Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ventas Inc (VTR, Financial) reported strong Q2 2024 results with $0.8 normalized FFO per share, reflecting a 7% year-over-year growth.
- The Senior Housing Operating Portfolio (SHOP) led with same-store cash NOI growth of over 15%, and total company same-store cash NOI grew nearly 8%.
- Occupancy in the senior housing portfolio grew by 320 basis points year-over-year, significantly outperforming industry benchmarks.
- Ventas Inc (VTR) raised its 2024 normalized FFO per share guidance and total company same-store NOI expectation.
- The company is on track to close about $750 million of investments in senior housing this year, with a robust pipeline for quality acquisitions.
Negative Points
- The potential lease resolution with Kindred could result in a 25% to 30% full-year rent reduction on 23 properties starting May 1, 2025.
- There is a non-cash impact from the potential Kindred lease resolution in 2024, which could affect financial results.
- The SHOP guidance implies some deceleration in same-store NOI growth in the second half of the year due to seasonality and potential expense increases.
- The company faces challenges in maintaining high occupancy rates as it approaches historical peaks, which could impact future growth.
- There is uncertainty around the impact of labor costs and inflation on operating expenses, which could affect profitability.
Q & A Highlights
Q: Can you provide more details on the potential Kindred resolution, including rent coverage and timing?
A: We are in advanced discussions and believe we are close to a transaction that applies to the 23 out tax maturing on April 30, 2025. Our goals are to improve Ventas' enterprise value, maximize NOI from these properties, and strengthen the master lease to support Kindred's future success.
Q: What are you seeing in the acquisition pipeline? Are these lease-up opportunities or more stabilized assets?
A: We are seeing a variety of opportunities. We focus on markets with strong supply-demand fundamentals and affordability. We are primarily expanding with existing operator relationships but also adding new ones. The pipeline has been growing, and we are actively engaged in it.
Q: Why would Ventas record a penny and a half non-cash charge in 2024 related to Kindred?
A: It's a GAAP re-rating rule. If a lease with a tenant gets extended, you sum up the rent over the period and divide by that period, which can pull forward an impact. This is a non-cash charge reflecting expectations on cash rent.
Q: Can you explain the SHOP guidance and the expected RevPAR growth in the second half of the year?
A: The guidance is occupancy-led. We raised our occupancy and NOI expectations but did not change other metrics. Mix can impact RevPAR due to high occupancy growth. We expect better comps in the second half and a large part of the key selling season ahead.
Q: What changes led to including additional acquisitions in the guidance, and what is the expected benefit for 2024?
A: We feel confident in our pipeline and team's ability to execute. The contribution from these acquisitions is included in the $0.025 increased guidance on FFO from shop, organic, and inorganic growth.
Q: Can you provide more details on the types of sellers in the acquisition market?
A: Sellers include those with debt maturities, fund maturities, and those selling senior housing reluctantly due to other priorities. We target markets with strong fundamentals and returns.
Q: How do you address the argument that staying at home is cheaper than senior care?
A: Studies show that senior housing provides better, safer, and more secure living conditions. It is often more economical than staying at home when considering the cost of replacing all services and home maintenance.
Q: Can you provide an update on the Brookdale leases coming due next year?
A: Brookdale has the option to extend the lease by the end of November. If extended, the lease will escalate in 2026 by at least 3% and up to 10% based on a fair market value review. We expect it to be on the higher end due to strong performance and coverage.
Q: How does Canada affect the same-store NOI growth level going forward?
A: Canada grew 12% in the second quarter, driven by strong rate growth and occupancy gains. Canada is 96% occupied and continues to grow. We expect it to remain a strong performer.
Q: What are your thoughts on deleveraging and equitizing deals ahead of a strong cycle?
A: Our strategy is to increase our enterprise growth rate and shop footprint while improving our balance sheet. Organic shop growth and equity-funded investments are key drivers of leverage improvement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
