Ventas, Inc. (NYSE:VTR) This fall 2022 Earnings Name Transcript February 10, 2023

Operator: Hey, and thanks for standing by. My identify is Regina, and I will probably be your convention operator right this moment. Right now, I wish to welcome everybody to the Ventas Fourth Quarter 2022 Earnings Launch Convention Name. I’d now like to show the convention over to BJ Grant, Senior Vice President of Investor Relations. Please go forward.

BJ Grant: Thanks, Regina. Good morning, everybody, and welcome to the Ventas fourth quarter monetary outcomes convention name. Yesterday, we issued our fourth quarter earnings launch, supplemental investor package deal and presentation supplies, which can be found on the Ventas web site at ir.ventasreit.com. As a reminder, remarks right this moment could embody forward-looking statements and different issues. Ahead-looking statements are topic to dangers and uncertainties, and quite a lot of elements could trigger precise outcomes to vary materially from these contemplated in such statements. For a extra detailed dialogue of these elements, please confer with our earnings launch for this quarter and to our most up-to-date SEC filings, all of which can be found on the Ventas web site.

Sure non-GAAP monetary measures may even be mentioned on this name. And for a reconciliation of those measures to probably the most carefully comparable GAAP measures, please confer with our supplemental posted on the Investor Relations web site. And with that, I’ll flip the decision over to Debra A. Cafaro, Chairman and CEO.

Debra A. Cafaro: Thanks, BJ, and good morning to all of our shareholders and different members. Welcome to the Ventas fourth quarter and year-end 2022 earnings name. We’re happy to ship a robust fourth quarter, which displays the enticing working and monetary outcomes of our numerous portfolio and the advantages of our key strategic initiatives. Fourth quarter normalized FFO was $0.73 per share, fueled by accelerating SHOP development at 19%, file Medical Workplace Constructing efficiency and profitability from our third-party institutional capital administration enterprise, VIM. The demand fundamentals that assist our enterprise are robust and getting stronger throughout all Ventas asset lessons, that are unified in serving the nation’s giant and rising ageing inhabitants.

After important capital recycling and asset administration actions, our numerous portfolio of high-quality senior residing communities, Medical Workplace Buildings, R&I labs and different well being care property is nicely positioned to capitalize on these demand tendencies. In 2022, Ventas started what we consider will probably be a multiyear development and restoration cycle led by SHOP and supported by favorable supply-demand fundamentals, actions we’ve taken within the portfolio and our post-pandemic rebound. In senior housing, there are compelling provide demand tailwinds. The over-80 inhabitants will develop at file ranges in 2023. But, we proceed to see building as a share of stock at its lowest degree in 5 years and considerably higher in Ventas markets. Over the previous few years, we’ve taken decisive actions to place our SHOP portfolio to capitalize on this thrilling demographically-led demand.

We strengthened our group, enhanced our highly effective analytic capabilities, rolled out the Ventas OI platform, bought, transitioned and bought properties and invested capital in communities with robust market fundamentals, all to win the restoration. Benefiting from these tendencies and actions, we’re nicely underway to recapturing the post-pandemic SHOP NOI alternative. Our portfolio has already loved important occupancy and NOI development from the COVID trough, and we see much more recapture potential forward of us within the coming years as we first search to succeed in 2019 efficiency ranges after which hopefully exceed them. Bob additionally took important steps to take care of our monetary power and suppleness and enhance our stability sheet and liquidity. These actions garnered three constructive credit standing strikes in 2022 and diminished our 2023 maturities to a really manageable degree.

In 2022, we additionally continued our lengthy historical past of worth creation with $1.2 billion of latest investments, usually with key companions. These embody the $425 million Atrium Well being/Wake Forest College College of Drugs Improvement in Charlotte, North Carolina; $200 million in senior housing investments, together with the acquisition of Mangrove Bay and a brand new growth with Le Groupe Maurice, each in very enticing markets; and $300 million in MOB investments highlighted by the acquisition of an 18-property MOB portfolio leased to Ardent. Lastly, we stay dedicated to our values, together with our ESG management. We accelerated our progress in 2022 as we additional diversified and elevated our Board and made a daring dedication to realize web zero operational carbon emissions by 2040.

These efforts will probably be superior beneath the management of our Common Counsel, Carey Roberts, who has the eagerness and expertise to maneuver us ahead. Now, we enter 2023 with robust momentum. In the present day, we’re happy to introduce full yr normalized FFO steering representing 5% development on the midpoint. We’re projecting unprecedented natural development in our portfolio, as soon as once more pushed by SHOP, and complemented by the constructive compounding contributions of our workplace enterprise led by Pete. We additionally will proceed to construct out our VIM enterprise, which already has over $5 billion in property beneath administration, and mine our non-property investments for worth as evidenced by each the pending Ardent fairness stake sale and our not too long ago accomplished Atria Glennis software program deal whereas we additionally search to optimize the result in our Santerre mortgage.

Lastly, we’ll proceed to speculate capital wherever we discover compelling alternatives to maintain and reinforce our new cycle of success. The macroeconomic assumptions underlying our forecast embody some slowing of the financial system, moderating inflation, softening labor situations, and continued, albeit much less aggressive Fed tightening. In opposition to that backdrop and in lots of different probably eventualities, we consider our enterprise is comparatively advantaged as a result of demographic demand for our property is giant, rising and resilient, we’ve demonstrated robust pricing energy in SHOP and softening financial situations ought to profit our operations in a number of methods. One remaining observe. In January, Justin assumed the extra function of Chief Funding Officer at Ventas. I do know you need to be a part of me in congratulating Justin, and I need to thank him for his continued management, which has been instrumental in our success and constructive outlook.

Working with our robust groups, Justin will use his expertise and insights to create worth by making good investments throughout our asset lessons, enhancing the connection between our funding exercise and enterprise operations and deploying the highly effective Ventas OI platform throughout our group. And now I’m glad to show the decision over to the person himself. Justin?

Justin Hutchens: Thanks, Debbie. I’ll begin by noting how excited I’m concerning the execution in our SHOP portfolio. Over the previous few years, we’ve taken many actions to place ourselves able to realize constructive efficiency as we goal to recapture NOI on this multiyear development and restoration cycle. We have now been profitable executing portfolio actions, which embody over 50 triple-net communities transformed to SHOP and over 130 transition to new operators. We’ve acquired over 100 new communities and executed 30 tendencies and eight new developments. Lastly, we’ve over 100 communities which might be within the means of getting refreshed and are anticipated to finish throughout the important thing promoting season. I’m actually happy with our super group that helps our senior housing enterprise and has executed Ventas OI, our method to collaborative oversight the place we leverage our working experience and best-in-class knowledge analytics to the advantage of our working companions to drive constructive outcomes, which has gained super momentum.

Our programmatic method addresses two priorities in parallel: first, well timed market, monetary and working insights to affect near-term efficiency and revenue-enhancing capital expenditures; second, tackling key strategic challenges that can deepen our aggressive benefit and maximize the long-term worth of our portfolio. Now I’ll cowl the fourth quarter SHOP ends in our year-over-year same-store pool of 478 communities. Our SHOP portfolio continues to carry out rather well. The fourth quarter was forward of our expectations whereas delivering wonderful year-over-year development as a result of pricing energy, occupancy development and moderating bills. NOI in our This fall year-over-year pool grew 19.1%, which is above the midpoint of our SHOP steering vary and consists of 22.2% development within the U.S., led by Dawn and Atria, whereas Canada demonstrated constructive development once more with 11.7% led by Le Groupe Maurice.

Photograph by Acton Crawford on Unsplash

I wish to thank all of our working companions for his or her important achievements delivering wonderful companies and care and monetary outcomes. We proceed to learn from working leverage, even at this comparatively low occupancy, leading to margin enchancment from 23% in Q3 to 23.6% in This fall. Similar-store common occupancy grew year-over-year by 140 foundation factors to 82.5%. Income within the quarter grew forward of expectations, growing 8.3% year-over-year as a result of continued acceleration in RevPOR development and constructive tendencies in occupancy. Pricing energy continues to impress. At 6.5% year-over-year development, RevPOR is the strongest we’ve seen within the final 10 years, primarily pushed by in-house hire and care will increase and enhancing re-leasing spreads.

As anticipated, bills had been $4.7 million per day. As a reminder, our year-over-year expense development peaked in Q2 2022 at 11%. It diminished to eight% in Q3 and was decrease once more in This fall at 6%. Main indicators within the U.S. stay robust as we expertise leads as a share of 2019 at 120%, move-ins at 101% and outs at 101%. Canada continues to ship development and excessive occupancy at 95%. Demand accelerated in January with move-ins at 104% over 2019 within the U.S. and 111% in Canada. Now I’ll cowl 2023 SHOP steering and our expanded same-store year-over-year pool, which incorporates 508 communities consultant of 92% of our portfolio. There are three main drivers of our constructive outlook: occupancy development, charge development and moderating bills. SHOP same-store money NOI is anticipated to speed up from 13.4% development in 2022 to development within the vary of 15% to 21% year-over-year in 2023.

The high and low finish of the steering vary is pushed by occupancy and expense efficiency. We anticipate margin enlargement of 200 foundation factors at our midpoint. We anticipate year-over-year income development of roughly 8% on the midpoint of the same-store money NOI steering vary pushed by continued robust charge development and occupancy development of 130 foundation factors to 170 foundation factors. With the deployment of our Ventas OI platform and wonderful execution by our operators, we’re in a position to obtain substantial hire will increase this season of roughly 10%. This together with improved care pricing, rising road charges, and typical resident attrition ends in about 6% anticipated RevPOR development in 2023. It’s necessary to notice that 80% of our income development in 2023 will probably be pushed by the RevPOR development, a lot of which has already been realized as over half of our resident inhabitants have already acquired the hire will increase.

With reference to occupancy development, we mission that extra residents will transfer into our communities in 2023 in comparison with prior yr. We additionally mission our web move-ins to be larger. Nevertheless, we anticipate to return to extra regular seasonal occupancy patterns, which embody typical scientific situations and barely elevated monetary move-outs within the first quarter. We anticipate a big occupancy ramp all year long, supported by an accelerating ageing demographic and muted new provide translating to about 150 foundation factors of year-over-year common occupancy enhancements in 2023. We additionally anticipate moderating inflationary expense impacts and decrease contract labor year-over-year, with general expense development anticipated to be round 5%. By means of the execution of initiatives to enhance worker recruitment and retention, we’ve had 5 consecutive quarters of web hiring, that are offering the tailwinds wanted to stabilize the workforce and assist the moderation of bills.

Shifting on to investments. I’m actually excited to work with our deeply skilled investments group in my newly expanded obligations. I’m more than happy to step right into a scenario the place I can work to proceed our robust observe file and knowledgeable capital allocation. We have now a wealth of present relationships throughout our focused asset lessons of senior housing, life science and R&I and medical workplace. I stay up for contributing to the continuing success of our funding platform by combining the benefits embedded within the enterprise with my in depth community and funding expertise to drive exterior development. I stay up for increasing Ventas OI throughout the enterprise to drive portfolio optimization, exterior development and refresh redev capital throughout our senior housing and workplace portfolios.

We’ll proceed to choose our spots in investments and work with our best-in-class companions on enticing alternatives. Shifting ahead, I’m assured within the demand drivers of the enterprise and consider we’re nicely positioned to proceed this constructive trajectory. Bob?

Bob Probst: Thanks, Justin. I’m going to share some highlights on our fourth quarter efficiency, contact on our stability sheet and shut with our 2023 outlook. To start out, we’re happy with the fourth quarter outcomes. All through 2022, we had been correct in our forecasts and adopted our mantra to do what we are saying. Within the fourth quarter, normalized FFO was $0.73, on the larger finish of our steering vary. Fourth quarter property development was notably robust, with complete firm and SHOP same-store money NOI development of 8.5% and 19.1%, respectively. I’d like to offer a shout-out to Pete Bulgarelli and our Workplace group. Workplace had an important yr, rising same-store money NOI by 3.8% in fiscal yr ’22. And that Workplace end result was led by our MOB enterprise, which posted some excellent metrics, together with robust leasing efficiency with same-store year-end occupancy of 92%, the very best degree since 2017.

Tenant satisfaction measures exceeded 93% of all MOBs. Similar-store working bills elevated simply 2.6% year-on-year, nicely beneath inflation. And because of this, full yr ’22 MOB same-store money NOI grew 3.4%, the very best on file for the corporate. R&I additionally posted enticing natural efficiency, rising same-store money NOI by 5.1% within the full yr ’22, led by leasing at larger charges and strong expense administration. I’d spotlight two different gadgets within the fourth quarter. We earned our first promote approximating $0.02 per share as a basic associate of the Ventas Fund, which was $0.01 higher than our steering. We’re additionally eligible to earn additional promotes in 2023. Second, we acknowledged a $20 million noncash CECL allowance on our $486 million mezzanine mortgage funding to Santerre Well being Traders.

Curiosity protection on the mortgage has declined by way of year-end, however the mortgage remained totally present by way of January 2023 and full curiosity is anticipated in February. Subsequent, just a few feedback on our stability sheet. Over the past two years, we enhanced our portfolio and strengthened our stability sheet by way of $1.3 billion in asset tendencies and mortgage repayments with proceeds used to scale back near-term debt. We additionally issued $2.7 billion of latest debt in that interval, extending length at enticing pricing earlier than the run-up in rates of interest. Consequently, we’ve simply 4% of our consolidated debt or beneath $500 million coming due in 2023. And we’ve made good progress in direction of this refinancing, having locked in all-in money charges of 4.2% on almost 2/3 of this requirement.

According to our long-held threat administration method to take care of 10% to twenty% in floating charge debt, 12% of our consolidated debt was floating within the fourth quarter. We have now plans to concern $500 million in new secured fastened charge debt with proceeds designated to pay down floating charge debt in 2023, which might convey our floating charge debt to the decrease finish of our focused vary. We have now important liquidity of $2.4 billion at year-end 2022. And eventually, our web debt to adjusted professional forma EBITDA improved by 30 foundation factors to six.9x within the fourth quarter, with SHOP NOI development steadily shifting that ratio again towards our pre-pandemic goal vary. Final however not least, I’m extraordinarily happy to reintroduce full yr 2023 steering. That is tangible proof that we’re in a post-pandemic world, and our steering demonstrates the thrilling post-pandemic natural property development alternative for Ventas.

The important thing elements for our ’23 steering are as follows: web revenue attributable to frequent stockholders is estimated to vary between $0.20 and $0.34 per totally diluted share. Normalized FFO is forecast to vary from $2.90 to $3.04 per share. We anticipate our portfolio same-store money NOI to develop 7.5% on the midpoint, led by SHOP same-store money NOI development of 18% on the midpoint. Our ’23 FFO steering on the midpoint of $2.97 represents development year-over-year of 5% or $0.13 per share in opposition to the rebased 2022. The FFO bridge describing the $0.13 is easy with two important drivers: first, we anticipate $0.29 from excellent year-over-year natural property development in SHOP; and second and partially offsetting is a $0.16 discount, principally from the influence of upper rates of interest.

A stronger U.S. greenback in opposition to the Canadian greenback and the pound can be a contributor. Different steering gadgets embody receipt of over $300 million in capital recycling proceeds, no further promote income, G&A approximating $151 million on the midpoint and 404 million weighted common totally diluted shares. The high and low finish of our FFO steering vary are largely described by adjustments within the macro setting, together with potential adjustments in inflation expectations and rates of interest. Just a few ideas on phasing of our normalized FFO by way of the yr. We anticipate FFO within the first quarter of ’23 to be roughly flat to the fourth quarter of ’22 of $0.71 when adjusted for the $0.02 promote acquired within the fourth quarter, with the primary quarter of ’23 is the seasonal low level for SHOP.

As the important thing promoting season in SHOP kicks in and rates of interest plateau, FFO development is anticipated to choose up within the stability of ’23. A extra fulsome dialogue of our ’23 steering could be discovered within the earnings and outlook presentation posted to our web site. To shut, we entered 2023 with momentum. Your entire Ventas group is totally engaged and excited to ship on our ’23 plans and to reignite a brand new cycle of success for the corporate and our shareholders. And that concludes our ready remarks. For Q&A, we ask every caller to stay to 1 query to be respectful to everybody on the road. With that, I’ll flip the decision again to the operator.

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Q&A Session

Operator: Our first query will come from the road of Joshua Dennerlein with Financial institution of America.

Joshua Dennerlein : I simply need to ask about that Santerre Well being Traders mortgage. May you simply present extra background why the allowance? After which, Debbie, I feel you talked about you’re trying to optimize the result. So sort of simply assist us assume by way of just like the outcomes that you simply’re anticipating.

Debra A. Cafaro : Certain. The mortgage is a part of our regular enterprise. Over the past 5 years, I feel we’ve collected about $1.7 billion in loans that we’ve made on well being care properties or to well being care operators. This explicit mortgage took a $20 million allowance within the quarter. And we proceed to be present when it comes to curiosity, receipt of curiosity funds. And it’s beneath some compression of protection as a result of a number of the property haven’t recovered from COVID whereas rates of interest have been growing. And so it’s actually a timing concern if you wish to give it some thought that manner. And so we might anticipate to work by way of that, and we’ve a number of expertise and instruments and rights at our disposal to try this.

Operator: Our subsequent query will come from the road of Vikram Malhotra with Mizuho.

Vikram Malhotra : I simply wished to grasp in your deck, you outlined potential CapEx investments, I suppose, in SHOP and perhaps triple-net to place the portfolio. I’m questioning, the CapEx was a bit of elevated within the fourth quarter. So I’m questioning in the event you can provide us a way of similar to the magnitude of those investments over the following, name it, two or three years to realize what you need with the portfolio and maybe tie these CapEx to the bridge you’ve outlined when it comes to the SHOP NOI development.

Justin Hutchens : It’s Justin. I’ll begin, and Bob you in all probability need to bounce in. To begin with, it’s a giant initiative. We have now 100 communities which might be within the means of being refreshed. We do consider that will probably be impactful. It’s about $1 million of pop. It ought to assist enhance efficiency. Definitely, we’ve thought-about that once we gave our steering for 2023. And there’s extra to do. However at this stage, we picked our highest priorities and we’ve been executing aggressively. So we stay up for these initiatives coming on-line throughout the important thing promoting season.

Bob Probst : I’d add, the $1 million of pop, we’ve talked about 100 properties, that’s clearly $100 million. The timing of that clearly isn’t multi functional quarter. Will probably be unfold over the course of time. However these are NOI-generating alternatives. ROI-generating alternatives are certainly embedded within the forecast we’ve given you when it comes to the NOI development. And I consider prime use of our money, greatest use of our money is to reinvest in these property, given the backdrop of SHOP and in senior housing.

Vikram Malhotra : And sorry, might you simply make clear this $100 million, is that this yr or is it unfold out? I’m simply attempting to tie it again to in the end the FAD development coming by way of as a result of if these are a number of years of $100 million, then perhaps the FAD development will get depressed.

Bob Probst : Effectively, to begin with, we began this final yr. So that you talked about the fourth quarter seeing some acceleration. That clearly is a part of it. Second level to make is simply when it comes to classification of the CapEx spend. That is ROI producing a redev. So that you’ll see that acceleration in readout. On the similar time, FAD CapEx will enhance. Once more, the highest precedence is investing behind our SHOP property. So that you’ll see that enhance on the similar time. But it surely’s a multiyear program.

Debra A. Cafaro : And it’s a multiyear NOI influence as nicely we’ll see going ahead. We’ll be investing into this multiyear restoration in senior housing and the supply-demand fundamentals in our market.