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    Ventas (VTR)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$44.21Last close (Feb 15, 2024)
    Post-Earnings Price$43.73Open (Feb 16, 2024)
    Price Change
    $-0.48(-1.09%)

    What went well

    • Ventas's U.S. senior housing portfolio achieved 24.5% same-store NOI growth in 2023 and expects mid- to high-teens growth in 2024, driven by increasing occupancy rates from around 80-81% and strong demand during the key selling season (May to September).
    • The company anticipates continued occupancy growth and margin expansion in its U.S. senior housing assets, leading to higher NOI and operating leverage, providing a strong foundation for growth into 2025 and beyond.
    • Ventas is actively pursuing senior housing acquisitions with going-in cap rates around 7%, low to mid-teens unlevered IRRs, and 20% to 30% discounts to replacement cost, planning to invest $350 million in such opportunities in 2024.

    What went wrong

    • Uncertainty regarding lease renewals with major tenants: Ventas faces uncertainty with two large lease renewals in 2025, including Brookdale in senior housing and Kindred for a portion of LTACs, with Kindred's rent coverage remaining challenged, potentially impacting future NOI.
    • Significant adjustments between NAREIT FFO and normalized FFO: Ventas has $0.13 per share of normalizing factors in its guidance, which complicates earnings predictability and may mask underlying performance issues. Some of these adjustments, such as the mark-to-market of Brookdale warrants, are impossible to predict.
    • Reduction in redevelopment CapEx and potential equity issuance: Ventas plans to reduce its redevelopment CapEx spending from $210 million to $175 million in 2024, and may issue equity to fund investments, potentially leading to dilution and raising questions about capital allocation efficiency.

    Q&A Summary

    1. Kindred Lease Renewal
      Q: What is the outlook for the Kindred lease renewal?
      A: The Kindred lease expires in May 2025, and we're well-prepared with plans if they choose not to renew. We own the assets and the EBITDAR, and there are alternatives to optimize NOI. Kindred is working on performance improvement initiatives, but it's too early to predict the outcome. , ,

    2. Interest Expense Increase
      Q: Why is interest expense increasing this year?
      A: We have $1.2 billion of debt maturing in 2024, originally issued at rates in the mid-3% range. Refinancing this debt in the current higher rate environment is dilutive, leading to an expected $0.11 per share year-over-year increase in interest expense. We've provided guidance to help analysts model this impact.

    3. Acquisition Plans and Funding
      Q: Can you discuss acquisition opportunities and funding plans?
      A: We're seeing attractive senior housing acquisitions with cap rates around 7%, at 20%-30% discounts to replacement cost, targeting unlevered IRRs in the low to mid-teens. We've included $350 million of investments in our guidance. We believe these deals are accretive, and funding may include prudent equity issuance. , , ,

    4. SHOP Occupancy Growth
      Q: What's driving confidence in SHOP occupancy growth?
      A: We're starting the year 200 basis points higher in occupancy year-over-year. Move-ins are strong, at 110% versus prior year in Q4. We're projecting 250 basis points of occupancy growth at the midpoint of our SHOP guidance, supported by strong demand and execution in the key selling season. ,

    5. Litigation Impact
      Q: What is the class action litigation about?
      A: The adjustment relates to a class action suit involving some of our senior housing properties in California. Such suits happen occasionally but are not part of our core business. We've adjusted for these costs in our FFO. ,

    6. NOI Recovery Outlook
      Q: Has anything changed in views on margins or occupancy?
      A: We removed the NOI recovery slide because we believe the opportunity is even greater. We're focused on achieving beyond pre-pandemic cash flows, with occupancy growth and margin expansion ahead, supported by strong demand.

    7. Outpatient Medical Assets Plans
      Q: What's being done to improve outpatient medical assets?
      A: We've taken over management of 44 locations, increasing occupancy by about 1% already. We plan to boost occupancy by about 3% in 2024, with specific asset plans and some upgrades, expecting long-term upside.

    8. Dispositions and SNF Assets
      Q: What's the strategy for dispositions and SNF exposure?
      A: We'll continue to opportunistically sell non-core assets, including some Santerre skilled nursing facilities. We've sold some SNFs at very attractive per-bed valuations. Disposition guidance for 2024 is $100 million, focused on senior housing non-core assets. ,

    9. Normalized FFO Adjustments
      Q: Explain the $0.13 difference between NAREIT FFO and normalized FFO.
      A: Adjustments include market-based items like $16 million in Brookdale warrants, which are marked-to-market and volatile. We adjust these to accurately portray our underlying business performance in normalized FFO.

    10. Potential Rent Reductions
      Q: What rent reductions are needed for Kindred leases?
      A: It's too early to say. We own the assets and the EBITDAR and aim to optimize NOI. We hope for favorable trends toward 2025, but the outcome depends on how the situation develops.

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