor deck, but it looks like occupancy guidance was reduced for the revised same-store pool. So it’s not just Atria issues driving the weakness in occupancy. Are there broader — is there broader sluggishness in the IL portfolio outside of Atria?

Justin Hutchens: Okay. Yeah. Sure. Good — that’s a good opportunity to clarify something. So we are moving communities away from Holiday by Atria, there’s 26 of those, we mentioned 12 redevs that we are doing. There are also communities that are remaining with Atria and there’s actions underway to help improve the performance within those, they are still in the same-store pool. They are getting redevs, but they are not the comprehensive redev that would remove them from the pool. So that’s probably where the confusion is. That remains an area of focus, even within that, the revised same-store pool, there’s Holiday communities that are — that have a big opportunity to improve performance.

Operator: Your next question comes from the line of Steven Valiquette with Barclays. Your line is open.

Steven Valiquette: Hi. Thanks. My primary question is kind of similar to some of these other ones and the reasons for the underperformance in that Holiday IL portfolio. But I guess just to dive in deeper on the occupancy shortfall. Just curious on like the competitive landscape. So in other words, is Holiday just being outmaneuvered by competitors or was there just softness in those markets that hit all competitors for various reasons and it sounds like maybe pricing was not the issue. But just curious whether was Holiday just losing market share versus competitors or was everybody feeling the pinch in these particular markets? Just curious more color around that if you have been able to decipher that yet? Thanks.

Justin Hutchens: Yeah. Sure. So I would say, there’s opportunity to keep up with the market. We can’t really point to a big macro reason or even a local market reason in these markets, it really is going to come down to execution. We are doing what we can to make them more competitive. We put new operators in place. We are putting redev CapEx in place. That will help drive pricing, NOI, volume. Atria is very focused on this. The new operators are focused on this. We are all over it. So our intent is to get them back to market and beyond.

Steven Valiquette: Okay. Maybe just a quick follow-up. What would be the lowest hanging fruit then with the new operators coming in, like, what’s the easiest thing to pick up as far as number one in the list to improve performance within all the things you are going to do.

Justin Hutchens: Yeah. Great question. It’s sales execution. One of the things that I noted in the prepared remarks is that, leading indicators have been strong and that’s true in a lot of these communities in a lot of these markets as well. We just need to capture that opportunity. I have confidence in the new operator’s ability to do this. They are excited and ready to get started.

Steven Valiquette: Okay. Appreciate the color. Thanks.

Operator: Your next question is a follow-up from Austin Wurschmidt of KeyBanc Capital Markets. Your line is open.

Austin Wurschmidt: Great. Thanks for taking the follow-up. You guys flagged plans to sell $63 million of SNFs later this year at a mid-8% cap rate. I guess, one, what is that on a price-per-bed basis, and then two, do you think that the mid-8% cap rate is reflective of the overall SNF portfolio? And I asked because I think we talked about at NAREIT and ability to sell some of the non-core SNFs at $80,000 to $120,000 a bed range, which would imply a lower cap rate for the overall portfolio versus the mid-8% you quoted? Thanks.

Debra Cafaro: Yeah. So I am enjoying being back in the SNF business, especially as some of the operating trends are getting a little bit better. These are about $135,000 a bed, each of the situations within the Healthcare Triple-Net portfolio that we took ownership of is unique situation and that will change kind of cap rate and per bed valuations. But we are happy with the low 8%s and — on these portfolios and there’s unique — part of the value-add of this project is really the experience and the judgment to handle each one of these uniquely and get the best outcome and with these particular sales, we are doing that.

Operator: Thank you. This concludes the question-and-answer session. I will now turn the call over to Debra A. Cafaro, Chairman and CEO, for closing remarks.

Debra Cafaro: Thanks so much and I want to thank all of you again for joining us this morning. We are excited about the opportunity ahead of us. We remain convinced of the momentum and the multiyear growth and recovery story and we are all aligned around achieving and capturing that. So we look forward to seeing you soon, and again, appreciate your participation this morning. Thank you.

Operator: This concludes today’s conference call. We thank you for joining. You may now disconnect your lines.