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Text: These materials are available on the Ventas website at ir.
Ventas delivered positive results in the third quarter, saw outstanding sequential SHOP average occupancy growth, benefited from its large medical office, life science and healthcare triple-net businesses, and executed on its investment priorities.
Delivering $0.73 of normalized FFO per share, which is in the upper half of our guidance range.
Our same-store SHOP portfolio increased rate and grew occupancy at record levels in Q3 despite the high incidents of COVID-19 in the broader environment.
Occupancy in this portfolio has now increased for eight consecutive months through October.
Demonstrating powerful demand, our U.S. same-store SHOP portfolio has increased occupancy 750 basis points since mid March 2021, lifting the entire same-store SHOP portfolio nearly 600 basis points during the same period.
I'm also encouraged that our year-over-year SHOP occupancy turned positive for the first time since the onset of the pandemic, so a robust senior housing recovery is well underway.
But as we stated, it may not progress in a straight line.
Consistent with macro trends and as we anticipated in our last call with you, the pandemic has created a tight labor market, resulting in labor cost pressures that accelerated in September.
Looking ahead, we expect to see meaningful revenue increases in the first quarter of 2022 and improving pricing power.
At a macro level, many economists forecast that labor force participation will expand from its current low rate for a variety of reasons.
These factors should cause current conditions to ease considerably over time.
Even more importantly, Dr. Scott Gottlieb, who has been consistently the most accurate expert throughout the pandemic stated today that the COVID-19 pandemic is effectively behind us in the U.S., given all the tools we now have to combat it, including Pfizer's new treatment.
If Scott continues to be right, it is a momentous day for all of us.
We continue to be delighted that one-third of our business consists of medical office outpatient and life science research and innovation.
Our operational initiatives in medical office and aggressive capital deployment in life science are providing reliable growth and value creation for our enterprise and stakeholders.
Turning to capital allocation, we have been highly active with $3.7 billion of investments announced or closed year-to-date.
Our current capital allocation focus remains senior living, selective private medical office building opportunities and life science R&I.
Let me highlight a few new investments we've made.
We've completed $2.5 billion in independent living investments, including our accretive acquisition of New Senior's hundred plus independent living communities at an attractive valuation well below replacement costs and a six community Canadian Senior Living portfolio with one of the New Senior operators, Hawthorne.
In medical office we've completed or announced $300 million of investments.
First, establishing a new relationship with industry leader Eating Recovery Center, we acquired a Class A asset under a long-term lease in this rapidly growing sector.
Second, by acquiring our partner PMB's interest in this Sutter Van Ness Trophy MOB in downtown San Francisco, we now own a 100% of this asset at a 6% yield.
With 92% of the MOB already leased, we intend to capture additional NOI growth and value.
Finally, we intend to expand our relationship with Ardent Healthcare by acquiring 18 of their 100% leased medical office buildings for $200 million by year-end.
On our third capital allocation priority, we are delighted to announce that we have commenced development of a 1 million square foot life science project anchored by Premier Research University, UC Davis with our exclusive partner Wexford.
Purpose-built for clinical research, this project will be 60% pre-leased to UC Davis, and total project cost are expected to be $0.5 billion.
Turning to our robust investment pipeline, our team remains busy evaluating attractive opportunities.
In fact, we've now reviewed more deal volume this year than we saw in all of 2019, over $40 billion and we continue to pursue those that meet our multi-factor investment framework.
Capital continues to flow into our sectors as global institutional investors agree with our thesis on the favorable trend benefiting all of our asset classes.
These strong capital flows are also supporting our intention to recycle $1 billion of capital this year to enhance both our balance sheet and our portfolio.
Our diversified business model continues to provide significant benefit.
Our early and aggressive investments into medical office and life science are creating significant value.
We are also proud to be associated with so many leading care providers, operators and developers in all our business lines and to be establishing new platforms for growth through both our investment and our portfolio actions.
In closing, the U.S. is in the midst of an impressive economic recovery that together with demographic demand for our asset classes gives us confidence and optimism in our future.
We believe that the more widespread administration of vaccines and new efficacious treatments for COVID-19 will benefit both the broader economic recovery and our company.
Our aligned and experienced team continues to be focused on capturing the double upside in senior housing from both pandemic recovery and the projected growth in the senior population and also to continuing our long track record of external growth.
I'll start by saying it is a very exciting to see the strong supply demand fundamentals supporting occupancy growth in the senior housing sector.
We have been busy taking actions through acquisitions, dispositions and transitions to ensure we are strongly positioned during this period of sector recovery.
Our industry-leading operators are successfully driving revenue growth in the early stages of the recovery and taking actions to address elevated labor costs, driven by the macro backdrop.
Moving on to third quarter performance; in SHOP, leading indicators continue to trend favorably during the quarter as leads and move-ins each surpassed a 100% of 2019 levels while move-outs remain steady.
Strong sales activity has now driven eight consecutive months of occupancy growth inclusive of October.
In the third quarter, average occupancy grew by 230 basis points over the second quarter, led by the U.S. with growth of 290 basis points and a 110 basis points in Canada, which is over 93% occupied.
October leading indicators remain solid as leads and move-ins continue to perform above pre-pandemic levels and move-outs remained relatively stable.
Turning to SHOP operating results, same-store revenue in the third quarter increased sequentially by $13.6 million or 3.1% driven by strong occupancy growth and slight rate growth.
Regarding rate growth, our operators have proposed rent increases to the residents of 8% in the U.S. and 4% in Canada, which on a blended basis is approximately 200 basis points higher than the historical levels.
We also continue to see improvement in our releasing spreads, which are trending close to pre-pandemic levels.
Operating expenses increased sequentially by $16.7 million or 5.4% of which approximately half is due to overtime and agency costs.
Although we largely anticipated the additional labor costs September spike represented approximately half of the sequential agency expense increase.
We carried the elevated September cost forward in our Q4 guidance, which Bob will cover shortly.
Despite the higher agency and overtime costs, our operators are now witnessing net positive hiring and are actively addressing labor challenges through a number of initiatives.
These include centralized recruitment of line staff, implementation of applicant tracking systems, delivering on the increased demand by employees for flexible schedules and other workplace improvements to become more competitive.
For the sequential same-store pool SHOP generated $106.7 million of NOI in the third quarter, which represents a sequential decrease of $3.7 million or 3.4%.
Moving on to portfolio actions; our New Senior acquisition closed on September 21.
The portfolio consists of 103 independent living communities located in attractive markets with favorable demand characteristics.
Integration efforts have gone extremely smoothly and we are on track to realize our expected synergies.
We are pleased with the performance and operating trends of the portfolio.
Its third quarter spot occupancy grew 110 basis points sequentially.
The same-store pool, which excludes the 33 communities that transitioned to new operators this year, grew 180 basis points in the third quarter and then another 10 basis points in October, marking occupancy growth in six out of the past seven months.
We have also recently closed on an acquisition in Canada, which includes five independent living and one assisted living communities.
These acquisitions expand our independent living exposure to 59% of NOI on a stabilized basis.
We believe the structural benefits of the independent living model present attractive opportunities to further strengthen our senior housing NOI margin through less intensive staffing requirements, longer resident length of stays and accessible price points, all underpinned by exposure to a large and growing middle market.
This is in combination with our existing portfolio positions us well to capture demographic demand with the 80-plus population expected to grow over 17% over the next five years, while facing less new supply versus historical levels.
I'd also like to note our previously announced transition of 90 assisted living and Memory Care communities is off to a solid start as 65 communities have already transitioned and the rest are planned by year-end.
We believe the enhanced oversight provided by the experienced mid-market, mid-size assisted living operators will improve the execution of local market strategy and with increased accountability.
I have long-standing relationships and familiarity with the incoming CEOs and I can say they are really fired up about the new portfolios.
They are actively engaged with personal site visits to the communities and transition planning.
Ventas has 37 operator relationships including seven of the top 10 largest operators in the sector and 8 new relationships added this year.
We look forward to the opportunity to grow our relationships with these companies over time.
In summary, the senior housing sector is benefiting from a strong macro supply demand backdrop.
We are actively positioning ourselves for success through portfolio actions and our operators are driving revenue and managing the elevated labor situation.
We look forward to forging ahead during a very exciting time of sector recovery.
Our life science and MOB businesses led by Pete Bulgarelli and which represent nearly one-third of our company's NOI once again delivered robust and reliable growth in the third quarter.
These businesses taken together increased same-store NOI by 4.2% year-over-year and increased 1.2% sequentially on an adjusted basis.
MOB NOI grew 3.2% year-over-year and R&I increased 7.1%.
Some stats of interest that underpin this strong performance.
MOB occupancy is up 130 basis points year-to-date.
Same-store MOB occupancy of 91.3% is at its highest point since the first quarter of 2018.
MOB tenant retention was 91% in the third quarter and MOB new leasing increased 43% versus prior year.
R&I occupancy remains outstanding at 94.4% and improved 50 basis points sequentially due to exciting demand for lab space.
MOB expenses increased less than 1% year-on-year as a result of completed energy conservation projects and sourcing initiatives.
And for the second year in a row, we ranked in the top quartile of our peer group for tenant satisfaction as measured by Kingsley Associates.
2021 rankings for each major key performance indicator increased when compared to 2020.
At the enterprise level, we delivered $0.73 of FFO per share in the third quarter.
This result is at the higher end of our $0.70 to $0.74 guidance range and benefited from the stable performance of our diversified portfolio as well as a $0.04 Ardent bond prepayment fee that was included in our guidance.
We were also very active in the third quarter managing our balance sheet and capital structure.
Consistent with our prior $1 billion disposition guidance, we now have $875 million of disposition proceeds in the bank with $170 million of senior housing and MOB portfolios under contract and expected to close in the fourth quarter.
These dispositions have enhanced and reshaped our portfolio and we view these proceeds to reduce $1.1 billion of near-term debt so far this year.
We also issued $1.4 billion of equity in the third quarter including $800 million for New Senior and $600 million in ATM issuance at $58 a share.
As a result, our net-debt-to-EBITDA ratio, excluding New Senior improved sequentially to 6.9 times, while including New Senior Q3 leverage was better than forecast at 7.2 times.
As an administrative side note, we plan to enter into a new ATM program replacing our 2018 program, which is nearly complete.
Turning to Q4 guidance, we expect fourth quarter net income will range from a $0.01 to $0.05 per fully diluted share.
Q4 normalized FFO is expected to range from $0.67 to $0.71 per share.
Our SHOP portfolio NOI is estimated to be flat sequentially.
Key fourth quarter assumptions underlying our guidance are as follows.
Starting with our SHOP same-store expectations, SHOP Q4 average occupancy is forecast to increase between 80 basis points and 120 basis points versus the Q3 average growing ahead of pre-pandemic levels while following seasonal trends.
At the guidance midpoint spot occupancy, September 30 to December the 31 is expected to be approximately flat.
The resulting sequential SHOP revenue growth is expected to be offset by increased operating expenses due to continued elevated labor costs.
No HHS grants are assumed to be received in the fourth quarter though our license assisted living communities have applied for qualified grants under Phase 4 of the Provider Relief Fund for COVID losses incurred at the communities.
Outside of SHOP continued stable performance is expected in the office and triple-net segments.
We expect to receive an M&A fee in Q4 of $0.03 for the announced Kindred sale, which Kindred communicated is expected to be completed in the fourth quarter subject to customary closing conditions.
We continue to expect a $1 billion in asset sales and loan repayments for the full year 2021 at a blended yield in the high fives.
And our fully diluted share count is now 403 million shares reflecting the equity raised today.
I'd like to underscore that we are still in a highly uncertain environment and the pandemic's impact on our business remains very difficult to predict.
To close, my colleagues and I are excited for the future of Ventas given expected robust recovery in senior housing and the external growth opportunities both under our belt and that lie ahead.

user
qtrly normalized ffo $0.73 per share.
sees q4 normalized ffo per share $0.67 - $0.71.

assistant