| Quarter | Q4 FY24 |
|---|---|
| Call date | 2025-02-13 |
| Results reported | 2025-02-12 |
| Length | 63 minutes |
| Speakers | BJ Grant, Senior Vice President of Investor Relations; Debra A Cafaro, Chairman and CEO; Hutchens James Justin, EVP Senior Housing and CIO; Probst Robert F, EVP and CFO |
Results, guidance and Q&A analysis for this call
Operator (Operator)
Thank you for standing by. My name is Gail, and I will be the— your conference operator today. At this time, I would like to welcome everyone to the Ventas 4th Quarter and Full Year 2024 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, kindly press star 1 again. Thank you very much. I will now turn the call over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.
BJ Grant (Senior Vice President of Investor Relations)
Thank you, Gail, and good morning everyone and welcome to the Ventas 4th quarter and full year 2024 results conference call. Yesterday we issued our full year and 4th quarter 2024 earnings release, presentation materials, and supplemental information package, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of topics may cause actual results to differ materially from those contemplated in such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website. 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 information package posted on the Investor Relations website. And with that, I'll turn the call over to Debra A. Cuffaro, Chairman and CEO of Ventas.
Debra A Cafaro (Chairman and CEO)
Thank you, BJ. I want to welcome all of our shareholders and other participants Welcome to the Ventas 4th quarter and full year 2024 earnings call. Ventas really delivered in 2024. Today, I'm happy to discuss our strong results, investment activity, and growth powered by our increasing participation in the unprecedented multi-year growth opportunity in senior housing. With our momentum, I'm also pleased to introduce our favorable expectations for 2025. Building on our strong results and positive outlook, we've also increased our quarterly dividend to stockholders by 7%. We continue to focus on creating value for our stakeholders from our advantaged position within the longevity economy as we enable exceptional environments that benefit a large and growing aging population. The company effectively executed on its 1-2-3 strategy in 2024, and I'd like to thank my colleagues for their commitment and excellence. During the year, we took advantage of the unprecedented multi-year growth opportunity in senior housing. We delivered significant senior housing NOI growth from our portfolio, made value-creating investments focused on senior housing, and drove cash flow throughout our portfolio. Let's discuss 2024 results. Ventas delivered full-year normalized FFO per share of $3.19, above the high end of our guidance range. Shop same-store cash NOI grew nearly 16%, the 3rd year in a row of double-digit growth. As Justin forecast at the beginning of the year, 2024 was a year of occupancy outperformance, with year-over-year occupancy increasing 300 basis points in our same-store communities. Compelling secular demand, de minimis supply, well-positioned communities in favorable markets, and Ventas' Advantage platform came together to deliver results. I also want to recognize the care providers for their outstanding service to residents and their families, including their extraordinary actions during the recent California fires. In 2024, we also completed over $2 billion in accretive investments focused on senior housing. These investments met our well-defined operational and financial criteria and were selected from a much bigger pipeline of opportunities using our competitive advantages in senior housing, which include data analytics, operator relationships, and our experienced, knowledgeable team. These investments, funded with equity, increased our participation In the multi-year growth opportunity through expansion of our senior housing portfolio, they added accretion, improved our FFO per share growth rate, accelerated deleveraging, and created value. As a result of both organic and external growth in SHOP in 2024, our scale grew significantly to $2.2 billion in annualized EBITDA, SHOP reached 43% of our NOI, and our leverage improved to enter our long-term targeted range, all by year-end. With nearly 8% total company same-store cash NOI growth in 2024, we also achieved the third prong of our strategy, driving cash flow growth throughout the portfolio. Compounding NOI growth from outpatient medical research and our triple-net lease portfolios supplemented our strong SHOP performance. We also increased our Ventas Investment Management platform, or VIM, during the year. Started in 2020, VIM has over $5 billion in assets under management. Looking forward, we are excited about the opportunities ahead. To create value for stockholders, we intend to continue to drive SHOP growth and expand expand our SHOP footprint with accretive investments focused on senior housing. As a result, we expect our SHOP business to represent over 50% of our NOI by year-end. Our 2025 guidance anticipates normalized FFO per share growth of 7% at the midpoint, led by SHOP. If achieved, this profile would put us in the upper echelon of REITs, And even as we focus on growth, we also expect to further enhance our financial strength and flexibility during the year. All the while, we'll maintain our commitment to enabling exceptional environments that benefit a large and growing aging population. So our value proposition for investors in 2025 is clear: deliver top-tier 2025 FFO per share growth, Property NOI growth and investment growth, further improve our balance sheet, and top it off with a 7% increase in our quarterly dividend. We are optimistic about 2025 and beyond. Conditions remain favorable for our continued success, and the company continues to build its competitive advantages. We are in it to win it. We are still in the early innings of this multi-year growth opportunity in senior housing. As the over-80 population is surging, construction starts have fallen to historic lows, and new developments generally are not feasible. We also expect to continue to benefit from compelling secular demand, a favorable pricing environment, robust attractive investment opportunities, positive operating leverage as occupancies rise, and a terrific experienced team. whose ranks continue to grow with top talent. With that, I'll turn it over to Justin.
Hutchens James Justin (EVP Senior Housing and CIO)
Thank you, Debbie. I'll give updates on our strategy to deliver profitable organic growth in our senior housing portfolio and execute on value-creating external growth. We had a very exciting and successful year on both fronts, starting with organic growth. 2024 marked the 3rd year in a row of double-digit same-store SHOP NOI growth. I'm very happy with the execution of our Ventas OI-driven SHOP platform initiatives and collaborative relationships with our high-performing operators. Our occupancy-led results were delivered by contributions across geographies and asset types. Total SHOP same-store cash NOI growth was 16%. which is at the high end of the guidance range. Full-year same-store SHOP occupancy grew by 300 basis points versus our initial guidance of 250. In the 4th quarter, our U.S. same-store NOI grew 20% and occupancy grew 370 basis points. We are outperforming our markets in occupancy growth. Our U.S. SHOP communities in the NIC Top 99 markets grew 350 basis points, Beating the NIC benchmark by 140 basis points. These results were broad-based across assisted living and independent living. Moving forward, we are highly optimistic about our senior housing business across multiple dimensions. The supply and demand dynamics in our sector are exceptionally favorable. Over the next 5 years, the U.S. will experience an unprecedented surge in the senior population, as the baby boomer generation begins turning 80. This 80-plus age group is projected to grow by 28% during this period, driving significant demand for senior housing. Meanwhile, new construction in our markets remains constrained, with inventory growth at the lowest number on record and new construction starts at an all-time low. These combined factors create an extraordinary net absorption opportunity in the upcoming years, unlike anything we have seen before. We just finished the first lap of a long race, as supply-demand characteristics are projected to remain compelling over the next several years. Ventas is in a strong position to continue to drive growth in our SHOP portfolio. We have favorable competitive positioning driven by Ventas OI with proprietary data analytics and experiential insights which underscore portfolio actions and optimizes performance. Our expanding network of 29 SHOP operators has consistently delivered tremendous growth while capturing market share in their respective regions. We are committed to working closely together with them to capture the immense opportunities ahead. We offer a differentiated approach through collaboration, and the aligned goal of delivering exceptional care, services, and performance. We continue to execute on our Community Refresh program, improving the living and working environments of our communities and therefore improving competitive positioning. We have completed 228 projects at year-end, including over 150 refreshed employee break rooms and over 4,500 modernized resident units. We are on pace to complete another 50 refresh projects by the key selling season this year, which should further enhance our ability to drive NOI. Speaking of driving NOI, as previously announced, we are excited to expand our SHOP portfolio by converting 45 large-scale senior housing communities comprising of about 5,700 units from the triple net structure to SHOP. This is a great opportunity to reposition low-occupied communities that are located in markets with strong projected net absorption. We have plans to transition these communities to 5 proven high-performing operators with a strong track record of both transitioning and improving operating performance. We plan to execute the Ventas OI playbook to drive occupancy, pricing, environmental improvements, and ultimately double the NOI of this 77% occupied portfolio. Assuming this conversion occurs by the end of the year, we project our SHOP footprint to increase by 8% in number of units and our shop portfolio to increase to account for over 50% of our enterprise NOI. Looking forward to 2025, we are excited to continue our multi-year growth trajectory as we embark on our 4th consecutive year of double-digit NOI growth in our same-store shop portfolio. Same-store shop is expected to grow NOI 11% to 16%. The midpoint of our range is driven by revenue growth of about 8%, average occupancy growth of about 270 basis points, and continued strength in pricing driving RevPAR of around 4.5%. Furthermore, we expect operating expense growth of 5%. Per usual, the results will be highly dependent on a successful key selling season, And we are assuming a relatively stable inflationary outlook. Once again, we are expecting the U.S. to be the growth engine with continued accelerating occupancy performance with over 300 basis points of growth. January occupancy is off to a strong start. Summarizing organic shop growth, we are coming off a strong year of occupancy-driven results, and we are excited about the opportunities ahead As we continue to unleash the power of our Advantage SHOP platform. Moving on to part 2 of our strategy, we continue to execute on value-creating external growth focused on senior housing in the 4th quarter and throughout 2024. For the full year, we closed on $1.9 billion of senior housing investments, including $1.4 billion in the 4th quarter alone. These investments fits squarely within our investment criteria, including 7% to 8% expected year 1 NOI yield, low to mid-teens unlevered IRRs, and a significant discount to replacement cost. This investment activity meaningfully expands our SHOP portfolio with the addition of 52 new communities in markets with strong projected net absorption and communities that are high-performing with upside, including average in-place occupancy of 90%. Even with this accelerated pace of external growth, we are maintaining our underwriting discipline. In 2024, we reviewed approximately $18 billion of senior housing opportunities, pursuing approximately $5 billion, and ultimately closing on nearly $2 billion. We have a rigorous data-driven process that ensures we are pursuing the best deal for Ventas and investing within our right market, right asset, right operator framework. Our experienced team remains focused on executing our external growth plans, and we intend to expand the team. We expect our pipeline will continue to present a large set of compelling investment opportunities with potential deals coming from a range of owners and a variety of reasons for selling, including debt and fund maturities. Our investment activity also includes a range of seller profiles with transactions coming from a balanced mix of owner-operators, private equity developers, and other institutional capital. Looking forward to 2025, we expect to keep our external growth momentum, including line of sight on $1 billion of senior housing investments, which are already in advanced stages, and we expect to be weighted in the first half of the year. Ventas is a senior housing partner of choice with sellers, brokers, and the entire investment community. This remains true even as there may be more competition for assets as others are seeing the favorable risk-reward in senior housing. Our industry experience, platform capabilities to manage scale, data science, and transaction track record should help to propel our growth prospects moving forward. Our investment team capabilities are second to none, and we are continuously building on our strengths. With that in mind, I'm very excited to announce Alex Russo joining our team as Senior Managing Director of Investments. During his 18-year career at Lazard, Alex has demonstrated exceptional financial and investment acumen, and I expect he will be an instrumental addition to the team as we continue to execute on our value-creating external growth focused on senior housing. Now I'll hand the call to Bob.
Probst Robert F (EVP and CFO)
Thank you, Justin. I'll share some highlights of our 2024 performance and close with our 2025 outlook. I'll start by saying we are pleased with all we accomplished in 2024. We finished 2024 strong with attributable net income per share of $0.19, 2024 normalized FFO per share of $0.81 in the 4th quarter and $3.19 for the full year, Represents a 7% year-over-year increase in both periods. The result exceeded the high end of our full-year normalized FFO guidance range, led by SHOP same-store growth and execution on our accretive senior housing investment pipeline. Our total company same-store cash NOI grew nearly 8% year-over-year in 2024, reflecting broad-based property NOI growth across our portfolio, led by 16% growth in SHOP. Our outpatient medical and research business delivered continued compounding growth of 3% in 2024, in line with our expectations. For the full year, research grew 4.6% and outpatient medical increased 2.6%. As Justin described, we closed on approximately $1.9 billion of senior housing investments, Funded all equity. We raised $2.2 billion of total equity in 2024 and year-to-date 2025, including approximately $1.2 billion raised since the 3rd quarter at an average share price of $62.90. We currently have $250 million of unsettled forward equity available to fund senior housing investments in 2025. Consistent with our strategy, SHOP growth and all equity-funded senior housing investments have further strengthened our balance sheet. At 6.0 times, our Q4 net debt to EBITDA is a 90 basis point improvement year over year and has now entered our long-term targeted leverage range of 5 to 6 times. We expect continued leverage improvement in 2025, driven by senior housing growth. We ended 2024 with robust liquidity of nearly $4 billion. which included proceeds from our 3rd quarter 2024 senior note issuance, which we subsequently used to pay down $1 billion of maturing debt in the 1st quarter of 2025. Let's conclude with our full-year 2025 outlook. For 2025, we expect net income attributable to common stockholders of $0.48 per share at the midpoint. We expect normalized FFO to range from $3.35 to $3.46 per share, or $3.41 per share at the midpoint, which represents 7% year-over-year growth, in line with the FFO growth we posted in 2024. The $0.22 normalized FFO per share increase is driven by NOI growth in the SHOP business and accretive senior housing investment activity, partially offset by higher net interest expense, FX, in dilution from a higher share price. Our 2025 total company same-store cash NOI guidance approximates 6.75% year-over-year growth at the midpoint, led by SHOP. Our guidance includes senior housing investments of approximately $1 billion in 2025 with clear line of sight and weighted to close in the first half of the year. We intend to principally equity fund these investments And have already raised $250 million via equity forwards. For the year, we also expect to raise $200 million through capital recycling efforts. Specific to increased net interest expense, our midpoint of guidance assumes an increase of $0.08 compared to 2024 from refinancing maturing debt at a higher rate and lower cash balances year over year. A more fulsome discussion of our 2025 guidance assumptions can be found in our Q4 supplemental and earnings presentation posted to our website. To close, we are really pleased with our 2024 performance, are executing on our growth strategy, and delivering advantaged growth in normalized FFO per share. The entire Ventas team is determined to continue this momentum in 2025. With that, I'll turn the call back to the operator.
Operator (Operator)
At this time, I would like to remind everyone that in order to ask a question, press star, then the number 1 on your telephone keypad. Thank you. We will pause for just a moment to compile the Q&A roster. Okay, so your first question comes from the line of Omotayo Otosanya with Deutsche Bank. Please go ahead.
Hutchens James Justin (EVP Senior Housing and CIO)
Yes, good morning.
BJ Grant (Senior Vice President of Investor Relations)
So my question actually is about the medical office building side of things. Just looking at the quarter, some occupancy declines, it appears. But in your 2025 guidance, you have pretty strong same-store NOI growth. So I'm just curious. What the kind of trajectory is in that business, whether you're expecting occupancy gains, you know, refilling of some of that space that may have vacated in the year, or how do we kind of think about the 4th quarter results relative to the '25 guidance?
Probst Robert F (EVP and CFO)
Yeah, thanks, Taiyo, for the question. You know, really, it started in '24. We actually did more leasing. we had 15% more leasing than the prior year. And, you know, as you cycle through that, you do construction and they start coming online, start seeing meaningful results in your NOI. If you look at '24, we've already— or '25, we've already done 34% of our leasing plan, which is a terrific start for mid-February. So our plans for '25, Assume occupancy gains and the corresponding NOI growth.
BJ Grant (Senior Vice President of Investor Relations)
Gotcha.
Omotayo Otosanya (Analyst)
Okay, that's helpful.
BJ Grant (Senior Vice President of Investor Relations)
And if I may ask one about the senior housing, again, everyone's very aware of what's happening in regards to demographic tailwinds and clearly showing up in your results. Curious at this point is what VOI is telling you guys in regards to strategically, you should be doing anything different to kind of further kind of capitalize on those demographic tailwinds, especially now you're kind of at the point where, again, occupancy is getting higher and things of that sort, and demand— supply-demand fundamentals clearly are in your favor?
Hutchens James Justin (EVP Senior Housing and CIO)
Hi, it's Justin. Yeah, so, you know, the whole basis for Vento's OI is to really help us to focus on, you know, markets, assets, and operators. And the data from a market standpoint is extremely helpful because, you know, it really underscores all the decisions we make. It's the most important aspect of our investment decisions, disposition decisions, decisions to invest in particular assets. And the key point really is it's hyper-locally focused. And that really gives us the comfort and confidence that if we make that investment, we take certain actions, that it's going to deliver growth opportunity. And it's going to have sustained opportunity to perform well over time. And that's really the power of the platform. It's looking ahead, you know, near, mid, long term and ensuring that we're well positioned.
BJ Grant (Senior Vice President of Investor Relations)
All right. Congrats on the quarter and the outlook.
Probst Robert F (EVP and CFO)
Thanks, Sarah.
Operator (Operator)
Your next question comes from the line of Michael Griffin with CT. Please go ahead.
Omotayo Otosanya (Analyst)
Thanks.
Probst Robert F (EVP and CFO)
It's Nick Joseph here with Michael.
Omotayo Otosanya (Analyst)
Just wanted to touch base on the acquisition strategy targeting more stabilized assets.
BJ Grant (Senior Vice President of Investor Relations)
I was hoping you could talk about kind of the return profile of those where you can kind of push rate versus the occupancy upside and what sort of kind of going-in yields and stabilized are IRRs you could get there?
Probst Robert F (EVP and CFO)
Yeah, sure.
Hutchens James Justin (EVP Senior Housing and CIO)
So, you know, we find this to be a very unique opportunity right now where you can invest in high-quality assets that have the combination of delivering yield and growth. Haven't really seen this before. There are opportunities to invest in a variety of different senior housing. We had— we mentioned we had $18 billion that we started to look at. We only pursued $5 billion of that, and really, that's because we're being— we're extremely focused on the criteria that we set forth, which is help us to ensure that we're getting the combination we're looking for of yield growth and then ultimately a high-quality, high-performing asset. So, the asset that we're pursuing, first and foremost, it's high-performing. These are market leaders. They're 90% occupied, But that doesn't mean they don't have occupancy upside. You know, we have— they're in markets that have strong net absorption, and there's another 10% occupancy opportunity, plus pricing opportunity, which should only improve as scarcity value increases. And that will come as occupancy continues to grow. We're buying larger communities that have a mix of IL and AL and memory care services. We're in markets that have strong net absorption and strong affordability, and the unlevered IRRs are low to mid-teens. And that's factoring in, you know, obviously growth, and we tend to use a constant cap rate. So, you can, you can have an assurance that it's growth that's really driving that IRR. So, we like this opportunity. We're continuing with the same investment criteria in '25 that we used last year. We mentioned the billion that we're pursuing, and that's lining up well with that criteria.
Omotayo Otosanya (Analyst)
Thanks.
Probst Robert F (EVP and CFO)
That's very helpful. And then just the impact of that, those acquisitions both identified and also potential in 2025.
BJ Grant (Senior Vice President of Investor Relations)
Could it meaningfully move the needle, or is it more kind of future growth that we would see it on a per-share basis?
Probst Robert F (EVP and CFO)
Hey, Nick, it's Bob. Yeah, good news. These acquisitions are accretive from the get-go, all equity funded. Last year we did nearly $1.4 billion in the 4th quarter, so a lot of the activity last year was 4th quarter weighted, and it was 7% to 8% yields, is accretive. So that's certainly part of the 7% year-over-year growth in normalized FFO per share. The line of sight to the new billion will have lesser contribution, obviously, just given timing in the year. But again, we'll continue to strive to do what we did last year. Thank you very much.
Hutchens James Justin (EVP Senior Housing and CIO)
Thank you.
Operator (Operator)
Your next question comes from the line of John Kalachowski with Wells Fargo. Please go ahead.
Omotayo Otosanya (Analyst)
Thank you. Maybe just to circle back to that last question and talking about the $1 billion acquisition guide, I'm curious what deal flow looks like at this point right now versus maybe this time last year and in the 4th quarter, and then maybe how the competitive environment is changing and the room for you all to drive acquisitions into the 2nd half of '25.
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, well, first of all, The pipeline is bigger than it was this time last year. And, you know, remember, we started last year's guide at $350 billion. We ended up $2 billion. This year, we have confidence around $1 billion already. So, you know, that in itself kind of demonstrates the pipeline. But we're seeing more activity. We're seeing more competition. There's certain new players at the table and some, some that have been around before coming back to the, to the sector again. But it's important that we emphasize why we have a competitive advantage in this asset class. And there's a few reasons. One is the platform itself, you know, the Ventas OI, the data analytics, the experience and capital to well-position assets. And then making sure that we are picking the right operators. And one of the reasons I'm so proud of the amount of operators we have is because we are picking operators that have track records in their particular asset classes and in their markets. And we have the scale to manage a platform of multiple operators. It's not about how many, it's about delivering within local markets, and we can manage that. So that's a differentiator. amongst most of the market that pursues senior housing. This is a platform that's taken many years to grow. It's even turbocharged, I think, in a recent period as we've reentered the competitive, you know, opportunity within senior housing. And we think we'll do well, and we'll look forward to continuing to execute.
BJ Grant (Senior Vice President of Investor Relations)
Got it.
Omotayo Otosanya (Analyst)
And then maybe if we could just Jump to development here. How close are we in the cycle to having development really start to pencil? Like, what would Rev 4 growth need to be in your models to get there? And then typical delivery times, just so we can sketch out in maybe like a rate-neutral environment what we think supply would likely inflect.
Hutchens James Justin (EVP Senior Housing and CIO)
Right. So it doesn't seem like we're anywhere close, you know, and it varies by, by market. There's a wide range of rents that we think are needed. It could be anywhere from 20 to 50% higher depending on the market you're looking at. We were not seeing development starts. There's not really a big debt financing source for development. And it's on multiple fronts, and that the barriers are on multiple fronts, anywhere from land costs, material costs, labor costs. And then just the price that's needed really to justify the spend. And it's, you know, it's a ways off, you know, based on what we're seeing now.
Omotayo Otosanya (Analyst)
Thank you.
Operator (Operator)
Your next question comes from the line of Juan Sanabria. With BMO Capital Markets. Please go ahead.
Hutchens James Justin (EVP Senior Housing and CIO)
Hi, good morning.
Probst Robert F (EVP and CFO)
Um, just hoping you could talk a little bit about the R&I business and your views on risks around NIH funding changes as a result of policies by the new administration and the impact or lack thereof on Ventas' assets.
Debra A Cafaro (Chairman and CEO)
Good morning, Juan. It's Debbie. So I'll just briefly touch on that. As you know, because SHOP is growing at such an accelerated pace within our enterprise, our consolidated research portfolio is about 8% of our total NOI with, you know, 18 distinct universities. And, you know, the U.S. leads the world in biomedical research, in part because of funding from the NIH. And, and so, we, you know, we generally feel positive about the long-term prospects of biomedical research in the U.S. And there is, as you, as you note, some noise around the NIH grants, you know, at the moment. But at the present time, you know, any changes have been halted. and therefore, the grant recipients, you know, should continue to receive their full funding. And these institutions generally have a very, very, very, very large research budget, of which NIH funding is a minority portion. And of that, the only proposed changes are to a Small portion of that. So that hopefully frames it up for you.
Hutchens James Justin (EVP Senior Housing and CIO)
Very helpful.
Omotayo Otosanya (Analyst)
Thank you.
Hutchens James Justin (EVP Senior Housing and CIO)
And then just as my follow-up, maybe if you could provide a little color on the $200 million that's for capital recycling via dispositions, the strategy there.
Probst Robert F (EVP and CFO)
You talked about maybe selectively selling skilled nursing before. Is that kind of still on the bucket and What yields we should expect on that $200 million.
Debra A Cafaro (Chairman and CEO)
Yes, and you've been writing about this, so you, you know it well, which is, you know, we have had a strategy of disposing of the skilled nursing facilities we acquired a year or 2 ago, and we've done quite a bit of that and have about $150 million pending. And would expect that to be the big part of the $200 million to which Bob referred. And we'll recycle that capital into, you know, senior housing investments.
BJ Grant (Senior Vice President of Investor Relations)
Thanks again.
Debra A Cafaro (Chairman and CEO)
Thank you.
Operator (Operator)
Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
BJ Grant (Senior Vice President of Investor Relations)
Morning. Thanks for taking the question. Congrats on a strong quarter. Maybe just first on the shop side, can you clarify in your guide, are you baking in sort of a typical seasonal pattern in '25, kind of dipping in 1Q and then from 3Q to 4Q, or are you baking in something different?
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, sure. So We, we do consider kind of a historically normal seasonal pattern, um, in our, in our guide, um, and we have said we're off to a strong start in January. We'll also be the first to admit that we had very strong counter-seasonal results last year, so the new normal could change as demand's picking up. But it doesn't really change one important fact, and that is that Yeah, we have a heavy reliance on the key selling season. And obviously, I think we're well positioned to do well, but that's always the most important season because that's where a lot of the net moving activity happens.
Omotayo Otosanya (Analyst)
Got it.
BJ Grant (Senior Vice President of Investor Relations)
So, just to clarify, you're baking in typical, like, occupancy dips and pickups, etc., as we go through the year, just as you've seen historically?
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, we're using historical seasonality in our underwriting.
BJ Grant (Senior Vice President of Investor Relations)
And then, in the same-store or the overall, I guess, SHOP portfolio, can you, A, just give us a bit of a sense of how pricing power evolved around kind of different occupancy bands and perhaps what percent of the portfolio is, you know, less than 80% occupied today?
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, sure. So, I'll take the second one first. It's about 25% below 80%. I like to remind people that the US is 84% occupied. So, we have a lot of growth opportunity in terms of occupancy within the SHOP portfolio in the U.S. Pricing, there's, there's a direct relationship between higher occupancies and higher price. So we'll see, you know, the best being, being 99% occupied or higher. You know, we have that by far and away could be up to 900 basis points better move-in rents. Rev 4 is you know, up 30%, 40% in that range. The next one down, 90%, 99%, you're seeing exceptional pricing as well. And it's really that kind of below 90% occupancy category where we're not pushing pricing as much. So, if you think about where we're positioned, 84%. Debbie mentioned 2024 is occupancy-led. '25, we're expecting solid occupancy growth again with good pricing support. And as we get into higher occupancies, we fully expect that, that we'll have the opportunity to push pricing more over time.
BJ Grant (Senior Vice President of Investor Relations)
Got it. And then just last clarification on the fund business you have. Can you just talk about, you've talked about the overall deal volume and the pipeline for on balance sheet, but what about the fund and maybe MOBs or life sciences, senior housing? Like, how are you thinking about growing or tapping the fund?
Debra A Cafaro (Chairman and CEO)
Thanks. Our fund business has been very successful since its inauguration, and we are continuing to grow that. It's been a good performer compared to its benchmarks, and we would expect to continue to use that vehicle for the benefit of the institutional investors in it, as well as, you know, Ventas, because we are the general partner and an investor in it. So, it's a nice additional tool that we have and have used to benefit the overall enterprise and the investors in the fund.
BJ Grant (Senior Vice President of Investor Relations)
Great. Thanks and congrats again.
Debra A Cafaro (Chairman and CEO)
Thank you very much.
Operator (Operator)
Your next question comes from the line of Richard Anderson with Wedbush. Please go ahead.
Omotayo Otosanya (Analyst)
Hey, thanks. Good morning. So, so, Justin, you know, I know the focus from an acquisition standpoint is high-performing, 90%-ish type occupancy, but you're kind of jumping out of your shoes talking about the Brookdale opportunity that's 77% percent occupied and doubling the NOI and all that. I'm just curious why the focus is on, you know, sort of lower risk, if I could call it that, opportunities as opposed to more value-add activity, given we are in such a sweet spot, you know, in early stages of this fundamental cycle in senior housing.
Debra A Cafaro (Chairman and CEO)
Yeah. I mean, good comment. I mean, really, we should be looking at aggregate portfolio composition. just like an investor would look at their aggregate portfolio to look at risk-reward, growth, et cetera. And so I'll turn it over to Justin. Clearly, when you can buy things that have great risk-adjusted return, as we've been doing, we like that. But let's talk about overall portfolio construction.
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, and I mean, and that's exactly right because we have a lot of upside in our, existing SHOP portfolio from an occupancy standpoint. And we've taken a lot of actions over the years to make sure we're well positioned within that portfolio to be ready for really what we're seeing today, which is this growing demand environment. And we're, like I said, we're only 84% occupied in the U.S. You know, if you looked at the non-same-store group, half of that's acquisitions. The other half is in the, is in the 70% occupancies. And so, where did we get those communities? Well, We moved a lot of them from TripleNet to SHOP through conversions. So even without Brookdale, we've already converted around 100 communities from TripleNet to SHOP. And that's really been the source for this kind of, if you want to call it a value-add opportunity, where we can really deploy the Ventas OI playbook to the fullest. And then a nice complement to that are these high-performing acquisitions that we're making that also have really good returns and growth.
Debra A Cafaro (Chairman and CEO)
Yeah. I mean, the investments meet the unlevered IRR expectations, you know, low to mid-teens are expected to deliver that. And so, that's pretty good for an asset that is well-performing already.
Omotayo Otosanya (Analyst)
Okay. And then, my second question is, I think someone asked what percentage of your portfolio is below 80%. You said that's 25%. What percentage is currently running above whatever the pre-disruption occupancy was, say high 80s. I mean, where, where do we find proof that you think that the landing point for occupancy in shop is something meaningfully greater than the starting point prior to the pandemic and so on? I wonder if you could sort of give us some, give some color around that. Thanks.
Hutchens James Justin (EVP Senior Housing and CIO)
I mean, the, yeah, I mean, there you can see Well, the sector is basically there, you know, so you have, you know, the industry that's really achieved that in the US. They're back to that pre-pandemic level. We have way over half of our portfolio has already done that. As we've said, we've been kind of moving communities in that we think have a repositioning opportunity to deliver outsized growth for us. So that's part of the makeup of the portfolio. And, you know, I think that the results we've had over the last few years is demonstrating the growth opportunity. And you're seeing our occupancy grow, you've seen our margin expand. And really just as we said it would. So we're right in the— but I'll say this, Debbie said it and I said it, different analogies. It's— I said it, we just finished like the first lap of a long race. Because we're just now, like really now, getting to the period where demographics become really strong. And it happens to be during a period when supply is completely muted. So it's been pretty good the last few years. We're looking forward to some more strength moving forward and, and, you know, achieving our forecast.
Debra A Cafaro (Chairman and CEO)
Yeah. Rich, I used the baseball analogy for you.
Omotayo Otosanya (Analyst)
You're welcome. I appreciate that. Thank you very much. Yeah.
Debra A Cafaro (Chairman and CEO)
Thanks.
Operator (Operator)
Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Probst Robert F (EVP and CFO)
Yeah, thanks.
Hutchens James Justin (EVP Senior Housing and CIO)
Justin, can you comment on the reason why Ventas might lose a seniors housing transaction?
Probst Robert F (EVP and CFO)
I know in the sub—
Hutchens James Justin (EVP Senior Housing and CIO)
in your prepared remarks, you said that Ventas bidded on $5 billion of deals and closed about $2 billion.
Omotayo Otosanya (Analyst)
So what are the reasons for those misses in 2021?
Hutchens James Justin (EVP Senior Housing and CIO)
Is it due to price, or is there other reasons that Ventas decides not to move forward with that? So, there's a couple. I'm going to start with why we win deals. And, you know, when we— when you look at the $2 billion, you know, and the billion that's coming, the obvious first thing is we're the highest bidder. You know, the next is that we had a unique opportunity. And a lot of these deals are owner-operator driven, and they'll like to partner with Ventas as their next capital partner over the long term. And so, that's helped us to be well positioned with certain deals that we've, we've won. We've had kind of quasi-off-market opportunities like that that have driven a lot of the opportunity for us. We have other opportunities where we've transactioned with the— we've transacted with the counterparty before. So they know who they're dealing with on the other side of the table. They know that we deliver on what we say we're going to do. And that really leads to confidence in transacting with us, which helps us to win opportunities. So generally, if we're not winning a deal, there's obviously a disconnect in terms of what we think the value of the asset is versus the player that bought it. So, you get outbid in certain cases. Certain times, we may even expect that'll happen, you know, because it might be a certain type of asset, but we have insights into the market that others might not have. So, you know, I, you know, we're, we're liking our success rate. We're usually not shocked if there's a deal that falls out on us, and we usually have a lot of confidence around the the deals that are the right fit. Okay, that's helpful.
Probst Robert F (EVP and CFO)
And who are the peers that typically beat you?
Hutchens James Justin (EVP Senior Housing and CIO)
Obviously, you don't have to name names, but are they like public REITs or private players? I mean, who are the main competition that you typically can't complete a deal because they outbid you?
Debra A Cafaro (Chairman and CEO)
Well, Michael, I mean, this is Debbie. One of the things that Justin said, which I think is very important, is we may choose not to bid more because we don't value an asset the way maybe someone else does. Part of the secret sauce, of course, is bringing these assets on and adding the OI platform and knowing what can be delivered in— under our auspices. And so, there are plenty in there that we just choose not to bid more because we— We don't like the risk-reward proposition. And I would say that's the most common characteristic. There are very few deals, very few, where if we want it, we don't get it. That's a much, much smaller number.
Hutchens James Justin (EVP Senior Housing and CIO)
Okay, great. Thank you.
Operator (Operator)
Your next question comes from the line of Ronald Kandam with Morgan Stanley. Please go ahead.
Omotayo Otosanya (Analyst)
Hey, I just had 2 quick ones. Just wondering if you could touch on expenses a little bit. Just give us a sense of what the labor market is looking at and if, if that's something that is a concern as we think about going forward.
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, in the, in the shop business, the You know, you know, the expense forecast really assumes kind of current inflationary projections. We have 5% all in because that includes wage increases, plus it includes the volume impact of the occupancy. Obviously, the flow-through is very strong, which is great. Importantly, the hiring opportunity has been very good for operators. We're on a long trend now. of having the ability to fill roles. Retention is strong as well. So, I'm going to knock on wood and say the labor market for us has been about as good as we've seen in some time.
Omotayo Otosanya (Analyst)
Great. That's helpful. And then just on the conversions, I think you talked about you've done 100 and there's this Brookdale. Just as you look at the portfolio, how much more opportunity do you think there is in the next, you know, call it 3 to 5 years, and more conversions? I know they're tricky, but trying to figure out what the sample size looks like.
Hutchens James Justin (EVP Senior Housing and CIO)
That's a good question. And I have to say that the lease portfolio that remains is very strong performing, good coverage, good assets, tenants that are happy with their relative position. There may be some that we can you know, jointly agree to repurpose into a different structure. But I think we've picked most of the opportunities, and now we're really focused on execution.
Omotayo Otosanya (Analyst)
Great.
Hutchens James Justin (EVP Senior Housing and CIO)
That's it for me.
Omotayo Otosanya (Analyst)
Thanks so much.
Debra A Cafaro (Chairman and CEO)
Thank you.
Operator (Operator)
Your next question comes from the line of Jen Pawlowski with Green Street. Please go ahead.
Omotayo Otosanya (Analyst)
Hey, thanks for the time. My first question is on capital expenditures. The $285 million in FAD CapEx, it's up about 15% year over year. Is that this level? Should we expect this level to continue for the next few years? And is the Brookdale repositioning in Brookdale included in this figure, or is that a separate kind of redevelopment CapEx bucket above the FAD CapEx?
Probst Robert F (EVP and CFO)
Yeah, I'll take that one. It's Bob. So we were about $250 in 2024 million on FAD CapEx. The guide at $285, call it $30 million higher, is really 2/3 more units from all the activity we just talked about, whether it's investments or conversions from triple net, and 1/3 just inflation. It kind of describes the difference. So I would expect as we continue to buy more assets and make conversions, including the Brookdale, that, you know, that will, that will continue at a, at a higher level, but it's really principally volume-based, more units.
Omotayo Otosanya (Analyst)
Okay, and then, Justin, a follow-up on one data point you threw out that I missed. Was it you referenced Rev 4 being 30 to 40% higher in your higher occupancy Tranche properties versus low occupancy, is that RevCorps growth rates are 30% to 40% higher? Did I catch that right, or could you expand on that?
Probst Robert F (EVP and CFO)
Yeah, it's a—
Hutchens James Justin (EVP Senior Housing and CIO)
yes, good question. It's a RevCorps growth rate. Yeah, so, you know, there's— it demonstrates really what we think is a very exciting opportunity around price in the future as we get our occupancy up over time. Okay, thanks for the time.
Debra A Cafaro (Chairman and CEO)
Thank you.
Operator (Operator)
Your next question comes from the line of Wes Goloday with Baird. Please go ahead.
Hutchens James Justin (EVP Senior Housing and CIO)
Hey, good morning, everyone.
Omotayo Otosanya (Analyst)
Um, you mentioned competition maybe picking up a little bit for senior housing.
BJ Grant (Senior Vice President of Investor Relations)
Are you starting to see any signs of cap rate compression?
Hutchens James Justin (EVP Senior Housing and CIO)
That's a good question. You know, so, you know, we're, we're squarely in the range that we've been targeting all through last year and so far this year, that 7 to 8%, you know, year 1 yield, and our unlevered IRRs are basically the same. And so, we're still finding opportunities that meet that criteria. And, you know, it's been, you know, so far so good focusing on those targeted returns.
Debra A Cafaro (Chairman and CEO)
And as you know, 10-year rates are up over 100 basis points since even September. So that bears on it as well.
Omotayo Otosanya (Analyst)
Yeah, we've got to get the Fed—
Debra A Cafaro (Chairman and CEO)
That's another area of advantage for us is the access to and pricing of capital.
BJ Grant (Senior Vice President of Investor Relations)
It's a fair point.
Hutchens James Justin (EVP Senior Housing and CIO)
One last one for me would be the Santieri portfolio.
Omotayo Otosanya (Analyst)
A few years ago, you talked about having some opportunity with the MOB portfolio.
BJ Grant (Senior Vice President of Investor Relations)
Are you starting to see that kick in this year?
Hutchens James Justin (EVP Senior Housing and CIO)
Is that more of a 2026 thing? Yeah.
Probst Robert F (EVP and CFO)
Hey, thanks for the question, Wes. Uh, this is Pete.
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, the EOP portfolio we're really happy with.
Probst Robert F (EVP and CFO)
We've got 79 assets and we continue leverage the Littlebridge playbook and the Littlebridge team. Uh, what was really solid in '24 was, uh, We, we had a material impact on tenant satisfaction. We went from the lowest quartile of tenant satisfaction to the 3rd quartile, which is a terrific step up. We also had great retention last year of 82% TTM. Occupancy was up 210 basis points, and also NOI was up substantially, about 4%. So we expect that to carry through.
Hutchens James Justin (EVP Senior Housing and CIO)
Okay.
BJ Grant (Senior Vice President of Investor Relations)
Thanks for the time.
Operator (Operator)
Your next question comes from the line of Austin Werschmidt with KeyBanc Capital Markets. Please go ahead.
Omotayo Otosanya (Analyst)
Yeah, just first one on the Brookdale transition. Are you assuming any headwind or benefit to FFO from transitioning those assets to SHOP from triple-net in the back half of this year? And just curious what that assumes in the underlying, you know, NOI that you identified in the release. I think it was mid-$50 million range. Thanks.
Debra A Cafaro (Chairman and CEO)
Yeah, thanks, Austin.
Probst Robert F (EVP and CFO)
Yeah, I'll take that. It's Bob. So the assumption in the plan, in the guidance, is that for the vast majority of the year, the assets remain under the triple-net lease. That's the way the deal was structured. We can begin to transition them towards the end of the year, but effectively think of it as a triple-net segment NOI asset for the vast majority of the year. You know, where we'll really start to hopefully see some impact is on CapEx, you know, as we start to begin the transitions. So it's really more of a '26 story, to be honest.
Omotayo Otosanya (Analyst)
Understood. I was thinking September those started the transition. Just high level, Justin, you know, you started last year at 250 basis points of occupancy gains assumed in SHOP revenue guidance, clearly exceeded that. And this year, you're starting at 270 bps of upside. So I guess, you know, with that comment earlier about historic seasonality assumed in guidance, what gives you that increased confidence? this year? And do you still think that if the key selling season delivers and you don't see that, you know, seasonal, historically seasonal pattern occur, could there be similar upside?
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, your question in itself almost kind of demonstrates the consideration because there's a lot of what-ifs in there. You know, if we outperform the winter and then we outperform the summer. And so, you You know, we're mindful of how much business is obtained during that key selling season, and that really drives a lot of that growth that we're projecting. So certainly, you know, if all that— we check all those boxes, you could see more, but there's a lot of the year to play out still, and we'll go focus on executing and see where we can get.
Operator (Operator)
Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.
Probst Robert F (EVP and CFO)
Quick ones on the 4 new developments that are underway. I guess first, for the, for the Atrium project, it's 100% leased. That's being completed this year. Why, why is the stabilization in 2027? And then just kind of an update for the other 3 that are still leasing up.
Debra A Cafaro (Chairman and CEO)
Right. So we, we kind of think of 3 projects, basically. And of those 3 projects, you know, the— there are 2 buildings. that are very exciting that are in the Charlotte market that are 80% pre-leased. And so, that's really driving the stabilization date because they're— we're consolidating them basically. And so, one's 100% pre-leased and the other one's 60% pre-leased. So, those are going well. And— We expect to get benefits from that, and they have incredible, really desirable tenants, including Atrium Health, obviously, thus the name. And so that's the update on that. And the other 2 are kind of coming online and have significant preleasing as well. And we're going to continue to try to achieve targeted leasing.
Omotayo Otosanya (Analyst)
Got it.
Probst Robert F (EVP and CFO)
And maybe if I could squeak one other one in there.
BJ Grant (Senior Vice President of Investor Relations)
Excuse me.
Omotayo Otosanya (Analyst)
You talked a little bit about looking at larger properties with AL, IL, and memory care in there.
Probst Robert F (EVP and CFO)
And I guess, what are the high-level thoughts on entry fee communities today?
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, so, you know, there's— I mean, if you just step back, you know, you have an 80-plus population that is surging. So, everything, every service offering that's facing that should have opportunity. That includes entrance fee communities. We don't invest in those currently. Clearly, they have a place in the market and they've done well. So I would expect that there's opportunities there. We're rental, we're rental-focused, and obviously we've had a lot of growth and we expect really good opportunities moving ahead.
Probst Robert F (EVP and CFO)
Got it.
Hutchens James Justin (EVP Senior Housing and CIO)
Thank you.
Debra A Cafaro (Chairman and CEO)
Thank you. Thank you.
Operator (Operator)
Your last question comes from the line of Nick Yuliko with Scotiabank. Please go ahead.
Omotayo Otosanya (Analyst)
Uh, thanks.
Hutchens James Justin (EVP Senior Housing and CIO)
I, I just wanted to see if you could give us a bit of a refresher here about how to think about, you know, RevPOR growth in, in senior housing. So, you, you know, you talk about the 7% January rent increases. And then for the year, I think the guidance is 4.5% on RevPAR. So what's sort of the, you know, the difference there? I imagine something on new lease pricing. And how should we think about, you know, I guess, the ability for that dynamic to change?
Debra A Cafaro (Chairman and CEO)
Yeah, Justin is going to answer that. I mean, generally, it's about two— there's a kind of a two-thirds relationship between the RevPOR and the January increases, but I'll let Dustin unpack that a little bit for you.
Hutchens James Justin (EVP Senior Housing and CIO)
Yeah, great. It's a great question. It's a big topic because it's not simple. So, you know, so first of all, in the U.S., headline number is actually 8% in the U.S. in terms of rent increases. That's similar to what we did— exactly what we did last year. So we feel good about the US rent increases. The rest of the year, we'll have anniversary rent increases, and usually that's been in a range around 6% to 8% or so. And here's how it works. And so you have a rent increase. The rent increase in January is really only impacting about half the population. There's a percentage of the population that were new move-ins in the 4th quarter that aren't getting an increase. And then you have anniversary increases the rest of the year, so they'll blend in over time. In assisted living and memory care, you have level of care revenue. And that level of care revenue is like 20% assisted living, 30% in memory care, grows over time during the length of stay of the resident. When they're replaced with a new resident, that new resident is coming in at a lower acuity and therefore paying a lower level of care charge. And so So you have that, that's kind of a drag on your potential RevPAR. Another thing that is an area of opportunity really for the sector is to see move-in rents actually equal in-house rent increases. And, you know, we expect to see the improvement in that metric over time, but generally it lags. And so that's how you're getting to that 2/3 result that Debbie's describing.
BJ Grant (Senior Vice President of Investor Relations)
And—
Hutchens James Justin (EVP Senior Housing and CIO)
You know, but we think that, having said that, there's a lot of opportunity given the affordability of the market, the demand at the doorstep, and the fact that occupancies are going up and scarcity value is being created. Okay, that's very helpful.
BJ Grant (Senior Vice President of Investor Relations)
Thanks.
Hutchens James Justin (EVP Senior Housing and CIO)
And then just second question is on the guidance. I just want to be clear. I mean, it sounds like there's, you know, we should think about the acquisitions being funded with equity. So there is a higher share accounting guidance. To be clear, should we be modeling, you know, $1 billion of equity raised in guidance? And then, Bob, I don't know if you have a sort of a year-end net debt-to-EBITDA sort of outlook.
Probst Robert F (EVP and CFO)
Yeah. So on the latter point, we definitely expect to continue to improve net debt-to-EBITDA. You know, we're now at the high end of the range. And we're going to continue to strive to drive that even further down. So that's— and that's driven by senior housing, both organically and inorganically. So, yes, check. In terms of the funding, all equity funding senior housing investments has been a winning formula. And that is our assumption effectively in the model. And as I mentioned, already $250 million raised under Forward. So we're in good shape in that regard. regard, and the number on the share count reflects that.
Omotayo Otosanya (Analyst)
All right, thank you.
Debra A Cafaro (Chairman and CEO)
All right, well, I just want to thank everyone for joining us today. Uh, we appreciate your interest and support of Ventas, and we're going to continue to try to have an excellent year in 2025.
Operator (Operator)
Thank you so much. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect and have a nice day, everyone. Thank you.
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