Ventas Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2021

There are 16 speakers on the call.

Operator

I would now like to hand the conference over to your speaker today, Sarah Whitford, Director of Investor Relations. Please go ahead.

Speaker 1

Thanks, Tammy. Good morning, and welcome to Ventas Second Quarter Financial Results Conference Call. Earlier this morning, we issued our Q2 earnings release, supplemental and investor presentation. Materials are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks made today may include forward looking statements, including certain expectations related to COVID-nineteen and other matters.

Speaker 1

Forward looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those 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. For a reconciliation of these measures to the most closely comparable GAAP measures, Please refer to our supplemental posted on the Investor Relations section of our website. This earnings call does not constitute an offer to buy or sell or the solicitation of offered to buy, vote or approval.

Speaker 1

In connection with the proposed acquisition of New Senior, Ventas files with the SEC a registration statement on Form that includes a preliminary prospectus for the Ventas common stock that will be issued in the proposed acquisition and that also constitutes a preliminary proxy statement for a special meeting of New Senior Stockholders to approve the proposed acquisition. The proxy statement prospectus and other documents filed by Ventas Antony, Sr. With the SEC may be obtained free of charge at Ventas' Investor Relations SEC carefully, because they contain or will contain important information about the proposed transaction, including information about Ventas and New Senior and their respective directors, executive officers and other employees who may

Speaker 2

be deemed to be participants in

Speaker 1

the solicitation of proxies in respect of the proposed acquisition and a description of their direct and indirect interest by security holdings or otherwise.

Speaker 2

I will now turn the call over to Deborah Acuffaro, Ventas' Chairman and CEO. Sarah, well done, your first public company merger. Congratulations. Well, good morning, everyone. I want to welcome our shareholders and other participants to the Ventas Second Quarter 2021 Earnings Call.

Speaker 2

Ventas delivered an outstanding Q2, and we have strong momentum across the board in health and safety, capital deployment and access, Realization of the benefits of prior successful investments, financial strength and most importantly in portfolio growth led by our high Quality shop business with significant contributions from office and stability in our triple net lease business. We see a clear path to growth in our demographically driven diversified enterprise through capturing the embedded triple net businesses and delivery and stabilization of ongoing developments, primarily in the life sciences, research and innovation and Canadian Senior Housing Areas. Our experienced team is committed to winning the recovery for all of our stakeholders. Let me first turn to our 2nd quarter results. We posted $0.73 of normalized FFO per share, which is above the high end of our previously provided guidance.

Speaker 2

I'm delighted that our same store property portfolio grew 3.6 Our outperformance was driven by SHOP, which produced 111,000,000 in quarterly NOI. A recovery of $50,000,000 of annualized NOI, representing industry leading growth in same store cash NOI and occupancy. July continued these positive shop trends for the 5th consecutive month of occupancy growth. Importantly, by the end of July, leads reached their highest level since the pandemic began. Justin will unpack these Trends more fully in his remarks.

Speaker 2

As a result, we've never been more confident that the senior living business is supported by powerful demand that is growing and resilient, while supply remains constrained. If the last 18 months have taught us anything, It is that as soon as our communities and care providers are ready to welcome residents and their families, we experience a surge of leads and move ins almost immediately, which then builds sustainably and rapidly. That said, Given the macro uncertainty in the COVID-nineteen environment, particularly the national and regional rise in cases and the measures that have been taken or may be taken to contain COVID spread. The path to full recovery may not be a straight line, but we believe it will point inexorably upward. In our Q3 outlook, we have assumed the increase in COVID cases throughout the U.

Speaker 2

S. May have some impact on the velocity of leasing and expenses. Rounding out our portfolio performance. Office grew nicely in the quarter and our triple net portfolio continued its stability. Key's efforts to increase leasing, Keep high retention rates, improve customer relationships and grow NOI are showing results.

Speaker 2

Our on campus and affiliated MOB strategy with leading health systems continues to shine. Turning to Health Systems, our investment in Ardent also continues to deliver benefits. In addition to strong Cash flow coverage on our $1,300,000,000 leasehold position. Our 10% equity stake in the Ardent Enterprise is benefiting from Ardent results and our prior purchase of $200,000,000 of Ardent Senior Notes recently paid off with a 15,000,000 And our $10 prepayment fee, providing us with a 13% unlevered return on our investment in the Ardent Notes. When all is said and done, I believe and hope that our ardent investment in real estate, equity and debt will prove to be one of for our best risk adjusted return investments.

Speaker 2

Turning to other capital allocation priorities, We certainly are on our front foot regarding external investments. In total, in 2021, We have over $3,500,000,000 in investments completed, pending or underway with another $1,000,000,000 Life Science, research and innovation pipeline with our exclusive development partner, Westford, right behind that. Our team is also busy evaluating attractive deals across our asset classes. This year to date, we have already reviewed which is focused on growing reliable cash flow and favorable risk adjusted return, taking into account factors such as cost per square footer Unit, downside protection and ultimate potential for cash flow growth and asset appreciation. Our $2,300,000,000 pending investment in New Senior announced in the Q2 is a great example.

Speaker 2

In this deal, we are acquiring over 100 high quality independent living communities that are well invested and located in advantaged markets at compelling pricing. The per unit cost is estimated to be 20% to 30% below replacement cost. The 5% cash going in cap rate is expected to grow to a 6% cap rate on expected 2022 NOI with upside as the senior housing recovery continues. And the FFO multiple of less than 12 times Post Synergize 2022 estimated FFO are all attractive valuation metrics. I commend Susan Givens and her team for doing a tremendous job creating and realizing value for their stakeholders.

Speaker 2

We are also confident that Ventas shareholders will receive immediate and long term accretion and upside from the deal. As senior housing recovers and the large middle market demographic expands significantly in the near term. As Justin will describe, the New Senior portfolio also fits in with our senior housing strategy and framework. New Senior also performed well in Q2 and into July with occupancy increasing in its same store portfolio for 5 straight months. A unique strategic advantage of the New Senior transaction is the long standing relationship we have with the principal managers of the portfolio, Atria and Holiday, 2 leading operators who recently combined to form the 2nd largest senior housing manager.

Speaker 2

As a 1 third owner of Atria, we are Excited about the opportunities the combination creates. We will directly benefit from growth in Atria's management platform, And we welcome the combination of Atria and Holiday's talent in Atria's advanced enterprise. Congratulations to Atria for pulling together this industry changing transaction. Switching to our attractive Life Science, Research and Innovation business, it continues to provide us with value creating opportunities to invest capital. The Ventas Life Sciences portfolio now exceeds 9,000,000 square feet, is located in 3 of the top 5 cluster markets, Includes 3 ongoing development projects and is affiliated with over 16 of the nation's top research universities.

Speaker 2

We also have an incremental $1,000,000,000 in potential projects we are working on with Westberg, The first and largest new life science project in the pipeline, totaling about $500,000,000 in costs, is gaining steam. Expected to be 60% pre leased to a major public research university that ranks In the top 5% of NIH funding, this project will be located on the West Coast and should break ground in the first half of twenty twenty Westford, with its exceptional reputation among universities, is also exploring significant additional life science potential projects beyond those in our existing pipeline. North of the border, We continue to invest capital in high end large scale independent living communities with our partner, Le Group Maris in Quebec. We have always tried to create value through both internal and external growth, and we're pleased that we've returned to being a net acquirer in 2021. Our team is active and engaged beyond our announced deals and our pipeline of potential investments across asset To fund new investments, we have access to significant liquidity and a wide array of capital sources, including the asset dispositions and receipt of loan repayments, as Bob will describe in greater detail.

Speaker 2

The demand for senior housing has been robust and sustainable, proving out the value proposition our communities and care providers offer the seniors and their families. The SHOP recovery has begun and we've started capturing the significant upside embedded in our existing senior housing portfolio from both pandemic recovery and the 17.5% growth in the senior population projected over the next few years. Our diversified business model continues to provide uplift and stability to our We are investing nearly $4,000,000,000 in announced deals and development and our access to and pricing of capital are positive. In closing, the U. S.

Speaker 2

Is in the midst of an impressive economic recovery that together with demographic demand for all our asset classes will benefit our business. We embrace the opportunity to take on any near term challenges that are temporarily caused By the strength and speed of this recovery, especially because now, unlike last year and the beginning of 2021, Our employees, residents, tenants and caregivers are largely safe and healthy. As a team at Venkat, We're incredibly pleased about the results we've delivered and the strength and momentum we've demonstrated. Justin, over to you.

Speaker 3

Thank you, Debbie.

Speaker 4

We remain excited about delivering industry leading occupancy and NOI growth, And we are encouraged about recent trends in the senior housing portfolio. Although we are still in the early stages of the recovery, we are off to a very strong start. Ventas is well positioned to benefit from significant senior housing tailwinds, including the sector recovery upside, I'll review 3 topics today. First, our 2nd quarter performance second, our perspective on the senior housing operating environment and third, Our continued execution of our senior housing strategy. I'll start by covering our 2nd quarter performance.

Speaker 4

In SHOP, leading indicators continued to trend favorably and accelerated during the quarter as leads and move ins each surpassed 100% of 2019 levels, while move outs remain steady. June marked the best month for leads and move ins since the The start of the pandemic and July has sustained strong momentum. Strong sales activity has now driven 5 consecutive months of occupancy growth, inclusive of July. In the Q2, approximate spot occupancy from March 31 to June 30 increased 229 basis points, led by the U. S.

Speaker 4

With growth of 313 basis points and accelerating leads and move ins. In Canada, The trends were more muted due to a slower vaccine rollout, but approximate spot occupancy still increased during the Q2, Driven by 33 basis points of growth in June. Leading indicators remain strong in our portfolio as the digital Our operators have significantly expanded over the past year, casting a wider net at traditional High converting lead sources such as personal referrals, respites and professional referrals continue recovering. Turning to the SHOP operating results. Same store revenue in the 2nd quarter increased sequentially by $3,500,000 as strong occupancy growth Partially offset by the impact of a new resident move in incentives on pricing, specifically at Atria.

Speaker 4

I will touch on that more in a minute. Operating expenses declined sequentially by $9,200,000 or 2.3 percent, excluding the impact of HHS grants Received in the Q1, driven by a better than expected reduction of COVID-nineteen operating costs, partially offset $111,000,000 of NOI received in the Q1, which represents a sequential increase of $12,400,000 or Since the onset of COVID-nineteen and approximates a nearly $15,000,000 NOI improvement on an annualized basis. During the quarter, we saw solid contribution to sequential NOI growth from both revenue and operating expenses as average occupancy increased 110 basis points And COVID-nineteen costs declined substantially and ahead of expectations. Turning to triple net, sequential Same store cash NOI was largely stable in the 2nd quarter and 98% of all contractual triple net rent was received from the company's tenants. Our trailing 12 month cash flow coverage for senior housing, which is reported 1 quarter in arrears, is 1.2x and down versus the prior quarter, reflecting the timing associated with coverage reporting, which now includes effectively 4 full quarters of operations impacted by COVID.

Speaker 4

Moving on to the current operating environment, which is full of green shoots. Our market leading operators Continue to demonstrate their strong market position through broad occupancy gains. Sunrise led the way with 627 basis Point to spot occupancy growth in the low points in mid March to the end of July. Benefiting from a rejuvenated management team, Significantly well invested communities in a balanced approach, demonstrating very strong occupancy gains and pricing power. We would like to congratulate Sunrise's CEO, Jack Callison, for adding experience and depth to his management team with his recently announced hires.

Speaker 4

Atria, which benefits from a higher absolute occupancy of 81.8% at July end, Continues to deliver solid volume growth. Spot occupancy in July increased 5 29 basis points since the low point in mid March, resulting from the combination of their industry leading vaccine mandate and strategic price incentives to capture move ins. Atria anticipates tightening incentives moving forward as pricing power recovers and occupancy stabilizes. Supporting all of this It's Atria's industry leading vaccination rates, which are impressively high at nearly 100% of both residents and employees. Looking ahead, as Debbie mentioned, the 3rd quarter is off to a strong start with July spot occupancy increasing 74 basis points versus June and leads continuing to Strong at 105 percent of pre pandemic levels.

Speaker 4

Our operators have been prioritizing resident safety and weathering several near term headwinds, including the Delta variant and transitory wage pressures from staffing shortages in select markets. Underpinning our leading Operating partner relationships and recent sales momentum is our attractive market footprint, which positions us to benefit from the compelling supply and demand outlook in the senior housing sector. Our communities in the U. S. Are poised for improving performance over time Due to our strong presence in submarkets that outpaced the U.

Speaker 4

S. National average in aging population growth and wealth demographics, But with significantly lower exposure to new construction starts and construction as a percentage of inventory. Approximately 30% of our SHOP portfolio on a stabilized basis is located in Canada. The senior housing sector in Canada has performed Exceptionally well, with occupancy exceeding 90% every year from 2010 to 2020 and demand out pacing new supply and 8 of that last 11 years. As a foundation to these attractive fundamentals, the 75 plus Population in Canada is projected to grow more than 20% over the next 5 years, about twice the pace of the U.

Speaker 4

S. The Ventox team has been busy executing our senior housing strategy driven by experiential operating expertise and underpinned by our analytical capabilities to further strengthen our senior housing business. The underlying goal of our Strategy is simply to execute portfolio actions that ensure we are located in the right markets with the right operator With assets with strong local market positioning, a notable example of our strategy execution is the New Senior transaction. New Senior has a track record of strong operating performance, benefits from a geographically diverse footprint With favorable exposure to compelling market fundamentals and demographics, it represents a well invested high quality portfolio catering to an attractive market Segment. The acquisition also represents an excellent opportunity to further expand our relationships with 2 long standing operators in Holiday Retirement And Atrius Senior Living and with new relationships such as Hawthorne Senior Living.

Speaker 4

New Senior will strengthen our existing senior housing business from several strategic perspectives. Operationally, New Senior will enhance Ventas' cash flow generation profile. Its margin has remained resilient in the 35% plus range during the COVID-nineteen and occupancy has weathered the pandemic headwinds approximately 80 basis points better The Nick Industry Average. Most recently, New Senior has seen strong sales trends as we progress through the early stages of the senior housing recovery With powerful upside as the portfolio occupancy grew 100 basis points in June. Geographically, you've seen her as a diverse presence across 36 states, includes exposure to markets with high home values and high household income levels, ideal proximity to premium retail Our senior housing platform and maintaining balance across independent living and assisted living product types.

Speaker 4

We see new seniors independent living assets as and longer length of stay at an accessible price point with Rev 4 of approximately 2,700. The purpose built nature of these communities, which include consistent layouts with 120 units we're building, also will strengthen our ability to effectively We continue to drive value from our development pipeline through our relationship with Le Group L'Oreal, where we have opened 3 communities with more than Units over the past year. 2 of the 3 developments were delivered in the Q4 of 2020. Both projects Had substantial pre leasing activity and have already stabilized at approximately 95% occupancy. The 3rd project, 287 unit expansion of an existing Le Grub Maris community in Montreal was delivered in June of this year.

Speaker 4

Initial leasing activity has been strong with more than half of the new units occupied as of the end of July. Our plans across our broader SHOP portfolio include significant deployment of refresh and redevelopment capital, strengthening our market leading position where we In summary, our recovery is off to a strong start. We are well positioned in markets that benefit from outsized aging and wealth demographics With Russ explained the use of our senior housing strategy to help ensure success in the near and long term. I will now hand over to Pete.

Speaker 5

Thanks, Justin. I'll cover the office and healthcare triple net segments. Together, these segments represent over 50% of Ventas' NOI. They continue to produce positive and reliable results. Within these segments, we're seeing a changing business climate.

Speaker 5

Health system and university business confidence is rising, leading to longer term commitments and strategic growth investments. During the pandemic, we kept our business confidence. We remain focused on growth and we continue to invest In incremental leasing resources and in creating a leasing center of excellence led by an industry veteran. She is now 2 years in. We built a technical engineering team to assist our local property teams in running our buildings more efficiently, also led by an industry veteran.

Speaker 5

He is now 18 months in. We doubled our capital invested in our MOBs to ensure their competitiveness, including major redevelopments in Phoenix, Atlanta and Austin, Texas. We expanded our tenant satisfaction programs under the leadership of our new property management leader. He is also 18 months in. Because of this focus, I'm proud to say that our MOBs now rank in the top quartile of tenant overall satisfaction as surveyed by Kingsley, the National Real Estate Survey Leader.

Speaker 5

Happy Tenants Equals Higher Occupancy. Our focus on the fundamentals and growth is showing results. Let me describe them now. Office, which includes our Medical Office and Research and Innovation segments performed well, delivering 10.5% sequential A $12,000,000 termination fee from a large tenant in the Winston Salem Innovation Center anchored by Wake Forest. Adjusted for the termination fee, office sequential same store growth was 90 basis points and 2.8% for year on year same store quarterly growth, a strong quarter.

Speaker 5

Medical office same store sequential growth was 80 basis points, And year on year, quarterly same store growth was 2.4%. For the quarter, we executed 230 1,000 square feet in office new leasing and 460,000 square feet year to date, A 78% improvement from prior year. Medical office had strong same store retention 94% for the quarter and 85% for the trailing 12 months. The result is The total MOB occupancy increased 20 basis points sequentially. Total office leasing was 750,000 square feet for quarter and 1,800,000 square feet year to date.

Speaker 5

We are also pleased that our annual escalators for the new MOB leases Average 2.9 percent for the quarter, which caused MOB same store portfolio annual rent escalators to increase from 2.4% to 2.6%. Our R and I business continues to excel as it strives to provide effective facilities to support the record level of investment into life sciences research. Same store sequential growth was 38.9%. Adjusted for the termination fee, same store sequential growth was 1.1%. Year on year quarterly same store growth was 42.6%.

Speaker 5

Adjusted for the termination fee, Year on year quarterly same store growth was a strong 3.9%. Quarterly same store occupancy was now standing 94% with sequential occupancy increasing by 10 basis points. Looking forward, we have 3 R and I buildings I would now like to hand the conference over to your speaker today. Collectively, they are 78% leased or committed. Of the 2 buildings in our U City complex in Philadelphia, the Drexel building is 100% leased, while 1 U City Square is over 55 percent leased or committed.

Speaker 5

We are oversubscribed for the remaining space with 11 above pro form a proposals Currently outstanding. In Pittsburgh, our new building is 70% pre leased, University of Pittsburgh and UPMC with significant activity on the remaining space. At our recently opened project with Arizona State University in Phoenix, We are 86% leased or committed and expect to be 100% leased shortly. These performance numbers reflect quality of our well located R and I assets. Now let's turn to Healthcare Triple Net.

Speaker 5

During the second quarter, Our healthcare triple net assets showed continued strength and reliability with 100% rent collections. 2nd quarter same store cash NOI growth was 2.5% year on year. Trailing 12 month EBITDARM Cash flow coverage through June 30 was strong across the portfolio. Health Systems' trailing 12 month coverage Was an excellent 3.6x in the Q1, a 10 basis point sequential improvement. As Debbie mentioned, Arden continues to perform extremely well in this dynamic market.

Speaker 5

IRF and LTACH coverage improved 20 basis points to 1.9x in the 1st quarter, buoyed by strong business results. Although Skilled Nursing declined 10 basis points To 1.8x as the pandemic continued to impact census, total post acute coverage increased sequentially by 20 basis points to 1.9 times in the Q1 of 'twenty one. Finally, several of our partners have been approached M and A opportunities. Kindred is expected to merge with LitePoint, Inspire recently entertained multiple offers by Ramsey. It is a testament to the underlying value of our healthcare operators and the associated real estate.

Speaker 5

With that, I'll turn the call over to Bob.

Speaker 3

Thanks, Pete. In my remarks today, I'll cover our Q2 results, our recent liquidity, balance sheet and capital activities And finally, our expectations for the Q3 of 'twenty one. Starting with our results in the Q2, Pentast recorded strong second quarter net income of $0.23 per share and normalized funds from operations of $0.73 per share. Normalized FFO per share was $0.02 above the high end of our initial guidance range $0.67 to $0.71 for the quarter and is consistent with our June update to be at the high end or better than that original range. The Q2 upturns are by growth in office, continued stable performance from triple net, strong results from margins and better than expected NOI in our SHOP portfolio.

Speaker 3

Turning to capital. We've been busy in proactively managing our capital structure, duration of debt and liquidity since our last earnings call. First, following the announcement of the new senior agreement, we raised $300,000,000 in equity at an average growth price of approximately $58.60 per share under our ATM program. This $300,000,000 equity raise, together with $800,000,000 of new equity to be issued to new senior shareholders for the fixed exchange ratio A $1,200,000,000 of new senior debt to be assumed or refinanced constitutes the overall $2,300,000,000 funding of the New Senior transaction. 2nd through August 5, we've received $450,000,000 of disposition proceeds and receipts of loan receivable.

Speaker 3

Included in the $450,000,000 received to date is repayment of 2 well structured loans in July. Ardent's redemption of $200,000,000 of 9 75 percent senior notes due 2026 and holidays repayment of $66,000,000 of 9.24 percent notes due 2025. Medical office fully sold during the 2nd quarter also resulted in proceeds of approximately $107,000,000 Using proceeds from these dispositions, In the Q3, Dantas will improve its near term debt maturity profile further by fully repaying a total of 664,000,000 An outstanding 3.25 percent senior notes due always 'twenty 2 and 3.13 percent notes due June of 20.3. As a result of the recovery of senior housing NOI and our capital structure actions, we're seeing strengthening credit metrics. Reported Q2 net debt EBITDA was better than improving 10 basis points sequentially to 7 times.

Speaker 3

Within that 10 basis points improvement, underlying SHOP annualized EBITDA Improved nearly $50,000,000 or a 25 basis points beneficial impact of the ratio in

Speaker 4

just 1 quarter.

Speaker 3

This organic improvement was offset by the elimination of Schopp's HSS grants in Q2. This provides a proof point of the anticipated Material improvement in leverage resulting from the underlying recovery in senior housing over time. Pro form a for announced ATM issuance and capital activities, CentOS's Q2 net debt to EBITDA was lower from 7 times to 6.8 times. I would highlight that the New Senior transaction is expected to be 30 basis points levering on projected new senior 2022 NOI and is supported by the forecasted growth in cash flows from the New Senior Portfolio. Ventas has ample liquidity totaling 3,300,000,000 As of August 6, the company had $2,700,000,000 of undrawn revolver capacity, dollars 600,000,000 cash and no commercial paper outstanding.

Speaker 3

Let's finish with our Q3 guidance. 3rd quarter net income is estimated to range from flat to $0.05 per fully diluted share. Our guidance range for normalized FFO for Q3 is $0.70 to $0.74 per share. The Q3 FFO midpoint of $0.72 Kimi Bridge from Q2 of $0.73 by a $0.02 benefit from the Arden loan prepayment fee in Q3, net of the art HHS grant in Q2, offset by 2 pennies from lost interest income on the loan prepayments and the July equity rates. NOI reduction from assets intended for disposition described in the last 'twenty.

Speaker 3

Key 3rd quarter assumptions underlying our guidance are as follows. SHOP Q3's spot occupancy from June 30 to September 30 This forecast will increase between 150 to 250 basis points, with the midpoint roughly assuming a continuation of occupancy growth RevPOR is expected to be roughly flat sequentially and move in incentives are expected to narrow in the quarter. Sequential shop revenue growth is expected to be offset by increasing operating costs due to an additional day in the quarter, Higher occupancy, labor and routine seasonal items, including repair and maintenance and utility costs. No HHS grants are assumed to be received in the Q3. Stable performance is expected in the Office and Triple Net segments.

Speaker 3

We continue to expect $1,000,000,000 in asset sales and loan repayments for the full year 2021, with line of sight for the remaining balance in the second half of this year. Fully diluted share count is now 383 related shares, reflecting the equity raise in anticipation of New Senior. Guidance does not include any unannounced capital markets activity. Our Q3 guidance excludes any impact from the pending acquisition of New Senior. The new senior transaction is expected to close in the second half of twenty twenty one and once closed is forecast to be between $0.09 to $0.11 accretive to normalized FFO per share in 2022.

Speaker 3

I'd like to underscore that we're still in a highly uncertain environment. Though trends in shop are positive, the pandemic's impact in our business remains very difficult to predict. Pennzap is excited about our business and our future, and we believe we have the well diverse site portfolio, best in class operators, experienced team to win the recovery that is now underway. That concludes our prepared remarks. Before we start with Q and A, we're limiting each caller to 2 questions to be respectful of everyone on the line.

Speaker 3

With that, I will turn the call back to the operator.

Operator

Thank you. To follow the Q and A roster. Your first question comes from the line of Jonathan Hughes.

Speaker 4

Hey, good morning. Justin, can you share some more Details on your seniors housing occupancy versus rate philosophy and why when I look at the The rate, it seems that there's a little bit more discounting here than some other portfolios that, as you've read for, was down about 3% year over year. Some others

Speaker 6

were up low single digits.

Speaker 4

I guess, you just seem given demand is rebounding and length of stay is only a few years and affordability It's probably as attractive now as it's been in perhaps ever. Why wasn't RevPAR growth maybe at least flat, if not positive? Hi. Nice to talk to you. Let me start with the year over year kind of comment you made.

Speaker 4

So if you were to look at our year over year Rev 4 and you exclude Atria, Which as I mentioned in the prepared remarks had some discounting. I'll come back to that. And exclude LGM, which performed really well over this past year. They operate at a lower price point in an active living product in Canada. So there's a mix shift impact from LGM.

Speaker 4

So if you were to take those 2 out, Our RevPAR would have increased 1.8%. So set LGM aside, now let's get back to Atria. You might remember that Atria, starting back during the pandemic, had positioned themselves to go for volume in a few different ways. Very early on, they were the first to execute testing broadly. As they moved throughout the pandemic, They saw an opportunity for volume ahead of the worst part of the pandemic, which was emerging in the fall and into the winter.

Speaker 4

So they offered price incentives. And if you were to look at Atria's occupancy growth, if you go a little further back from the low point and start back, They've grown 372 basis points versus the rest of our shop with our shop in total boots should be like 227 basis points. And so they are an absolute bonafide leader in driving occupancy volume. They've chose to stay with the discounting. Into recent months, we've noticed in the underlying trends that they're starting to tighten.

Speaker 4

They also have A higher absolute occupancy than the rest of our portfolio and a lot of operators in the sector. So we believe that they are well positioned to start to push Pricing in markets where they're seeing stabilization. That's their intent. They started to do it. They'll continue to do it.

Speaker 4

They have a long track record of driving both occupancy and price, and we're in the very early stages of this recovery. So we're And confident that over time they'll deliver. One other point, and that is that we have Sunrise Senior Living in our portfolio. Sunrise is a 9,000 RevPAR. They're sitting at 72% occupied.

Speaker 4

They've been driving a lot of occupancy growth as well. And the mix shift that I mentioned that The other way with LGM outperforming, we'll shift the other way as Sunrise starts to grow. So again, I think our RevPAR outlook will be fine in the long term. Okay. Yeah, that's helpful.

Speaker 4

It's just tough for us to see the mix shift on our side. But that color is really helpful. So I appreciate

Speaker 7

you sharing that. And then

Speaker 4

Just one more for me on the life science and the R and I pipeline. Are you still planning to utilize some JV partners on some of those future potential developments to help spread out risk and lower the earnings dilution? Or Given the strength of that business, is there maybe a desire now to keep those wholly owned and let that value creation benefit drop to shareholders?

Speaker 2

Good morning. That's a great question. We're excited about this business that is Going to continue to grow and Wexford has a lot of opportunities. What I would say is we've Some of it will the answer will be some and some. So there are some pre identified projects that are in the pipeline that we'll do in joint ventures, And they're carefully selected to make sure we have a coherent strategy around the joint venture.

Speaker 2

And there are others that, Westford is working on that may go on balance sheet depending on, again, the So, I think we'll have a lot of benefits from this business initiative going forward, Both on balance sheet and with our joint venture strategy.

Speaker 8

Okay. I'll jump off. Thanks for the time.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Nick Joseph with Citi.

Speaker 7

Thanks. Good morning. I was hoping to get more color on the underlying assumptions for the shop occupancy growth in 3rd quarter. Obviously, you already had July at about 75 basis points. I recognize the recovery won't be a straight line, as you said.

Speaker 7

But how do you think about the near term for the Delta variant and the impact on at least near term senior housing occupancy.

Speaker 3

Sure. I'll start on that, Nick. So just in terms of numbers, the outlook is 150 to 250 spot occupancy gains. You're right to say 74 in the 1st month. So times 3, that is above the midpoint.

Speaker 3

And you're right to say it's not a straight line. I mean, clearly, The pandemic backdrop is something we're thinking about, no doubt about it, as we think about occupancy. And it's never month to month if you look at it, Take 1 month times 3. That said, the strength in leads in July is worth noting as well. In light of that is what translates into move ins in the future.

Speaker 3

So we are still seeing very positive trends. Now 5 consecutive months of

Speaker 7

And then you talked about the Supply outlook on senior housing, kind of being positive for the near and medium term. Given the recovery that's When would you expect that supply to start picking up in terms of new starts?

Speaker 4

Yes. So and hi, it's Justin. There's a little bit of catch up in terms of supply from last year that we're experiencing. In the short term, it's a bump in the road. But starts and deliveries are very low.

Speaker 4

And so there's a window that we can look out, we think, A few years of runway to really have strong absorption in the sector. Certainly, Capital will follow the fundamentals and we expect to see development, chase this sector. But when they do, they'll be faced with the strongest aging demographic that the sector has ever faced. So we're certainly bullish and confident on the demand for senior housing.

Speaker 7

Thank you.

Operator

Your next question comes from the line of Joshua Dennerlein with Bank of America.

Speaker 5

Yes. Hi, everyone. I hope everyone's doing well. Curious on Ardent, since you got the loan repayment, Just curious, maybe if you have any interest to kind of expand further into the hospital sector. It Sounds like, yes, just kind of curious

Speaker 2

there. Well, good morning. Thanks For the question, Ardent has been a great investment in many different ways, great risk adjusted return, great Performance and I think even better days ahead. I would say that if we were able to find additional Assets in the health system space that have the characteristics that we like about Ardent, we certainly would commit additional capital there. And those characteristics really are around growing markets, position in local markets, being one of the leaders, Having pricing power with commercial payers and those types of characteristics, obviously population growth and so on, and good strong experience care providers.

Speaker 2

So we continue to Explore opportunities in this space and if we can find anything even close to as good as Arden, I think we'd be happy to commit additional capital there. Okay.

Speaker 5

Okay. And then on the disposition guidance, the $1,000,000,000

Speaker 3

Did that originally include the Ardent repayment?

Speaker 5

And is that additional or Kind of takes the place of maybe some other sales that you were going to do.

Speaker 3

Yes, Josh, that was in the initial billing in that the 200,000,000 Loan repayment, that was in our guidance originally, so no surprises there.

Speaker 7

And on

Speaker 3

the balance being Property Real Estate dispositions continues to be the assumption, both Senior Housing and MOBs, but that was in Our first guidance.

Speaker 5

Okay. Just one real quick follow-up. If Colony was So I think Colony could repay back their loan. That's not included? Or is that

Speaker 2

Correct. That is not

Speaker 3

in the $1,000,000,000 That is not a single digit.

Speaker 4

Okay. Got it.

Speaker 2

You got it. Thank you.

Operator

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Speaker 9

Yes, thanks. I wanted to stay on the RevPOR outlook real quick. And can you talk about how operators are setting rates today? Are they able to be more aggressive I guess in August versus February beginning of this year. And then if not, at what point will they be able to be more aggressive?

Speaker 9

I mean, does Have to hit back into the mid-eighty percent range?

Speaker 4

Yes. Hi, it's Justin. So Even throughout the Q2, we could see underlying tightening, particularly in asking rents. Operators tend to use short term incentives, 1st and foremost, and we think those will be those will persist as asking rents tighten. Clearly, The demand is really strong for independent and assisted living.

Speaker 4

As that continues, I would expect Pricing power to return and particularly as communities and markets reach pre pandemic occupancy. So we think

Speaker 3

there's Plenty

Speaker 4

of potential ahead to drive pricing. Of course, as Debbie mentioned, there It may not be a straight line as we face this next phase in the recovery.

Speaker 2

And different operators will clearly pursue different And we support and work with them on those strategies and we should see the benefit from that going forward.

Speaker 9

Okay. And then back in 2014 or 2015 when the SHOP portfolio had occupancy of 90 plus percent, I mean, at that How aggressive were your operators able to push rate? I mean, could we expect RevPOR or maybe not expect, could we see RevPOR get back into the Mid single digits, if something like that occurs?

Speaker 4

Yes. It's a completely different market Moving forward than it was then. That would have been really the beginning of facing new supply. And there was still some pricing power persisted during that time, but the outlook moving ahead given the demographic backdrop And the new supply backdrop that we're facing, it certainly supports occupancy growth and pricing power.

Speaker 2

Yes. I mean, Michael, you're reminding me of the very good times and thank you for doing that, where occupancies were in the low to mid-90s and Rev And so as Justin said, with the demographic growth and we have this window where the supply is Baked over a multiyear period and it's not going to be baked at low levels. That is a very constructive backdrop for Getting back to very positive outcomes, RevPAR growth, occupancy growth, etcetera.

Speaker 9

Okay, great. Thank you.

Operator

Your next question comes from the

Speaker 7

line That's

Speaker 2

where we went ahead for sure.

Operator

Your next question comes from the line of Steven Valiquette with Barclays.

Speaker 10

Great. Thanks. Good morning, everybody. Good morning. With the new senior transaction focused mainly on the independent I'm curious to hear just any updated thoughts you have around strategy and senior housing by property You're just thinking about it on memory care versus AL versus IL.

Speaker 10

Have you seen some operators, the largest operators talk about some of the biggest gains Memory Care. But just curious on your thoughts by property subtype in light of the transaction, how you think about those three areas on the pace of recovery?

Speaker 2

Right. And Justin will answer that. Thank you. I mean with the new senior Pro form a, I think we're going to be over 50%, including Canada in the IL product, which We really like and it's a less labor intensive model, for example, but we do like the diversification in our And we also like it within our senior housing portfolio. So I'll ask Justin really to describe the strategy and framework We're thinking about as we build the portfolio with Justin's kind of imprint upon

Speaker 4

it. Thanks. So 1st and foremost, we just wanted to make sure, as I mentioned in our prepared remarks, and

Speaker 3

I like to say this a lot, that we're in

Speaker 4

the right markets With the right asset and the right operator managing that asset. So that might be memory care or assisted living or independent living. They really all the product sites have good characteristics. The assisted living and memory care are They do have higher price points. They also do run at higher costs.

Speaker 4

And so depending on the RevPAR associated with Product, the margins can vary. But it's a product that does tend to recover quickly. I did after the financial crisis, doing really well after the pandemic so far. So it's Great to have exposure as long as you're in the right markets with the right operator to that product. Independent Living has a longer length of stay.

Speaker 4

It also has less new competition facing it. In the case of New Senior, there's extreme affordability Relative to an AL product, it's about at least twice as good in terms of if you're a resident making a choice within your local market For a new senior independent living versus for AL. So it reaches a broader audience. It also has pricing upside through investment And faces the same strong demographic wave that I was describing earlier. One other thing about independent living is Because it faces less new competition, it does have a higher ceiling.

Speaker 4

Pre pandemic, it was outpacing A and L Member care by about 400 basis points. We don't see any reason why coming out the other side that it doesn't also have a higher ceiling moving forward.

Speaker 10

Okay, great. That's helpful. Just one other real quick follow-up on new senior transaction. Do you have A bullet point about Ventas expecting to make revenue generating capital investments for additional value and opportunities. Just curious to hear more about that And how critical that is as part of the overall transaction.

Speaker 4

Yes. So, this is Justin again. This is a product type that I mentioned that has great characteristics, 120 units, large units. If you've been to a holiday community, you've kind of been to all of them. Exactly the same big open floor plan when you walk in, open dining.

Speaker 4

There's 3 stories. And so it lends So we have we have to be situated in several markets that Great locations. They're high traffic locations. They're located close to premium retail. They have strong income and wealth and aging demographics.

Speaker 4

So in a lot of cases, we think we're pushing on to open the door to make additional investment. And the goal On a targeted basis, make investments, support the occupancy growth, but also push pricing. So we're in the process of evaluating those And we'll integrate that into our plans over the next couple of few years.

Speaker 10

Got it. Okay. Thanks.

Speaker 2

Thank you.

Speaker 11

Thank you.

Operator

Your next question comes from the line of Juan Canebra with EMO Capital.

Speaker 7

Hi, good morning. I was just hoping to talk good morning. I was just hoping to talk a little bit about big picture strategy. Just trying to gauge how much appetite you have to truly Meaningfully grow the seniors housing exposure at this point in the cycle, given this nice window you have over the next few years versus Kind of a long term stated desire to be diversified across asset types and different products. So just curious how you're thinking about it given the opportunities that in seniors housing in that nice window for the next couple of years.

Speaker 2

Yes. Well, we've definitely put our money where our mouth is in terms of the new senior investment of $2,300,000,000 in Well invested, well located senior living, we're excited about that. That will increase our Percentage NOI coming from the senior living area and will enable us not only to capture embedded in the Ventas portfolio and senior housing, but also new senior. So that's great and we will continue to invest where we think there's good risk adjusted return and upside in the senior living business. We do believe, as you know, in a diversified model, and we will continue to invest in other areas of our business that have performed exceedingly well for us and have really proven their value over the last year, Because the benefit of diversification really is that you never know really what the external market and environment are And these different asset classes are unified By demographic demand that they perform differently in different environments and we've gotten the benefit of that so much So in the medical office area, the life science area, the hospital area, over the last year that we remain of a belief that that is The best profile to deliver the kind of value proposition we want to deliver to our shareholders.

Speaker 7

Great. Thank you. Super helpful. And then just on Serious Hazen, I guess for Justin. Just curious on the latest thoughts on the flow through of incremental revenue To the NOI line and if I could be sneaky, just any thoughts on or latest data points on the Delta variant, if there's any implications on operators' visitation policies as a result of The uncertainty in kind of a very fluid landscape.

Speaker 4

Sure. So I'll start with the flow through and Maybe just kind of refer to it as margin. One thing that's interesting, you can kind of compare your supplemental, you'll catch

Speaker 3

this, that our operating margin, even on a

Speaker 7

much lower occupancy right now, is only

Speaker 4

like 100 Great margin, even on a much lower occupancy right now, it was only like 150 or 200 basis points off of the margin from a year ago On a much higher occupancy. And so margin is kind of hanging in there. We think if you fast forward and get The portfolio back to a pre pandemic occupancy. We think you're very, very close Potentially to within 100 basis points of the pre pandemic margin Plus, there should be some pricing power, plus there should be some more occupancy upside than we were seeing at that time. So we feel good about the flow through, and it's going to be we're in this period where Atria is 1 of our best performing operators, as I mentioned, in terms of occupancy, but they have another 700 basis points to go to get back to Where they were pre pandemic and it's during this kind of next wave of occupancy, Phil, that we expect to see the flow through really increase And margin grow as well.

Speaker 4

And then the second part of the question is you have the delta? Right.

Speaker 2

I mean, right now, It's kind of business as usual, but as I mentioned in my remarks, and you clearly understand there is Fluidity in the environment is very dynamic. And so, we want to be prudent in our thought process about the Q3, but right now the communities are all open for new move ins and visitation And we hope that that continues because the communities are so highly vaccinated and protected. And that is the comfort and the happiness frankly that we have sitting here today that we feel really good about.

Speaker 7

Fingers crossed. Good luck, everybody.

Speaker 2

Exactly. Thank you.

Operator

Your next question comes from the line of Lucas Hartwich with Green Street.

Speaker 6

Thanks. Good morning. Can you provide any color on the in process senior housing dispositions, just maybe Level of interest and is there a sense of how pricing compares to pre COVID levels?

Speaker 2

Well, we're making good progress. We have a line of sight to, as Bob said, to the balance of the investments, which are Composed of medical office and senior housing and because the outlook for senior housing is Very favorable. There is significant interest in the asset class and we think

Speaker 6

Great. And then during the quarter, it looks like a tenant exercised a purchase option. Can you provide us a sense of how pervasive those types of options are in the portfolio?

Speaker 2

They are Absolutely de minimis because this is a historical one frankly that we got from NHP, going back to PMB. So this is a longstanding one. We did recognize A very significant gain on the sale, which was $30,000,000 or $40,000,000 I can't remember on a $100,000,000 deal, so that was good. But we have very, very limited purchase options for tenants.

Speaker 6

Great. Thank you.

Speaker 2

Thanks Lucas.

Operator

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Speaker 10

Thanks. Good morning. I wanted to

Speaker 12

just quick follow-up on the Colony loan investment. Any update there surrounding your expectations? Or did the fact that you excluded it from the sales guide indicate that you

Speaker 2

I think the latter. As you know from the Colony call, They've moved that portfolio to intended for disposition of the real estate portfolio that is encumbered by our loan and the loan continues to perform well. And my guess would be that and it's only a guess that a buyer The real estate portfolio would likely assume the existing capital stack.

Speaker 10

Okay.

Speaker 12

Although I guess if it goes

Speaker 8

to somebody, I mean, who Looks

Speaker 12

to parcel off the portfolio or doesn't look to own or hold the entire portfolio. There's a possibility that they might have

Speaker 10

to repay the loan, right?

Speaker 8

I mean,

Speaker 2

you're there. Because it's

Speaker 11

supported by

Speaker 12

the entire portfolio?

Speaker 2

Yes. I mean, it is supported by the pooled portfolio, definitely. And It's a very well structured loan and we always feel good when our loans get repaid even though we have to recycle the capital. But it proves the merits of the investment, if you will. So we're open minded.

Speaker 2

I think either way Could be favorable for Ventas. Okay.

Speaker 12

And then just as a follow-up relative to one of Pete's comments as in his quote, some of the partners being approached and pursued, the Kindred deal, the Inspire portfolio. Any anticipated actions you guys might see within your portfolio as a result of Those transactions?

Speaker 2

Yes. I mean, whenever there is activity, there can be opportunity. And we look forward to exploring those kinds of things. We've had a good lots of really constructive things together and I would hope that that We'll continue.

Speaker 8

Okay. Thank you.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Daniel Bernstein with Capital One.

Speaker 13

Congrats on a good quarter with CHOP. So kind of a broad question here on seniors housing. I mean, there's been some real success from the larger operators at Brookdale Obviously, the merger at H. R. Holiday, is Kind of want to get your perspective on maybe the importance of scale on seniors housing going forward.

Speaker 13

Historically, scale has not worked out too well versus Regional operators in terms of performance, but maybe that's changing and just want to try to get your perspective on that and maybe how the how Vento

Speaker 2

Well, that's a great question. It's clearly from someone who's been around the industry. As we said, as a third owner of Atria, we do Like the combination of the Talend, the IL and the AL capabilities coming together on A very advanced platform that Atria has to become the 2nd largest operator. Benefits, I would say, with the data, analytics and technology capabilities and the talent all coming together. So it's more about that than it is about the scale, I would say.

Speaker 2

There also can be benefits From smaller operators, Justin mentioned we're going to have some new relationship with Hawthorne and those were, as You know the original holiday guys, if you will. And I think there are some strong benefits that those Local operators can provide as well. So, we look forward to

Speaker 13

And then I guess the other question, I just wanted to go back to labor. I mean, we've heard from some other REITs and operators that maybe A lack of labor could slow down or occupancy gains more maybe skilled nursing and senior housing, but kind of wanted to get your thought on whether Yes, there's any limits in terms of near term occupancy momentum that could occur because of the shortage of labor.

Speaker 2

Right. Well, I mean, again, I think we as a country and we then pass with our strong second quarter Have a really what I would call my mother would call really a high class problem. And that is that our economy is recovering And demand is recovering in such a speedy and are having trouble kind of keeping up with it. And that is an environment that we feel very excited because when you step back, it's really all about that Building that occupancy and pricing path embedded upside in both Ventas and many others. And I think we can successfully, really manage through

Speaker 13

That's a helpful perspective. Thanks.

Speaker 2

Good question. I mean, our communities are able to take And there hasn't been any capacity constraint to date on our ability to accept Art Ducan C.

Operator

Thank you. Thank you. Amanda Schweitzer.

Speaker 11

Thanks. Good morning. You touched on higher conversion lead sources Continuing to recover in your prepared remarks, can you just expand on where those higher conversion sources levels and how much additional upside you think you could realize through those?

Speaker 4

There's probably kind of 2 things happening And then the other is the traditional leads coming back. So, Referral agencies leads are way over 100%, 150%, 160% of pre pandemic levels. And so they played a huge role In driving leads, that's maybe a silver lining that we're going to have to leverage our customers to invest into That source of referrals and it's a game changer, really. And so we've seen those leads pick up. Now those do convert at a lower rate though, But the more the merrier.

Speaker 4

So in addition to that, There's 3 other lead sources. There's respite, professional referrals and personal referrals. Personal referrals in the Q2 for us were at 110% of So those have come out of the way. So there's still ways to go yet With professional investments to recover, and which we think is Perfect, because the lead levels have been quite strong.

Speaker 11

That's great and helpful. And then following up on some of your expense growth guidance, particularly for the Q3, just your expectation that Increased shop expenses will largely offset the increased revenue growth. I guess what did you see in terms of sequential expense growth in July and how meaningful are the potential COVID related expenses that you're including in guidance?

Speaker 3

I'll have a go with that one for the Q3. So you're right to say revenue growth pretty much drops that by expense growth. There's a number of different I think worth highlighting. 1 is simply an extra Which is meaningful when you think sequentially, 3rd quarter versus the 2nd quarter. That has a meaningful impact.

Speaker 3

The next is, I call it, typical seasonal cost increase in the 3rd quarter. Utilities is the easy one. Repairs and maintenance is another, but you see that every third quarter. The third bucket is really a function of occupancy growth and activity levels increasing in the communities. And obviously, you have incremental costs associated with that, which is a good thing, which is effectively embedded in the thinking.

Speaker 3

But there's a series of different Okay. So altogether add up to that 3rd quarter expense number.

Speaker 11

That's helpful. Appreciate the time.

Speaker 2

Thank you. Thank you.

Operator

Your next question comes from the line of Nick Yulico with Scotiabank.

Speaker 14

Thank you. I just want to follow-up on the Expense question. Maybe you could just give us a feel for how this is going to work in terms of as you get Increased occupancy in the portfolio, how much of an offset going forward that's going to be from Same store expense growth, meaning that if your occupancy instead was up 400 basis points in the 3rd quarter and not 200 basis points. Would you then have same store NOI growth sequentially? Or just trying to think about how as occupancy is going up as well as some of your the flexing of labor that worked on the downside is now, I guess, going against you a bit on the expense side.

Speaker 3

Yes. Nick, I think it's right to say that as occupancy grows, you're going to have some level. It's not a perfect linear Occupancy you had ahead. It is more of a step change type function. There's always great debate as to what level that is.

Speaker 3

I think qualitatively, we would tell you we're in that. We're growing labor as We're growing occupancy right now as a consequence of having come out the other side flexing labor, as you say, Which should reach a level where then there is some scale advantage, if you like, that you can then hold off until you get to the Level of occupancy. I can't give you a number on that, but we're certainly in that upward trajectory right now.

Speaker 14

Okay. Yeah, I appreciate that. And I guess just following up on It's

Speaker 2

been discussed in terms of shifting gears in the economy and that should be transitory.

Speaker 14

Okay. Thank you. And just following up on that, I know earlier, Justin, you were saying about the margin outlook. You thought there's a good chance you get back. I think you said within 100 basis points, 200 basis points of pre COVID margin as you're building the occupancy back.

Speaker 14

And I guess the way is that the

Speaker 4

right way to think about it

Speaker 14

is that in the meantime over the next year, you're still going to be about 100 basis points, 200 basis Points below on margin versus where you were because if

Speaker 4

I look at the 30%

Speaker 14

In shop in the Q3 a year ago, it was almost 22%. So that kind of fits that Piece of still being down a bit, which is maybe it's COVID expenses, it's Also, I guess, the web poor being down year over year.

Speaker 4

Yes. I would kind of stretch out your timing a little further. There is as Bob mentioned, there's going to be kind of you'll have periods where you have revenue increase and a little bit of expense catch up. Debbie mentioned that the near term has a transitory effect as well. So if you kind of push The timetable of ways and we don't really have the crystal ball in terms of when we stabilize, but I was thinking more on a stabilized basis.

Speaker 4

When we get there to that pre pandemic Occupancy margins should be within reach of where they were. And then from there, the pricing power and the occupancy upside Could support even higher margins over time. So that's all I was saying. And I didn't really mean to kind of paint it as kind of a near term Picture except to say that our margins in Q2 were only like 150, 200 basis points off of the year ago.

Speaker 14

Okay. Thank you, everyone.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Vikram Wes Morgan Stanley.

Speaker 8

Thanks so much. Good morning. Thanks so much for taking the question. So I guess, Justin, going back to So the occupancy increase near term, but also maybe over the next 12 to 18 months. So first, I guess, if I look at your slides and look at the lead volumes very recently, they're over 100% of 2019, and your Move outs are trending lower and certainly the leads are higher than the last few months or the second quarter number.

Speaker 8

So why won't the Why would the occupancy uptick just be similar to what you saw in your view in the Q2? Why won't the midpoint of your guidance be the low point because your leads are just higher than what you've seen in the last call it 4 months.

Speaker 2

Well, this is Debbie. Again, in July well, first of all, we are really happy that leads in July Are the highest they've been since the beginning of the pandemic. That is a very important and meaningful statistic And certainly portends it means there's demand and it portends higher occupancy. So that is really good as you say. In July, as we've talked about, we had spot to spot growth of about 75 basis points and there's a lot of uncertainty in the environment.

Speaker 2

So if you just roll that forward, that's near the midpoint of the $150,000,000 to $250,000,000 And that's how our guidance is constructed.

Speaker 8

Got it. Okay. No, I would just I mean, you're right, like the July lead should translate into whatever August, September. I don't think it's more than that in terms of Conversion time, but it just feels like the setup is one for you pretty easily hit your mid to maybe even the high end of your numbers of your occupancy guide. And I guess just tied to that, a lot of smaller operators surveyed by NIC Do have a view that they could get back to pre COVID occupancy next year.

Speaker 8

I want to just ask you from your perspective, like Do you think that's too optimistic? What's your sort of broad view and the puts and takes? I recognize the strategies are different in terms of Occupancy versus rents, etcetera. But where do you think A, do you think those smaller operators are Maybe too bullish, or what are the puts and takes?

Speaker 2

Yes. I mean, the pace and slope of the recovery and the clinical Environment broadly in the U. S. Is really going to determine how quickly we get back to that Pre pandemic occupancy level is we're on a good path. I think it's very sustainable.

Speaker 2

It has been so far. And we are very encouraged by that as well as the demographic growth that's right in front of us. I think Justin mentioned Atria had about, what, 700 basis points of occupancy to continue to Get back to pre pandemic levels and again, it's really going to depend upon this We're predicting the Q3. We have visibility and line of sight to that. And thereafter, Sir, I think we want to be conscious that it continues to be a pretty dynamic environment.

Speaker 2

So we're encouraged and I hope you're right about many of the things that you said, Vikram.

Speaker 6

Debbie, if I can just squeeze in

Speaker 8

sorry, go ahead.

Speaker 4

I was just going to ask quick just to I understand you might be interested in that and kind of support that. So, right as we currently sit, we are We only have just around or just about 20% of our communities that are at the pre pandemic occupancy. Over 60% are achieving pre pandemic movement levels. So we have Great activity and we're really pleased with this early recovery, but we have a long way to go and support and so far really good support for it. But there's still a way to go yet.

Speaker 8

Okay, great. Maybe if I can just squeeze one bigger picture question. I'm struck now by how The big three healthcare REITs are now different from maybe several years ago, there were a lot more similarity. You have a very strong momentum in the Life Science Research segment. Obviously, Senior Housing, there's a lot of momentum as you've just laid out on this call.

Speaker 8

I'm just wondering from a strategic and maybe a differentiation or even value perspective, the MOB segment, there seems to be a lot of demand on the private side. Cap rates are really low, pretty good. I know maybe 3 years ago, you set out to maybe sell, if correct me if I'm wrong, I think it was $600,000,000 $700,000,000 of asset. Why is this not a good time to maybe exit a fair amount of MOBs and become more pure play, I guess, or focused on 2 segments, Life Science Ms. Jean Hallison.

Speaker 2

Love the question. Thank you. Again, we do believe that we've created a lot of With our MOB portfolio, as you point out, we have a differentiated strategy with our Willowbridge Management platform that Pete runs, and that's going really well. We have mentioned that as part The $1,000,000,000 of 2021 Capital Recycling that is, and senior housing. So you're right on there.

Speaker 2

I do think that we've benefited from the stability of the cash flows at the MOBs with our Strategy of being on campus and affiliated. And I think you're right that commands a very low cap rate, but it Also provides a really good differentiated and diversifying We'll recycle capital. We'll take advantage of some of the value that we've created, but we really believe that owning the MOB business As we do, is a benefit to our shareholders.

Speaker 8

Okay. I'll follow-up on that offline, but thanks so much and have a great weekend.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Rich Anderson with SMBC.

Speaker 15

Well, I'm sorry to I logged in about 2 hours ago and found out it didn't take for some reason. So one question for me.

Speaker 2

It must be you.

Speaker 15

Yes, fat fingers or something. I don't know. So the one Question I have or that I'll ask in the interest of time is concentration risk with Atria following New Holiday and following their own merger with New Senior, I mean, and their merger with Holiday gets over 20%, Depending on how you slice it, I'm curious how much of that is an issue to you and how quickly you'd like to whittle that Through other investments outside of it, the idea of concentration in the past at the time Sounds good. And I recognize Atria is a great operator, but people have come to regret concentration risks as time has moved on. So I'm curious if that's something that's sort of high on your radar screen to get back down to something in the mid teens or something like That over the next couple of years.

Speaker 2

Thank you. Yes. Rich, thank you for asking that because that has always been something that It's near and dear to my heart and there's always this tension as you mentioned between really Putting your assets with the right operator, the right markets and certainly the best operators. And Atria has been that, Holiday has been a leading operator. So there's a tension between that and making sure you don't put all your eggs in one basket and you manage your concentration wisely.

Speaker 2

And so we do think the combination of Atrium Holiday provides the strategic benefits To us and as an owner of Atrium, we like that, we like the growth in Atrium platform. That having been said, I think we do have a lot of And the new senior management contracts and our own holiday contracts that gives us the ability through both growth and the way the management contracts are structured to move in the right direction, on the diversification of Manager Point.

Speaker 15

Okay, great. Thanks very much.

Speaker 2

So we have all the tools we need to manage it in the right way.

Speaker 15

What's your like Long term, this is much that I want to own of a or have a piece of my pie. Is it 10% or 15%? Is that the kind of the threshold for Ventas?

Speaker 2

I mean, it'll change over time and with specific situations, but that seems directionally The right kind of way to think about it.

Speaker 15

Okay, great. Thank you.

Speaker 2

Thank you.

Operator

And there are no other audio questions at this time.

Speaker 2

Well, thank you all for sticking with us and for your

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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