Ladies and gentlemen, good morning. My name is Abbie and I will be your conference operator today. At this time, I would like to welcome everyone to the Ventas First Quarter 2022 Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions] Thank you. And at this time, I would like to turn the conference over to Sarah Whitford. Ms. Whitford, you may begin your conference.

Thank you, Abby. Good morning and welcome to the Ventas first quarter financial results conference call. Yesterday, we issued our first 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 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. And with that, I will turn the call over to Debra A. Cafaro, Chairman and CEO.

Thank you, Sarah. Good morning to all of our shareholders and other participants. I want to welcome you to the Ventas first quarter earnings call. I am delighted to be joined by my Ventas colleagues who have worked so hard for shareholders, each other, our partners and our other stakeholders over the past 2 plus years. We are off to a strong start in 2022. We are delighted to deliver on our commitment to grow normalized FFO and same-store shop NOI year-over-year for the first time since the pandemic began. It is certainly worth pausing to appreciate a quarter that returns us to growth and underscores our positive momentum and the senior housing recovery that is underway. In the quarter, we continued to benefit from stability and growth in our office and healthcare triple-net lease businesses. And in SHOP, we saw outstanding year-over-year NOI revenue and occupancy growth that overcame meaningful impacts of COVID-19 and inflationary pressures during the quarter. Looking forward, the power of our well-positioned communities, strong demand evidenced by leads that consistently exceed pre-pandemic levels into April, pricing power and advantaged markets should translate into sustained NOI growth through the balance of the year. These trends should be further enhanced by favorable supply demand fundamentals, supporting net absorption in our markets. Specifically, Q1 2022 starts are down two-thirds from the peak just as the over-80 population is set to grow over 20% during the next several years. But we are not just relying on demographics to win the recovery. Justin and his senior housing team continue to take decisive actions following the right asset, right market, right operator approach to best position our senior housing portfolio to capture the upside ahead. We have already started to see the benefit of these actions with a strong first quarter…

Thank you, Debbie. I will start by noting that we are very pleased with the NOI growth in the quarter and the start of what should be sustained improvement in our SHOP portfolio throughout the year. The revenue performance is very strong driven by volume and pricing in spite of the COVID activity in the first quarter leading to our best year-over-year and sequential revenue performance we have ever seen in our portfolio. Now, I will speak to the first quarters our performance excluding HHS grants, second quarter guidance, comments and update on our key initiative. In the first quarter same-store revenue increased by nearly 10% versus the prior year due to the positive trends in occupancy and rates, same-store average occupancy grew year-over-year by 420 basis points to 83%, which was ahead of the guidance midpoint of 410 basis points. Although the first quarter was slowed by impacts of COVID, demand remained resilient. Year-to-date through April, lead and move-in activity continue to outperform pre-pandemic levels, led principally by our U.S. AL business. REVPOR increased by 4.2% versus the prior year, benefiting from strong in-place resident rate increases approximating 8% and improving re-leasing spreads. Not only did we execute very strong in-house rent increases during the quarter, we have also witnessed strong sequential growth in street rates over the past several months, as move-in rates have improved 5% sequentially. The result of these favorable pricing trends has helped to translate into narrowing re-leasing spreads, which is now a low single-digit reduction and more favorable than pre-pandemic levels, this demonstrated pricing power is occurring a 83% occupancy, therefore we believe we have significant occupancy rate and ultimately revenue growth potential in front of us. Turning to expenses. Same-store operating expenses grew 8% year-over-year excluding HHS driven by higher occupancy and macro…

Thanks, Justin. I'm going to share a few thoughts on our first quarter office and enterprise results and finish up with our second quarter outlook before turning the call to Q&A. Our Office segment, which includes our medical office and research and innovation businesses, performed well in Q1, delivering 4.6% year-on-year same-store growth. Medical office year-on-year quarterly same-store growth was 3.5%, led by strong retention, contractual escalators and parking recovery. R&I increased 7.9%, which also benefited from escalators and leasing, as well as from $1 million in holdover rent from an exiting tenant. Adjusting for this holdover rent, R&I growth was 4.6% in the quarter and Office same-store NOI growth was 3.8%. In terms of overall enterprise performance, we were very pleased to have posted growth in the first quarter for the first time since the onset of the pandemic. We delivered FFO of $0.79 per share and organic SHOP revenue and NOI same-store growth of 10% and 14%, respectively. Meanwhile, total property same-store NOI increased 5.8%, excluding HHS grants. And this growth was achieved while Omicron raged for the majority of the quarter. These results speak to the quality of the Ventas portfolio and the commitment and skill of the Ventas operators and team. Leverage improved sequentially by 30 basis points to 6.9x in Q1 as a result of senior housing NOI growth and HHS proceeds, partially offset by acquisitions closed in the first quarter that have been pre-funded in 2021. In this rising interest rate environment, 90% of our debt is fixed rate with the duration exceeding 6 years and an average cost of debt of 3.4%. We are pleased that we extended debt maturities in 2021, having paid down over $1 billion of near-term debt while raising over $1 billion of new debt with a weighted coupon…

Thank you. [Operator Instructions] And we will take our first question from Steve Sakwa with Evercore ISI. Your line is open.

Thanks. Bob, I just wanted to maybe drill in a little bit on what you were talking about on expenses and just to make sure I understand, contract labor I know was kind of a big headwind in the first quarter. I’m just trying to understand what are your expectations for that in Q2? And just maybe labor overall in Q2 versus kind of labor in Q1?

Sure. Thanks, Steve. And there is a really helpful page in the business update on Page 12, which speaks to expenses. And just to frame this, I know you’re asking about labor, but again, I want to put labor in the context of the overall expense base, because we are seeing inflationary pressure not only in labor but in other areas such as food and utilities and so on, and that’s embedded in the forecast. But specific to labor, contract labor within that, which is, call it, 5% of labor with 95% being in-house labor. We did see some modest improvement in contract labor towards the end of the first, and we expect that to continue modestly improving into the second, as we continue to get some success in hiring, as Justin articulated. Importantly, the overall labor, we are assuming continued inflationary impacts in targeted ways in order to enable that recruiting. If you step back from it all, we are holding our cost per day flat sequentially Q2 to Q1 in a quarter which is seasonally lower, typically to reflect that inflation. And hopefully, that helps frame the answer.

And we will take our next question from Nick Joseph with Citi. Your line is open.

Hey, you’ve got Michael Griffin here on for Nick. Just curious, on future senior housing investments, is there more of a preference for the U.S. or Canada?

I’ll take that and then turn it over to Justin, but we’ve been very successful in both markets over time. Canada has really outperformed during the pandemic. Occupancies remain very high and the market has been favorable over long periods of time. And of course, the U.S. is the engine of growth in this quarter with 26% year-over-year. So we like the growth potential there as well. Justin, do you want to...

Yes. And I’d just say that as we’re underwriting deals, we always drill home to the local market, and we’re following the philosophy of right asset, right market, right operator. Certainly, the broader Canadian market tends to have a better supply demand dynamic over time. They have been 90% occupied for the last 10 years. So it’s been supportive of a very stable and growing investment in Canada. And then the U.S., looking ahead, with supply being so low and starts being so low over the next few years, we like our opportunity to grow organically, but also to make investments in the U.S. as well.

We will take our next question from Vikram Malhotra with Mizuho. Your line is open.

Thanks so much for taking the question. Maybe just a bigger broader one, Debbie and Justin, you’ve treated now at between 4 and call it, 7 turns multiple spread to your largest peer. I’m just wondering like, I know you’re going to be executing over the next few quarters, but are there other changes or strategies or the things you can do that you think will – investors will allow that gap to close?

Well, thank you for the question. As I mentioned, we are and have been taking a lot of decisive action on the portfolio with the team and just in general, to execute, to make sure people understand the Ventas story and the opportunities. And really, we have a consistent strategy that over time has delivered superior performance, and we look forward to the opportunities ahead. And again, look forward to driving TSR, as I mentioned.

We will take our next question from Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Great. Thank you. So I was curious, based on the positive trends you’re seeing in street rate growth for senior housing and the improvement in re-leasing spreads to the low single-digit decreases, do you expect re-leasing spreads to turn positive into the stronger leasing season? And what that could imply for future pricing? Thanks.

Hi, it’s Justin. Yes. So we are very encouraged by the trends, and we certainly have demonstrated pricing power, as we mentioned, and to do so at 83% occupancy is just a real good indicator of the demand for senior housing, which has been strong and growing and performing above pre-pandemic levels. So we would expect pricing power to persist. We demonstrated first with rent – in-house rent increases that around 8%, which was solid. The next lever we can pull is street rates and narrowing the re-leasing spread, which is happening already. We would expect it to continue. There is aspects – there is parts of our portfolio that are already positive in terms of re-leasing spreads. So we certainly think that can be achieved and should be. And I’d just say that we’re encouraged by the trends and expect the environment to support more improvement in that area.

We will take our next question from Juan Sanabria with BMO Capital Markets. Your line is open.

Hi, good morning.

Good morning.

Just the two parts – good morning, just a two-parter. I guess, one would be any April occupancy update you can provide? And part two would be a follow-up to Austin’s question. Typically, we see REVPOR year-over-year growth peak in the first quarter and then kind of moderate, as you see some churn in the portfolio. But wondering if you can give any commentary on expectations beyond the second quarter, in the context of your comment in the investor – or the quarterly deck about the percentage of the portfolio having the 1-year anniversary between the second and the fourth quarter as well as the leasing spreads and how we should think about year-over-year REVPOR growth for the balance of the year?

I’ll take the second one first and let Justin talk about April 1. So you’re right, REVPOR traditionally, at least over the last 5 years or so, if you look sequentially at the growth rate year-over-year, we tend to drift down over the quarters, with the first quarter being supported by the in-house rate increase and then the re-leasing spread dragging that down over the balance of the year. The dynamic – and that was in the supply backdrop really. That was typically the case. What’s really encouraging here is the firming street rate or new resident pricing would suggest that, that drift should improve, i.e., ultimately, a positive re-leasing spread over time as discussed. So we should have a better profile over time, notwithstanding the fact that the re-leasing spread is still lower. But over – as a trend, I would expect that would be better than the supply area, particularly given the backdrop of the fundamentals. You want to talk about...

Juan, Page 11, of course, has April leads and move-ins which are, as Justin mentioned, ahead of pre-pandemic levels, leads were very strong. And do you want to talk about sort of entering – and we’re entering the key selling season, obviously.

Yes. One thing about the key selling season, which is really May through September, we would expect that literally 99% of our net move-ins occurred during this period. So this is the red hot part of the selling season for this sector. We’re around 83.3% occupied in April, off to a good start in the quarter. And as Debbie mentioned, the underlying demand has just been really solid.

We will take our next question from Rich Anderson with SMBC. Your line is open.

Hi, thanks. Good morning. And drafting off that occupancy, monthly occupancy number, you mentioned in your deck, 500 basis points to return you to pre-pandemic occupancy. I think the market is probably – it has an appetite for what the sequential occupancy numbers look like in your guidance for the second quarter. So maybe you could give some cadence to the April, May, June expectation? And also what the timeline is in your mind to capture that 500 basis points and get us back to square one pre-pandemic occupancy? Thanks.

Hi, Rich, so sequentially, we would expect 80 basis points of sequential average occupancy growth. The start to the quarter in April is 20 basis points, suggesting it to go, if you like, in the 50 on average per month for the balance of the quarter. Remember, back to the key selling season, that begins to accelerate here in the coming months. If you looked at last year, how we trended, that looks as if last year are also favorable. So that would suggest a good setup for the guidance number.

And we will take our next question from Michael Carroll with RBC Capital Markets. Your line is open.

Yes. I just wanted to stick on the seniors housing demand trends. Obviously, the leads and move-ins are strong and have been strong. But how could a potential economic slowdown or even a downdraft in the housing market impact those trends? And obviously, the leads as a percent of 2019, kind of started to dip in the first quarter into April. I mean I’m not sure if there is anything to read into that? Or is that just something unique with the 2019 versus the 2022 trends?

Hi, it’s Justin. So the first part of your question really refers to the macro backdrop, and we’ve obviously been through other cycles, including one that had a housing demand and price decline. There is – there can be – if it’s dramatic like it was during the Great Recession, there can be an initial shock to the system. But what we saw during – post kind of the initial period of the Great Recession is that senior housing performed really well. It performed well and had a backdrop for a few years of limited new competition, more so than what we’re seeing now. We have a real opportunity with the starts being so low and the deliveries being so low relative to that period. So the other thing, too, is that house wealth and income demographics in our markets are very supportive. The affordability for our product is very, very strong. So we think we’re well positioned in that regard.

Right. And I would say, even potentially within real estate, relatively advantaged, because that would result in some more slack in the labor market as well. So, it would change the expense equation here, while the demand and supply are favorable. So, that’s I think an important point to understand. And then in terms of April, I think we are actually doing well compared to prior April.

Yes. We are way ahead of April of last year in terms of absolute leads, and we are still well ahead of 2019. So, we are not – we are more encouraged than anything.

Because those quarters embed this key selling season of May and June the prior period presentation.

And we will take our next question from Joshua Dennerlein with Bank of America. Your line is open.

Yes. Good morning everyone.

Good morning.

Just curious what spurred the initial conversation with Sunrise on switching the management contract over to more NOI base? Kind of how did that come about? And then is there any ability to do this with other operators?

Well, this was all part of Justin’s mandate, as these – we keep talking about these decisive actions, operationally focused, positioning the portfolio to capture the upside. And obviously, when he first came in March of 2020, there was a lot of focus on sort of the COVID reaction and stabilization. And so now where we have been taking these steps and the Sunrise is another good example of what we are trying to do to position the portfolio, Justin, you can comment, in particular, about how you have done this.

Sure. I mean one thing I will just mention is that Jack Callison and the team at Sunrise have just been performing really well, and we are just – couldn’t be happier about having a partnership with them. And what we like about this new arrangement is it’s pretty simple. If they deliver higher NOI to us, then they will get a higher management fee. If it’s lower, it’s lower. So, we love the alignment. They are fired up about creating value over time, and we will both benefit from this. And we definitely anticipate more of our portfolio to have this type of contract. We have several already, but we will continue to put this type of arrangement in place.

And we will take our next question from Steven Valiquette with Barclays. Your line is open.

Great. Thanks. Good morning.

Good morning.

Hi. Good morning. You guys touched on the – obviously, the pricing RevPOR environment. There is a bit of a growing vibe among some investors and conjecture from a few other senior housing companies about the potential for a multiyear cycle of annual resident rate increases trending well above historical averages in the current inflationary environment. I know it’s hard to predict any sort of multiyear trend. But I am wondering, at least for 2023, do you have any preliminary view on whether your rate growth in ‘23 can mimic your 8% average trend in ‘22, or is there already a bias that maybe ‘22 is a unique year and ‘23 increases go back to historical averages?

We have taken a view generally that there is – this is really sustainable demand. And again, the fundamental backdrop in our markets is favorable because of the incredible drop in starts, so supply is low and it’s going to stay low. We have this window of opportunity, where the senior population is starting to grow. And then we have an attractive kind of compelling portfolio. And so that is a backdrop, Justin always says that the table is set. That certainly is a good backdrop for a window of opportunity over time. And our view is, and I think Justin mentioned it, too, is if you can drive rate, in-place rate in the U.S. went up 8% in January at this low occupancy level in the low-80s, as those occupancies increase and these demographic supply-demand fundamentals improve, that should further support those – that kind of pricing power. So, a lot has to go right. There is a lot of uncertainty. It may not be a straight line. I need to caution all those things, but certainly, there is a case to be made.

And we will take our next question from Rich Hill with Morgan Stanley. Your line is open.

Hi guys. Thanks for taking the question. I want to come back to maybe some comments in the prepared remarks. And I think specifically, you said, first quarter 2022 capital allocation priorities continue to be acquisition and development of senior housing, life sciences and select medical office buildings. And at the risk of reading into it too much, including it the select, does that mean you are maybe de-prioritizing mobs a little bit more in favor of senior housing and life sciences, or have I read into that too much?

Well, when we look at 2021, the $3.7 billion that we had, it was really I think 70% senior housing, 20% life science and 10% MOBs. I mean we have been fortunate to have had an early thesis on MOBs and grown that business, and Pete’s done a great job running it. And we have done these bolt-on type of acquisitions, like the one we did this quarter with our hospital partner Ardent, which was a relationship-driven opportunity. So, that’s what I would say about our capital allocation priorities, and we have been very consistent in that regard.

And we will take our next question from Omotayo Okusanya with Credit Suisse. Your line is open.

Yes. Good morning everyone. Debbie, congrats on the order of merit in Illinois and also BJ, welcome aboard. Question is on senior housing. On the triple-net portfolio, in particular, again, realizing you guys had made a bunch of adjustments already to some of the struggling tenants. But you still have kind of a rent coverage that’s still probably somewhat weak relative to historical levels. About 10% of your NOI is still tied to triple-net senior housing tenants, where rent coverage is below one. How comfortable do you kind of feel like you have made all the adjustments restructurings you need to do for those tenants, or is there kind of a risk that you may have to expand that scope going forward?

I think at this point, Tayo, because of the pandemic, we have probably touched on the vast majority of these triple-net tenants. And that’s a lot of what we were doing during the pandemic and working with them. And as Bob said, what we have tried to do is really get to a sustainable rent level and then participate in the upside as the industry recovers. And that’s what we have done generally. So, Justin, do you want to…?

Yes. I would just say that there has been a lot of action taken. And we certainly believe that the vast majority of that’s way behind us. So, we will look to see the operations improve as the rest of the sector recovers.

And we will take our next question from John Pawlowski with Green Street. Your line is open.

Thanks. Justin, could you spend a minute just talking about specifically in Canada, what’s really holding back that market from a SHOP fundamental perspective, occupancy remains high, but NOI, cash NOI down 2% year-over-year. Feels like Canada has been lagging for a while. So, just a bit more specifics of what’s happening on the ground there?

Yes. Sure. So, the main thing that really happened was the Omicron variant. And in Canada, our communities had restrictions. They have always been much quicker to kind of shutdown when there is a little bit of an outbreak or a threat of an outbreak. And so that slowed the move-ins down. Canada is 93% occupied, it’s going to have kind of structurally higher move-outs because it doesn’t have the benefit of this U.S. portfolio that drops so much, because it’s just been such a strong stable performer. So, January and February had soft move-ins, March and April, off to a good start. So, we do think there is potential to recover. We are looking forward to Canada getting back on track. But I would just really point to COVID, really to the driving part.

Yes. And some of those restrictions really are continuing. They have been, from a healthcare standpoint, a much more rigorous kind of government controls on activities. And so it will take a little while for this to kind of run off, but it is a great portfolio and a really high performer, and we are very confident in the future performance.

And we will take our next question from Mike Mueller with JPMorgan. Your line is open.

Yes. Hi. Curious, what are your in-place escalators today for the MOB and life science portfolio? And as you are looking at signing new leases today, are the new escalators something considerably higher?

Yes. Thanks Mike. This is Pete. Thanks for the question. Yes, our escalators are about 2.5% right now, in-place escalators for MOB and they are about the same for R&I. And we are certainly pushing limits on that. We are starting pushing to 3% and in some cases, higher. And another related comment would be we are trying to push more CPI-related escalators as we deal with this inflationary environment. And we are – in some places, we are finding success and others, we are just – we are settling for higher escalators in the 3%, 3%-plus ranges.

And we will take our next question from Nick Yulico with Scotiabank. Your line is open.

Thanks. Good morning everyone. So, I know you haven’t given third quarter guidance, but just trying to put together various numbers here to try and think about what the third quarter sequential occupancy growth could look like for the SHOP portfolio. I mean last year, third quarter grew sequentially 230 basis points. I think you said, Bob, in the guidance for the second quarter that May and June, we are assuming about 50 a month. So, should we use that 50 a month kind of assume that pace could continue in the third quarter, so you get to around 150 basis points for the quarter, you are close to 200 if you look at the numbers from last year? Just trying to kind of frame out a possible occupancy growth scenario for the third quarter. Thanks.

Great try. Let’s focus on – we are very focused on executing and delivering in the second. And you are right about the expectations for the second. And we have said we expect sustained NOI improvement through the year.

I would just add, sequentially, which, to your point, three versus two, this key selling season in occupancy manifests itself.

And will be crucial to determining the answer to your question.

So fundamental, but seasonal patterns would suggest Q3 occ is sequentially favorable.

And we will take our next question from Vikram Malhotra with Mizuho. Your line is open.

Thanks so much for taking the follow-up. Just sort of in this market, with all the volatility, I am just wondering your views on two things. One, just using the fund more actively that you have created? And two, maybe given the medical office environment, using that as a source of capital for other growth, just all tying that all into the balance sheet and where you see leverage or how you see leverage trending over the next 12 months?

Well, thanks. Yes, the fund is a great competitive advantage that we have. We started in March of 2020, and our overall third-party investment management business is up to about $5 billion of assets under management. It generally is focused on kind of lower cap rate core type assets. And so to the extent there was an opportunity there that made sense, that is an attractive asset that we have. Bob, do you want to talk about the balance sheet?

Sure. In terms of leverage, it’s a little bit of a broken record, but the recovery of the $300 million of NOI we lost in SHOP in the pandemic is really the key to unlock the leverage ratio back into 5x to 6x. We are trending in that direction, which is encouraging. In the meantime, we have been doing other things such as upgrading the portfolio through asset sales, for example, last year, reducing near-term debt, extending duration, things like that, to make sure that we are in a good spot, which we are.

And we will take our next question from Joshua Dennerlein with Bank of America. Your line is open.

Yes. Hey guys. I wanted to ask about the $0.01 drag from the life science redevelopment. It seems like two tenants moved out. Did you disclose who those tenants were?

No, but we disclosed the locations, which maybe, Pete, you can give a little color.

Sure. Yes. This is Pete. So yes, we – with – just as a reminder, life sciences is one of our high capital priorities over the last couple of years, the research innovation portfolio has performed very well. And what we found consistently is when we have ready lab space, that the space lease is up very quickly and at very good rates. It’s a unique space in the marketplace. And there is a shortage of it across the country. So, one of our vacant – upcoming vacancy is in Raleigh, very near Research Triangle Park. And as a straight office tenant that is departing. And it’s – this building is within – is associated with Wake Forest University, is in the innovation center, is adjacent to the medical school that they have. And so we think that there is a good probability that we would redevelop that space into lab space and be very successful in re-leasing it. The other is in – is associated with our Keystone properties and – sorry, I missed two of them up, I’m sorry. There is one in Raleigh…

There is two, one is in RTP and one in the Wake Innovation Center, and they both could be very in demand for kind of lab space. So, that’s what we are undertaking.

That’s right.

There are no further questions at this time. I will now turn the call back to Ms. Debra Cafaro for closing remarks.

Yes. Okay. Well, thank you, Abby, and thank you to everyone who joined us today. We really appreciate your support and participation and are excited about the quarter, excited about the senior housing recovery that’s underway and look forward to seeing you soon.

And this concludes today’s conference call. We thank you for your participation. You may now disconnect.