Ventas Inc (VTR) — Q4 2023 Earnings Call Transcript

Thank you, Mandeep, and good morning, everyone, and welcome to the Ventas Full Year 2023 Results Conference Call. Yesterday, we issued our full year 2023 earnings release, presentation materials and supplemental investor 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 investor package posted on the Investor Relations website. And with that, I'll turn the call over to Debra Cafaro, Chairman and CEO of Ventas.

Thank you, BJ. I want to welcome all of our shareholders and other participants to the Ventas Fourth Quarter and Full Year 2023 Earnings Call. I'm pleased to share our strong results for 2023, discuss our advantaged position across commercial real estate, driven by large and growing demographic demand, and introduce full year 2024 guidance as the senior housing multiyear growth opportunity continues to power our expectations. Let's start with results. We reported favorable results for the fourth quarter and full year 2023. We produced full year normalized FFO of $2.99 per share, representing over 5% year-over-year growth, above the midpoint of the guidance range we initiated in February. As anticipated, our results were fueled by unprecedented organic property growth in our SHOP portfolio, which grew same-store cash NOI over 18% last year. Enterprise same-store cash NOI growth was supported by compounding contributions from our outpatient medical and research and triple net lease portfolios. We finished the year on a high note in the fourth quarter, delivering $0.76 of normalized FFO, representing 7% year-over-year growth and reporting accelerating same-store SHOP occupancy. During 2023, the Ventas team accomplished a great deal together. We raised over $4 billion in attractively priced capital, took effective portfolio actions, invested CapEx in our assets to position our portfolio to capture demand in strong markets, made meaningful progress toward our ambitious ESG goals, successfully integrated a $1.6 billion portfolio, and expanded our VIM business. As a result, we delivered over 15% 1-year total return to shareholders, posted 2 years in a row of TSR outperformance versus the healthcare REIT and broader REIT indices, and achieved upper quartile performance for the last 3 years among healthcare REITs. We still have more work to do. We are focused on driving total returns for our shareholders. As durable demand fuels the multiyear growth opportunity in senior housing, we believe Ventas offers an attractive combination of growth and value. Let me provide a few reasons we believe we are uniquely positioned to create value. We entered 2024 with momentum. Because our asset classes are benefiting from demographic demand that is strong and getting stronger, we are pleased to project another consecutive year of normalized FFO growth in the mid-single digits and the third consecutive year of same-store SHOP cash NOI growth in the double digits. Notably, our projected 2024 normalized FFO growth of 5% per share puts us in the top 20% of all REITs that have issued guidance to date. In 2024, we expect to benefit from steady growth from our outpatient medical, research, and triple net lease portfolios. As we look into 2025, we have 2 large lease renewals, one with Brookdale in senior housing and another with Kindred for a portion of our LTACs. In Brookdale's case, our communities are enjoying positive operating trends, and they have significant net absorption potential. In Kindred's situation, rent coverage remains challenged, and it's too early to say what the ultimate outcome in 2025 will be. Kindred remains focused on performance improvements that could benefit 2024 and 2025 financial results. In all cases, we are fully prepared to maximize NOI over time. In SHOP, January is already starting positively, with 200 basis points in year-over-year same-store occupancy growth. In 2024, we expect year-over-year normalized FFO and SHOP same-store cash NOI growth to accelerate in the second half, with a SHOP NOI exit run rate that should support continued SHOP growth in 2025 and beyond. This highly positive context is supportive of growing our senior housing presence through both organic and inorganic growth. In pursuit of delivering consistent superior performance, our strategy is to, one, continue to deliver compelling profitable organic growth in senior housing; two, capture value-creating external growth focused on senior housing; and three, drive strong execution and cash flow generation throughout our high-quality portfolio that serves a large and growing aging demographic. Our optimism for a long, durable growth opportunity in SHOP is founded on compelling supply/demand dynamics, led by a step function in growth of the over-80 population in 2024 and yet again in 2027, the lowest construction starts in senior housing since 2009, and our advantaged platform that has the team, tools, financial strength, data, and operators to drive organic performance. The Ventas platform should also enable us to invest successfully. As we discussed in November, we intend to build on our compelling organic growth opportunity by layering on value-creating external investments focused on senior housing. There is a confluence of market factors giving us confidence that 2024 and 2025 should be rich with investment opportunities. We're already seeing our pipeline expand as high-quality senior housing communities in good markets with embedded growth come to market, and we have a line of sight to complete over $300 million of investments in the first half of this year. Our criteria for investments include attractive going-in yields priced at below replacement costs with projected low to mid-teens unlevered IRRs that meet our right market, right asset, right operator framework. Our broader objectives are to drive enterprise NOI and normalized FFO per share growth, increase the scale of our SHOP business, deliver strong returns on capital, support stable and growing dividend capacity, and maximize value for shareholders. In sum, we delivered on our commitments in 2023, and we expect another year of normalized FFO per share and property performance growth in 2024. Our 5% projected normalized FFO growth favorably distinguishes Ventas across the REIT universe. With an attractive valuation and the growth engine of senior housing, we are focused on enabling exceptional environments for a large and growing aging population and creating value for our shareholders. Now I'm happy to turn the call over to Justin.

Thank you, Debbie. I'm pleased to say our SHOP portfolio delivered double-digit same-store cash NOI growth for the sixth quarter in a row. The same-store NOI growth for the year was led by our U.S. communities with 24.5% growth complemented by our high-quality Canadian portfolio, which is over 95% occupied and continues to deliver a valuable and stable cash flow. Total SHOP same-store cash NOI growth was 18.3%, which was above same-store guidance midpoint expectations. We are happy with this attractive growth and strong finish to the year. Double clicking on the year, the results were good. Our same-store SHOP communities outperformed our expectations across all key metrics, including occupancy, REVPOR, OpEx, and margin expansion. Full year same-store SHOP occupancy grew by 120 basis points. The U.S. saw 140 basis points of occupancy gains, and Canada, although already highly occupied, grew by 90 basis points. Demand strength across geographies and asset types led to accelerating occupancy growth this quarter, with 170 basis points of year-over-year growth. Furthermore, we saw 110 basis points of average sequential occupancy growth from the third quarter to the fourth. U.S. SHOP occupancy growth was supported primarily by strong demand, with move-ins that were 109% of prior year levels in the fourth quarter. REVPOR grew over 6% for the year, contributing to revenue growth of almost 8%. As a reminder, REVPOR would have been 40 basis points higher in 2023 and 130 basis points on the fourth quarter if adjusted for the Sunrise special assessment that occurred in 2022. OpExPOR performed well and was led by the U.S. with 2% growth year-over-year and 2.6% overall. Looking forward to 2024, we are excited to continue on our multiyear growth trajectory as we are expecting our third consecutive year of double-digit NOI growth in our same-store SHOP portfolio. Momentum ramped at the end of 2023, with fourth quarter occupancy accelerating, while strong pricing and higher move-ins fuel better-than-typical seasonal results and help 2024 to get off to a strong start. Once again, we are expecting the U.S. to be the growth engine with continued accelerating occupancy performance, with over 300 basis points growth, and expected to drive NOI growth in the mid- to high teens year-over-year. The overall SHOP portfolio is expected to grow NOI 10%, 15%. The growing demand at our doorstep continues to support strong price and volume growth and serves as a testament to the high quality and care and services and value proposition our communities provide to seniors and their families. The key assumptions that drive the midpoint of our range are average occupancy growth of about 250 basis points, REVPOR growth of about 5%, which puts the total revenue growth around 8%. January occupancy is already off to a strong start, delivering 200 basis points of occupancy growth year-over-year. This performance demonstrates solid execution by our operators and continued demand. We expect the performance throughout the year to be bolstered by newly renovated properties and Ventas OI initiatives to drive a strong key selling season. 2024 OpExPOR is expected to grow in line with normal inflation. We structured our business around rate growth and occupancy growth. We are entering the sweet spot where price and occupancy are moving together to drive revenue. Margin expansion will follow as higher occupancy creates operating leverage. We have struck a balance where they are moving together, and we anticipate further margin expansion over time as higher occupancy creates operating leverage. We are capitalizing our active asset management playbook and our operators' execution, which delivered strong momentum to finish 2023 and will propel us into 2024. We expect this to build sequentially throughout the year, which means we are poised for strong year-end NOI that should propel us even further in 2025 and beyond. We are delivering on the organic senior housing growth, which is the part 1 of our strategy and my #1 priority. Part 2 is expanding our footprint. In addition to the success we are having in our existing portfolio, we look forward to capturing value-creating external growth focused on senior housing. A key tenet of our investment strategy is our right market, right asset, right operator approach. We're bringing OI tools to investment activities to help the selection process. Our top investment priorities continue to be NOI-generating CapEx in our existing real estate and senior housing acquisitions. Sellers are motivated to transact, creating numerous actionable deals. We are targeting opportunities with low to mid-teen unlevered IRRs. We seek senior housing communities that are located in submarkets with compelling supply-demand profiles, strong affordability, and meaningful expected net absorption projections. We are primarily expanding with existing partners with proven performance for Ventas, and plan to increase our footprint in the fast-growing IL, AL memory care combination communities. Our pipeline is growing, as we have several interesting potential investments in our sites. Our team is actively working on transactions exceeding 300 million that meet our criteria, and I look forward to adding to that as the year progresses. In summary, demand is at our doorstep. We are pleased to see the SHOP growth engine continue to be led by the U.S. and complemented by the low beta, high quality and highly valuable Canada portfolio with compounding growth. 2024 is rich with opportunities through organic growth and external acquisitions. The growth on both fronts throughout the year should support value creation in 2025 and beyond. I'm looking forward to the exciting year ahead. Bob?

Thank you, Justin. I will highlight our performance for 2023, discuss our balance sheet, and provide our outlook for 2024. We are happy with our achievements in 2023, finishing the year strongly with a reported normalized FFO per share of $0.76 in the fourth quarter, reflecting a 7% increase compared to the previous year after adjusting for the promote received in Q4 of 2022. For the fiscal year 2023, we delivered normalized FFO of $2.99 per share, which indicates over 5% growth year-over-year after adjusting the previous year for unusual items. The strong growth in the senior housing sector was apparent in 2023, with SHOP total NOI rising by approximately $100 million compared to the previous year. Additionally, we reported over 8% year-over-year growth in same-store cash NOI, marking one of the fastest organic growth rates in our company’s history. Our 2023 normalized FFO of $2.99 per share was at the upper end of our earlier guidance range of $2.96 to $2.99 and included a $0.01 per share cybersecurity revenue impact in the fourth quarter from our Ardent OpCo investment, which was not previously anticipated. Pete Bulgarelli and our outpatient medical and research team achieved continued growth, with same-store cash NOI rising nearly 3% in 2023, aligning with the high end of our guidance. Strong retention and leasing activities in outpatient medical were significant contributors to this success, bolstered by excellent tenant satisfaction in Ventas' Lillibridge property management sector, which achieved its fourth straight year of top quartile tenant satisfaction, reaching the 97th percentile overall and ranking among the top five property managers. Regarding our balance sheet, throughout 2023, we leveraged our scale and access to diverse funding sources, raising over $4 million of attractively-priced capital across various markets. This capital was partly used to refinance 2024 maturing debt at favorable rates. Consequently, we ended 2023 with a strong liquidity position of $3.2 billion and have relatively modest maturing debt of $800 million in 2024 after accounting for cash on hand. The impressive NOI and EBITDA growth in our SHOP business also reduced Ventas' net debt-to-EBITDA ratio to 6.9x in the fourth quarter, a trend we anticipate will continue into 2024 and beyond, driven by the multiyear SHOP NOI growth potential. Now, let me discuss our outlook for 2024. Given the strong demographic demand for our asset classes, we project another year of mid-single digit normalized FFO growth and the third consecutive year of double-digit same-store SHOP cash NOI growth. For 2024, we anticipate net income attributable to common stockholders of $0.06 per share at the midpoint. Our guidance for normalized FFO in 2024 ranges from $3.07 to $3.18, with $3.13 per share at the midpoint, representing a 5% increase year-over-year. The anticipated $0.14 FFO per share increase year-over-year can be attributed to three factors. We expect a $0.28 per share contribution from year-over-year property growth primarily driven by SHOP, which is predicted to increase NOI by over $100 million for the second consecutive year. This growth will be somewhat offset by an $0.11 per share rise in higher interest expenses and a $0.03 impact from capital recycling in 2023. Regarding same-store performance, we expect our total company same-store cash NOI to grow between 5% and 7.5% in 2024, primarily due to SHOP same-store cash NOI growth of 10% to 15%. Our guidance also anticipates new senior housing investments of $350 million, as mentioned by Justin. The upper and lower ends of our FFO guidance range are largely influenced by our property NOI expectations and potential interest rate fluctuations. Lastly, we expect same-store cash NOI and normalized FFO year-over-year growth to accelerate throughout the year, influenced by higher interest expenses in the first half of 2024 compared to 2023, and increased occupancy during the key selling season in SHOP, which should facilitate strong SHOP growth moving into 2025 and beyond. A more detailed discussion of our 2024 guidance assumptions is available in the earnings and outlook presentation on our website. In conclusion, the entire Ventas team is prepared to collaborate effectively with all our stakeholders. That wraps up our prepared remarks. I will now turn the call back to the operator.

Debbie, can you provide some additional color on your Kindred lease? I know in the business update Ventas has highlighted that Kindred has implemented some performance improvement initiatives, and you also highlighted that Select Medical had some really strong EBITDAR growth in 2Q and 3Q of '23. I mean are you implying that Kindred can grow into this coverage ratio? Or is that just kind of data points highlighting that there is some improvement in that coverage that could occur over the next handful of quarters?

I would say that the key consideration for the renewal in 2025 is the earnings potential of those assets at that time and beyond. Kindred has informed us that they are pursuing significant initiatives to enhance revenue and reduce expenses for better operating performance. Some of these initiatives are beginning to show results. We reference Select as an example because it is a public company in the same industry and demonstrates that substantial improvements are achievable. However, it is too early to determine whether Kindred's efforts will effectively enhance EBITDAR in 2024 and 2025. Nonetheless, they are definitely working on it.

Maybe just a question on the guidance for Bob. In terms of the interest expense going up this year, is there anything you can just sort of give us there in terms of some of the assumptions on refinancing? I wasn't also sure if you're assuming any change in leverage in terms of debt reduction, but perhaps you could just unpack that a little bit more.

Sure, Nick. Yes. So I mentioned the $0.11 year-over-year. A big piece of that is refinancing our debt into a higher rate environment. We have $1.2 billion of debt coming due this year, and you call it in the mid-3s kind of range from having issued that debt quite years ago. So refinancing that in the current environment is dilutive. The volume of debt also, we have a year-over-year impact of the ELP transaction midyear last year, so we have effectively, the first half of that, that we're lapping in '24. So together, those 2 things describe the increase year-on-year on interest expense. I'd note we've included interest expense guidance, which is new to us, in order to try to help analysts' model that because I know it can be tricky, but those are the drivers.

Speaking of Kindred, as well as Brookdale and Santerre, what are the chances that there could be some activity in 2024 to reset the situation in those portfolios? Might there be a temporary drag to manage this year, so that by 2025, you have resolved that issue and can present a clearer picture? Are you considering any proactive steps this year regarding any of those three areas?

Rich, it's Justin. Let me start with Brookdale. So Brookdale has the opportunity to extend the lease at the end of this year, to let us know, and then the lease will run through the end of '25, and we have a new lease starting in '26. That portfolio is performing well. As I said, continued improvement has good coverage, is growing coverage and resides in markets that we think have around 1,000 basis points of upside over the next few years. So we're in a strong position there. We'll see how that plays out, but it's a good situation.

The Santerre situation, understanding you're kind of working through, but maybe there's some incremental work that has yet to be done. There's asset sales, there's things that you don't want long term. I'm just curious if there could be some preemptive work there as well?

Yes. Santerre has made a positive start, and we have already sold some assets at good prices. I believe we will continue to be selective and take advantage of opportunities. Regarding Kindred, we expect to have more clarity this year, but it's uncertain if the financial impact will be felt this year or next. Currently, we are considering next year, but it's too early to determine the specifics. We do have a lease that extends until May 2025, which is an important asset.

Kind of just building actually on Rich's question. In a hypothetical, if Kindred were to not extend come this May, what would the process be, and how much has Ventas investigated sort of alternative operators? And what maybe cost might be associated with that, or any transitional worries that might arise as you kind of shift the portfolio again? Hypothetical, just trying to better understand.

Jim, it's interesting to think about this 25 years after I started, as this is what I was doing back then. We are well prepared and experienced in this area. We have numerous plans and subplans in place. With only 23 assets in total, I believe it's manageable. We will aim to optimize the net operating income of these assets. It's a puzzle we are equipped to handle with the various tools we've used in the past, and our focus is on executing these strategies. I can assure you that we have alternatives ready to implement in this situation.

It's Nick Joseph here with Michael. Just on the acquisition opportunities that you're seeing, you mentioned mid-teens IRRs, but just curious what the going-in yields are. I'm sure it's a range, but just kind of what you're thinking there? What the discount to replacement costs you're seeing on opportunities is? And then just what the funding plans would be for any external growth in 2024?

It's Justin. I'll begin with the first point. We are identifying promising opportunities in senior housing. We focus on opportunities that are priced at a discount to replacement costs, and we're observing discounts of approximately 20% to 30% in our pipeline. Regarding return expectations, you mentioned unlevered internal rates of return in the low to mid-teens. The cap rate plays a role in this, and currently, we see it around 7%, with some fluctuations based on asset growth. Our aim is to break even or achieve slight gains in the first year, followed by growth, which is driven by robust and increasing demand in the senior housing sector.

And maybe I'll touch on the funding question. Given those returns, Nick, we think that can be an attractive proposition for shareholders. And indeed, we've built into our guidance about $350 million of investments and on balance sheet financing in order to do that. And we think we can achieve both attractive investment alternatives and delevering in the process with those types of investments.

Just a question on, I guess, the other line items below kind of interest expense. Anything unusual between '23 or '24 or any changes, I should say, that we should be thinking about? I think about some of the Brookdale noncash amortization that's running through the numbers that presumably goes away on that lease, the initial lease, matures, correct me if I'm wrong. But just trying to see if there's any kind of unusual items from the fourth quarter of '23 that maybe you're skewing results relative to expectations from the Street. And if you wouldn't mind commenting on expectations on FAD. You gave normalized FFO, but any piece parts on the FAD would be great as well.

Sure. Regarding below the line items, the guidance does not incorporate any changes in the '25 lease situation, so it's business as usual in '24 according to our guidance assumptions. You are right that there is Brookdale amortization from the consideration we received during the restructure a few years back. If we have a restructured deal there, it would affect that, but the outcome would ultimately depend on the specifics of the deal. As for FAD, I expect operating FAD growth to align with FFO year-over-year.

I was just looking at the presentation you put out, and I saw on Slide 40, it looks like there's a footnote related to class action litigation in your SHOP segment. Can you go over just what that's related to?

Josh, sure.

Yes, it's Justin. So there is an issue in California, and the adjustment is primarily related to the class action suit involving some of our SHOP properties. We don't typically consider suits like this to be part of our regular business operations. They do occur occasionally, particularly in California. Since they do not pertain to our core business performance, we believe an adjustment to the FFO is justified.

Looking at the SHOP occupancy guide for this year. Can you just talk a little bit about the, I guess, the cadence of occupancy? Does it assume more of a normal year for sort of seasonality? Or how does it compare to what you experienced in '23?

It's Justin. So great question. I appreciate it. There's a Page 8 in the deck for anyone that has that in front of them. It helps to articulate this. So we had 120 basis points of occupancy growth year-over-year in 2023. We had acceleration of move-ins and occupancy in the third quarter, which led to solid growth in the fourth quarter, which was at 170 basis points year-over-year in January. We're already starting at 200 basis points of occupancy year-over-year, and we are seeing better than typical seasonal results ending the fourth quarter and starting the year so far, which is really encouraging and supportive of the 250 basis points at the midpoint that we included in our SHOP guidance. So we have a good run of occupancy growth, and also, move-ins have been really strong as well. I mentioned that they're around 110% versus prior year in the fourth quarter. We've continued to see strong move-ins at the beginning of the year as well.

So going back to Kindred, and I'll try to ask this in a slightly different way. I know it's too early to say what the ultimate outcome will be, but hypothetically, if you did go down this path, as of today, what magnitude of rent reductions do you believe will be required in the near future in order to return those rents to a sustainable level, either for Kindred or the next operator assuming operations on those properties?

Michael, we own the assets and the EBITDAR associated with those assets, which is very significant. It's still early to draw conclusions. We are seeing positive trends in the Brookdale situation, and we anticipate similar positive developments with Kindred as we look toward 2025. Many factors will influence the eventual outcome, and we will share more information with you as the situation evolves.

I want to jump back to a conversation on the Q2 '23 earnings call in regard to the equitized loan portfolio, specifically the outpatient medical assets. You outlined that you were going to put in place a capital improvement plan to bring occupancy back into those assets. So I'm wondering, at this time, if you could quantify what that capital improvement plan looks like, what occupancy expectations are for those outpatient medical assets, and then what a return profile could look like for that capital improvement plan?

The key point is that the assets align with our portfolio in many ways. Our portfolio is over 90% occupied and managed very effectively, while this was under 80%. Therefore, there is significant potential for increasing occupancy as we take over and self-manage these assets. I will now turn it over to the team to address your questions.

Yes, thanks, Connor. This is Pete. We're excited about the ELP portfolio, as we see significant long-term potential. We've been very active in managing and renewing the portfolio, transitioning 44 of our locations to Lillibridge management and utilizing their strategies. We've conducted surveys with all tenants and created specific asset plans for each building, and we're pleased with the progress so far. We've achieved approximately a 1% increase in occupancy and are performing well above our projections. Looking ahead to 2024, we anticipate about a 3% increase in occupancy, which we are very pleased about. We plan to make some upgrades to common areas, and you'll notice some of the capital expenditures detailed in the supplemental materials. We'll also undertake standard tenant improvements and commissions, but I don't foresee any significant capital expenditures specifically for the ELP portfolio.

Just two quick, I guess, senior housing questions, if you can indulge me. First, just the comments about exit into '24 looking better, or I guess, acceleration. I'm wondering kind of what gives you that confidence because I may be wrong, but I think the occupancy comp will get harder and the expense comp also gets harder. So I'm just wondering what gives you the confidence of acceleration, number one. And just number two, on senior housing. You guys had a great investment in Canada a while ago through the Maurice investment. I'm just wondering, though, the portfolio is now generating like 4% same-store arguably into next year. Is there an opportunity in your minds to recycle that into, say, maybe a U.S. asset where you could get higher growth?

It's Justin. Let me begin by discussing our expectations for the end of the year. This year, we anticipate significant occupancy growth in our plan. Much of this growth is tied to the key selling season. We’re off to a strong start as we’re already exceeding typical seasonal performance. However, the most crucial timeframe is the May to September period, which traditionally drives occupancy growth. The data indicates that demand is strong, and our performance reflects our ability to meet that demand. This gives us confidence in our occupancy growth prospect. As we build throughout the year, we expect to end with higher net operating income. This higher income will position us well for growth in 2025, especially as we continue to increase occupancy. Additionally, we are seeing margin expansion. Currently, Canada is at 95% occupancy, while the U.S. sits around 80% to 81%. Most of our occupancy growth is occurring in the U.S., and we are at the early stage of that occupancy range where margins begin to grow. This inflection point gives us optimism for next year since as occupancy increases, operating leverage will rise, and we expect margin expansion in 2025. Thus, we believe there is strong support for this growth, and our execution aligns with it, which should also positively impact our 2025 projections. Moreover, the demand indicates a long runway for continued growth. Regarding Canada, we have an excellent portfolio that I am pleased you inquired about. It consists of high-quality core light assets that perform well in execution, occupancy, and margins. Le Groupe Maurice represents the majority of our NOI in Canada, and we look forward to continuing our relationship, which offers compounding growth, as well as opportunities to expand our footprint in the future.

And also, as we do new investments, obviously, the percentage that, that represents of the overall SHOP portfolio and Ventas will shrink because the denominator will be growing and emphasized on U.S. senior housing. So that will change the impact as well.

Yes. I'll take this opportunity to highlight that the U.S. experienced a growth of 24.5% last year in our same-store pool, and we are anticipating mid- to high teens NOI growth in 2024. This is our growth engine. It's comparable to the other portfolio, which has similar upside but less stability, while Canada remains high quality and stable. However, the combination of these two factors slightly limits our growth, as we are impacted by a very high-quality, high-performing portfolio, with the U.S. performing well.

Great. It sounds like Kindred's a no-go here, but at least after all these years, I guess it's only 5% of NOI for this master lease and not 50% plus. So, Debbie...

'99.

That's even before my time. But you did highlight the acquisition aspect, and you mentioned $300 million of investments you are confident will be completed in the first half of this year. It seems there may be a chance that could increase, considering the target-rich environment you outlined. Can you or Bob elaborate on the funding plans for those assets and how equity fits into the plan? I'm also curious, given that perspective, why was there no issuance under the ATM late last year, especially with the favorable movement in stock price and the more attractive cost of capital?

Well stated. I think, Bob, do you want to talk about funding?

Yes. As I mentioned earlier, the returns on these investments we are witnessing make them appealing to our shareholders from day one, even considering the current cost of capital when analyzing the figures. We initiated discussions with investors late last year at NAREIT when cap rates shifted, and the prevailing opinion at that time was that these represent good investments. We've incorporated that perspective into our guidance for this $350 million. Additionally, I noted the possibility of over-equitizing, which is also included in our plans. It's important to emphasize that we will approach this in a very disciplined manner. There are assumptions regarding this, but we will always act prudently based on market conditions.

And I'm glad you asked it, too, because I think with Ventas really giving FFO guidance into '24, that really is in the top 10 of all REITs, that we are aiming to have an improved multiple that benefits and rewards shareholders, and it represents a cost of capital that could be very effective as we build on the organic growth story and layer on attractive investments focused on senior housing.

Just a two-parter for me. Just was looking through the deck. One, I realize that the slide on the NOI recovery opportunity, it looks like you guys removed it, which was a pretty helpful slide. So I guess the question #1 would be that conviction of getting back to $1 billion. Presumably the occupancy still feels pretty good with the guidance, but has anything changed about either the views on the margins or the occupancy and the recovery story to sort of pull that slide? And then question #2, sort of part 2, is really, it's a sources and uses question because I don't see the redevelopment CapEx or the asset dispositions guidance that you guys provided last time. So could you be a little bit more specific? We know you're going to do $300 million plus or minus of acquisitions, but maybe a little bit more specificity about how you're thinking about redevelopment CapEx, dispositions, and even an equity issuance.

I liked that Slide, too, but I'll give it to Justin to answer.

Yes, I appreciate it. However, we've come to realize that the occupancy rate is not high enough. Our main goal is to reach 80% occupancy and return to pre-pandemic cash flows, but we're looking beyond that as we believe the potential is much greater, supported by demand. We don't want to limit our opportunities. We anticipate this will develop over time. We're establishing a solid run rate, aiming for approximately $100 million annually in the SHOP portfolio. Thus, we've decided to focus on future growth. Before I turn it over to Bob, I want to highlight our progress on CapEx projects in senior housing. By the end of 2023, we completed 167 projects that began in October 2022, which has allowed us to refresh our portfolio significantly. We expect to complete around 70 more by this May for the key selling season, and another 82 or so by the start of next year's key selling season. We're well over halfway done and are excited about the opportunity to continue improving our competitiveness.

That's a good segue to some of the assumptions you asked about in our guidance, especially redev. Let's start there. So we said our #1 use of cash is investing behind senior housing redevs. You're seeing the growth that's coming from that in the attractive returns. So last year was $210 million round numbers of redev. Because the projects are starting to come down, and I'd mentioned in previous calls we're going to normalize over time, we would expect some reduction in that redev spend this year. I'll call it $175 million in 2024. And again, that should normalize over time as these projects complete. Other assumptions, capital recycling, we are assuming, after $450 million of dispositions last year, our current guidance is $100 million. So a significant reduction, and those are very focused on some senior housing noncore assets in that $100 million. And then finally, on the equity assumption. To just underscore what I mentioned earlier, we do have, in our assumption, both investments and the funding of that. The share count is listed in the assumptions that comes out of that.

I apologize for prolonging this discussion, but I have what might be an unanswerable question. Your organization excels in aligning NAREIT FFO with normalized FFO, and there is a lot to unpack there. Your guidance includes $0.13 of normalizing factors. To what extent does this provide an opportunity for adjustments? If something significant were to occur during the year, could it allow you to maintain your guidance? The information in your presentation is quite complex and challenging to analyze. Is there a way to clarify this, or does it create an opportunity to engage with Kindred without having to revise our guidance? I realize this might be an unanswerable question, but I believe it is more complicated than it needs to be.

One thing I want to mention is that we are very disciplined about this and do not aim to be the leader in this area, which is something we prefer to avoid. It's a clearly defined category, and we utilize it accordingly. So, Bob...

Measuring between NAREIT FFO and normalized FFO across peers, I would suggest that their numbers are very similar to ours. As for benchmarks, well...

You would say benchmark.

I would like to follow up on the dispositions, specifically regarding the two R&I assets that were sold in the fourth quarter. I'm interested in understanding the reasons behind the decision to sell those assets, especially since the cap rates appeared somewhat elevated from an external perspective. Additionally, I would like to hear your current views on the Santerre SNF business. Are you satisfied with holding onto the remaining assets, which seem to be quite significant, and how do you feel about your exposure to the SNF sector?

Yes. Regarding the latter part, I think we will selectively dispose of certain Santerre assets over time, including the SNF. We have sold some at very attractive per bed valuations, and we are pleased with that outcome. As for the others, they included embedded purchase options we received in the acquired portfolio from universities that have a more favorable cost of capital than we do. They opted to exercise those options, and that explains the situation. All right. Mandeep, thank you very much, and I want to thank everyone for joining us today. It's a pleasure to speak with you and have a chance to answer your questions. We really appreciate your interest in Ventas, your support of Ventas, and we look forward to seeing you again soon.