Ventas Q4 2021 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 18, 2022
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Operator

Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Ventas Fourth Quarter Financial Results Conference Call. [Operator Instructions] Thank you.

Sarah Whitford, Director of Investor Relations, you may begin your conference.

Sarah Whitford
Director of Investor Relations at Ventas

Thank you, David. Good morning and welcome to the Ventas fourth quarter financial results conference call. Earlier this morning, we issued our fourth quarter earnings release, supplemental and investor presentation. These 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-19 and other matters.

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 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 in 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.

And with that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Thank you, Sarah, and I want to welcome all of our shareholders and other participants to the Ventas fourth quarter and year end 2021 earnings call. 2021 was a year that was bracketed by two very positive developments. At the beginning of the year, we rolled out life-saving vaccines in our senior housing communities, to keep residents and caregivers safe from COVID-19. And as we close out 2021 and begin a new year, we look forward to posting growth in the first quarter and sustained improvement in our senior housing business through 2022.

In between those book ends, our Ventas team found a way to drive our business forward in a highly dynamic environment. While prioritizing health and safety, we took proactive steps to capture upside in the senior housing recovery, delivered strong organic growth in our office and triple-net healthcare businesses and stayed financially strong. We also extended our long track record of value-creating external growth with $3.7 billion in new investments focused on our strategic priorities of senior housing and life science.

As we enter 2022, we are reporting a fourth quarter that exceeded our expectations on the strength of senior housing and office performance. Carrying that momentum forward, we expect total portfolio NOI growth, once again led by our senior housing and office businesses with additional contributions from investment activity and deeply appreciated grants from HHS for our assisted living communities in the first quarter.

We're pleased that we can benefit from both organic and external growth in the first quarter, consistent with our long-standing value proposition for shareholders. Let me put our investment activity in a broader context and discuss some of the highlights. Since 2010, we've averaged over $3 billion per year in average investment activity across asset classes, executed in a variety of transaction types, large and small.

2021 provided excellent examples of our approach and execution. Consistent with our current capital allocation priorities at this point in the cycle, our 2021 investment activity was allocated 70% to senior housing in attractive markets with significant growth potential, 20% to our high value life sciences business including the ground-up development of a new research facility anchored by University of California, Davis and 10% to expanding our successful medical office building franchise.

Within the senior housing capital allocation sleeve, we completed both the new senior investment, acquiring over 100 independent living communities in advantaged submarkets at attractive pricing below replacement costs. And we also closed a Canadian senior living deal with a handful of well-performing assets with additional lease-up upside. The Ventas investment team is using its decades of industry experience strong and varied relationships and deal structuring ability to address an extremely robust pipeline as we enter 2022.

We continue to identify areas of competitive advantage and pick our spots consistent with our strategic priorities and our analytic assessment of risk reward. We started the year off well, closing over $300 million of investments in the medical office and senior housing areas both with good in-place returns and both generated by ongoing relationships.

With significant opportunities in our sites, we are also confident in the array of funding sources available to us as we demonstrated by recycling over $1 billion of capital in 2021, split between $850 million of divestitures of non-core senior housing and MOB assets at attractive valuations and over $350 million of full repayment of well-structured loans that yielded unlevered IRRs exceeding 11%.

In addition to capital recycling, these transactions improve the quality of our portfolio and the sustainability of our go-forward cash flows, which also supports our well-covered dividend. We also grew our Ventas Investment Management business during the year and successfully accessed multiple capital markets opportunistically. VIM is a huge success story and now has over $4.5 billion in assets under management with leading global institutional investors. Our perpetual fund alone raised nearly $0.75 billion in untapped commitments this year. These embedded capital relationships provide another powerful tool to fund growth and build a valuable business at the same time.

Turning to our values that dovetail with shareholder priorities, I'd like to highlight our enduring commitment achievement and recognition in the area of environmental, social and governance or ESG. Our ESG leadership continued during 2021 as we substantially elevated our ESG profile.

Among other things, Ventas made meaningful investments in energy-saving technologies at our properties. We were named to CDP's A List, the top 2% of global companies for tackling climate change and also named Nareit's Healthcare Leader in the Light for the fifth consecutive year. We have also ramped up our actions to improve diversity, equity and inclusion in our Company, our industry and our country. We've taken definitive steps in recruiting, investment and community engagement and adopt the goals to drive ourselves even harder in the coming years.

Finally, our commitment to outstanding governance continues with rigorous and regular board refreshment, adding directors who are independent and diverse and who bring a record of accomplishment and subject matter expertise to our Company, such as recently added directors, Maurice Smith and Marguerite Nader.

In closing, I'd like to give a huge shout out to my Ventas colleagues whose talent, resilience, agility and commitment to doing their best over these past two years has been inspiring and to our operating partners who have navigated the pandemic on the front lines with courage, caring and commitment.

We also deeply value and appreciate our lenders and equity investors who support and encourage us. We are committed to using all the tools at our disposal, including our high-quality, diverse portfolio, experienced team and platform to excel for their benefit. Justin?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Thank you, Debbie. The senior housing outlook remains bright. Today, I will speak to the favorable trends informing our outlook for growth in the first quarter, provide an update on key portfolio strategy and actions and recap our strong fourth quarter results.

I'm happy to report that we expect occupancy revenue and NOI to grow in the first quarter. Demand remains robust with January lead volumes at all-time highs since the onset of the pandemic and clinical conditions are dramatically improving. Core operational performance continues to deliver strong results as operators weather cost challenges, and the macro supply demand backdrop should continue to power underlying growth. I'm proud of the team and operator base we've assembled as we've accomplished a lot over the last two years.

Our senior housing business is competitively positioned to capture the benefits of the ongoing sector recovery and I could not be more excited for the path ahead. During recent community visits, my team and I witnessed firsthand the strength of the top of the sales funnel, as tours were abundant. As COVID cases have declined and tours have picked up, the energy at our communities has been evident. We are expecting significant revenue growth of 10% in the first quarter supported by pricing power and robust underlying demand. We executed our pricing strategy to drive outsized rent increases led by Atria and Sunrise.

Leads in our year-over-year same-store pool of 321 assets exceeded 16,400 in January, the highest volume achieved since before the pandemic. We expect a strong supply-demand backdrop to further support, lead and occupancy growth. Supply levels are expected to trend favorably as construction starts and deliveries have improved significantly versus pre-COVID levels. Additionally, our footprint is well positioned as we witnessed new starts in just three of our top 20 markets. Needless to say, I am very encouraged by the fundamentals supporting our business and the opportunity for growth moving forward. Bob will cover our first quarter guidance shortly. But for SHOP, it includes 10% revenue growth at the midpoint and 6% to 15% NOI growth at the lower and upper ends, respectively. The main variable affecting the NOI range will be operating costs.

In January, the surge in COVID cases among employees pressured the availability of caregivers in what was already a challenging labor market. Our communities have continued to make progress implementing workforce management and efficiency initiatives. Net hiring trends are showing early signs of improvement as recruiting resources have been bolstered, labor monitoring capabilities have been enhanced and targeted competitive wage increases have been executed. We are hopeful the improving clinical backdrop and the operating initiatives will take hold and support the high end of our guidance range, but the midpoint assumes the costs remain elevated.

Moving on to portfolio actions. Having been here for two years now, I couldn't be happier with the ability of Ventas to execute on key priorities related to senior housing. We have been extremely action-oriented, executing on acquisitions, dispositions, transitions, resolutions and targeted capital investments and strengthening our strategic approach to managing the senior housing platform.

The Ventas advantage is that we have very deep operational experience in the senior housing sector. We've married this operational expertise with our sophisticated analytical capabilities to execute strategic portfolio actions, enhanced performance management and drive targeted capital investment. Building on the strength of our experienced best-in-class operating partners, we are fully engaged in our aligned interest to create value in our senior housing business. Our latest initiative involves the deployment of our Ventas OI in close partnership with our operators. Ventas brings to the table an emphasis on operational insights, geospatial analytics and capital allocation priorities.

I couldn't be more pleased with the excitement amongst the operators and my team as they've engaged in this together. Some examples of outputs include in-depth pricing strategies, workforce recruitment and retention management, targeted value-creating capex and formulation of best practices. This approach takes the best of what Ventas has to offer in a collaborative effort with our operators to drive business results.

We've taken several decisive actions as we continue executing on our strategy of the right asset in the right market with the right operator. Since the start of 2021 Ventas has added six new senior housing operating partners, bringing our portfolio to a total of 37 relationships. This portfolio balance, along with the deep industry experience of our operators in their respective markets positions us to grow our relationships and strengthen our senior housing platform over time.

Recent portfolio actions include, the sales of 29 non-core senior housing properties in 2021, resulting in approximately $400 million of gross proceeds. These communities represented orphan assets in markets with elevated competition and in need of significant capital investment. More recently, we completed the acquisition of Mangrove Bay and are thrilled to add this premium, 160-unit senior housing campus through our growing portfolio. What a great opportunity to recycle capital out of non-core assets at a 2.5% yield and into a Class A asset at 5.5% in an attractive market.

Turning to fourth quarter performance. Total SHOP NOI achieved the high end of our expectations in the fourth quarter of '21 and same-store average occupancy -- in the fourth quarter of '21 versus the fourth quarter of '20 grew by 200 basis points to 83.4%. Rate and revenue grew for the first time since the start of the pandemic as same-store revenue increased 3.3% year-over-year.

As we anticipated, operating expenses, excluding HHS grants increased sequentially by $8.7 million or 2.6%, the majority of which was driven by incremental labor expenses. SHOP NOI, excluding HHS grants for the sequential same-store pool declined modestly by just $1 million or 90 basis points and NOI for the year-over-year same-store pool declined $3.8 million or 3.6%. Both are leading results among peers. For the non-same-store pool, underlying performance was stable.

In closing, my enthusiasm for the outlook in our senior housing business remains high as we are well positioned to succeed in what we expect to be a favorable macro backdrop.

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

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

Thank you, Justin. I'm going to jump straight to our first quarter outlook and finish up with a few summary thoughts on our balance sheet before turning the call to Q&A. Our Q1 guidance is for net income to range from $0.07 to $0.11 per fully diluted share. Q1 normalized FFO is expected to range from $0.76 to $0.80 or $0.78 at the midpoint.

Incorporated in our guidance is $0.08 of HHS grants received in Q1 '22. When excluding HHS grants in both periods and adjusting our Q4 for the one-time $0.03 Kindred M&A fee received in the quarter, we are describing a Q4 of $0.68 to a Q1 of $0.70. That growth can be simply described by $0.02 sequential growth from our senior housing portfolio.

In terms of Q1 '22 property expectations, net of HHS grants, we expect Q1 year-over-year same-store cash NOI for the total same-store portfolio to grow in the range of 2.5% to 5.5%. At a segment level, our SHOP guidance is to increase occupancy, 410 basis points year-over-year to grow revenue by 10% led by occupancy gains and strong in-place rate increases and to grow NOI in the range of 6% to 15% ex HHS grants. At the guidance midpoint, Ventas expects operating costs to remain elevated through the first quarter even as COVID-19 clinical conditions moderate. We expect our triple-net portfolio to be down 1.5% to flat in the first quarter, with escalator led growth, offset by modest rent reductions in the triple-net senior housing portfolio from the impact of the pandemic on some of our smaller tenants.

Over time, we anticipate the benefits of the senior housing recovery will accrue to these operators as well as to Ventas. We expect one-third of our portfolio that is the office business to grow Q1 same-store NOI by an attractive 4% to 5%. Pete Bulgarelli has led a series of differentiated operational initiatives in MOBs in the last few years which are really bearing fruit. The results of these efforts were evident in the excellent fourth quarter performance for the MOB portfolio, which grew same-store fourth quarter NOI by 3.4%.

The second quarter in a row where same-store growth exceeded 3%. Meanwhile, MOB new leasing was up approximately 55% and customer retention was 92% for the quarter. That strength is expected to carry into the first quarter. Final Q1 guidance assumptions of note include no new HHS grants beyond the $33 million already received, no new unannounced material acquisitions or capital markets activities and 403 million fully diluted shares.

We have provided additional insights and disclosure in our business update deck and our supplemental including our Q1 versus Q4 sequential shop assumptions as well as a reported segment NOI to FFO trending schedule to allow for easier insight into unique items in our results. Some final comments on balance sheet leverage and liquidity. In 2021, the Company enhanced its portfolio and strengthened its balance sheet through $1.2 billion in asset dispositions and loan repayments used to reduce near-term debt. Meanwhile, we extended duration and increased our fixed rate debt to 91% by tapping into the bond markets in the US and Canada, including a 10-year US unsecured offering at 2.5%, the best 10-year healthcare REIT rate in 2021.

Net debt to EBITDA was stable at 7.2 times in the fourth quarter, with the senior housing recovery now underway, expected to improve that ratio over time. And that's a good segue to close with our enthusiasm as we look into 2022 based on the strong senior housing recovery that is now underway and the confidence that we have the portfolio, partners and team to create value for all our stakeholders.

And that concludes our prepared remarks. Before we start with Q&A, we're limiting each caller to one question to be respectful to everyone in the line.

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

Skip to Participants
Operator

Thank you. [Operator Instructions] We'll take our first question from Nick Joseph with Citi. Your line is open.

Nick Joseph
Analyst at Smith Barney Citigroup

Thank you. And first of all, thank you for the increased disclosure. It is very helpful. But I guess my question will be on senior housing. So clinical trends continue to trend favorably and assuming there's no disruption from another variant or anything, how do you think about the ability to decrease the use of agency labor going forward?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Hi, it's Justin. So if we step back and you look at the kind of macro backdrop that was causing labor shortages, this was happening in the third quarter. We anticipated that, that would continue into the fourth quarter. What happened -- during that period is we had net hiring in our portfolio so that we are encouraged about the hiring trends. And then Omicron happens, and that really had a big impact in the first part of the first quarter. You can see some trends in our business update, where we show the clinical cases among our employees. And what's encouraging is you can see that those cases are coming down. But we're not all the way out of the woods yet. So the first thing we're going to look for is to have a healthy workforce, the second thing is to continue those net hiring trends. And then as that continues, then we would expect the agency cost to be able to come down.

Operator

Next, we'll go to Steve Sakwa with Evercore ISI.

Steve Sakwa
Analyst at Evercore ISI

Great. Thanks. Good morning. I just wanted to stay on senior housing. Justin, the leads and they're certainly positive here. And I'm just wondering if you could talk about the -- maybe the sales cycle. And I realize you're forecasting for a modest decline in occupancy but I'm just wondering, given the pent-up demand that seems to be there and the fact that cases are coming down so quickly, what's the chance that you could actually move folks in maybe later this month and into March and exceed kind of the minus 20 basis points on the occupancy side?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Hi. Sure. So you've probably noted that leads are really high. In fact, I mentioned that they're the highest event since the onsite of the pandemic. Leads are going to be critical to supporting this -- the senior housing recovery that's underway. Getting to the kind of your question, it certainly seems possible that the move-ins that didn't move in late January, could flow over into February, and we would definitely qualify that as pent-up demand. As you know, a lot of the move-in activity happens towards the end of the month. So we're looking forward to see how that plays out.

Operator

Next, we'll go to Rich Anderson with SMBC. Your line is open.

Rich Anderson
Analyst at SMBC

Thanks. Good morning. So Welltower had their call this week and I suggested that there would never be an elephant hunting type of Company in terms of external growth. I'm curious if you have a red line through that mentality as well. And specifically, I'm thinking about how you identified senior housing and life sciences, your strategic priorities. Could a scenario unfold where MOBs become -- given the pricing that's being attributed to that sector, be a significant source of funds to be redeployed into in some significant way that would qualify as elephant hunting. Thanks.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Hi, Rich, good to hear your voice. Look, I think our competitive advantage has really always been our ability to do all different types of deals across our asset classes and to do so in a way that's created value and that includes sort of getting into MOBs early and building a great business. It includes, of course, allocating capital to senior housing and most recently, our significant investment in value-added life sciences.

I mean, that has just been really really incredibly positive for our shareholders. So we have sold MOBs as we talked about this quarter, I think recycling that capital has enabled us to upgrade our portfolio in a very positive way. And we'll continue to look for opportunities to do that while at the same time, our investment activities will continue our long pattern of really picking our spots where we have a competitive advantage and think we're going to add value from good risk-adjusted return.

Operator

Next, we'll go to Nick Yulico with Scotiabank. Your line is open.

Nick Yulico
Analyst at Scotiabank

Great. Thank you. In terms of just going back to the agency labor costs, I wanted to see if you guys had the number for the whole portfolio or at least, I know you break it out for the same store in the presentation, which is very helpful. It's 7.7% of labor, but you have the bigger portfolio now with new senior and others. So I'm just trying to understand like a full agency labor number that was in for the fourth quarter and when you're saying for the first quarter that it's going to be elevated? Or is it just literally like the same amount of agency labor in the first quarter? Thanks.

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

Hey, Nick, it's Bob. I direct you to page 16 of our investor deck. I think there's a nice description of the pie chart of revenue and its decomposition. And you can see within that in-house labor is 42%, contract labor is 4%. You can apply that to the entire portfolio or subsets of the portfolio. It will give you the same relative composition and you'll see the picture down below of what that means for the year-over-year pool. Though contract labor is important, and it has accelerated and indeed in January, accelerate even further, the underlying costs really are driven by the in-house labor. And that is really the key. And hence, that's why we're so focused on bringing that in-house. Should we do that successfully, that's clearly upside given the cost per hour. But ultimately, it's a much smaller piece of the overall cost than in-house labor, but clearly an opportunity there. And you can apply that percentage to wherever you like to get to the answer.

Operator

Next, we'll go to Jordan Sadler with KeyBanc Capital Markets. Your line is open.

Jordan Sadler
Analyst at KeyBanc Capital Markets

Thank you, and good morning. Can you guys discuss -- Justin, you touched on the non-same-store portfolio in the quarter I think the comment I heard was that performance was stable. I'm curious if you could kind of flesh that out for us a little bit, specifically as it relates to the NAND transition properties that took place? What's going on with those? And then what's embedded in your guidance for 1Q sequentially for the transition portfolio?

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

Let me take the numbers first, then I'll let Justin give some of the color. So the outperformance at the high end of our range that we delivered in the fourth was led by senior housing within led by the non-same-store portfolio. There are two pieces of that in the fourth. There's new senior in the transition 90 assets. Both those pools performed well at the higher end of our expectations. which we're really pleased with. The assumption carrying that then into the first is continued stability, notably within the transition. The new senior assets I'd highlight are in the sequential pool in the first. And so as you look at the guidance for the sequential pool, you'll see the impact of new senior, which is growing nicely. And that's the outlook. So Justin, any commentary on the 90 and how it's going?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Yeah. The only thing I'd add is that we -- as planned, we successfully transitioned all of those communities by the first of the year to different operators and everything is going relatively smooth.

Operator

Next, we'll go to Steven Valiquette with Barclays. Your line is open.

Steven Valiquette
Analyst at Barclays

Thanks, and good morning, everybody. So just a question or two here on the triple-net portfolio. So Ventas during the corner with a so positive SS NOI in the fourth quarter in triple net. And with the guide for that to be down 1.5% to flat in the first quarter with senior housing and the road to recovery overall, can we assume that the rent resets are hopefully behind us now within the triple-net portfolio?

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Good morning. Thanks for your question. I think we have a page on this also in the business update. We have really been action-oriented, as Justin talked about and have addressed the lion's share of our senior housing portfolio, which is really 50% Brookdale, and you've seen the EBITDA guide they have there. Because of the length of the pandemic, there are a couple of small operators that are still challenged by the length of the pandemic. And really, the outcome there is pretty dependent upon HHS support, but more importantly, the recovery in the senior housing business, which we expect to be robust, and we expect to get the benefit of that over time.

Operator

Next, we'll go to Juan Sanabria with BMO. Your line is open.

Juan Sanabria
Analyst at BMO Capital Markets

Hi. Just hoping to follow up on Steven's question on the triple-net portfolio, what percentage is paying kind of cash 1 times EBITDA? Can you quantify the potential upside as those leases revert to market -- to the contract rents?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Yeah, sure. So there's -- as Debbie said, that operators that have had elongated challenges. There's just a few and they each represent less than 1% of our overall portfolio. Those operators will benefit from HHS funds, they'll benefit from operational improvements and the recovery of senior housing just as our SHOP portfolio does as well. So we're anticipating that the triple net would behave similarly through our shop portfolio. We do have some cash flow paying tenants, and that's in a range of around 15% to 20%.

Operator

Next, we'll go to Vikram Malhotra with Mizuho. Your line is open.

Vikram Malhotra
Analyst at Mizuho

Morning. Thanks for taking the question. So maybe just stepping back, Debbie and Justin, just thinking about sort of the external growth piece of it, as you outlined the track record and what you've done in 2021. As we look to '22 and '23, can you talk about just how you think about growing in senior housing, in particular, with what you're seeing fundamentally the longer-term growth opportunities and maybe especially talk about on balance sheet versus maybe using more of a JV structure?

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Good. I'm going to ask John Cobb to address the senior housing question, and I would expect most of our senior housing to be on balance sheet.

John D. Cobb
Executive Vice President and Chief Investment Officer at Ventas

Yeah, this is John Cobb. Yeah, I mean, I think most of our pipeline, which is fairly robust today really kind of mirrors what we talked about in 2021. We're seeing a lot of senior housing. We're seeing some select life science development opportunities with our partners, Wexford. And we're seeing a few medical office buildings, mainly with our existing partners that we have in our portfolio. But by and large, it's senior housing, we're seeing some really good high-quality portfolios out there that are -- we expect to transact in 2022. So we're very excited and looking at these transactions and hopefully, acquiring them.

Operator

Next, we'll go to Tayo Okusanya with Credit Suisse. Your line is open.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Tayo?

Operator

Go ahead. Your line is open.

Omotayo Okusanya
Analyst at Credit Suisse Group

Hello. Can you hear me?

Operator

Yeah. Go ahead.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Yes, we can.

Omotayo Okusanya
Analyst at Credit Suisse Group

Perfect. Yes, good. Good morning, everyone. Good quarter, great to see things heading in the right direction. I wanted to move off senior housing, talk a little bit about the office portfolio. And then in 4Q, really strong same-store NOI growth yet again from the MOB, somewhat weaker on the Life Sciences side. I wondered if you could talk a little bit about what happened with both areas to kind of perform the strong performance at somewhat underperformance? And then how do we think about that going forward in 2022?

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Well, you met [Phonetic] Pete Bulgarelli here. So Pete, can you address the force [Phonetic] in the first?

Peter J. Bulgarelli
Executive Vice President of Office, President and Chief Executive Officer of Lillibridge Healthcare at Ventas

Yeah, to figure out how to turn on my mic. It's just so rare. Yeah. So let's first talk about MOBs. We had a terrific really second half in 2021. As Bob had already mentioned, we did a significant amount of new leasing. Really, for all of office, we did 3.7 million square feet of total leasing. The new leasing was substantially higher than 2020 and for MOBs and even higher than 2019. Our retention, as Bob mentioned, was 86% for the full year. For the quarter, it was 92% and most exciting for December was 95%.

What I would say is that it just wasn't a lot of leasing in MOBs. It was really high-quality leasing. Just to give you an example or two, our weighted average lease term for new leases were nine years. And what that did in the -- that's for the quarter, and what that did is extended the whole portfolio's Walt from 4.8 years to five years. Same thing on escalators.

Our escalators for new leasing were 2.9% for the quarter. And that increased the whole portfolios escalators by 30 basis points. So very substantial. And what that allowed us to do is to grow for the first time in a long time, two quarters in a row at per quarter. So if you project forward on MOBs in the first quarter of '22, we'd expect that trend to continue, really on the basis of having higher occupancy late in the year and that carrying over. And I can tell you, in January, we're on track in MOBs to achieve what we said we're going to do. So moving to R&I, and I'll go back to the fourth quarter I think you need a little context. In R&I, we had a very good year. We grew by 13.9% for the full year.

And without the termination fee, we still grew by almost 4%. And if you look at the supplemental, revenue was fine. We had good revenue for R&I in the fourth quarter. but we had some higher expenses than normal in the fourth quarter, mainly around as buildings start up, you go from rogue dirt to a building to an occupied building Real estate taxes take a while to kind of catch up. And that's one of the factors in the fourth quarter. We had a very large tax payment in the fourth quarter.

Secondarily, many of the buildings kind of came back to life became occupied again in the fourth quarter. As a result, utilities went up significantly in addition to in Baltimore and in Philadelphia, two of our larger locations, there were large utility rate increases. So now -- so we're very happy with the R&I performance in '21. So if you project forward to '22, they will cover the balance of what I already described for MOBs, it will be largely on rate -- sorry, on occupancy growth carrying into the first quarter and strong expense control. So I'm very bullish about the office business really in 2022. Sorry for the long answer, I got carried away.

Operator

Next, we'll go to Joshua Dennerlein with Bank of America. Your line is open.

Joshua Dennerlein
Analyst at Bank of America

Yeah. Hey, everyone.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Hi.

Joshua Dennerlein
Analyst at Bank of America

I just wanted to ask about maybe the residential or the resident renewals going out now? I know for the January 1, I think it was 8%. Just curious how they trended for the people rolling later. And then maybe just an update on the re-leasing spreads and how we should think about them going forward.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Yeah. I'm glad you raised that because obviously, as we talk about revenue growth and the in-place January 1 rate increases are extremely important I think it's important to note that, that applies to a part of our portfolio, and we'll continue to have pricing opportunities as we deal with the anniversary renewals and rate increases as we deal with new residents coming into the portfolio as occupancy is increasing and also the care component, which can increase throughout the year. So those are all opportunities that we have in front of us. And obviously, it was a good start with the 8% increase in January.

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

And then I would just add that as we're working to identify what the appropriate pricing is moving forward. As I mentioned, Ventas OI, which really stands for operational insights, and really taking the best of our data analytics, combining it with our operating experience and the experience and expertise of our operating partners. We collect vast amounts of geospatial data and demographics wealth penetration rates, new construction to train our demand and supply forecasting models, which have been remarkably accurate as it pertains to decision-making on pricing, acquisitions, dispositions. So we have that approach our disposal and the levers that Debbie mentioned around care, street rates and the anniversary rent increases that will happen throughout the rest of the year.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

And the demand that we're seeing from the leads obviously demonstrates the value proposition and the strong consumer demand for these services. And so that is tailwind as well that should support these efforts.

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

I'll add. I don't know if you mentioned this, the re-leasing spreads have been improving. Market price is firming. It's obviously fundamental.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Yes.

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

So the combination of the in-place increases and improving re-leasing spread, the care component, which can be priced throughout the year and the anniversary pricing. In a dynamic inflationary environment, there's a number of different levers at our disposal.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Thanks, Josh.

Operator

Next, we'll go to Richard Hill with Morgan Stanley. Your line is open.

Adam
Analyst at Morgan Stanley

Hey, you have Adam [Phonetic] on for Rich. Good morning, guys. I hope you guys are all well. I just wanted to kind of ask about the kind of the expense control and the agency labor. I recognize that the kind of the pressures there. kind of wanted to see if you could maybe kind of quantify the kind of December versus January versus February to date impacts. How have trends gone the agency labor usage increased over these three months, decrease kind of if you could just kind of quantify the sequential move that I think would be kind of helpful to think about how kind of the quarter is playing out and what kind of the outlook would be for the next couple of quarters?

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

Sure. Again, I'll direct you to page 16 of the business deck. I think it's nice to be able to see how labor breaks down. And for this pool, there's $16 million of contract labor in the fourth quarter. I'll call it, just $5 million-ish on a run rate basis. We saw that accelerate to call it $6 million in December and into January. And that's what we've effectively carried forward in our assumptions. Each pool is different, but that kind of gives you a flavor of it. Clearly, if the clinical situation improves, the staffing continues to get traction, that would be an opportunity. But that's how we dimensional that cost.

Operator

Next, we'll go to Michael Carroll with RBC Capital Markets.

Michael Carroll
Analyst at RBC Capital Markets

Yes, thanks. You guys did a good job detailing your recent capital recycling transactions. I guess where does Ventas stand in that overall process? Mean how much of the current portfolio specifically in the seniors housing kind of falls in that non-core bucket that the Company would likely to eventually sell out of?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Hi. It's Justin. I'm happy to report, as I mentioning all the actions we've taken that -- the heavy lifting is really behind us. There'll always be some non-core assets that we're looking to sell or transition or invest in or do something to create value, but it will be a small number moving forward.

Operator

Okay. Next, we'll go to Mike Mueller with J.P. Morgan.

Mike Mueller
Analyst at J.P. Morgan

Yeah. Hi. For the $205 million of 4Q shop labor, where do you think that number goes to you're fully staffed at market prices but without the heavy contract labor component?

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

The real question I think that you have to answer for that is what's happening to the $189 million of in-house labor. Again, I think the focus is very much and rightly so been on contract labor, but the key in terms of total cost is in-house labor. And that gets to the macro question of where the labor market and therefore, inflation go, which I'm not going to pretend I know the answer to. I think the economists will tell you many of them that, that will -- that macro situation will improve in the back half. We subscribe to that, but very tough to call. And so we're not going to make a long-term focus.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

And in the near term, we're projecting essentially a run rate in the quarter.

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

Right.

Operator

Next, we'll go to John Pawlowski with Green Street.

Jordan Sadler
Analyst at KeyBanc Capital Markets

Hey, thanks for the time. Justin, a quick question for you, and apologies if you've chatted about this in recent quarters, but I am hoping you can help quantify the operating upside of recent initiatives you rolled out and you are currently rolling out new to the Company? So just trying to understand how much higher the earnings and the NOI power of the SHOP portfolio will be under your purview versus the Ventas evolved?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Hi. Yeah. Well, so the -- there's been a lot of actions over the last couple of years. Certainly, some priorities were accelerated based on the fact that we were going through the pandemic. And the goal of all of the actions, whether we're acquiring or disposing or making a decision to invest capex, transitioning assets under new management is to create value and create just a greater opportunity to drive NOI over time. So I think really, time is going to tell. We're off to a good start. We're pleased with that we set expectations in the fourth quarter, and we're able to meet those expectations, and we are excited about the growth in the first quarter off to a good start.

Operator

Next, we'll go to Daniel Bernstein with Capital One. Your line is open.

Daniel Bernstein
Analyst at Capital One Financial

Good morning. Nobody get excited. I'm going to ask an MOB question. I just -- go ahead. Not just you guys, but your peers have I've also spoken in the last several quarters about better re-leasing spreads, better annual rent bumps and MOBs. And so given the inflationary environment, kind of what -- how do you think the rent bumps can improve going forward? I mean can we push north of 3% on rent bumps? Can we see higher re-leasing spreads and kind of what's the willingness of tenants and MOBs to accept that in the past, that hasn't been the case. But recently, it seems like it has been.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

I mean one thing that's really important to remember in the MOB business is that the assets are priced and have a low cap rate because of the reliability of the cash flows, as we've seen over the past two years, the benefit of that and the reliable growth. They also have higher margin, a much lower labor component. And so you have to look at both sides of the equation, I think, when you're thinking about the risk/reward of an asset class. And so Pete can answer, we ask him every 15 minutes if they can get higher escalators. And so we'll let him answer that.

Peter J. Bulgarelli
Executive Vice President of Office, President and Chief Executive Officer of Lillibridge Healthcare at Ventas

Daniel, I think it's a great question. This is Pete. And given that our portfolio is largely on-campus, there aren't a lot of options just sitting there waiting to compete with you. Usually, it requires new construction to compete. And certainly, with inflation and the environment, we have today, the cost of building a new MOB and the required leasing rates have gone up. And so our leasing team are is all -- it's very location in city-specific as far as what's happening to the demand of medical office space as well as construction costs. But in many cases, we're competing against brand-new medical office buildings, which does give us room to raise our escalators and honestly, our initial rental rates.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Yeah. And remember, you're pushing through the expense increases to the tenants as well. So you really have to look at the revenue and the expense side to really evaluate the benefits of the MOB.

Peter J. Bulgarelli
Executive Vice President of Office, President and Chief Executive Officer of Lillibridge Healthcare at Ventas

Yeah. We only have a couple of percent of our leases that are gross leases. Rest are some fashion of pass-throughs of expenses.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Thanks, Daniel.

Operator

And next, we have a follow-up from Juan Sanabria with BMO.

Juan Sanabria
Analyst at BMO Capital Markets

Hi. Just a quick modeling question. For 2020, realizing you're not giving full year guidance for earnings. But just wanted to get a sense of what you guys are expecting from a FAD capex and G&A perspective for those two line items?

Robert F. Probst
Executive Vice President and Chief Financial Officer at Ventas

Sure. So I'll start with G&A. We did give a $37 million number for the first quarter with stock comp amortization, which is our FFO treatment on that. So $37 million. And if you look at just 2021 G&A Obviously, that was a very good year in terms of year-over-year in cost management. We hope this year, we get back to normal business as usual, to some degree, which will obviously have an impact in terms of just T&E and things like that going up. But first quarter, very much in line with risk quarter year-over-year, frankly. In terms of FAD capex, really, there's things -- a few things I'd highlight. Obviously, with the acquisitions we've done, particularly in new senior in a higher shop portfolio base. There's more FAD capex dollars. And secondly, and Justin should touch on this, more opportunities for us, I think, to really focus using our OI as now branded to identify opportunities to invest in the portfolio. And so we'll see some acceleration there.

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Yeah. And I'd just say consistent with some of my other comments, the goal is to create value. Capex is a tool at disposal and with the use of our analytics and operational expertise and combined with the operating partners, local market experience, we can make smart choices and anticipate returns on that investment.

Operator

Next, we have a follow-up from Jordan -- we have a follow-up from Jordan Sadler with KeyBanc Capital Markets.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Okay.

Jordan Sadler
Analyst at KeyBanc Capital Markets

Thank you. A quick one here for you, Justin, and then a follow-up to Bob. Just Justin, shape of the recovery this year, just mathematically, I'm curious if you've taken a look at the portfolio uplift potential throughout the year, I mean, could this year look similar to last year in terms of the occupancy gains, given sort of the strengths and lead you're seeing early on?

I know it's very difficult to look out. But I'm kind of saying mathematically, given sort of the -- a bit of an increase in occupancy already. How are you thinking about sort of the potential uplift in occupancy throughout the year in the SHOP portfolio? And then, Bob, just on the asset sales or actually, there's a loan maturing this year, let's say, almost $500 million. I'm just curious about timing or expectations will it be repaid or extended? Thanks.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Yeah. I'll take the loan. That's a loan that can be extended. And so we -- that's our expectation at the current time. And then in terms of occupancy, I think we're projecting significant year-over-year occupancy in the first quarter, which has been outperforming yet following seasonal patterns. And so that is something to think about when you're looking at the slope for the year.

Operator

Next, we have a follow-up from Tayo Okusanya with Credit Suisse.

Omotayo Okusanya
Analyst at Credit Suisse Group

Yes. Thank you very much. Just one for Justin maybe Bob. You did talk about the re-leasing spreads improving, but still being negative. And I guess the question I have is, with that to being negative, I guess I'm still so what surprised that you can push renewals as high as especially kind of given again, industry-wide occupancy is still kind of well delivered, it was pre-pandemic. So trying to understand those dynamics of why is it that you don't get that much pushback when there's still a high vacancy industry-wise and market rate just to kind of below where renewal rates are.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

That's a great observation. I think it really does go to a value proposition that being offered by the communities for the theaters and their families that at this level of occupancy, we have been able to successfully drive pricing in the first as of the beginning of the year, and that portends well kind of for the future as occupancy increases. So Justin, do you want to talk about the normal re-leasing spreads and how.

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Sure. Yeah. So the re-leasing spread, Bob mentioned this, that we saw it tighten through the end of '21, even all the way back to pre-pandemic levels, which were like negative mid-single digits. That -- the high-class problem is that we have the large increases that happen in January, and then you start comparing to relatively higher rents. And so technically, the releasing spread widens, but it doesn't mean that your pricing power doesn't continue to improve. And one thing that we do look forward to that this backdrop seems to support is the opportunity given the demand at the doorstep, to eventually get to a place where you have positive re-leasing spreads again, which we've had in other parts -- other -- throughout the sector's history, we've seen that at times. And certainly, there seems to be support moving forward for that to happen again.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Thank you, Tayo.

Operator

And next, we'll go to a follow-up for Vikram Malhotra with Mizuho.

Vikram Malhotra
Analyst at Mizuho

Thanks so much. Just maybe one broader question as we look into second half '22 and '23. With new senior and just your other acquisitions, you now have more of a tilt towards IL versus AL in the RIDEA pool eventually same-store pool. What does that mean from an expense growth standpoint and then a pricing power standpoint for the second half in '23?

J. Justin Hutchens
Executive Vice President of Senior Housing at Ventas

Well, certainly, independent living is a high-margin business, has relatively low labor costs compared to assisted living. It's a little less need-driven. So you may not see the occupancy pop, but we expect a higher ceiling in occupancy and independent living over time because there's less fly that faces it. And that's consistent with historical track record of independent living as well. So we look forward to revenue growth in the independent living communities and certainly assisted living is need-driven. It performs well. It seems like no matter what the backdrop is as long as there's a way to pay for the service, which given the housing values and wealth demographics there is. And so we expect that to continue as well. And the opportunity really is to price in labor costs over time. And we're -- as we've said, we're off to a good start given our highest in-house spread increases.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

One other thing we like about independent living is really -- it meets -- this is -- we're getting to the period of now we're over 8% -- growing over 3%. So we're really hitting kind of that demographic boom. And the independent living tends to meet that [Phonetic] customer had a little bit earlier age. So that's another part of the business in addition kind of the lower labor cost that we like. Great. Okay. We have one more question. Okay.

Operator

Next, we'll go to Nick Joseph with Citi.

Michael Bilerman
Analyst at Smith Barney Citigroup

Hey, it's Michael Bilerman here with Nick. Good morning. I was hoping to go just in terms of acquisitions in terms of the fund, as your cost of capital has improved, both from a debt and equity perspective, how do you sort of look at that opportunity to buy within the fund relative to on balance sheet? And how are you balancing that as you're looking at the transaction market for opportunities?

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Yeah. Thank you. Yeah. So the fund is a great tool. Obviously, our VIM business is going strong, and it gives us a great tool to continue to grow. It was very -- the fund itself was very thoughtfully conceived in order to be a net additive component of our growth strategy so that it really is designed to address -- we're very disciplined about capital cost and capital allocation. And so it's really designed to address many of the opportunities that were really not as attractive to us on balance sheet because of the relationship between our cost of capital and the pricing of that type of assets.

A great example is our South San Francisco life science building, our John Hopkins life science building, which were put in the fund with great success. And those are things that we may not have been able to acquire had we been doing it on balance sheet, but now we have 20% interest in it. We have asset management fees. We have ultimately, other types of economic incentives if the performance is good, which it has been. So a very thoughtful kind of defined strategy to use them to grow our business for the benefit both of our public shareholders and the third-party institutional capital.

Operator

And that concludes today's question-and-answer session. I'll now turn it back over to Debra Cafaro, Ventas' Chairman and CEO.

Debra A. Cafaro
Chairman and Chief Executive Officer at Ventas

Well, it's been a great call, and I'm very glad to end the year on a very good quarter and look forward to another positive one in the first. I really want to thank everyone for joining our call today. I can't tell you how much we appreciate your ongoing support and interest in the Company, and we look forward to seeing you in person soon. Thank you.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Sarah Whitford
    Director of Investor Relations
  • Debra A. Cafaro
    Chairman and Chief Executive Officer
  • J. Justin Hutchens
    Executive Vice President of Senior Housing
  • Robert F. Probst
    Executive Vice President and Chief Financial Officer
  • John D. Cobb
    Executive Vice President and Chief Investment Officer
  • Peter J. Bulgarelli
    Executive Vice President of Office, President and Chief Executive Officer of Lillibridge Healthcare
Analysts

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