Michael Stroyeck: So going back to Kindred, and I’ll try to ask this in a slightly different way. I know it’s too early to say what the ultimate outcome will be, but hypothetically, if you did go down this path, as of today, what magnitude of rent reductions do you believe will be required in the near future in order to return those rents to a sustainable level, either for Kindred or the next operator assuming operations on those properties?
Debra Cafaro: Michael, remember, we own the assets and we own the EBITDAR in those assets. And that’s an important — that’s very important. And again, it’s too early to say. We have favorable trends in the Brookdale situation, and in Kindred, we hope to have favorable trends as you look out to 2025. So there’s a lot more that goes into it when you think about what the outcome is going to be, and we’ll be happy to share more with you as the facts develop.
Operator: Our next question comes from the line of Connor Siversky with Wells Fargo.
Connor Siversky: I want to jump back to a conversation on the Q2 ’23 earnings call in regard to the equitized loan portfolio, specifically the outpatient medical assets. You outlined that you were going to put in place a capital improvement plan to bring occupancy back into those assets. So I’m wondering, at this time, if you could quantify what that capital improvement plan looks like, what occupancy expectations are for those outpatient medical assets, and then what a return profile could look like for that capital improvement plan?
Debra Cafaro: I mean I think the key point, the topic sentence, and we’ll get to the answer is, those assets overlap with our own portfolio in many respects. Our portfolio is over 90% occupied and managed by Pete and the team very effectively. This was under 80%. So there was — there is and was significant occupancy upside as we get in there and self-manage those assets. And now I’ll turn it over to the team to take your questions.
Peter Bulgarelli: Yes. Thanks, Connor. This is Pete. Yes, we’re excited for the ELP portfolio. It gives us, I think, over the long haul, upside. We’ve been extremely active in absorbing that portfolio and renewing that portfolio. We’ve transitioned 44 of our locations to Lillibridge management using the Lillibridge playbook. We’ve surveyed all the tenants. We have specific asset plans for each of the buildings. And we’re really happy with the results so far. We have increased occupancy by about 1%, and we’re also well above plan in our underwriting. So as it relates to how we look forward on this portfolio, we expect in ’24 to have about a 3% increase in occupancy. And so we’re very happy about that. And I wouldn’t — we will do some upgrades in the common areas and so forth.
And you’ve seen some of the ICE capital in the supplemental here. We’ll do a bit more of that. And we’ll have kind of normal as-you-go tenant improvements and commissions. So I don’t expect anything extraordinary out of the capital being used for that — for the ELP portfolio.
Operator: Our next question comes from the line of Vikram Malhotra with Mizuho.
Vikram Malhotra: Just two quick, I guess, senior housing questions, if you can indulge me. First, just the comments about exit into ’24 looking better, or I guess, acceleration. I’m wondering kind of what gives you that confidence, because I may be wrong, but I think the occupancy comp will get harder and the expense comp also gets harder. So I’m just wondering what gives you the confidence of acceleration, number one. And just number two, on senior housing. You guys had a great investment in Canada a while ago through the Maurice investment. I’m just wondering, though, the portfolio is now generating like 4% same-store arguably into next year. Is there an opportunity in your minds to recycle that into, say, maybe a U.S. asset where you could get higher growth?
Justin Hutchens: It’s Justin. So let me start with the jumping off point at the end of the year. So what’s happening this year is we have significant occupancy growth in our plan. Occupancy, as you know, a lot of it comes from the key selling season. We’re off to a pretty good start because we’re already outperforming just typical seasonality. But what’s most important is what’s coming next, which is that kind of May to September period, which provides occupancy growth. Typically, we see the numbers that the demand is there, we see in the underlying performance that we’re executing on the demand. So that gives us the confidence that we’ll be able to grow occupancy. And then when you have the build during the year, clearly, that you end up ending the year at a higher NOI.
And that NOI, the point we’re making is it’s a good launching pad for 2025 growth when you run that through and then you start adding more occupancy on top of that. The other thing that happens is margin expansion. We’re in a place right now, we’re in the — you mentioned Canada. It’s 95% occupied. U.S. is around 80%, 81%. Well a lot — most of our occupancy growth is in the U.S. And when you — we’re just at the early stage of that occupancy band where margin starts to grow, and we’re at an inflection point, and so we’re also looking forward to next year as well as we — as occupancy grows, the operating leverage goes up, margin expansion could or should be more in ’25. So we think there’s good support for this growth, and we’re executing, and it’s not — it should help the ’25 number, and then the demand is such that the runway should be even longer.
So we like what we’re seeing there. In terms of Canada, we do have a really, really good portfolio there. And I’m really glad you asked about it because it is a core light asset, very high quality physically. It’s very high quality in terms of execution, in occupancy and margin. It’s been a consistent performer for us. There’s good demand in these markets. It’s a great operator. Primarily most of the NOI is Le Groupe Maurice in Canada. And we look forward to continuing with that, and with that relationship and the compounding growth that it can offer and also opportunities to expand that footprint over time.
Debra Cafaro: And also, as we do new investments, obviously, the percentage that, that represents of the overall SHOP portfolio and Ventas will shrink because the denominator will be growing and emphasized on U.S. senior housing. So that will change the impact as well.
Justin Hutchens: Yes. And actually, I’ll take this opportunity to make one of my other favorite points. And that is that the U.S., okay, that grew 24.5% in — for us last year in our same-store pool, and we’re expecting mid- to high teens NOI growth in ’24. That’s the growth engine. And that’s comparable to the other portfolio. They have similar upside and less stability, where Canada is what it is. It’s high quality and stable. But when you blend the 2, obviously, it hampers our growth a little bit, and it’s being hampered by a very high-quality, high-performing portfolio, and the U.S. is growing as well as anyone.
Operator: Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.
Austin Wurschmidt: Great. It sounds like Kindred’s a no-go here, but at least after all these years, I guess it’s only 5% of NOI for this master lease and not 50% plus. So, Debbie…
Debra Cafaro: ’99.
Austin Wurschmidt: That’s even before my time. But you did highlight — I want to hit on the acquisition piece a little bit. And you highlighted $300 million of investments you have confidence in completing in the first half of this year. And there’s a chance it sounds like maybe that could increase, given the target-rich environment that you kind of laid out. I guess can you or Bob discuss about the funding plans for those assets and maybe where equity fits into the plan? And I’m just curious, given that line of sight, why not issue under the ATM late last year given kind of the favorable move in the stock and more attractive cost of capital you had?
Debra Cafaro: Well stated. I think, Bob, Bob, do you want to talk about funding?
Robert Probst: Yes. As I mentioned earlier, look, the returns on these investments that we’re seeing make this attractive from day 1 to our shareholders in our view, even at the current cost of capital when you look at the numbers. And we started this discussion with investors really late last year at NAREIT where cap rates have changed. And I think the consensus view at that point continues to be that’s a good investment. And so effectively, we’ve built that into our guidance in this $350 million. And I mentioned the opportunity of over-equitizing alongside that, that is also assumed. That being said, in a very disciplined way. And I think that’s the important part of the narrative. And so there is some — there are assumptions around that, but we will be very prudent in all, always, a function of the market.
Debra Cafaro: And I’m glad you asked it, too, because I think with Ventas really giving FFO guidance into ’24, that really is in the top 10 of all REITs, that we are aiming to have an improved multiple that benefits and reward shareholders, and it represents a cost of capital that could be very effective as we build on the organic growth story and layer on attractive investments focused on senior housing.
Operator: Our next question comes from the line of Ronald Kamdem with Morgan Stanley.
Ronald Kamdem: Just a two-parter for me. Just was looking through the deck. One, I realize that the slide on the NOI recovery opportunity, it looks like you guys removed it, which was a pretty helpful slide. So I guess the question #1 would be that conviction of getting back to $1 billion. Presumably the occupancy still feels pretty good with the guidance, but has anything changed about either the views on the margins or the occupancy and the recovery story to sort of pull that slide? And then question #2, sort of part 2, is really, it’s a sources and uses question because I don’t see the redevelopment CapEx or the asset dispositions guidance that you guys provided last time. So could you be a little bit more specific? We know you’re going to do $300 million plus or minus of acquisitions, but maybe a little bit more specificity about how you’re thinking about redevelopment CapEx, dispositions and even an equity issuance.
Debra Cafaro: I liked that Slide, too, but I’ll give it to Justin to answer.
Justin Hutchens: Yes. I like it. But what really dawned on us, quite frankly, is it’s not high enough. It really is — we’re focused on 80% occupancy and getting back to prepandemic cash flows, and we’re kind of moving beyond that because we see the ceiling can be a lot higher and the demand backdrop supports that. So we don’t want to put a ceiling on the opportunity. We think it’s more over time. We’ve got a good run rate established. We’re putting up $100 million — around $100 million a little bit more per year in the SHOP portfolio. So we decided to move on, try to focus on looking forward. One of the things that, before I’ll hand over to Bob, I just want to mention on the — you mentioned CapEx projects. I just want to throw in something on the senior housing.
We did complete 167 projects by the end of ’23, and that those started in October of ’22. And so we had a really strong run of getting our portfolio refreshed. We think there’s about another 70 that completes by this May for the key selling season and then another group of 82 or so, hopefully, by the beginning of next year’s key selling season. So we’re well past halfway done and like the opportunity to do more and increase our opportunity to be competitive.
