Ventas, Inc. (NYSE:VTR) Q4 2023 Earnings Call Transcript
Ventas, Inc. (NYSE:VTR) Q4 2023 Earnings Call Transcript February 15, 2024
Ventas, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to the Ventas Fourth Quarter 2023 Earnings Call. I would now like to welcome BJ Grant, Senior Vice President of Investor Relations, to begin the call. BJ, over to you.
Bill Grant: 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.
Debra Cafaro: 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 health care REIT and broader REIT indices and achieved upper quartile performance for the last 3 years among health care 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.
Justin Hutchens: 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 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 profile, 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?
Robert Probst: Thank you, Justin. I'm going to share some highlights on our '23 performance, touch on our balance sheet and close with our 2024 outlook. I'll start by saying we are pleased with all we accomplished in 2023. We finished the year strong, with reported normalized FFO per share of $0.76 in the fourth quarter, a 7% increase versus the prior year, adjusting for the promote received in Q4 of '22. For the fiscal year '23, we delivered normalized FFO of $2.99 per share or over 5% growth year-over-year when adjusting the prior year for unusual items. The multiyear senior housing growth trajectory was in full display in '23, with SHOP total NOI increasing year-over-year by approximately $100 million. We also reported total company same-store cash NOI growth of over 8% year-over-year, which is one of the fastest organic growth rates in our company's history.
Our 2023 normalized FFO of $2.99 per share was at the high end of our previous $2.96 to $2.99 guidance range, and included $0.01 per share cybersecurity revenue impact in the fourth quarter in our Ardent OpCo investment that was not contemplated in prior guidance. Pete Bulgarelli and our outpatient medical and research team delivered another year of continuous compounding growth, with same-store cash NOI increasing nearly 3% in 2023, at the high end of our guidance range. Continued strong retention and leasing activity in outpatient medical led the way. A key driver of that result is the remarkable record of tenant satisfaction in Ventas' Lillibridge property management business, which notched its fourth consecutive year of top quartile tenant satisfaction.
In 2023, Lillibridge reached the 97th percentile for overall tenant satisfaction, placing it among the top 5 property managers. I'd also like to share a few comments on our balance sheet. Throughout 2023, we used our scale and access to diverse sources of capital, raised over $4 million of attractively-priced capital across multiple markets and geographies. This capital raising in 2023 in part refunded 2024 maturing debt at attractive rates. As a result, we had a robust year-end 2023 liquidity position of $3.2 billion and have relatively modest 2024 maturing debt of $800 million net of cash on hand. The attractive NOI and EBITDA growth in our SHOP business also improved Ventas' net debt-to-EBITDA ratio to 6.9x in the fourth quarter, a trend we expect to continue in 2024 and beyond led by the multiyear SHOP NOI growth opportunity.
Let's conclude with our full year 2024 outlook. Because our asset classes are benefiting from powerful demographic demand, 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. For 2024, we expect net income attributable to common stockholders of $0.06 per share at the midpoint. Our 2024 normalized FFO guidance range is $3.07 to $3.18 or $3.13 per share at the midpoint, which represents 5% year-over-year growth. The $0.14 FFO per share increase year-over-year can be bridged by 3 items. We expect a $0.28 per share contribution from outstanding year-over-year property growth led again by SHOP, which is expected to grow NOI by over $100 million for the second consecutive year.
This property growth is partially offset by an $0.11 per share increase in higher interest expense and the $0.03 impact of 2023 capital recycling. In terms of same-store, we expect our total company same-store cash NOI to grow between 5% and 7.5% in 2024 led by SHOP same-store cash NOI growth of 10% to 15%. Our guidance also includes new senior housing investments of 350 million, which Justin mentioned in his remarks. The low and high end of our FFO guidance range are largely described by our property NOI expectations and potential changes in interest rates. A final note on phasing. We expect same-store cash NOI and normalized FFO year-over-year growth to ramp through the year, driven by higher interest expense in the first half of '24 versus '23, and the occupancy acceleration in the key selling season in SHOP, resulting in an exit run rate that should enable attractive SHOP growth '25 and beyond.
A more fulsome discussion of our '24 guidance assumptions can be found in the earnings and outlook presentation posted to our website. To close, the entire Ventas team is ready to win together with all of our stakeholders. And that concludes our prepared remarks. [Operator Instructions]. With that, I'll turn the call back to the operator.
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