Ventas - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered broad-based growth with total revenues of $1.421B, GAAP EPS of $0.15, Nareit FFO/share of $0.86, and Normalized FFO/share of $0.87; SHOP Same-Store Cash NOI rose 13% YoY on 8% cash operating revenue growth and 240 bps average occupancy gain.
• Guidance raised: Normalized FFO/share midpoint to $3.44 (from $3.41) and Nareit FFO/share range to $3.38–$3.43; 2025 senior housing investment volume increased to $2.0B (from $1.5B).
• Balance sheet strength improved: Net Debt/Further Adjusted EBITDA fell to 5.6x; liquidity reached $4.7B, aided by equity raised and proactive refinancing of 2025 maturities with $500M senior notes at 5.1%.
• Catalysts: multi-year secular demand tailwinds in senior housing, price/volume optimization via Ventas OI™, and pipeline-driven external growth; potential near-term stock reactions tied to SHOP occupancy execution in key selling season and accretive deal timing.

What Went Well and What Went Wrong

What Went Well

• SHOP Same-Store Cash NOI up 13% YoY; revenue growth strengthened to 8% YoY, driven by 5% RevPOR and 240 bps average occupancy gains; June sequential occupancy +60 bps with “second highest” monthly move-ins in 5+ years.
• Guidance raised again; Normalized FFO/share midpoint to $3.44 and investment volume to $2.0B, funded largely with existing unsettled forward equity commitments, signaling confidence in sustained growth.
• Outpatient medical showed leasing momentum (1M sqft executed, 86% retention) and occupancy improvements to 90.1%, positioning for stronger H2 NOI growth.

What Went Wrong

• Research (R&I) same-store NOI down ~1% YoY (~$100K) due to lower rents on innovation flex tenants; early-stage biotech funding remains uneven despite “glimmers” of improvement.
• Dispositions of non-strategic post-acute assets create ~$0.01 FFO headwind per quarter versus Q2, tempering sequential FFO despite SHOP strength.
• Competitive acquisition environment led to modest cap-rate compression (year-one yields drifting to low-7% from mid-7%); requires continued platform advantages to maintain low-to-mid-teens unlevered IRRs.

Transcript

Speaker 1

Hello and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Ventas' second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star, then the number one on your telephone keypad. To withdraw your question, press Star one again. I would now like to turn the conference over to B.J. Grant, Ventas' Vice President of Investor Relations. You may begin.

Speaker 2

Thank you, Bella, and good morning, everyone, and welcome to the Ventas Second Quarter 2025 Results Conference Call. Yesterday, we issued our second quarter 2025 earnings release, presentation materials, and supplemental information package, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of topics may cause actual results to differ materially from those contemplated in such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website.

Certain non-GAAP financial measures will also be discussed on this call, and for a reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental information package posted on the Investor Relations website. With that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO of Ventas.

Speaker 1

Thank you, B.J., and happy birthday. I'd like to welcome all of our shareholders and other participants to the Ventas Second Quarter 2025 earnings call. We're pleased to report strong earnings growth and, again, raise our guidance as we execute our 1-2-3 strategy. Ventas is an essential participant in the longevity economy and is well-positioned to capitalize on the secular demand from the large and growing aging population our company serves. Both our Advantage platform and our portfolio have been intentionally built to meet this moment and generate durable multi-year NOI growth driven by organic growth in our Senior Housing Operating Portfolio, or SHOP, and accretive senior housing investments. This engine of our growth is being supplemented by compounding contributions from the balance of our portfolio and our continually improving balance sheet.

Our 1-2-3 strategy is designed to deliver superior FFO per share growth, enhance our financial strength, and create value for our shareholders. The second quarter demonstrated the positive impact of our approach. Year-over-year, normalized FFO per share grew 9%. Total company same-store cash net operating income, or NOI, increased 7%. We also raised our full-year normalized FFO guidance midpoint to $3.44 per share, representing 8% accelerating year-over-year FFO per share growth at the midpoint. We also improved our company-wide same-store year-over-year cash NOI growth expectations to 7% at the midpoint. If achieved, these growth rates would put us in the upper echelon of REIT growers. Underpinning our strong results and improved expectations are the three components of our strategy. Let me take you through them in order. One, drive organic growth in our SHOP communities using our platform advantages, data analytics, and experience. Check. Our SHOP communities in the U.S.

delivered 18% same-store cash NOI growth in Q2, adjusting for a tax refund we received in the prior year. Revenue grew over 8% for the entire same-store SHOP portfolio, and average year-over-year occupancy growth accelerated intra-quarter and finished on a high note in June with 60 basis points of sequential improvement in average occupancy. In June, move-ins reached their second highest level of any month in over five years. Two, make value-creating investments in senior housing. Check. We've raised our full-year 2025 senior housing investment volume guidance to $2 billion. Because of our advantaged position and the increase in market activity, our pipeline of senior housing investments is growing, and we intend to build on our momentum as we identify and close compelling investments with low to mid-teens unlevered IRR expectations, robust current performance, and significant upside potential. Three, maximize performance in the balance of our portfolio. Check.

Our outpatient medical and research portfolio is fueled by growth in the over-65 population, which will represent 20% of the U.S. population by 2030. Outpatient medical is powered by our competitively advantaged in-house property management and leasing platform and is also benefiting from the accelerating trend toward outpatient activities. Our team delivered leasing and occupancy improvements both year-over-year and sequentially in Q2, and we expect year-over-year NOI growth to increase in the second half. Meanwhile, our institutionally based research portfolio, which is the smallest part of our business, represents about 8% of our NOI. Three-quarters of that NOI comes from credit tenants under leases with a weighted average lease term of nearly 10 years. We continue to experience good institutional demand for our space, while the sliver of innovation and pre-revenue tenancy remains subject to the macro challenges facing the sector.

All in all, backed by compelling demand for the services and activities in our sites, our space users generally have staying power and are finding ways to adapt and continue their important work. Closing on senior housing, we are already in the fourth year of double-digit NOI growth from our communities, and the multi-year NOI and occupancy growth opportunity ahead of us should continue for many years. The over-80 population should grow 28% in the next five years by 4 million individuals as the leading edge of the baby boomers turns 80 in 2026, and more seniors than ever are choosing senior living for the benefits it provides. In fact, the number of individuals projected to turn 80 increases every year through 2038. At the same time, new starts in senior housing are hovering at record lows, with construction starts approximating only 2,000 units in Q2.

We expect today's significant supply constraints to persist for an extended period. This combination of secular demand, which is expected to grow beyond the next decade, and factors suppressing supply. Should elongate Ventas' multi-year occupancy and NOI growth opportunity well into the future. Because we anticipated these conditions, we've taken focused actions to expand our SHOP footprint by 1,200 basis points in just over the last two years, and we expect SHOP NOI to represent over half our business by year-end. Along the way, we've built a formidable platform that leverages our advantages to enable exceptional environments attractive to our senior residents, drive performance through active asset management, curate our portfolio, and maintain mutually supportive engagement with our operators. Together, the highly favorable macro backdrop and our advantage capabilities should enable Ventas to thrive and create value for our shareholders over the near and the long term.

Our whole team at Ventas is excited and aligned to go after these opportunities. Now I'm happy to turn the call over to Justin.

Speaker 2

Thank you, Debbie. Let me first start with the second quarter. Our SHOP same-store portfolio delivered 8.2% revenue growth, driven by accelerating occupancy throughout the quarter and strong pricing, resulting in 5.3% RevPOR growth. The key selling season is off to a good start and bolstered by a very strong June and continued strength in July. Same-store SHOP occupancy grew by 240 basis points, led by the U.S. with growth of 290. Our operating partners, Atria, Sunrise, Discovery Senior Living, and Atria, led the way in the U.S., while Le Groupe Maurice in Canada continues to stand out with occupancy over 98%. Move-ins remained strong throughout the quarter and were exceptional in June while move-outs normalized. June's sequential average occupancy growth versus May was particularly strong with 60 basis points, led by the Holiday by Atria brand, contributing 110 basis points sequentially.

We outperformed the NIC industry averages as our communities located in the U.S. top 99 markets outperformed NIC occupancy growth by 100 basis points year-over-year and 30 basis points sequentially. The SHOP portfolio delivered 13.3% NOI growth, driven by 16% in the U.S. When adjusting for the prior year tax refund, underlying NOI rose 15%, with the U.S. up 18%. Expenses were roughly in line with expectations. A quick reminder, we raised SHOP guidance in May and still expect 270 basis points of occupancy growth, 4.5% on RevPOR, 5% on expense, and a range of 12% to 16% NOI growth. 2025 marks our fourth consecutive year of double-digit NOI gains as we continue to take deliberate actions to capitalize on the multi-year opportunity in senior housing. Reminder, the primary determinant of occupancy for the full year is the timing and slope of the key selling season, which is performing well.

We still have important months ahead, and we are working hard to finish strong. Moving on to senior housing strategic updates. As you know, our strategy is focused on the right markets, right assets, and right operators. Over the past five years, we have deployed the full range of portfolio actions underpinned by our Ventas OI data analytics to ensure that we are well-positioned to deliver outsized growth in our senior housing platform. Those actions include over 130 conversions from triple net to SHOP, over 260 transitions to new managers, over 110 dispositions, over 300 community refreshes, and over 190 acquisitions. Our ongoing active asset management is driving performance and positions Ventas to capture the compelling multi-year growth opportunity ahead in senior housing. I'd like to take a few minutes to talk about aspects of the operator portion of the strategy.

Adding new operators is essential to obtaining scale and density in markets, as well as expanding our relationship-driven investment opportunity set. I'm really excited about the progress we have made growing our SHOP operator footprint, reaching 36 operators as of July from just 10 five years ago. We selectively grow with top-performing operators with strong local market clusters, specialized product expertise, and deep leadership talent embedded close to community operations. Our scalable advantage platform enables us to match each community with the most effective operator, unlocking performance and growth across diverse markets. In a highly fragmented U.S. senior housing landscape, supporting and expanding a high-performing operator pool is a key driver of our growth strategy. Importantly, these new relationships are also a major source of proprietary deal flow as the majority of our transactions are relationship-driven rather than broadly marketed, creating a compounding growth effect across the enterprise.

We work with operators in a number of ways, including driving price volume optimization and community transitions. For example, we are hitting our stride managing occupancy and rate growth, driving RevPOR and move-in volume. The Ventas OI team is actively driving price and volume optimization by collaborating closely with our operating partners to ensure that our senior housing communities are dynamically priced. This strategy leverages data-driven insights to strike the optimal balance between converting tours into move-ins and achieving competitive rate positioning in each market. By continuously analyzing market demand, lead conversion trends, and price elasticity, we're aligning incentives and decision-making to maximize both occupancy and rate performance, as evidenced by our strong move-in and RevPOR results, both among the best in the past several years. Another key area of focus is transitioning management.

We remain committed to ensuring each community is aligned with the right operating partner and will continue to actively pursue transitions where we see an opportunity to enhance performance and achieve the optimal operator fit. For example, I'll give a quick update on our 26 independent living transition communities that we moved to three different operators by the end of 2023. Those communities are 84% occupied and are achieving an industry-leading 890 basis points of occupancy growth year-to-date versus prior year. They have now caught up with our Holiday by Atria portfolio, which is also 84% occupied in the U.S., both with significant runway ahead for continued growth. Moving on to portfolio positioning, the strategy of converting our lower-occupied triple net communities to SHOP bolsters the long-term growth potential in the SHOP portfolio. By design, two-thirds of the portfolio is in the low 80% occupancy with significant upside opportunity.

Balancing this approach, our investments in senior housing have focused largely on high-performing, market-leading communities with upside around 90%. Recall, the next big conversion tranche is the 45 former Brookdale triple net communities. This portfolio is only 78% occupied, offering a long runway of growth ahead. The five transition operators that will run these communities moving forward are highly engaged and excited about creating value in this portfolio through aligned management agreements. We have plans to refresh the portfolio with NOI-generating CapEx, enhancing the competitive positioning of the communities. The portfolio is located in markets with strong tailwinds, and we continue to expect to double the NOI over time. Wrapping up SHOP, I continue to be energized by the strong performance and remain focused on the organic growth opportunity in the portfolio supported by our very capable team and our excellent operators.

Turning to investments, we've continued to execute on our strategy of acquiring attractive senior housing communities that are highly accretive relative to our cost of capital, improve our overall portfolio quality, and increase the company's growth rate. I'm pleased to once again raise guidance for the year to $2 billion as our pipeline is increasing at a remarkable rate. Building on our strong first quarter, we've now closed $1.1 billion in senior housing investments year-to-date and $3 billion since the beginning of last year. We also look to expand our honor momentum as our pipeline continues to be very active. Year-to-date, we have reviewed 41% more investment opportunities by dollar volume than during the same period last year. While the market has become more competitive in recent months, Ventas is a partner of choice, enabling us to source meaningful and attractive transaction volume meeting our targeted criteria.

The senior housing investments closed year-to-date have an expected year-one cash yield of 7.2% and low to mid-teens on levered IRRs, in line with our historical senior housing investment activity over the past 18 months. These assets complement and improve our broader portfolio, generally offer a full continuum of care and services, are newer vintage, and are located in fast-growing markets with projected demand well above the national average. In summary, I'm happy to see solid execution across parts one and two of our strategy. First, driving profitable organic growth by enhancing operating performance, optimizing pricing and occupancy, and leveraging our data-driven Ventas OI platform in close collaboration with our high-performing operators. Second, capturing value through external growth with a targeted focus on high-quality senior housing acquisitions.

I truly believe the best is yet to come as we face unprecedented favorable supply-demand fundamentals and we continue to improve upon our SHOP performance and leverage our advantage position to grow externally. Now I hand the call to Bob.

Speaker 6

Thank you, Justin. I'll provide an update on our financial results, balance sheet, and capital markets activities in the second quarter and close with our improved outlook for the year. Ventas delivered strong operating performance in the second quarter and posted normalized FFO of $0.87 per share, representing approximately 9% year-over-year growth. Our total company same-store cash NOI grew nearly 7%, led by SHOP, increasing over 13%. Our outpatient medical and research business, or OMR, reported same-store cash NOI growth of 1.7% year-over-year, led by outpatient medical, which grew NOI by 2.2%. Outpatient medical increased same-store occupancy by 20 basis points sequentially and 30 basis points year-over-year to 90.1%. Leasing was robust with 1 million square feet of new and renewal deals executed in the second quarter and tenant retention of a strong 86%.

Same-store cash NOI in our research business, which represents 8% of NOI, declined less than 1% year-over-year or approximately $100,000, driven by lower rents on certain innovation flex space tenants, as previously discussed. Our balance sheet strengthened further in the second quarter. Ventas reported second quarter net debt to EBITDA of 5.6 times, which represents a 40 basis point improvement since the start of the year and a 10 basis point sequential improvement from the first quarter. We expect our leverage to continue to trend lower through a combination of the organic growth and equity-funded investments in senior housing. Speaking of, we have effectively funded the $2 billion of investments now in our guidance with $1.8 billion of equity already raised and $160 million in completed dispositions.

We're also holding a record level of liquidity at $4.7 billion as of June 30, bolstered by our revolving credit facility upsize completed in April and over $700 million of available equity proceeds from unsettled equity forward agreements. This liquidity also includes $500 million of senior notes proactively raised in May at 5.1%, thereby early refinancing our remaining 2025 maturities, principally due at the end of August at a 2.7% rate. I'll close with our updated guidance. As a reminder, we increased our 2025 full-year guidance in late May, led by our encouraging SHOP performance as we entered the key selling season in the second quarter. We're pleased to once again raise our guidance. We now expect income attributable to common stockholders of $0.47 to $0.52 per fully diluted share.

We have increased the midpoint of our full-year normalized FFO guidance by $0.03 to $3.44 per share from the previous midpoint of $3.41, which represents approximately 8% year-over-year FFO growth. Our improved full-year midpoint is driven by a $0.02 increase from lower net interest expense and a $0.01 improvement from increased senior housing investments. FX, G&A, and other items net out to complete the bridge. We've raised and narrowed our total company same-store cash NOI to now approximate 7% year-over-year at the midpoint, reaffirmed midpoints for SHOP and OMR, and an improved midpoint for triple net. A final note on balance of the year FFO phasing: dilutive dispositions of non-strategic post-acute assets in the second quarter are approximately a $0.01 FFO headwind per quarter sequentially versus the second. For additional 2025 guidance assumptions, please see our second quarter supplemental and earnings presentation deck posted to our website.

To close, we delivered differentiated growth in the first half of 2025, led by the multi-year secular demand growth in our senior housing business. The entire Ventas team remains focused and committed to delivering superior performance for our SHOP. With that, I'll turn the call back to the operator.

Speaker 4

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Michael Cabrill with RBC Capital Markets. The line is now open. Please go ahead.

Yeah, thanks. Justin, I want to focus on the SHOP occupancy gains that you reported in the second quarter. I know the year-over-year trend improved throughout the quarter, but can you provide some additional color? What was the sequential occupancy gain in Q2 2025 maybe versus Q2 2024? Or maybe what is the year-over-year occupancy gain that you're at for the month of July? I believe that the documents continue to highlight that the strength of the occupancy you saw in Q2 continued into July.

Speaker 2

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

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

Yeah. We've been really leaning in more. If you look at the transaction activity we've had, the $3 billion that is closed, most of that is closed in the fourth quarter of last year and the first half of this year. If anything, the momentum's been picking up. We've been in this continuous kind of process of being able to update our investment volume guidance as a result. The thing driving really the pipeline is there's just more deal activity in the market, period. We are leaning in to the types of transactions that we want to pursue, and those are the high-performing communities with upside, communities that are well-positioned in markets with strong tailwinds. We've been buying newer communities with well-established track records with operators that are delivering excellent performance. When you're buying communities that have strong performance, the operators have tremendous clout in the process.

One of our greatest strengths is the relationships we have with our operators, and that's been playing well for us as well. I would say there's momentum in the investment activity, and there's also more available in the market. We're using the strength of our platform to maximize that opportunity.

All right. Thanks.

Speaker 4

Your next question comes from the line of Jeff Spector with Bank of America. Please go ahead.

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

Speaker 2

Yeah, sure. Really, the power of the Ventas OI platform is three things working together. One is we have tremendous data analytics, and our data analytics are really geared across all the operating metrics. We're especially good at top line, and our team is as well. When our team is deploying the OI initiatives, we're very top-line focused. We've been especially focused on independent living, so our independent living occupancy is on the better side of the trends that we've been discussing. One good example is with Holiday, where it's an independent living platform. Atria leads that brand, and my team has really joined with their team to drive sales. In recent months, there's a number of initiatives underway that we've worked on together, and Lindsay and team have been completely plugged in with them.

It's as hands-on as we've been in execution, and Atria has just been a tremendous partner in working with us to drive really exciting growth. Like I said, that portfolio was 110 basis points sequentially of growth in June versus May, so very, very good outcome. We do work across the board with all of our operators, literally in almost a day-to-day, but a week-by-week update on sales execution. It's very much real-time.

Great. Thank you. My second question is on the big, beautiful bill. Can you talk about your latest thoughts on the potential impact across maybe the broader potential changes across different healthcare asset classes and any changes in your thoughts in terms of opportunities or any of your exposure? Thank you.

Speaker 4

Jeff, this is Debra. In terms of the bill's impact, I think the most important thing to note is that many of the aspects of the bill are on a very delayed implementation basis. In the immediate term, we're expecting kind of minimal impact. I'm speaking broadly now, not about Ventas, but just from a policy standpoint broadly, most of the changes will take effect over a long period of time. Some of them don't even kick in until fiscal year 2028. That's important. There may be changes or improvements, frankly, before some of the provisions even kick in, as I mentioned in my remarks. Our biggest business outside of senior housing is outpatient medical. The biggest drivers of outpatient medical continued success are really the demand from the over-65 population and this trend toward outpatient, which actually could be furthered by some of the provisions in the bill.

That's how we think about the impact there. Really, that's all I have to say about it. It's obviously going to have effects. They'll be extended over time. Most of the key providers are very expert at being resilient and adaptable to changes. That's what they live with year in and year out, and those are the people we generally do business with. That's how I would conclude.

Okay. Thank you.

Thank you. Your next question comes from the line of Jim Cammart with Evercore. Please go ahead.

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

Speaker 9

Historical high would be. This is Pete, by the way. Historical high is probably a percent or two higher, 93%, 94%. We have buildings that have many tenants in each of the buildings, and so there is a structural occupancy. I kind of view the maximum occupancy you could get in our portfolio is 95%. We've been a percent or two below that. I view it as opportunity, actually, from where we are today to where we can get to at 95%. That's going to drive growth long-term.

That's helpful, Pete. Just to follow on to that, what are your representative escalators on that portfolio today? If you're signing up a new tenant or releasing space, what sort of annual escalators can you achieve? Thank you.

Almost. They're right around 3%. For the quarter, it was 3% in the annual escalators. I think the portfolio is just a hair below that, like 2.8%, 2.9%. We're right there, and we're trying to push it beyond.

Speaker 4

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

Speaker 9

Yeah. I mean, one other fact you didn't ask about, but also Walt's eight years this quarter. It's fantastic. Really happy.

Great. Thank you, folks.

Speaker 4

Thank you. Your next question comes from the line of John Kielczowski with Wells Fargo. Please go ahead.

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

That's SHOP, right?

Yes, correct. That's SHOP.

Okay. Justin is going to take that.

Speaker 2

Okay. Yeah. We have just a little—it's one of my favorite topics. This margin expansion opportunity in senior housing because of the operating leverage in the business. We do use some rule of thumbs, and we test this on our portfolio, and they definitely hold up. We've continued to test it as our occupancy has been growing. We have a better representation of this outcome. What it is, is when you get higher occupancy, due to the higher fixed costs that are in place, the higher, therefore, operating leverage, you start having better flow through in your margin. You get over 90% occupied, up to 100%, you would see around 70% incremental margin during that period. In the 80% to 90% band, you'll see around 50% margin.

For those of us that like to track month-to-month and quarter-to-quarter performance, there's obviously one-timers that can throw those stats off here and there. Over time, that's the rule of thumb, and it's how it's playing out in our portfolio. If you think about our portfolio, in fact, that two-thirds of it has low 80% occupancy, we are a long way off from what is the best part of the growth in this industry, which is when the operating leverage kicks in. When we talk about the best is yet to come, obviously, there's really good supply and demand fundamentals, but our portfolio is also positioned for growth as well. That's part of why we're positioned so well.

Thank you. The other part of that was just the Rev 4 component. I don't know if you could speak to the difference in that and your lower occupied assets versus a Delta.

Yeah. There is. A couple of ways to look at that. One way we like to talk about is Rev 4 growth when you're over 90% is 2X what it is when you're under 90% occupied. To bring some more specifics to that, if you're in that 90% to 95% band, you're around 6% or 7%. If you're 75% to 90%, there's a range of 3% to 5% Rev 4 growth. If you're below 75% occupied, you're around 1%. As your occupancy goes up and your scarcity value increases, the Rev 4 moves with that.

Okay. That was very helpful. My second question is just on the TAM of the space. You announced the incremental $500 million. Obviously, we could look at all of senior housing, but you made it clear there's a certain quality of product that you're interested in. I'm curious if you've done the work and can speak to the size of the addressable market left out there today that isn't owned by the REITs that you'd be interested in transacting on.

Yeah. I mean, we've looked at it a lot of different ways. It generally comes down to this: the REITs own, what, about 15% of the market. There's probably about another 40% or 50% of the market that actually checks all of our general criteria, meaning it's in the right type of market, right size of asset. There is a lot to go after still. You usually see somewhere around $30 billion a year of trading in senior housing. There is plenty for us to get our fair share each year. That's what we've been working on.

Very helpful. Thank you.

Speaker 4

Your next question comes from the line of Wells Holiday with Baird. Please go ahead.

Hey, good morning, everyone. Can you talk about the Rev 4 growth acceleration? Was that more of a mix shift, or is it higher move-ins? What's going on there?

Speaker 2

Yeah. Sure. I mentioned in my prepared remarks that we're focused on price volume optimization. This is another area where the Ventas OI team is highly engaged with the operators. I think everyone knows that senior housing does not have good price transparency. Unlike multifamily or apartments, it's harder to dynamically price. We found a way through our data analytics to really focus in on the right price to do two things: either just get higher price or to drive volume. That's a continuous process with our data analytics and the execution with the operators, incorporating that with any feedback the operator is seeing on the ground. We've been working on it for a few years, and the execution of that process is the best it's been. You ask about mix. Mix can definitely impact Rev 4, and it does. In the numbers we're seeing to date, it actually didn't.

The mix was really close to exactly what we had expected to see. What's really driving the underlying trend are higher move-in rents and continued strength in our internal rent increases. That's something we'll stay very focused on. We're trying to pull both levers, and we want to see occupancy and rate grow. We've made the best connection recently of both moving together.

That's it for me. Thank you.

Speaker 4

Thank you. Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Hi. This is Georgie Ong from Vikram. Thank you for taking my question. Just curious, how did the change in the same-store pool impact your same-store growth during the quarter? The 21 assets changed in the pool, were they part of the group that experienced occupancy losses in March?

Speaker 2

Hi. It's Justin. First of all, 80% of our SHOP NOI is in the same-store pool. It's a great reflection of the performance of the portfolio. Any way you look at it, it's a reflection of the performance of the portfolio. That's the first part. The second part, there was absolutely no relationship at all whatsoever between the communities that we transitioned to some move-outs that we experienced during the year. No there. Since we're on the topic, let me just talk about what we transitioned. We transitioned communities to an operator. If you met with us at NAREIT, you probably heard us talk about Discovery Senior Living. They had had 45 communities with us. They'll be much higher as we go throughout the year because they're going to be in the 60s with the recent transition. They have 30 years of experience.

They're a large operator, but they manage multiple local brands. One of the things I like about them is the talent pool they have close to the field is good, if not better, than anybody in the industry. They operate communities for us in at least five of their different brands. We're really excited to get more communities in their hands because they've delivered outsized results for us. That was really the plan. We're always tinkering with 5% to 10% of our portfolio through management transitions. It's part of the strategy we have of right market, right asset, right operator, get the right operators in place in the right communities. We saw an opportunity, so we took it. We're looking forward to great results with Discovery.

That's helpful. Thank you. Just another quick one for me. How are things shaping up for the Brookdale transition, and what should we assume for the fall of NOI in the fourth quarter within the 3.0 net segment before we get the $16 million rent bump in Q1 2026?

I'll take the first part, and then Bob can help me with the second part. On the first part, the Brookdale transition, this is the conversion of 45 communities from the triple net to the SHOP structure, one of our favorite strategies because it takes assets we already own that have lower occupancy and puts it in SHOP. These are 78% occupied. They happen to be in really strong markets, and they have opportunity through refresh CapEx to be better positioned. They're good fits for five operators that we selected to transition. The NOI growth opportunity that we've been talking about is really more of a long-term comment, which is 2X the run rate that they had in late last year. We think we'll double the NOI. It was around $50 million at the time. We think it goes to $100 million.

To answer the specific question, it's going really well. Our operators are already fully engaged with all of the communities. We'll start having transitions happen in the upcoming months. By the end of the year, everything, if not almost everything, or close to everything, I should say, will have been transitioned. Brookdale's been good to work with, and all the new operators are very excited about working with the new communities. I'd say so far, so good. I would just add, in terms of modeling in the fourth quarter, we'll start sprinkling in the SHOP assets from the conversion on the 45. The financial impact really is not until 2026, frankly. The vast majority is triple net for the year, and that's how it's modeled.

Great. Thank you very much.

Speaker 4

Thank you. Your next question comes from the line of Seth B. Grant with Citi. Please go ahead.

Thanks for taking my question. You kind of talked about the operating leverage in the business and the incremental margin opportunity as occupancy continues to grow. Do you have a sense of how much of the margin expansion in the Senior Housing Operating Portfolio is a result of occupancy gains versus execution and the opportunity that you guys have within the Ventas OI platform?

Speaker 2

That's a really good question. I have to say it remains to be seen because we're entering a new era where demand is going to be the best we've ever experienced, and the supply-demand dynamic will also be the best we've ever experienced. We know a couple of things about the business. It's playing out very clearly in our portfolio. We know that if you have higher occupancy, you have better pricing opportunity. As we have more communities move into the higher occupancy band, we'll expect the Rev 4 component to play a bigger role moving forward. We also know that given the supply-demand and the Ventas OI platform that we have and our operators working together, we have tremendous occupancy opportunity as well. Our platform is really designed around driving growth in both occupancy and rate. We think there's opportunity in both places. Our portfolio is positioned for that.

I'll have to ask you to wait and see how it plays out. We'll be driving both metrics, and hopefully, the margin expansion rule of thumb gets even better over time.

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

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

The high end of the range.

Yeah. The high end of the range is really driven by two things. One is revenue growth. That would be clearly, obviously, occupancy and rate moving together and having an exceptionally strong key selling season, and then continued favorability in labor costs.

Great. Thank you.

Speaker 4

Thank you. Your next question comes from the line of Juan Sinabria with BMO Capital Markets. Please go ahead.

Speaker 6

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

Speaker 2

I would go back to we were 240 over in the second year-over-year. We're seeing improvement in that as we go into the third quarter, and we've maintained our 270 guidance.

Speaker 4

We were $290 million in the first.

Speaker 2

We were at 290 in the first to complete the story. We're seeing continued improvement year-over-year in OC, led by June.

Speaker 6

We'll leave it a mystery. Second question just on the R&I platform and the developments. Just curious on how we should think about the implications on capitalized interest and other moving pieces, given a fair chunk of what was in process has now been completed.

Speaker 2

I can say capitalized interest is absolutely de minimis, so nothing to really report there. It's really about the commercial performance of the developments.

Speaker 6

Thank you.

Speaker 4

Thanks. Your next question comes from the line of Matteo Castagna with Deutsche Bank. Please go ahead.

Hi. Yes. Good morning. Again, congrats on the quarter. Debra and team, a lot of good stuff happening with kind of the acceleration in SHOP. You guys are talking about increased acquisition outlook. Just kind of curious why that does not translate to also the high end of guidance being increased. I think in two quarters in a row now, you've raised the low end, but you haven't really done anything on the high end. Are there things in the back half of 2025 that are kind of causing some offset, or is this some of the traditional conservatism that we sometimes see from management? Just curious your thoughts on that.

I'll take the first and turn it over to Bob. Thanks for the question. We are happy about the results and the outlook. We raised guidance in May. The midpoint, we raised again now. We're looking at, again, the midpoint's up. We're looking at 8%. If achieved at the midpoint, year-over-year FFO growth per share, which is pretty awesome and accelerating from 2024. In terms of the modeling impact, Bob touched on a couple of things, but he can elaborate on the specifics.

Speaker 2

Maybe I'll frame it first half, second half. FFO was $1.71 in the first half. The midpoint would be $1.73 to get to the full year, $3.44. If you think sequentially, that growth is SHOP growth and partially offset by refinancing at higher rates and the dispositions of post-acute I referred to, which are a headwind in the balance of the year. That gets you to the midpoint sort of equation. Of course, the upside is a SHOP upside as much as anything, and Justin talked about the components to get there.

That's helpful. A quick question on Canada and the SHOP portfolio. Again, big disparity in regards to SHOP growth in the U.S. and Canada this quarter in particular. I mean, Canada occupancy is already at 96.5%, but curious how you want to kind of think about opportunities to drive further SHOP same-store NOI growth in Canada.

Yeah. Sure. Canada obviously does have high occupancy. It does have more occupancy opportunity. To believe that, you just have to look at the Le Groupe Maurice portfolio, which is over 98% occupied, and they have several communities that are running 100%. The next step is for the other operators to start pushing into that territory, some more occupancy growth. One of the drivers of growth has been we have some assisted living presence in Canada with Sunrise, which is higher Rev 4. As that continues to fill, there's some growth opportunity from that perspective. Pricing has been a little bit better there as well. We're always focused on revenue across the board, but price is an opportunity that's emerging in Canada.

Thank you.

Speaker 4

Thanks, Tyo. Your next question comes from the line of Michael Bilerman with Green Street. Please go ahead.

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

Speaker 2

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

Speaker 4

That is good for our business.

Speaker 2

It's great for our business.

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

Speaker 4

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

Thanks for the time.

Thank you. Your next question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.

Speaker 1

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

Speaker 4

On that front, I would say in terms of the unlevered IRRs, we're still driving toward low to mid-teens unlevered IRRs.

Speaker 2

Yeah. That's the key metric, Justin. The unlevered IRRs are very consistent over the last 18 months as we've embarked on this external growth run we've been on. There are obviously inputs into that. One of that is the year-one yield. Another is just the growth profile of the asset. When we calculate IRRs, I think everyone knows this, we use constant cap rates on entry and exit so that the IRRs truly reflect our expectations for just the overall delivery of returns from an operational organic standpoint. Last year, we're kind of running in the mid-7s. We're drifting a little lower, lower 7s year-one yields this year. It is a more competitive environment, but the profile of what we're buying is also different as well. We are leaning in. We're getting a newer asset. We're getting even stronger markets.

I would say all that's working together to deliver what is our targeted unlevered IRRs of low to mid-teens.

Speaker 1

Helpful. Just a quick one on operator transitions. As you sort of take a step back, what do you think you guys need to do to unlock more of these transitions and work with the operators and so forth? It does look like a pretty big value creation. I'm wondering what you think you need to do to unlock more. Is this sort of all the fruits have been picked? Thanks.

Speaker 2

Yeah. It is clear as a large owner of senior housing and others that are as well, it's clearly part of the playbook. What you're really doing is trying to make sure that you have the—we know we're in the right markets, and we know that we have well-positioned assets, and we're investing in our communities. Then we're looking for the right operator fit. That is an ongoing process. We may always have a few that we think could move over to a different operator where they could make more impact. Discovery is an operator where they've proven it across multiple brands and multiple geographies that they can make impact for us. We've transitioned to a lot of others as well on a selective basis. It's all about trying to find the right fit. We're really just trying to work really hard to maximize performance.

Part of that is the operator component. Step one is always to work with the operator to create the best outcome. If we're not finding the right fit, then we'll work with someone that can in the nicest possible way. I think we've done a great job of maintaining great relationships across the board.

Speaker 1

Thanks so much. Your next question comes from the line of Nick Yuliko with Scotiabank. Please go ahead.

Speaker 2

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

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

Speaker 4

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

Speaker 2

More back-end weighted.

Speaker 4

In terms of character, it's very consistent with what we've been doing. We're happy about that.

Speaker 1

Thank you. For the small percentage of pre-revenue biotech tenants within your research portfolio, what's the sense that you get from those tenants in terms of whether the capital raising environment has improved or worsened in the last couple of quarters? Do you expect any downside risk, maybe that's not factored into guidance, that could arise in the second half?

Speaker 4

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

Speaker 2

All right. Thanks so much.

Speaker 4

Thank you. Your last question comes from the line of Mike Mawillier with J.P. Morgan. Please go ahead.

Speaker 6

Yeah. Hi. Just a quick one. Justin, I think you mentioned that IL occupancy trends have been better than the averages. How does it compare when you're talking about Rev 4 growth when you're comparing IL versus AL? Is that dynamic kind of similar as well?

Speaker 2

Yeah. Both price and volume have been good in IL. One thing that you have to remember about independent living is it doesn't have the care component, and so there's a frictional aspect to assisted living when you have someone that moves out on higher acuity. They're paying more, and so you're replacing that, and there's a releasing spread impact from that. The independent living portfolio doesn't participate in that process because they don't deliver care, so you're really just replacing rents. Moving rent trends have been good in independent living. We have a range of different independent living products. Some are more price-sensitive than others, but generally, price has been good. It's been, I'd say, a better result on the volume side, and that's where we're focused. Like I said, most of our U.S.

portfolio that has upside is around 84% occupied in independent living, so we're really leaning in there to try to drive occupancy up and get to the point in time where you're benefiting from that operating leverage we talked about earlier.

Speaker 4

Yep.

Speaker 6

Got it. Okay. Thank you.

Speaker 4

Good. Yep. So, BJ, any more questions? Okay. On behalf of all of us at Ventas, I want to thank you for your interest in the company. We hope you and yours have a safe and happy rest of the summer, and we look forward to seeing you in the fall. That concludes today's call. Thank you all for joining. You may now disconnect. Everyone, have a great day.