Ventas Inc (VTR) — Q2 2025 Earnings Call Transcript

Thank you, Bella, and good morning, everyone, and welcome to the Ventas Second Quarter 2025 Results Conference Call. Yesterday, we issued our second quarter 2025 earnings release, presentation materials and supplemental information 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 information package posted on the Investor Relations website. And with that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO of Ventas.

Thank you, BJ, and happy birthday. I'd like to welcome all of our shareholders and other participants to the Ventas Second Quarter 2025 Earnings Call. We're pleased to report strong earnings growth and again, raise our guidance as we execute our 1-2-3 strategy. Ventas is an essential participant in the longevity economy and is well-positioned to capitalize on the secular demand from the large and growing aging population our company serves. Both our advantaged platform and our portfolio have been intentionally built to meet this moment and generate durable multiyear NOI growth driven by organic growth in our Senior Housing Operating Portfolio, or SHOP, and accretive senior housing investments. This engine of our growth is being supplemented by compounding contributions from the balance of our portfolio and our continually improving balance sheet. Our 1-2-3 strategy is designed to deliver superior FFO per share growth, enhance our financial strength and create value for our shareholders. The second quarter demonstrated the positive impact of our approach. Year-over-year, normalized FFO per share grew 9% and total company same-store cash net operating income, or NOI, increased 7%. We also raised our full year normalized FFO guidance midpoint to $3.44 per share, representing 8% accelerating year-over-year FFO per share growth at the midpoint. And we also improved our company-wide same-store year-over-year cash NOI growth expectations to 7% at the midpoint. If achieved, these growth rates would put us in the upper echelon of REIT growers. Underpinning our strong results and improved expectations are the 3 components of our strategy. Let me take you through them in order. One, drive organic growth in our SHOP communities using our platform advantages, data analytics and experience, check. Our SHOP communities in the U.S. delivered 18% same-store cash NOI growth in Q2, adjusting for a tax refund we received in the prior year. Revenue grew over 8% for the entire same-store SHOP portfolio, an average year-over-year occupancy growth accelerated intra-quarter and finished on a high note in June with 60 basis points of sequential improvement in average occupancy. In June, move-ins reached their second highest level of any month in over 5 years. Two, make value-creating investments in senior housing, check. We've raised our full year 2025 senior housing investment volume guidance to $2 billion. Because of our advantaged position and the increase in market activity, our pipeline of senior housing investments is growing, and we intend to build on our momentum as we identify and close compelling investments with low to mid-teens unlevered IRR expectations, robust current performance and significant upside potential. And three, maximize performance in the balance of our portfolio, check. Our outpatient medical and research portfolio is fueled by growth in the over 65 population which will represent 20% of the U.S. population by 2030. Outpatient medical is powered by our competitively advantaged in-house property management and leasing platform and is also benefiting from the accelerating trend toward outpatient activities. Our team delivered leasing and occupancy improvements both year-over-year and sequentially in Q2, and we expect year-over-year NOI growth to increase in the second half. Meanwhile, our institutionally-based research portfolio, which is the smallest part of our business, represents about 8% of our NOI. Three-quarters of that NOI comes from credit tenants under leases with a weighted average lease term of nearly 10 years. We continue to experience good institutional demand for our space, while the sliver of innovation and pre-revenue tenancy remains subject to the macro challenges facing the sector. All in all, backed by compelling demand for the services and activities in our sites, our space users generally have staying power and are finding ways to adapt and continue their important work. Closing on senior housing, we are already in the fourth year of double-digit NOI growth from our communities and the multiyear NOI and occupancy growth opportunity ahead of us should continue for many years. The over 80 population should grow 28% in the next 5 years, by 4 million individuals as the leading edge of the baby boomers turns 80 in 2026 and more seniors than ever are choosing senior living for the benefits it provides. In fact, the number of individuals projected to turn 80 increases every year through 2038. At the same time, new starts in senior housing are hovering at record lows, with construction starts approximating only 2,000 units in Q2. We expect today's significant supply constraints to persist for an extended period. This combination of secular demand, which is expected to grow beyond the next decade and factors suppressing supply should elongate Ventas' multiyear occupancy and NOI growth opportunity well into the future. Because we anticipated these conditions, we've taken focused actions to expand our SHOP footprint by 1,200 basis points in just over the last 2 years, and we expect SHOP NOI to represent over half our business by year-end. And along the way, we've built a formidable platform that leverages our advantages to enable exceptional environments attractive to our senior residents, drive performance through active asset management, curate our portfolio and maintain mutually supportive engagement with our operators. Together, the highly favorable macro backdrop and our advantaged capabilities should enable Ventas to thrive and create value for our shareholders over the near and long term. Our whole team at Ventas is excited and aligned to go after these opportunities. And now I'm happy to turn the call over to Justin.

Thank you, Debbie. Let me first start with the second quarter. Our SHOP same-store portfolio delivered 8.2% revenue growth driven by accelerating occupancy throughout the quarter and strong pricing, resulting in 5.3% RevPOR growth. The key selling season is off to a good start and bolstered by a very strong June and continued strength in July. Same-store SHOP occupancy grew by 240 basis points, led by the U.S. with growth of 290. Our operating partners, Atria, Sunrise, Discovery, and Sinceri led the way in the U.S., while Le Groupe Maurice in Canada continues to stand out with occupancy over 98%. Move-ins remained strong throughout the quarter and were exceptional in June, while move-outs normalized. June's sequential average occupancy growth versus May was particularly strong with 60 basis points led by the Holiday by Atria brand, contributing 110 basis points sequentially. We outperformed the NIC industry averages as our communities located in the U.S. top 99 markets outperformed NIC occupancy growth by 100 basis points year-over-year and 30 basis points sequentially. The SHOP portfolio delivered 13.3% NOI growth driven by 16% in the U.S. When adjusting for the prior year tax refund, underlying NOI rose 15% with the U.S. up 18%. Expenses were roughly in line with expectations. A quick reminder, we raised SHOP guidance in May and still expect 270 basis points of occupancy growth, 4.5% on RevPOR, 5% on expense and a range of 12% to 16% NOI growth. 2025 marks our fourth consecutive year of double-digit NOI gains as we continue to take deliberate actions to capitalize on the multiyear opportunity in senior housing. Reminder, the primary determinant of occupancy for the full year is the timing and slope of the key selling season, which is performing well. We still have important months ahead, and we are working hard to finish strong. Moving on to senior housing strategic updates. As you know, our strategy is focused on the Right Markets, Right Assets and Right Operators. Over the past 5 years, we have deployed the full range of portfolio actions underpinned by our Ventas OI data analytics to ensure that we are well positioned to deliver outsized growth in our senior housing platform. Those actions include: over 130 conversions from triple-net to SHOP, over 260 transitions to new managers, over 110 dispositions, over 300 community refreshes, and over 190 acquisitions. Our ongoing active asset management is driving performance and positions Ventas to capture the compelling multiyear growth opportunity ahead in senior housing. I'd like to take a few minutes to talk about aspects of the operator portion of the strategy. Adding new operators is essential to obtaining scale and density in markets as well as expanding our relationship-driven investment opportunity set. I'm really excited about the progress we have made growing our SHOP operator footprint, reaching 36 operators as of July from just 10 five years ago. We selectively grow with top-performing operators with strong local market clusters, specialized product expertise and deep leadership talent embedded close to community operations. Our scalable advantaged platform enables us to match each community with the most effective operator, unlocking performance and growth across diverse markets. In a highly fragmented U.S. senior housing landscape, supporting and expanding a high-performing operator pool is a key driver of our growth strategy. Importantly, these new relationships are also a major source of proprietary deal flow as the majority of our transactions are relationship-driven rather than broadly marketed, creating a compounding growth effect across the enterprise. We work with operators in a number of ways, including driving price volume optimization and community transitions. For example, we are hitting our stride managing occupancy and rate growth, driving RevPOR and move-in volume. The Ventas OI team is actively driving price and volume optimization by collaborating closely with our operating partners to ensure that our senior housing communities are dynamically priced. This strategy leverages data-driven insights to strike the optimal balance between converting tours into move-ins, and achieving competitive rate positioning in each market by continuously analyzing market demand, lead conversion trends and price elasticity, we're aligning incentives and decision-making to maximize both occupancy and rate performance as evidenced by our strong move-in and RevPOR results, both among the best in the past several years. Another key area of focus is transitioning management. We remain committed to ensuring each community is aligned with the right operating partner, and we'll continue to actively pursue transitions where we see an opportunity to enhance performance and achieve the optimal operator fit. For example, I'll give a quick update on our 26 independent living transition communities that we moved to 3 different operators by the end of 2023. Those communities are 84% occupied and are achieving an industry-leading 890 basis points of occupancy growth year-to-date versus prior year. They have now caught up with our Holiday by Atria portfolio, which is also 84% occupied in the U.S., both with significant runway ahead for continued growth. Moving on to portfolio positioning. The strategy of converting our lower occupied triple-net communities to SHOP bolsters the long-term growth potential in the SHOP portfolio. By design, two-thirds of the portfolio is in the low 80% occupancy with significant upside opportunity. Balancing this approach, our investments in senior housing are focused largely on high-performing market-leading communities with upside around 90%. Recall the next big conversion tranche is the 45 former Brookdale triple-net communities. This portfolio is only 78% occupied, offering a long runway of growth ahead. The 5 transition operators that will run these communities moving forward are highly engaged and excited about creating value in this portfolio through aligned management agreements. We have plans to refresh the portfolio with NOI generating CapEx, enhancing the competitive positioning of the communities. The portfolio is located in markets with strong tailwinds, and we continue to expect to double the NOI over time. Wrapping up SHOP. I continue to be energized by the strong performance and remain focused on the organic growth opportunity in the portfolio, supported by our very capable team and our excellent operators. Turning to investments. We've continued to execute on our strategy of acquiring attractive senior housing communities that are highly accretive relative to our cost of capital, improve our overall portfolio quality and increase the company's growth rate. I'm pleased to once again raise guidance for the year to $2 billion as our pipeline is increasing at a remarkable rate. Building on our strong first quarter, we've now closed $1.1 billion in senior housing investments year-to-date and $3 billion since the beginning of last year. We also look to expand on our momentum as our pipeline continues to be very active. Year-to-date, we have reviewed 41% more investment opportunities by dollar volume than during the same period last year. While the market has become more competitive in recent months, Ventas is a partner of choice, enabling us to source meaningful and attractive transaction volume meeting our targeted criteria. The senior housing investments closed year-to-date have an expected year 1 cash yield of 7.2% and low to mid-teens unlevered IRRs in line with our historical senior housing investment activity over the past 18 months. These assets complement and improve our broader portfolio; generally offer a full continuum of care and services, are newer vintage and located in fast-growing markets with projected demand well above the national average. In summary, I'm happy to see solid execution across parts 1 and 2 of our strategy. First, driving profitable organic growth by enhancing operating performance, optimizing pricing and occupancy, and leveraging our data-driven Ventas OI platform in close collaboration with our high-performing operators; and second, capturing value through external growth with a targeted focus on high-quality senior housing acquisitions. I truly believe the best is yet to come. As we face unprecedented favorable supply-demand fundamentals and we continue to improve upon our SHOP performance and leverage our advantaged position to grow externally. Now I'll hand the call to Bob.

Thank you, Justin. I'll provide an update on our financial results, balance sheet and capital markets activities in the second quarter and close with our improved outlook for the year. Ventas delivered strong operating performance in the second quarter and posted normalized FFO of $0.87 per share, representing approximately 9% year-over-year growth. Our total company same-store cash NOI grew nearly 7%, led by SHOP increasing over 13%. Our outpatient medical and research business, or OMAR, reported same-store cash NOI growth of 1.7% year-over-year, led by outpatient medical, which grew NOI by 2.2%. Outpatient medical increased same-store occupancy by 20 basis points sequentially and 30 basis points year-over-year to 90.1%. Leasing was robust with 1 million square feet of new and renewal deals executed in the second quarter and tenant retention is strong at 86%. Same-store cash NOI in our research business, which represents 8% of our NOI, declined less than 1% year-over-year or approximately $100,000, driven by lower rents on certain innovation flex space tenants, as previously discussed. Our balance sheet strengthened further in the second quarter. Ventas reported second quarter net debt-to-EBITDA of 5.6x, which represents a 40-basis-point improvement since the start of the year and a 10-basis-point sequential improvement from the first quarter. We expect our leverage to continue to trend lower through a combination of organic growth and equity-funded investments in senior housing. Speaking of, we have effectively funded the $2 billion of investments now in our guidance with $1.8 billion of equity already raised and $160 million in completed dispositions. We're also holding a record level of liquidity at $4.7 billion as of June 30, bolstered by our revolving credit facility upsize completed in April and over $700 million of available equity proceeds from unsettled equity forward agreements. This liquidity also includes $500 million of senior notes proactively raised in May at 5.1%, thereby early refinancing our remaining 2025 maturities principally due at the end of August at a 2.7% rate. I'll close with our updated guidance. As a reminder, we increased our 2025 full year guidance in late May, led by our encouraging SHOP performance as we entered the key selling season in the second quarter, and we're pleased to once again raise our guidance. We now expect income attributable to common stockholders of $0.47 to $0.52 per fully diluted share. We have increased the midpoint of our full year normalized FFO guidance by $0.03 to $3.44 per share from the previous midpoint of $3.41, which represents approximately 8% year-over-year FFO growth. Our improved full year midpoint is driven by a $0.02 increase from lower net interest expense and a $0.01 improvement from increased senior housing investments. FX, G&A and other items net out to complete the bridge. We've raised and narrowed our total company same-store cash NOI to now approximate 7% year-over-year at the midpoint, being reaffirmed midpoints for SHOP and OMAR and an improved midpoint for triple-net. A final note on the balance of the year, FFO phasing. Dilutive dispositions of non-strategic post-acute assets in the second quarter are approximately $0.01 FFO headwind per quarter sequentially versus the second. For additional 2025 guidance assumptions, please see our second quarter supplemental and earnings presentation deck posted to our website. To close, we delivered differentiated growth in the first half of 2025, led by the multiyear secular demand growth in our senior housing business. The entire Ventas team remains focused and committed to delivering superior performance for our shareholders. With that, I'll turn the call back to the operator.

Justin, I want to focus on the SHOP occupancy gains that you reported in the second quarter. I know the year-over-year trend improved throughout the quarter, but can you provide some additional color? Like what was the sequential occupancy gain in 2Q '25, maybe versus 2Q '24? Or maybe what is the year-over-year occupancy gain that you're at for like the month of July because I believe that the documents continue to highlight that the strength of the occupancy you saw in 2Q continued into July.

Sure. So let me just step back, and I'll address the question as close as I can. So first of all, we've had really strong move-in activity all year. It was, as Debbie mentioned, particularly strong in June, having one of the best months that we've had in a number of years. We had 60 basis points of sequential occupancy growth in June versus May. July is off to a good start, and we would expect it to be sequentially as good or better in the month of July. So good continued momentum, strong tours, strong movement activity, and the key selling season is off to a good start.

Great. And then just touching back on your comments on the transaction market. I know the competitive landscape is getting a little bit more, I guess, is ratcheting up a little bit. So what are you seeing? Is your hit rate going lower because you're tracking more deals now just given that there's more competition and/or do you need to get a little bit more aggressive on your pricing for some of these deals? I mean, how has that trended?

Yes. So we've been really leaning in more. If you look at the transaction activity we've had, the $3 billion that is closed, most of that is closed in the fourth quarter of last year and the first half of this year. And so if anything, the momentum has been picking up, and we've been on this continuous kind of process of being able to update our investment volume guidance as a result. The thing driving really the pipeline is there's just more deal activity in the market, period. And we are leaning in to the types of transactions that we want to pursue. And those are the high-performing communities with upside, communities that are well positioned in markets with strong tailwinds. We've been buying newer communities with well-established track records with operators that are delivering excellent performance. And when you're buying communities that have strong performance, the operators have tremendous clout in the process. And one of our greatest strengths is the relationships we have with our operators. And so that's been playing well for us as well. So I would say there's momentum in the investment activity, and there's also more available in the market. So we're using the strength of our platform to maximize that opportunity.

Great. My first question is on the record move-ins you've been discussing. Can you tie that into some of your company initiatives to improve those move-ins, maybe faster turnover?

Sure. The strength of the OI platform is driven by three key elements. First, we have exceptional data analytics focused on all operating metrics, with a particular emphasis on top-line performance. Our team is dedicated to executing OI initiatives with a strong focus on top-line results, especially in the area of independent living. Our occupancy rates in independent living are currently performing well, with positive trends. A notable example is our collaboration with Holiday, an independent living platform led by Atria. My team has partnered closely with theirs to enhance sales. Recently, we have implemented several joint initiatives, and Lindsay along with their team has been fully engaged in the process. Our hands-on approach has been vital for execution, and Atria has been an outstanding partner in driving significant growth. For instance, their portfolio saw a sequential growth of 110 basis points in June compared to May, which is an excellent result. We consistently collaborate with all of our operators, providing updates on sales execution on a nearly daily or weekly basis, ensuring that we remain aligned in real-time.

Great. And then my second question is on the Big Beautiful Bill. Can you talk about your latest thoughts on the potential impact across maybe the broader potential changes across different health care asset classes? And any changes in your thoughts in terms of opportunities or any of, again, your exposure?

Jeff, this is Debbie. In terms of the bill's impact, I think the most important thing to note is that many of the aspects of the bill are on a very delayed implementation basis. And so in the immediate term, we're expecting kind of minimal impact. And I'm speaking broadly now not about Ventas, but just from a policy standpoint, broadly, most of the changes will take effect over a long period. Some of them don't even kick in until fiscal year 2028. So that's important. There may be changes or improvements, frankly, before some of the provisions even kick in. As I mentioned in my remarks, our biggest business outside of senior housing is outpatient medical. The biggest drivers of outpatient medical's continued success is really the demand from the over 65 population and then this trend toward outpatient, which actually could be furthered by some of the provisions in the bill. So that's how we think about the impact there. And really, that's all I have to say about it. I mean, it's obviously going to have effects. They'll be extended over time. Most of the key providers are very expert at being resilient and adaptable to changes. That's what they live with year in and year out, and those are the people we generally do business with. So that's how I would conclude.

Give Justin a break, perhaps. Thinking about the outpatient medical portfolio, just following on the following question in your opening remarks, Debbie. It looks like the portfolio on a total basis has been hovering very steadily in the 89%, 90% threshold. What was the historical high for the outpatient medical occupancy-wise?

The historical high is probably 1% or 2% higher, around 93% or 94%. We have buildings with many tenants, which creates a structural occupancy. I believe the maximum occupancy achievable in our portfolio is 95%. Currently, we are 1% or 2% below that, and I see this as an opportunity to grow from where we are today to reaching 95%, which will drive long-term growth.

That's helpful, Pete. And then just a follow-on to that. What are your representative escalators on that portfolio today if you're signing up a new tenant or re-leasing space, what sort of annual escalators can you achieve?

Almost 3%. For the quarter, it was 3% in the annual escalators. I think the portfolio is just slightly below that, around 2.8% to 2.9%, but we're close and we're working to increase it further.

And of course, the higher occupancy, the charges get passed through. So the expenses are covered by the tenants. So that's a pure bottom-line impact, which is good. And Pete is going to keep working on that. We talked in the presentation about the sequential and year-over-year occupancy growth, which we are hoping to continue.

Yes. I mean one other fact you didn't ask about, but also WALT, 8 years this quarter, it's fantastic, really happy.

My first one is sort of on the makeup of your more stabilized portfolio and the RevPOR and incremental margins, let's say, above 90% occupancy more of an exercise in medium- to long-term growth for this portfolio. But how could we think about that and back into what's a better run rate once this portfolio fully leases up?

And that SHOP, right?

Yes, correct. That's SHOP.

We have an exciting opportunity for margin expansion in senior housing due to the operating leverage in the business. We apply certain guidelines and test them in our portfolio, and they consistently prove accurate. As our occupancy has increased, we've gained a clearer picture of this effect. Specifically, with higher occupancy and the fixed costs in place, we begin to see an improvement in our margins. When occupancy reaches above 90% up to 100%, we can expect an incremental margin of about 70%. In the 80% to 90% range, the margin is around 50%. While there can be one-off events that affect these figures occasionally, this rule of thumb generally holds true for tracking performance month-to-month and quarter-to-quarter. Given that two-thirds of our portfolio is currently operating at low 80% occupancy, we still have significant potential for growth as we move toward the optimal level of occupancy, where the operating leverage becomes most beneficial. This is why we believe the best is yet to come, supported by strong supply and demand fundamentals, and our portfolio is well-positioned for future growth.

And the other part of that was just the RevPOR component. I don't know if you could speak to the difference in that and your lower occupied assets, if there's a delta.

Yes, there is. So a couple of ways to look at that. One way we like to talk about is RevPOR growth when you're over 90% is 2x what it is when you're under 90% occupied. To bring some more specifics to that, if you're in that 90% to 95% band, you're around 6% or 7%. If you're 75% to 90%, there's a range of 3% to 5% RevPOR growth. If you're below 75% occupied, you're around 1%. So as your occupancy goes up and your scarcity value increases, the RevPOR moves with that.

Okay. That was very helpful. And my second question is just on the TAM of the space. You announced the incremental $500 million. Obviously, we could look at all of senior housing, but you made it clear there's a certain quality of product that you're interested in. So I'm curious if you've done the work and can speak to the size of the addressable market, left out there today that is owned by the REITs that you'd be interested in transacting on.

Yes, we've examined the situation from various angles, and it generally boils down to this. The REITs hold about 15% of that market. There’s likely another 40% to 50% of the market that meets our general criteria, meaning it's in the right type of market and the appropriate size of asset. Therefore, there's still a significant opportunity available. Typically, we see around $30 billion a year in transactions within senior housing. This means there is still ample opportunity for us to secure our fair share each year, and that's what we have been focusing on.

Can you talk about the RevPOR growth acceleration? Was that more of a mix shift? Or is it higher move-ins? What's going on there?

Yes, certainly. As I mentioned earlier, we are concentrating on optimizing prices and volumes, and the OI team is actively collaborating with the operators on this. It's common knowledge that senior housing lacks good price transparency, making dynamic pricing more challenging compared to multifamily or apartment sectors. However, we have leveraged our data analytics to pinpoint the right price strategies to either increase rates or boost occupancy. This is an ongoing initiative that combines our data insights with operator feedback. We've been refining this process for a few years, and execution has greatly improved. Regarding the mix, it can affect RevPOR, and it usually does, but the recent figures show it hasn't significantly impacted it; the mix aligns closely with our expectations. The main drivers of the current trends are the increase in move-in rents and the robust growth in our internal rent escalations. We remain dedicated to tackling both areas as we aim for growth in occupancy and rates, and recently, we've successfully aligned both of these efforts.

This is Georgi on from Vikram. Just curious, how did the change in the same-store pool impact your same-store growth during the quarter? And then the 21 assets change in the pool, were they part of the group that experienced occupancy losses in March?

This is Justin. First, 80% of our SHOP NOI is part of the same-store pool, which reflects the performance of our portfolio. Additionally, there was no correlation between the communities we transitioned and the move-outs we faced earlier this year in terms of NOI. Regarding the transition, we moved communities to an operator. If you attended NAREIT, you may have heard us mention Discovery Senior Living, which currently manages 45 communities for us and will have about 60 following the recent transition. They have 30 years of experience and are a large operator managing multiple local brands. I appreciate that their talent pool in the field is strong, if not the best in the industry. They operate communities for us in at least five of their different brands, and we are eager to add more communities under their management because they have consistently delivered strong results for us. This aligns with our strategy of managing 5% to 10% of our portfolio through management transitions, ensuring we have the right operators in the right communities. We saw an opportunity and seized it, and we are looking forward to the outcomes with Discovery.

That's helpful. And just another quick one for me. How are things shaping up for the Brookdale transition? And what should we assume for the fall of NOI in the fourth quarter within the triple-net segment before we get the $16 million rent bump in 1Q, '26?

I'll take the first part, and then Bob can help me with the second part. So on the first part, the Brookdale transition, this is the conversion of communities from the triple-net to the SHOP structure, one of our favorite strategies because it takes assets we already own that have lower occupancy, puts it in SHOP. These are 78% occupied. They happen to be in really strong markets and they have opportunity through refresh CapEx to be better positioned, and they're good fits for 5 operators that we selected to transition. So the NOI growth opportunity that we've been talking about is really more of a long-term comment, which is 2x the run rate that they had in late last year. And so we think we'll double the NOI. It was around $50 million at the time, we think it goes to $100 million. But to answer the specific question, it's going really well. So our operators are already fully engaged with all of the communities. We'll start having transitions happen in the upcoming months, I mean, by the end of the year. Everything, if not almost everything, everything or close to everything, I should say, will have been transitioned. And Brookdale has been good to work with and all the new operators are very excited about working with the new communities. So I'd say, so far, so good.

I would just add that in terms of modeling for the fourth quarter, we will begin to incorporate the SHOP assets from the conversion on the 45, but the financial impact will not be realized until 2026. The vast majority for the year is triple-net, and that's how it is modeled.

You kind of talked about the operating leverage in the business and the incremental margin opportunity as occupancy continues to grow. Do you have a sense of how much of the margin expansion in the SHOP portfolio is a result of occupancy gains versus execution and the opportunity that you guys have with the Ventas OI platform?

I mean, it's a really good question. And I have to say it remains to be seen because we're entering a new era where demand is going to be the best we've ever experienced and the supply/demand dynamic will also be the best we've ever experienced. So we know a couple of things about the business. It's playing out very clearly in our portfolio. We know that if you have higher occupancy, you have better pricing opportunity. And so as we have more communities move into the higher occupancy band, we'll expect the RevPOR component to play a bigger role moving forward. We also know that given the supply/demand and the OI platform that we have and our operators working together, that we have tremendous occupancy opportunity as well. And so our platform is really designed around driving growth in both occupancy and rate. We think there's opportunity in both places. Our portfolio is positioned for that. So I'll have to ask you to wait and see how it plays out, and we'll be driving both metrics. And hopefully, the margin expansion rule of thumb gets even better over time.

Great. And just kind of going back to occupancy. Last year, the occupancy build from 2Q to 3Q was, I think, 140 basis points. Just given the strength that you've seen in July, do you think that you'll be on track to kind of surpass that? And just kind of what are the puts and takes from where you sit today to kind of hit the low end of the 12% versus the 16% on SHOP?

Okay. So on the occupancy, the best I can tell you is that is the July number I shared earlier, which is we expect to be as good or better than the June sequential growth versus May, which is 60 bps. And we're in the kind of really the key part of the key selling season, and we have a lot to play out still. But we're encouraged by the very strong movements we had throughout the year and exceptionally strong movements we've had as of late. And then what was the second part of the question?

The high end of the range?

Yes. So the high end of the range, I'm not going to really comment on the low end of the range, but the high end of the range is really driven by two things. One is revenue growth. And that would be clearly obviously occupancy rate moving together and having an exceptionally strong key selling season and then continued favorability in labor costs.

Sorry to belabor the point, but just on the SHOP same-store occupancy, could you provide the year-over-year change for the month of June, the average or period end, just to give us a sense of higher tracking versus the full year guidance?

Juan, I would like to point out that we were at 240 in the second year-over-year comparison. We're noticing progress as we enter the third quarter, and we've kept our guidance at 270.

And we were 290 in the first.

Again, congrats on the quarter. Debbie and team, a lot of good stuff happening with kind of the acceleration in SHOP. You guys are talking about increased acquisition outlook. Just kind of curious why that does not translate to also the high end of guidance being increased. I think in 2 quarters in a row now, you've raised the low end, but you haven't really done anything on the high end. Are there things in the back half of '25 that are kind of causing some offsets? Or is this some of the traditional conservatism that we sometimes see from management? Just curious your thoughts on that.

Thank you for the question. We are pleased with the results and the outlook. We raised our guidance in May, and we've raised it again now, looking at an 8% increase at the midpoint. If achieved, this would represent year-over-year FFO growth per share, which is impressive and indicates acceleration into 2024. Bob mentioned some aspects related to the modeling impact, and he can provide further details on that.

I'll break it down into the first half and the second half. FFO was $1.71 in the first half. The midpoint projection is $1.73, leading to a full year total of $3.44. If you consider this on a sequential basis, the growth is primarily driven by SHOP growth, although it's somewhat offset by refinancing at higher rates and the sale of post-acute assets, which will be a challenge for the remainder of the year. This gives you the framework for the midpoint projection. Certainly, there is potential for upside primarily from SHOP, as Justin mentioned the factors contributing to that growth.

Yes. Canada definitely has occupancy and more opportunities for occupancy growth. A good example is Le Groupe Maurice, which has an occupancy rate of over 98%, with several communities operating at full capacity. The next step for other operators is to move into that space and increase occupancy. One of the key growth drivers has been our assisted living presence in Canada with Sunrise, which has a higher revenue per occupied room. As this continues to fill, there are growth opportunities in that area. Additionally, pricing in Canada has shown improvement. We are always focused on enhancing revenue across all segments, and pricing presents an emerging opportunity in Canada.

Maybe on the outpatient side. So with CMS' proposal to do away with the inpatient-only procedure list, how impactful could this realistically be in terms of health systems, expanding their outpatient footprint, just given that's already been such a persistent trend for some time now.

Yes. Thanks for the question. It has been a push for actually quite a while, both from the private payers as well as the government payers. But I would say it's stepped up a level or two here. And you can't read Modern Healthcare on any day without an article about a health system expanding their ambulatory portfolio or their integrated care network. I mean, it's clear government payers and private payers want to push procedures into lower-cost settings.

And that's good for our business.

Got it. That makes sense. And maybe one on the post-acute portfolio. There's a nice uptick in coverage in occupancy during the quarter. Should we expect continued improvement there? And where do you ultimately expect that portfolio to stabilize?

Yes. As we expected, and this is only really through the first quarter reported as we typically do for triple-net, performance is improving. That's good. And we would expect, as we add the assets that we acquired last year, and occupancies increase, that performance could continue to tick up.

Just two quick ones. Last quarter, you talked about maybe some cap rate compression on the acquisition side. Just I think acquisitions come up already, but I'd love to hear a little bit more commentary on sort of cap rate trends and IRR trends as this pipeline expands.

So on that front, I would say in terms of the unlevered IRRs, we're still driving towards low to mid-teens unlevered IRRs?

Yes. And that's the key metric. This is Justin. So the unlevered IRRs are very consistent over the last 18 months as we've embarked on this external growth run we've been on. There's obviously input into that. One of that is the year 1 yield. Another is just the growth profile of the asset. When we calculate IRRs, I think everyone knows this, we use constant cap rates on entry and exit so that the IRRs truly reflect our expectations for just the overall delivery of returns. From an operational and organic standpoint, so last year, we're kind of running in the mid-7s. We're drifting a little lower, lower 7s year 1 yields this year. It is a more competitive environment, but the profile of what we're buying is also different as well. And we are leaning in. So we're getting a newer asset. We're getting even stronger markets. So I would say all that's working together to deliver what is our targeted unlevered IRRs of low to mid-teens.

Helpful. And then just a quick one on operator transitions. As you sort of take a step back, I mean, what do you think you guys need to do to just unlock more of these transitions and work with the operators and so forth because it does look like a pretty big value creation. So I'm wondering what you think you need to unlock more, or is this sort of all the fruit has been picked?

Yes. As a major owner of senior housing, this is clearly part of our strategy. We are confident in our market presence and the quality of our assets. We continue to invest in our communities and seek the right operating partners. This is an ongoing effort, and we may always identify opportunities to shift certain assets to operators who can drive greater impact. Discovery has demonstrated their effectiveness across various brands and regions, and we have also transitioned other operators selectively. Finding the right fit is crucial, and we are committed to maximizing performance through our operator relationships. Our priority is to collaborate with our operators to achieve the best possible outcomes, and if a suitable partnership isn't found, we will consider alternative options. We have successfully maintained strong relationships with our partners.

This is Elmer Chang on with Nick. I was just wondering, how should we think about the timing of incremental announced transactions in the second half of the year and pricing relative to the SHOP assets you acquired quarter-to-date, given comments about rising buyer competition and the opportunity for significant growth potential within the growing pipeline?

I'll do a modeling answer. My colleagues can join from there. But we have $1.1 billion in the bank, $2 billion is the guide. We raised by $0.01, the guidance on the back of investments, and that's really both volume and timing, i.e., earlier timing and higher volume. Obviously, there's only 6 months left to go. So the contribution of the increment is smaller. And the returns are very similar to that which we've done. That's how I have model it.

The incremental $500 million would typically be more back-end weighted.

More back-end weighted, yes. And then in terms of character, it's very consistent with what we've been doing. So we're happy about that.

Okay. And then second question is for the small percentage of pre-revenue biotech tenants within your resource portfolio. What's the sense that you get from those tenants in terms of whether the capital raising environment has improved or worsened in the last couple of quarters? And do you expect any downside risk, maybe that's not factored to guidance that could arise in the second half?

Yes. I mean, any downside risk that we would be aware of, it would already be factored into guidance. And then in terms of the fundraising environment, there are some glimmers, I would say, but there's a way to go to overcome kind of the macro factors for that sliver of tenancy. We are seeing some tenants raised venture capital money. We've seen different royalty-type deals, but those are generally for more mature companies. So there's a way to go, but a few glimmers.

Just a quick one, Justin, I think you mentioned that IL occupancy trends have been better than the averages. So how does that compare when you're talking about RevPOR growth when you're comparing IL versus AL. Is that dynamic kind of similar as well?

Yes, both price and volume in independent living have been positive. It's important to note that independent living does not include a care component, unlike assisted living, which has a frictional aspect. When a resident with higher needs moves out, they tend to pay more, and this affects the replacement process due to the releasing spread impact. However, independent living simply involves replacing rents since it doesn't provide care. We have seen good move-in rent trends in independent living, and while we offer a range of products that vary in price sensitivity, overall pricing has been strong. The volume side has shown even better results, which is our primary focus. Most of our U.S. independent living portfolio, which has potential for growth, is about 84% occupied. We are concentrating our efforts there to increase occupancy and reach a point where we can benefit from the operational leverage mentioned earlier.

Yes. So BJ, any more questions?

No.

Okay. Well, on behalf of all of us at Ventas, I want to thank you for your interest in the company. We hope you and yours have a safe and happy rest of the summer, and we look forward to seeing you in the fall.