Ventas Inc (VTR) — Q3 2024 Earnings Call Transcript

Thank you, John, and good morning, everyone, and welcome to the Ventas 2024 third quarter results conference call. Yesterday, we issued our 2024 third quarter earnings release, presentation materials, and supplemental investor package, which are available on the Ventas website at IR.ventosread.com. As a reminder, today's remarks 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 third quarter 2024 earnings call. Today, I will discuss Ventas' strong results in the quarter and our improved 2024 expectations as we execute on our Focus 123 strategy to capture the unprecedented multiyear growth opportunity in senior housing. As one of the largest participants in the longevity economy, Ventas thrives in meeting demand from a large and growing aging population. Within this favorable macro environment, we are taking two clear actions to deliver results and growth, now and into the future. First, we are driving profitable organic growth in our senior housing operating portfolio, generating our ninth consecutive quarter of double-digit NOI growth from our SHOP business. Our team is using its experiential insights and data analytics to propel results and take advantage of this unique opportunity of favorable supply-demand in senior housing. Second, at the same time, we are ramping up our investments in senior housing. Here, we also enjoy a compelling value creation opportunity of private-to-public arbitrage. We can and are acquiring assets with highly attractive financial return expectations at accretive year 1 yield that expand our senior housing footprint, increase our enterprise growth rate, and strengthen our balance sheet. We rarely see this powerful combination of organic and external growth opportunities, and we are dedicating our resources to seize them to create value for our stakeholders. Before I unpack those themes, let's get to the numbers. Ventas delivered $0.80 of normalized FFO per share in the third quarter, reflecting a 7% year-over-year increase driven by occupancy and revenue outperformance. This result was powered by SHOP with 15% year-over-year cash NOI growth. Total same-store cash NOI grew nearly 8%, and our credit statistics continue to improve. As a result, we're once again raising our 2024 normalized FFO per share guidance, as well as our SHOP and Total Company same-store cash NOI expectations. As we execute our strategy, SHOP organic growth is the engine and is powering us forward. Year-to-date, SHOP NOI has increased nearly 16%, and our RevPOR, OpExPOR spread is a strong 300 basis points, leading to margin expansion. Margin is increasing and should expand further as occupancies continue to rise and operating leverage takes hold. With the aging population expected to increase 27% over the next 5 years, our communities are well-positioned for future NOI growth because they provide exceptional, affordable environments in markets with compelling supply-demand dynamics. As we look ahead, we believe we have a long runway for continued growth in senior housing. Our prior occupancy peak in SHOP reached 92% in late 2014 when conditions weren't nearly as favorable as they are now. Our goal is to shoot for and exceed prior peaks of occupancy and NOI over time, as surging demand outpaces senior housing construction, which sits at record low levels, and inflation moderates. Our markets show particularly favorable conditions, and we expect to continue to drive significant upside as our Ventas team and OI platform work with our peer providers to drive outperformance. We've also ramped up our investments in senior housing to $1.7 billion this year. Here too, we are utilizing our OI insight, field experience, and industry relationships to identify attractive opportunities, increase our enterprise growth rate, and expand our senior housing footprint. As a result of this investment activity, we expect SHOP NOI to increase by 12 percentage points and senior housing to grow to well over half of our business by year-end. These acquisitions fit squarely into our articulated strategic and financial framework and should create value for shareholders. We've rarely seen such favorable investment market conditions where the pool of available assets is large and growing, and investments should generate relatively high year 1 yield and offer significant future growth. Importantly, we are well-positioned from a balance sheet, cost of capital, and experience standpoint to be highly active and successful. We intend to build on our momentum to continue to expand our participation in the unprecedented multiyear growth opportunity in senior housing. At Ventas, we have a long history of taking a holistic view of delivering sustainable growth for all stakeholders. Last month, we released our 2023-2024 Corporate Sustainability Report, which details our key initiatives as we enable exceptional environments benefiting a large and growing aging population. I am proud of our sustainability leadership and accomplishments and our team, which are widely recognized. Our integrated approach has enabled us to deliver nearly 19% annual PSR since the beginning of 2000. In sum, I feel great about where our business is and where it's heading. Our enterprise enjoys durable, inelastic demographic demand, powering a multiyear runway for growth. Our platform and team are driving outperformance and capturing market share. Because of these favorable secular and structural advantages, we are well-positioned to deliver value for our shareholders and advance our important mission to help people live longer, healthier and happier lives. And the whole Ventas team is enthusiastically going after it. Now I'm happy to turn the call over to Justin.

Thank you, Debbie. I'll start with our efforts to deliver profitable organic growth in senior housing. The third quarter same-store SHOP portfolio grew occupancy by an industry-leading 350 basis points year-over-year, leading to our ninth consecutive quarter of double-digit NOI growth at over 15% and an overall operating margin of 26.3%, which is up 150 basis points year-over-year. We also had one of our best occupancy growth quarters sequentially, with 140 basis points. Leading indicators of Leads and Tours have been outperforming all year and continue to do so in October. Revenue growth was around 9% across the portfolio, and the U.S NOI growth was 17.7%. Sunrise, Sincerely, and Discovery continue to deliver excellent operating results in the U.S. Double-clicking on our occupancy performance, our Canadian portfolio is at an all-time high of 97% occupied in September, led by Le Groupe Maurice and Atria. Occupancy outperformed the market. The U.S spot occupancy grew 370 basis points year-over-year in the top 99 markets, which is 140 basis points faster than the NIC average. Furthermore, we grew 130 basis points in these markets, which is almost double the NIC average. Moving on to guidance. As the third quarter exceeded our expectations and October is off to a good start, our average occupancy growth expectations have increased to about 290 basis points, which is up 40 basis points versus the original guidance. Year-to-date RevPOR growth has exceeded OpExPOR by 300 basis points, and we expect a continued healthy spread as pricing continues to outpace the moderating inflationary pressures we have experienced this year. All of this considered, we are pleased to raise SHOP full-year guidance expectations for the third time this year to 15%. Furthermore, we believe rate growth will be favorable into 2025 as we anticipate significant demand, well-positioned communities, and a value proposition that is attractive to seniors and their families. Moving on to Ventas OI. Our SHOP performance stems from a right market, right asset, right operator approach, enhanced by the Ventas OI platform, which leverages a billion operational and financial data points and experiential insights. This platform empowers our SHOP operators with advantages in sales, pricing, market positioning, CapEx, and digital marketing, to name a few. Key drivers include acquisitions, new SHOP operators, CapEx investment, and strategic conversions from Triple-Net to SHOP, all aimed at boosting occupancy and NOI amid favorable supply-demand trends in senior housing. The OI platform also enables us to segment the portfolio in ways designed to increase NOI and margin. We are all familiar with the rule of thumb, a 50% incremental margin flow-through in communities that are between 80% and 90% occupancy and a 70% flow-through in communities that are above 90% occupied. I don't think it's widely understood how higher occupied communities can power growth. Let me walk you through a case study to highlight this opportunity. If you want to follow along, you can see this case study on Page 12 in our earnings deck. Our Zero Lost Revenue Days initiative aims for full occupancy across select communities in our portfolio, minimizing vacancy and maximizing NOI growth. 40% of our SHOP portfolio is in the 90% plus occupied category, offering substantial outperformance potential. Due to the operating leverage in our business, scarcity value, and lack of frictional vacancy, we have a significant opportunity to drive NOI growth in highly occupied communities. It's important to note that we typically don't experience frictional vacancy in senior housing due to the relatively small unit size, lengthy notice periods to vacate, and low wear and tear on the units, ultimately allowing for sufficient time to plan a unit turn. As occupancy grows across our portfolio, the benefits of highly occupied communities are materializing. I'll highlight eight communities in September that reached Zero Lost Revenue Days, maintaining 100% occupancy every day of the month. These properties saw a 440 basis point occupancy increase over the last year, a 7% RevPOR improvement, 12% revenue growth, and over 25% NOI growth. These communities all delivered market-leading quality care and services, which is essential to attracting and retaining residents and employees. The philosophy is simple. Full is full. And it underscores the value of renting every unit daily, maximizing NOI through operating leverage, scarcity value, and zero vacancy. While not achievable for every property, we aim to continue to replicate this result with operators and targeted communities through our portfolio, including our new acquisitions. I'll summarize my SHOP commentary by highlighting our continued occupancy outperformance and NOI growth. We truly are seeing momentum in the business. Next, I'll comment on our Triple-Net lease with Brookdale, which expires at the end of 2025. Brookdale has the option to renew by November 30 of this year. It is a well-covered lease with strong and improving coverage, comprised of underlying assets that sit in markets with a 1,000 basis points of potential occupancy upside. Due to the strong underlying performance of the portfolio and compelling projected tailwinds, there are a variety of outcomes that are positive for Ventas, which could include full renewal, full transition to SHOP, or something in between. We'll update you about the progress of this lease when we know more. Now I'll move on to investments. We continue to execute on our Focus strategy, which is to capture value-creating external growth concentrated in senior housing. The market is presenting compelling opportunities. We are in a great position to capitalize on these opportunities, given our advantaged position as a large owner of senior housing with financial strength and flexibility, far-reaching senior housing sector relationships, and a successful transaction track record. Our investment pace is accelerating, with $1.7 billion of senior housing investments closed or under contract, which is $1 billion more than we stated a quarter ago. The $1.7 billion is comprised of 43 new senior housing communities, 16 different transactions, with a median size of $47 million. We have targeted high-performing communities with upside that have demonstrated market-leading performance and should continue to grow NOI due to the strong market fundamentals, increased operating leverage, and competitive pricing. The communities we have purchased are generally large-scale, offering a variety of services including independent living, assisted living, and memory care. We are purchasing communities in an attractive investment basis of $250,000 per unit, which is a significant discount to replacement costs. These investments are right in our strike zone. Our stated financial criteria of 7% to 8% expected year 1 NOI yield, low to mid-teens unlevered IRR, and we continue to purchase below replacement costs. The affordability in the new markets we are entering is supportive where residents can afford greater than 7x our length of stay. We also expect a significant net absorption opportunity during the next few years as a result of growing demographics and minimal new supply in the markets we have selected. We continue to expand with our existing operator relationships as well as welcoming new high performing operators in aligned management agreements. I'll spotlight an investment where we acquired 20 senior housing communities currently operated by Grace Management. This strategic acquisition includes communities operating a mix of independent living, assisted living, and memory care, aligning with our focus on value-creating growth in senior housing. These communities are located in markets that support significant potential occupancy growth and price opportunity over the next few years. At 92% occupancy, this investment should benefit from the high operating leverage opportunity as I noted earlier. We expect 7% to 8% year 1 yield and low mid to teen unlevered IRRs consistent with our target financial metrics. This investment expands our relationship with Grace, who is a strong performing existing Ventas operator. Our investment pipeline remains active as we continue to pursue high performing senior housing communities with attractive financial returns. In summary, we are effectively executing on both our organic growth priority in senior housing and value-creating senior housing investments.

Thank you, Justin. I'll give an update of our financial results, provide an overview of our balance sheet, and close with our improved outlook for the year. Ventas reported net income attributable to common stockholders of $0.05 per share in the third quarter. Our Q3 normalized FFO per share of $0.80 represents a 7% increase year-over-year. Our total company same-store portfolio cash NOI increased 7.6% in the third quarter, led by over 15% growth in SHOP. Our Outpatient Medical & Research segment, or OMAR, same-store cash NOI increased to 2% in the third quarter and grew over 3% on a year-to-date basis. In our outpatient medical portfolio, Pete and team remain active on leasing, executing 1 million square feet of new and renewal deals in the quarter for a total of 2.5 million square feet year-to-date. Tenant retention of 85% has improved 300 basis points from the prior year. As a result, outpatient medical same-store occupancy improved 20 basis points year-over-year in the third quarter. Our university-based research same-store portfolio increased cash NOI by nearly 5% both in the third quarter and year-to-date, led by new leasing and higher rents. Our core research portfolio is performing very well to strengthen our market and institutional demand. As Justin described, we have increased our investments in senior housing with $1.7 billion of senior housing investments closed or under contract. Refunded, the $1.4 billion of closed senior housing investments via $1.1 billion in equity issuance at an average price of $54.20 and $300 million of completed dispositions. I note that since the second quarter, we have raised approximately $570 million of equity at an average price of $61.27. Consistent with our strategy, organic SHOP growth and equity-funded senior housing investments have materially improved our balance sheet. Our Q3 net debt to EBITDA of 6.3x has improved by 60 basis points since the start of the year, and we now have a line of sight to our targeted 5x to 6x range. We also have robust current liquidity of $3.1 billion. We have addressed our 2024 maturing debt and proactively refinanced a portion of our 2025 debt maturities, including through a $550 million 5% bond issued in September prior to the recent run up in long rates. I'll close with our updated 2024 guidance. We've raised our outlook for '24 for the third time this year. We now expect net income attributable to common stockholders to range from $0.09 to $0.13 per diluted share. We increased the midpoint of our full-year normalized FFO guidance to $3.16 per share from the previous midpoint of $3.15. Our improved full-year midpoint is driven by a $0.02 improvement from increased investment activity and higher SHOP same-store growth expectations, partially offset by a penny dilutive impact of our strong stock price performance on our exchangeable notes. I would note that $1.2 billion of our $1.7 billion in senior housing investments are closing on a weighted average basis in the middle of Q4, thereby limiting the 2024 accretion. We have raised our total company's same-store cash NOI to now approximate 7.4% year-over-year at the midpoint, as well as increased our SHOP same-store cash NOI growth year-over-year. For additional 2024 guidance assumptions, please see our Q3 supplemental and earnings presentation deck posted to our website. To close, we are pleased with the results both in the quarter and so far this year, and to once again have improved our full-year expectations.

Thanks. Debbie, you mentioned a long runway and obviously the improving operating fundamentals, pricing, expenses, occupancy, everything. I guess my question is just, what are the early indicators that supply could start to re-emerge? We obviously haven't seen in the start state yet, but just wondering what you're seeing from the sector overall as you talk to lenders or others within the industry, what could spur that just given the really strong forward outlook?

Thanks, Nick. Good morning. So the construction as a percentage of inventory is at record low, as I mentioned. I think just a little over 2,000 units were started this quarter, and we're seeing annual increases in the resident, the customer base of over 500,000 a year growing. And so we're still seeing constrained supply considerations including lending, including costs, and including rent levels which would have to be significantly higher to justify new construction. So there is a long runway. We know there's a significant lag as we saw in the financial crisis, it was 4 or 5 years, and then we really peaked in occupancy and as I mentioned, conditions were far less favorable then. The senior population grew 4% over 5 years and now it's growing 27%. We see that step function a few years from now in the population when the baby boomers start to enter the over-aging population. So it is a long runway, and we feel really good about it, and that's why we feel that this combination of organic and external growth is a real winner.

Thanks. And then maybe just on that ramping investments in senior housing, just given that kind of runway, can you talk about the seller motivation at this point and kind of the opportunity set that you're seeing there? I would think that a seller can also see the improvements from the fundamental perspective. So why sell now into this runway?

Yes, good question.

Hi, it's Justin. Yes, if you just look at, for instance, the $1.7 billion that we've either closed or under contract, there's been what 16 transactions. About 9 of those have been developers that were cashing in. There were some repeat sellers. These were just groups we've done transactions with before, came back to us to do it again, just given them a good track record we had with them. And then there's a handful of just private equity firms that were selling for a variety of reasons. I think it's very clear that the fundamentals are really good, and that's a great, given all the backdrop and the long runway that Debbie described, it creates a great buying opportunity for us, given our capabilities and our financial strength and flexibility, but it also has created a selling opportunity for certain players as well. So the opportunities have been certainly growing in our pipeline.

Yes, and the assets should perform better in our hands.

Hey, good morning. Thank you. If I could, Justin, drill down on your case study on Page 12 of the very high occupied cohort of units or communities. Was that a cross-section? And thinking about the whole 111 communities, a cross-section of operators?

Yes, I focused on eight communities in my case study, which represented a cross-section. While it included a mix of majority independent living and assisted living, most of them were based in the U.S., with a couple in Canada. This highlights the opportunity across the board. We believe we have the strongest potential to achieve full occupancy or reach a zero-vacant unit standard in communities already recognized as market leaders, and we have many of those. The acquisition pipeline we are pursuing consists of established market leaders with significant growth potential. We are actively working to support this outcome and are pleased to see progress being made.

Great. I have a second question if I may. Looking at the broader perspective, what does your extensive data collection indicate regarding the penetration rates for senior housing in your markets? Are you able to track this or provide insights into how it varies by age cohort and how people's usage of the product is increasing or decreasing? Thank you.

We do monitor penetration rates closely. Several factors contribute to our net absorption forecasts. Currently, penetration across the sector stands at 11%, which is about the same level as before the pandemic. Penetration tends to correlate with affordability, which is why we prefer markets with strong affordability, as this leads to higher utilization of senior housing in those areas. Although penetration dipped a few years ago, it has since returned to previous levels. To achieve the results we expect over time in our multi-year occupancy growth strategy, significant changes in the penetration rate are not necessary. The aging demographic is strong, and affordability remains robust. We are focusing on markets that possess these traits. Additionally, as mentioned by Debbie, we have the framework in place to ensure solid performance in these markets, benefiting from favorable conditions.

Okay. Thank you again.

Thanks, James.

Thank you. Regarding the guidance for SHOP, I may have missed it, but I noticed there was an updated RevPOR and OpExPOR. This quarter, RevPOR is at 4.4 and OpExPOR at 1.3 year-to-date. Is this in line with your 2Q guidance of 5.25, or are you experiencing a slightly softer RevPOR along with a softer OpExPOR that balances it out? I'm curious if there's any conservatism as we move into 4Q.

First of all, we have focused on the spread between the two, which has been around 300 basis points. This has remained consistent, and we expect it to continue. We factored this into our guidance update. The full-year number you mentioned serves as a good reference for our current performance. The 300 basis point spread is evident in our year-to-date results.

To put it another way, this is Bob. I would say that the year-to-date P&L elements in the supplemental are a good indicator of the Peace Parks regarding RevPOR and OpExPOR growth as we reflect on the year.

Got it. Thank you. And then maybe just jump into your top tenants and more specifically Atria, but please touch on any others if there's anything newsworthy. But just could you talk about Atria's performance and maybe bifurcate the IL and AL portfolios?

Yes, Atria is our largest SHOP operator. We have a legacy portfolio with them in the U.S. and Canada, along with the holiday portfolio. They have consistently performed well in our legacy portfolio. We have established a working relationship with them, helping them to focus their efforts in the cluster markets. While Atria might have previously been seen as a national platform, I now view them as a super regional because they are well clustered. We are seeing solid execution in the legacy portfolio, and the holiday portfolio has been an ongoing project. They are a significant contributor to our year-over-year occupancy growth, which has been around 400 basis points. Overall, they are meeting our expectations. In the U.S. and Canada, they are among the leaders in driving higher occupancy, with Canada currently at 97% occupancy, and Atria has played a key role in achieving that, along with their group Maurice. Atria also has a new CEO who has been in place for a couple of quarters now. She brings a lot of enthusiasm, experience, and direction to the company, which we are very pleased about.

Great. Thank you. My first question on opportunities, is it time to lean into life science or will there be a time over the coming months to lean into life science again?

Hi, Jeff. It's Debbie. We're definitely prioritizing investing in senior housing. That's really foundational to the strategy that we're executing and certainly we believe in the business long-term. But right now, our key focus is in senior housing.

Okay, fair. Thank you. Then my second question, can you discuss the margins during the quarter? It looks like they compressed across the different formats. I apologize if I missed this. Can you explain margins during the quarter?

With asset class, I can start with SHOP.

Okay, good.

So SHOP had year-over-year margin expansion of 150 basis points. This type of expansion aligns with our revenue growth compared to our overall expense growth, which is influenced by occupancy and rates. The RevPOR operating expense metric reflects this. There was a sequential change affected by some insurance renewals in the third quarter and the seasonal expenses we encounter. Typically, we do not see improvement between the second and third quarters, leading to a slight increase sequentially. However, on a year-over-year basis, we are definitely experiencing margin expansion.

Thanks, Justin.

Hey, just two quick ones. With the acquisition sort of ramping and I think becoming more clear that '25 is going to be strong, maybe any updated thoughts on when you think private capital, private equity will start to look at the space, come into the space, and why you think they have not done it so far if everything is so good? Thanks.

Yes, so this is Justin again. I definitely would say private capital is always circling. The conditions over the past year really haven't been supportive of private capital due to the availability and cost of debt. That's put us in a really advanced position. But I would expect that given the fundamentals that we'll see the competition again. We're clearly used to facing the competition and feel very comfortable that we'll get our fair share. We have an advantage platform, from a financial strength and flexibility standpoint, we're advantaged from Ventas OI standpoint, where we have the team and the capabilities to really drive outside performance and also just to underwrite, see opportunities where others might not. So I really like our opportunity to continue to compete.

Great. My second question is about the nearly 9% growth in revenue, which is quite impressive. We are trying to understand what next year and beyond might hold. When I consider the 350 basis points increase in occupancy and nearly 4.5 RevPOR, are there any clear reasons why this trend could change? Did we perhaps capitalize on some easy opportunities this year? It might be worth considering how we can sustain these remarkable results.

Yes. I'd say, first of all, we're not going to give you 2025 guidance expectations in answering this. One thing that did flatter expenses this year is we had a year-over-year comparison versus agency costs last year. So, that impacted our export and labor core metrics. That agency is pretty much out of our system now. So, that's a comp to consider moving forward; the supply demand, the pricing opportunity, know, all these fundamentals that we're facing, we expect to continue. So, we'll look forward to talking more about our expectations moving forward.

Hey, this is [indiscernible] representing Vikram. Can you provide details on how the transition assets are growing compared to the same store and when they will be included in the same-store pool? Additionally, what's the average occupancy of the acquired assets this quarter? Thank you.

Our same-store pool is a significant portion of our total SHOP portfolio, making it a good indicator of our overall performance.

Yes, so when we talked about transition communities, a lot of those are in the same-store pool already. There's some that we transitioned last year that will come into the pool. And in that case, we've had really good occupancy growth. We're looking forward to NOI opportunity moving forward in those communities. But honestly, it's largely represented already based on the pool that we've been reporting on. Also, in terms of your question around acquisitions, the acquisition approach has been around 90%, 91%. That's across the board. And the reason for that is we're targeting bona fide market leaders in markets that have more upside so that we can drive occupancy and price in communities that have a proven track record of delivering best-in-class quality care and services and should continue to really outperform. And so we really like how the acquisitions are positioned.

Okay. And just a second question in terms of capital allocation. Given the Canadian portfolio is nearly fully occupied, how do you think about monetizing part of it or maybe the entire portfolio and redeploying the capital into higher growth profile assets?

Thanks for the question. Yes, you're right. The Canadian portfolio is an incredible tool. I mean, it really has been terrific and continues to be a significant contributor to growth. And so, we've managed that portfolio by basically leveraging it in a way that provides the greatest value instead of wanting to continue to work with the operators to drive occupancy and performance.

Great. Thank you so much.

Yes, I mean, our philosophy is really to grow our SHOP with risk.

Thanks, good morning. So, back to the question about competition for assets and the lack of sort of, maybe relative lack of PE because of availability of debt. When you look at cap rates, I think you did, on the activity so far, 8% yield on your senior housing activity. And then you compare that to multifamily, 4% or 5%, industrial 4% or 5%. You can argue your outlook is by far much better, at least in terms of visibility. The lack of competition, putting aside the PE component, just that people can't do it. You need a certain level of operating talent to go after some of these assets. So it's always going to be a limited competitive set, or do you think it comes back? And corollary to that question, if your cost of equity is in the range of five, is that the way we should be thinking about 300 basis point type spread when we think about 2025 estimates?

Thanks, Rich. Look, I think that there are multiple reasons that we're enjoying these compelling investment opportunities now. Obviously, our cost of capital and the relationships and experience are helping. There is limited competition because of debt markets, but you really hit on I think something very important and differentiating and I'll brag on Justin and the team a little bit. I mean, there is a moat. It is a business that requires significant expertise and also data analytics. And that's the more it feeds on itself in a positive way. And so we have the scale, we have the data, we have the experience, with Justin having operated, we have an industry relationship with the operators. And all of those things create a significant competitive advantage that should enable us to really be a premier global owner of senior housing. And that does, I think, keep competition less. And of course, we're always dealing with competition over the last 25 years, and we now have to get more than our fair share. But that is you've really hit on I think a very important reason and that is the competitive moat that we have that gives us these compelling investment opportunities.

And in terms of spread investing, is kind of 300 basis points where you're thinking if you just do an inverse of the AFFO yield, AFFO multiple?

We are very pleased to deliver strong cost performance for our shareholders. That is our main focus. It's a variable metric that influences our calculations and can change over time. Currently, it is benefiting us, and we hope to maintain and even improve upon that performance.

Last question on Brookdale. I know you're not going to say much, but maybe a little bit more. Could they go past their November 30th decision day? Would you allow them to, or is that a full stop? You got to know by then. I'm just curious what your flexibility is to allow the negotiation to extend into perhaps next year. Thanks.

Well, I mean, if it goes beyond the contractual notice date, then they no longer have the option to renew the lease.

Good morning. I'm just hoping you could talk a little bit about the SHOP lead indicators. Would you be able to provide a spot SHOP, same-store occupancy for October and or comment on what the OI or data would suggest about rent bumps, Jan 1, which I'm sure you're thinking about this coming year versus what you experienced in 2024?

Juan, I'm going to try to answer this. So without giving too much information up here, I'm going to start with rent because we're just not going to get into the '25 numbers, but we do think the environment is favorable for pricing. And so we'll report more on that in the future. In terms of the lead indicators, we've had throughout the entire year leads and tours have been running higher than last year. That was true through the third quarter. It's true in October. So that's obviously driving move-ins and occupancy growth. As I mentioned we've had industry-leading occupancy growth, and that really all starts with our ability to drive business to the doorstep. So we're pleased with that performance and encouraged by it, even this late in the season, to see the activity that we're seeing.

Okay. And then just on your zero vacant days, I guess a couple questions there. You mentioned notice periods. How many people actually give notice that they're moving out? I thought a fair amount of people unfortunately pass away. And is there an element where you can start booking revenues before a person moves in associated with shrinking those vacant days?

So there's notice periods in the resident agreements that can range anywhere from 10 days to 30 days, depending on the circumstances. So you have visibility into when a unit will become available. There's also the opportunity for new residents. If you think about the demand that you're experiencing in a community that has zero vacant units, prospective residents are going to want to make sure they have access to the unit. So they take financial possession proactively. That happens oftentimes. But even if they don't, if you really think about what we're talking about, we're talking about a 400 square foot unit that has it's lightly furnished, has some personal belongings but nothing like we have in our own homes. And you're one operator targets a 30-minute turnaround because it's a deep clean and a touch up paint. If it needs more than that, you might add a few hours to that. But this is not a complex unit turn. It's extremely simple. It can happen quickly. You can plan for it. And so that really leads to this opportunity to have zero-making units. That combined with the demand at the doorstep and, most importantly, positioning yourself as a market leader because you're the best at what you do in your market.

Thank you.

Your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead.

Yes, good afternoon. Most of my questions have been answered, but Debbie and Justin, curious as again we're kind of going through election season, if there's anything out there you guys are looking at that could potentially impact healthcare as a whole, and maybe senior housing in particular, one of the things I'm kind of looking at is if we end up in a world where regulation makes it harder for private equity to be involved in health care. But anything that's kind of top of mind would be helpful.

We're really focused on our position in the longevity economy, especially since we have a consumer-driven product with strong demand and a platform that is delivering good performance. The outcomes of the election should have minimal impact on us. There could be changes in long rates based on the election results that might influence the real estate sector overall. However, as a public company, we are better positioned compared to private equity in real estate right now. Public companies have more access to capital costs.

Thank you.

Thanks and good morning. Maybe one on the outpatient medical portfolio. So, now that that legacy portfolio is part of the same store pool. You need to quantify how much NOI or occupancy upside actually remains across those assets and has there been any deceleration and why growth or occupancy gains in recent quarters now that just the lowest hanging fruit within that portfolio may be already taken care of?

Yes, thanks Michael. This is Pete. I appreciate the question. Just to level set, we've got about 79 buildings that entered the quarterly same-store pool for ELP this quarter, and we've been really hard at work in applying the Little Bridge Playbook to the ADCET portfolio. We've replaced 19 property management teams, we've replaced half the leasing brokers, and we've replaced virtually 100% of the contracts that relate to the services in the buildings. So you're starting to see a lot of results. Tenant satisfaction went from the bottom quartile to the third quartile. So really happy about that. And then, not surprisingly, retention has been up as a result of happier tenant satisfaction. Occupancy is up and so is NOI growth. So we're really excited about all that. We think that this portfolio will be an accelerant for us going forward. If anything, our growth outlook on this portfolio is stronger than what it was when we first got it. And there's probably 8% plus occupancy improvement potential to get it to the level that the rest of the portfolio is. So there's upside there for occupancy growth.

Absolutely. Got it. That's helpful. And then maybe on the secured loan investment during the quarter, could you provide just some additional details surrounding the ROFO on that, and then any details on the actual underlying properties in terms of location, occupancy levels, acuity mix, anything you can provide there would be helpful.

Yes, sure, Justin. Yes, this is a unique opportunity to potentially own one of the highest quality senior housing assets in the country, quite frankly. This is senior living. It's a high-rise in Seattle that has a mix of independent living and assisted living and member care product. It's high price point, very attractive physical plant. You're getting a renter anywhere from $10,000 to $20,000 per month. It was a good opportunity to get a high yield loan. It's a senior secured loan, so we're the only lender. We have properties collateral and other credit enhancements. But I think what's most exciting and interesting to us is potentially buying it. We have a typical ROFO. Clearly, we're the right type of buyer for an asset like this. It was just a neat opportunity to put money out at a really nice return and bridge the potential ownership.

Thanks for the time.

Yes, thanks. I know you guys don't like to talk about individual operators, but you did comment on Holiday earlier in the call. I was wondering if you could provide more details on how they're performing or the changes that they've implemented last August. Have those really taken hold and you're seeing better results that you think are sustainable going into 2025?

Yes, I think that probably the best way to attack that is really just to talk about our overall independent living performance in the U.S. Independent living has been a strong, really equal contributor to the overall occupancy growth that we've had. Holiday is part of that. We've had other operators operate independent living as well. There's been really strong demand. It also tends to be a higher occupied asset. So it also has very high operating leverage. And so as occupancy grows, we expect it to be a big contributor from an NOI standpoint. But we've seen really good progress and momentum in the independent living product across the board.

Okay, and then I think earlier, Justin, I think there was a question about the occupancy trends throughout the quarter. I mean, I'm just trying to really understand, like, what's the typical seasonal trend you see in occupancy? Does it really start to accelerate in mid-summer or then kind of tail off in the late summer and have you seen that? And I believe there's a question about what was spot occupancy at the end of the quarter. I don't know if you answered that, if you did, apologies, but if you didn't, I mean is that something that you can disclose?

We had great sequential average occupancy growth that Justin talked about, if he can repeat it here from the second to the third.

Yes, the primary selling season typically runs from May to September, during which we expect most of the occupancy growth to occur. It's common to see a decline in occupancy in the fourth quarter, but we are not experiencing that trend. We anticipate increased occupancy in the fourth quarter based on our current performance. Things are off to a strong start in this area. Our outperformance is also noteworthy; when comparing ourselves to the leading 99 markets, we have achieved a growth of 380 basis points, while the sector has seen only 230 basis points. Our sequential growth has been impressive as well, now standing at 140 basis points compared to the sector's 70 basis points. This indicates we are experiencing twice the sector's sequential occupancy growth in the third quarter. All leading indicators and our expectations regarding occupancy are very positive, setting us up well for a strong fourth quarter.

Okay, great. Thank you.

Yes, hi. Just as you look ahead to 2025, are you expecting to fully or substantially equity fund acquisitions again?

Yes, this is Bob. I'll take that one. So, we've been very successful in executing on the strategy we laid out at the beginning of the year, which is investing behind senior housing to grow our participation. And if the market is there to fund that with equity, that has been working for us, clearly that's been the playbook. And you can see that not only in the growth in our senior housing portfolio, but also in our bridge, which has improved 60 basis points year-to-date. But as I look, I would like to call it more a cowbell. We like what we're up to and given the market conditions, hope that can continue.

Got it. Okay. And then second question, can you give us a sense at this point of the initial drag if the full Brookdale lease transitions to the SHOP?

Yes, if the Brookdale lease transitions to SHOP, the lease is well supported from an EBITDAR or NOI perspective, indicating that there is a significant amount of EBITDAR in relation to cash revenue. This is an important consideration when evaluating the impact of converting the entire Brookdale lease to SHOP, and it presents a positive situation.

John, thanks so much. I really want to thank all of our participants in the call for your interest in Ventas and your participation today. We look forward to seeing you in Las Vegas soon.