Thank you for standing by, and welcome to the Ventas Fourth Quarter 2023 earnings call. I would now like to welcome B.J. Grant, Senior Vice President of Investor Relations, to begin the call. BJ, over to you.
Thank you, Mandeep, and good morning, everyone, and welcome to the Ventas Full Year 2023 Results conference call. Yesterday, we issued our full year 2023 earnings release, presentation materials, and supplemental investor 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 investor package posted on the investor relations website. And with that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO of Ventas.
Thank you, B.J. I want to welcome all of our shareholders and other participants to the Ventas fourth quarter and full year 2023 earnings call. I'm pleased to share our strong results for 2023, discuss our advantage position across commercial real estate, driven by large and growing demographic demand, and introduce full year 2024 guidance as the senior housing multi-year growth opportunity continues to power our expectations. Let's start with results. We reported favorable results for the fourth quarter and full year 2023. We produced full year normalized FFO of $2.99 per share, representing over 5% year-over-year growth, above the midpoint of the guidance range we initiated in February. As anticipated, our results were fueled by unprecedented organic property growth in our SHOP portfolio, which grew same-store cash NOI over 18% last year.
Enterprise same-store cash NOI growth was supported by compounding contributions from our outpatient medical and research, and triple net lease portfolios. We finished the year on a high note in the fourth quarter, delivering $0.76 of normalized FFO, representing 7% year-over-year growth, and reporting accelerating same-store SHOP occupancy. During 2023, the Ventas team accomplished a great deal together. We raised over $4 billion in attractively priced capital, took effective portfolio actions, invested CapEx in our assets to position our portfolio to capture demand in strong markets, made meaningful progress toward our ambitious ESG goals, successfully integrated a $1.6 billion portfolio, and expanded our VIM business.
As a result, we delivered over 15% one-year total return to shareholders, posted two years in a row of TSR outperformance versus the healthcare REIT and broader REIT indices, and achieved upper quartile performance for the last three years among healthcare REITs. We still have more work to do. We are focused on driving total returns for our shareholders. As durable demand fuels the multi-year growth opportunity in senior housing, we believe Ventas offers an attractive combination of growth and value. Let me provide a few reasons we believe we are uniquely positioned to create value. We enter 2024 with momentum. Because our asset classes are benefiting from demographic demand that is strong and getting stronger, we are pleased to project another consecutive year of normalized FFO growth in the mid-single digits, and the third consecutive year of same-store SHOP cash NOI growth in the double digits.
Notably, our projected 2024 normalized FFO growth of 5% per share puts us in the top 20% of all REITs that have issued guidance to date. In 2024, we expect to benefit from steady growth from our outpatient medical research and triple net lease portfolios. As we look into 2025, we have two large lease renewals, one with Brookdale in senior housing and another with Kindred for a portion of our LTACs. In Brookdale's case, our communities are enjoying positive operating trends, and they have significant net absorption potential. In Kindred's situation, rent coverage remains challenged, and it's too early to say what the ultimate outcome in 2025 will be. Kindred remains focused on performance improvements that could benefit 2024 and 2025 financial results. In all cases, we are fully prepared to maximize NOI over time.
In SHOP, January is already starting positively, with 200 basis points of year-over-year same-store occupancy growth. In 2024, we expect year-over-year normalized FFO and SHOP same-store cash NOI growth to accelerate in the second half, with a SHOP NOI exit run rate that should support continued SHOP growth in 2025 and beyond. This highly positive context is supportive of growing our senior housing presence through both organic and inorganic growth. In pursuit of delivering consistent, superior performance, our strategy is to, one, continue to deliver compelling, profitable organic growth in senior housing. Two, capture value, creating external growth focused on senior housing. And three, drive strong execution and cash flow generation throughout our high-quality portfolio that serves a large and growing aging demographic.
Our optimism for a long, durable growth opportunity in SHOP is founded on compelling supply-demand dynamics, led by a step function in growth of the over-80 population in 2024, and yet again in 2027, the lowest construction starts in senior housing since 2009, and our advantage platform that has the team, tools, financial strength, data, and operators to drive organic performance. The Ventas platform should also enable us to invest successfully. As we discussed in November, we intend to build on our compelling organic growth opportunity by layering on value, creating external investments focused on senior housing. There is a confluence of market factors giving us confidence that 2024 and 2025 should be rich with investment opportunities.
We're already seeing our pipeline expand as high-quality senior housing communities in good markets with embedded growth come to market, and we have a line of sight to complete over $300 million of investments in the first half of this year. Our criteria for investments include attractive going-in yields, priced well below replacement costs, with projected low- to mid-teens unlevered IRRs that meet our right market, right asset, right operator framework. Our broader objectives are to drive enterprise NOI and normalized FFO per share growth, increase the scale of our SHOP business, deliver strong returns on capital, support stable and growing dividend capacity, and maximize value for shareholders. In sum, we delivered on our commitments in 2023, and we expect another year of normalized FFO per share and property performance growth in 2024.
Our 5% projected normalized FFO growth favorably distinguishes Ventas across the REIT universe. With an attractive valuation and the growth engine of senior housing, we are focused on enabling exceptional environments for a large and growing aging population, and creating value for our shareholders. Now, I'm happy to turn the call over to Justin.
Thank you, Debbie. I'm pleased to say our SHOP portfolio delivered double-digit same-store cash NOI growth for the sixth quarter in a row. The same-store NOI growth for the year was led by our U.S. communities, with 24.5% growth, complemented by our high-quality Canadian portfolio, which is over 95% occupied and continues to deliver a valuable and stable cash flow. Total SHOP same-store cash NOI growth was 18.3%, which was above same-store guidance midpoint expectations. We are happy with this attractive growth and strong finish to the year. Double-clicking on the year, the results were good. Our same-store SHOP communities outperformed our expectations across all key metrics, including occupancy, RevPAR, OpEx, and margin expansion. Full year same-store SHOP occupancy grew by 120 basis points.
The U.S. saw 140 basis points of occupancy gains, and Canada, although already highly occupied, grew by 90 basis points. Demand strength across geographies and asset types led to accelerating occupancy growth this quarter with 170 basis points of year-over-year growth. Furthermore, we saw 110 basis points of average sequential occupancy growth from the third quarter to the fourth. U.S. SHOP occupancy growth was supported primarily by strong demand, with move-ins that were 109% of prior year levels in the fourth quarter. RevPAR grew over 6% for the year, contributing to revenue growth of almost 8%. As a reminder, RevPAR would have been 40 basis points higher in 2023, and 130 basis points on the fourth quarter if adjusted for the Sunrise special assessment that occurred in 2022.
OpEx POR performed well and was led by the U.S., with 2% growth year-over-year and 2.6% overall. Looking forward to 2024, we are excited to continue on our multi-year growth trajectory as we are expecting our third consecutive year of double-digit NOI growth in our same-store SHOP portfolio. Momentum ramped at the end of 2023, with fourth quarter occupancy accelerating, while strong pricing and higher move-ins fueled better than typical seasonal results and helped 2024 to get off to a strong start. Once again, we are expecting the U.S. to be the growth engine, with continued accelerating occupancy performance with over 300 basis points growth, and expected to drive NOI growth in the mid- to high teens year-over-year. The overall SHOP portfolio is expected to grow NOI 10%-15%.
The growing demand at our doorstep continues to support strong price and volume growth, and serves as a testament to the high quality and care, and services, and value proposition our communities provide to seniors and their families. The key assumptions that drive the midpoint of our range are average occupancy growth of about 250 basis points, RevPAR growth of about 5%, which puts the total revenue growth around 8%. January occupancy is already off to a strong start, delivering 200 basis points of occupancy growth year-over-year. This performance demonstrates solid execution by our operators and continued demand. We expect the performance throughout the year to be bolstered by newly renovated properties and Ventas OI initiatives to drive a strong key selling season. 2024 OpEx POR is expected to grow in line with normal inflation.
We structured our business around rate growth and occupancy growth. We are entering the sweet spot where price and occupancy are moving together to drive revenue. Margin expansion will follow as higher occupancy creates operating leverage. We have struck a balance where they are moving together, and we anticipate further margin expansion over time as higher occupancy creates operating leverage. We are capitalizing our active asset management playbook and our operators' execution, which delivered strong momentum to finish 2023 and will propel us into 2024. We expect this to build sequentially throughout the year, which means we are poised for strong year-end NOI that should propel us even further in 2025 and beyond. We are delivering on the organic senior housing growth, which is the part one of our strategy and my number one priority. Part two is expanding our footprint.
In addition to the success we are having in our existing portfolio, we look forward to capturing value, creating external growth focused on senior housing. A key tenet of our investment strategy is our right market, right asset, right operator approach. We are bringing OI tools to investment activities to help the selection process. Our top investment priorities continue to be NOI-generating CapEx in our existing real estate and senior housing acquisitions. Sellers are motivated to transact, creating numerous actionable deals. We are targeting opportunities with low- to mid-teen unlevered IRRs. We seek senior housing communities that are located in submarkets with compelling supply-demand profile, strong affordability, and meaningful expected net absorption projections. We are primarily expanding with existing partners with proven performance for Ventas, and plan to increase our footprint in the fast-growing IL/AL memory care combination communities.
Our pipeline is growing as we have several interesting potential investments in our sights. My team is actively working on transactions exceeding $300 million that meet our criteria, and I look forward to adding to that as the year progresses. In summary, demand is at our doorstep. We are pleased to see the SHOP growth engine continue to be led by the U.S. and complemented by the low beta, high quality, and highly valuable Canada portfolio with compounding growth. 2024 is rich with opportunities through organic growth and external acquisitions. The growth on both fronts throughout the year should support value creation in 2025 and beyond. I'm looking forward to the exciting year ahead. Bob?
Thank you, Justin. I'm going to share some highlights on our 2023 performance, touch on our balance sheet, and close with our 2024 outlook. I'll start by saying we are pleased with all we accomplished in 2023. We finished the year strong, with reported normalized FFO per share of $0.76 in the fourth quarter, a 7% increase versus the prior year, adjusting for the promote received in Q4 of 2022. For the fiscal year 2023, we delivered normalized FFO of $2.99 per share, or over 5% growth year-over-year when adjusting the prior year for unusual items. The multiyear senior housing growth trajectory was in full display in 2023, with SHOP total NOI increasing year-over-year by approximately $100 million.
We also reported total company same-store cash NOI growth of over 8% year-over-year, which is one of the fastest organic growth rates in our company's history. Our 2023 normalized FFO of $2.99 per share was at the high end of our previous $2.96-$2.99 guidance range, and included $0.01 per share cybersecurity revenue impact in the fourth quarter in our Ardent OpCo investment that was not contemplated in prior guidance. Pete Bulgarelli and our outpatient medical and research team delivered another year of continuous compounding growth. With same-store cash NOI increasing nearly 3% in 2023, at the high end of our guidance range. Continued strong retention and leasing activity in outpatient medical led the way.
A key driver of that result is the remarkable record of tenant satisfaction in Ventas's Lillibridge Property Management business, which notched its fourth consecutive year of top-quartile tenant satisfaction. In 2023, Lillibridge reached the 97th percentile for overall tenant satisfaction, placing it among the top five property managers. I'd also like to share a few comments on our balance sheet. Throughout 2023, we used our scale and access to diverse sources of capital to raise over $4 billion of attractively priced capital across multiple markets and geographies. This capital raising in 2023, in part, refunded 2024 maturing debt at attractive rates. As a result, we had a robust year-end 2023 liquidity position of $3.2 billion, and have relatively modest 2024 maturing debt of $800 million, net of cash on hand.
The attractive NOI and EBITDA growth in our shop business also improved Ventas's net debt to EBITDA ratio to 6.9x in the fourth quarter. A trend we expect to continue in 2024 and beyond, led by the multi-year shop NOI growth opportunity. So let's conclude with our full year, 2024 outlook. Because our asset classes are benefiting from powerful demographic demand, we are pleased to project another consecutive year of normalized FFO growth in the mid-single digits, and the third consecutive year of same-store shop cash NOI growth in the double digits. For 2024, we expect net income, net income attributable to common stockholders of $0.06 per share at the midpoint. Our 2024 normalized FFO guidance range is $3.07-$3.18, or $3.13 per share at the midpoint, which represents 5% year-over-year growth.
The $0.14 FFO per share increase year-over-year can be bridged by three items. We expect a $0.28 per share contribution from outstanding year-over-year property growth, led again by shop, which is expected to grow NOI by over $100 million for the second consecutive year. This property growth is partially offset by an $0.11 per share increase in higher interest expense and a $0.03 impact of 2023 capital recycling. In terms of same-store, we expect our total company same-store cash NOI to grow between 5% and 7.5% in 2024, led by shop same-store cash NOI growth of 10%-15%. Our guidance also includes new senior housing investments of $350 million, which Justin mentioned in his remarks.
The low and high end of our FFO guidance range are largely described by our property NOI expectations and potential changes in interest rates. A final note on phasing. We expect same-store cash NOI and normalized FFO year-over-year growth to ramp through the year, driven by higher interest expense in the first half of 2024 versus 2023, and the occupancy acceleration in the key selling season in SHOP, resulting in an exit run rate that should enable attractive SHOP growth in 2025 and beyond. A more fulsome discussion of our 2024 guidance assumptions can be found in the earnings and outlook presentation posted to our website. To close, the entire Ventas team is ready to win together with all of our stakeholders. That concludes our prepared remarks. For Q&A, we ask each caller to stay to one question, to be respectful to everyone on the line.
With that, I'll turn the call back to the operator.
The floor is now open for your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad. We'll now take a moment to compile our roster. Our first question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Yeah, thanks. Hey, Debbie, can you provide some additional color on your Kindred lease? I know in the business update, Ventas has highlighted Kindred has implemented some improvement or performance improvement initiatives, and you also highlighted that Select Medical had some really strong EBITDA growth in 2Q and 3Q of 2023. I mean, are you implying that Kindred can grow into this coverage ratio, or is that just kind of data points highlighting that there is some improvement in that coverage that could occur over the next handful of quarters?
Right. Hi Mike, . I would tell you that obviously the most important thing we think about in the renewal in 2025 is about what the earnings capacity of those assets is, at that time and beyond. And, you know, Kindred has communicated to us that they have significant initiatives underway on both revenue and expense to improve operating performance and census. Some of those we can see are starting to take hold. We give Select as an example because it's a public, company in the same business, and it shows that significant improvements, are possible. And, you know, it's really too early to say whether and to the extent Kindred's, initiatives will in fact take hold to improve EBITDA in 2024 and 2025, but they are surely working on it.
Our next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.
Oh, thanks. Hi, everyone. Maybe just a question on the guidance for Bob. You know, in terms of the interest expense going up this year, is there anything you can just sort of give us there in terms of you know, some of the assumptions on refinancings? I wasn't also sure if you're assuming any, you know, change in leverage, in terms of debt reduction, but perhaps you could just unpack that a little bit more. Thanks.
Sure, Nick. Yeah, so I mentioned the $0.11 year-over-year. A big piece of that is refinancing our debt into a higher rate environment. We have $1.2 billion of debt coming due this year, and you call it in the mid-3s kind of range from having issued that debt quite years ago. So refinancing that in the current environment is dilutive. The volume of debt, also, we have the year-over-year impact of the ELP transaction mid-year last year. So we have effectively the first half of that we're lapping in 2024. So together, those two things describe the increase year-on-year on interest expense.
I'd note, we've included interest expense guidance, which is new to us, in order to try to help analysts model that, because I know it can be tricky, but those are the drivers.
Our next question comes from a line of Rich Anderson with Wedbush. Please go ahead.
Hey, thanks. Good afternoon. Speaking of Kindred, but also Brookdale and the entire process, if I can call it that, what are the chances that, you know, there could be some activity in 2024 to, you know, sort of reset the situation in that, you know, those portfolios, such that, you know, maybe there'll be a temporary drag to deal with this year, so that when 2025 does come around, you've kind of addressed that, and you won't have sort of this other issue to deal with in 2025? Sort of make next year more of a cleaner picture. Are you thinking that you could do some, have some activity this year preemptively on any one of those three buckets?
Rich, hi, it's Justin. Let me start with Brookdale. So Brookdale, we're, you know, has the opportunity to extend the lease at the end of this year, you know, to let us know, and then the lease will run through the end of 2025, and we have a new lease starting in 2026. That portfolio is performing well. It's had, you know, continued improvement, has good coverage, has growing coverage, and resides in markets that, you know, we think have around 1,000 basis points of upside over the next few years. So we're in a strong position there. We'll see how that plays out, but it, it's a good situation.
As far as-
You know, I'm sorry, go ahead.
The Santerre situation, understanding you're kind of working through it, but maybe there's some incremental work that has yet to be done. You know, there's asset sales, there's things that you don't want long term. I'm just curious if there could be some preemptive work-
Yes.
There as well.
Yeah, I mean, as you know, kind of Santerre's gotten off to a favorable start. And we've already sold some assets at favorable pricing. I think we'll continue to pick our spots and be opportunistic on that. And then in terms of Kindred, I think we'll be able to certainly say that we'll have more visibility this year. Whether or not the financial impact is this year or next year, right now, we're thinking about next year. But, you know, that could—it's too early to say really what form that would take, but we have the benefit of a lease that, you know, runs into May of 2025, and that's a valuable asset.
Okay, thanks.
Thank you.
Our next question comes from a line of Jim Kammert with Evercore ISI. Please go ahead.
Good afternoon. Thank you. Kind of just building actually on Rich's question. In a hypothetical, if Kindred were to, you know, not extend, come this May, what, what would the process be, and how much has Ventas investigated sort of alternative operators, and, you know, what maybe costs might be associated with that, or any, you know, transitional worries that might arise as you kinda shift the portfolio? Again, hypothetical, just trying to better understand. Thank you.
Hi, Jim. Yeah, it's kind of funny to be talking about this 25 years after I started, 'cause this is what I was doing 25 years ago. But, look, we are really well prepared. We're experienced on this. We have, you know, lots of plans and sub-plans, I would say. It's only really 23 assets in total, so I think that that makes it kind of manageable. And of course, you know, we will try to optimize the NOI of the assets, and it's a puzzle, and we have lots of tools that we've used before. And that's really what we're focused on. And I can assure you, there will always be kind of alternatives that we have and are ready to execute in this scenario.
Thank you.
Our next question comes from the line of Michael Griffin with Citigroup. Please go ahead.
Thanks. It's Nick Joseph here with Michael. Just on the acquisition opportunities that you're seeing, you mentioned mid-teens IRRs. But just curious what the going-in yields are. I'm sure it's a range, but just kind of what you're thinking there, what the discount to replacement cost you're seeing on opportunities is, and then just what the funding plans would be for any external growth in 2024.
Hi, it's Justin. I'll start with the first part. Yeah, we are seeing good opportunities in senior housing. You know, we do target opportunities that have a discount to replacement costs. We're seeing around 20%-30% discounts in the pipeline. In terms of return expectations, you mentioned the low-to-mid teens in unlevered IRRs. We also obviously, there's the cap rate is a component of that. We tend to see around seven right now, and there's a little bit of movement up and down, depending on the growth of the asset. You know, the goal is to be, you know, neutral or accretive year one, and then have growth in the asset, which is supported by this strong and growing demand in the senior housing sector.
Maybe I'll touch on the funding question. You know, given those returns, Nick, you know, we think that can be an attractive proposition for shareholders. And indeed, we've built into our guidance both $350 million of investments and on-balance sheet financing, in order to do that. And we think we can achieve both attractive investment alternatives and delevering in the process, with those types of investments.
Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.
Good afternoon. Just a question on-
Hello, Juan.
Hello. Just a question on, I guess, the other line items below kind of interest expense. Anything unusual, between 2023 or 2024, or any changes, I should say, that we should be thinking about? You know, I, I think about some of the Brookdale non-cash amortization that's, running through the numbers that presumably goes away when that lease, the initial lease matures, or correct me if I'm wrong. But just trying to see if there's any kind of unusual items from, from the fourth quarter from 2023 that maybe are skewing, results relative to expectations from the street. And if you wouldn't mind commenting on expectations on FAD. You gave normalized FFO, but any, piece, piece parts on, the FAD would be great as well.
Sure. So in terms of, as you say, below the line items, you know, first thing to say is the guidance doesn't assume any changes in the 2025 lease situation, and so it's business as usual in 2024 in our guidance assumptions. You're correct to say there is Brookdale amortization from the consideration we received in that restructure a number of years ago being amortized. If and to the extent we have a restructured deal there, that would be affected, but ultimately going to be an outcome that depends on the deal itself. In terms of FAD, I would say FAD growth would. This is operating FAD, I would expect to grow in line with FFO year-over-year.
Our next question comes from the line of Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hey, guys. Appreciate the time. I was just looking at the presentation you put out, and I saw on slide 40, it looks like there's a footnote related to a class action litigation in your SHOP segment. Could you go over just what that's related to?
Hi, Josh. Yeah, sure.
Yeah, it's Justin. So, it's an issue in California, and the adjustment relates primarily to a class action suit, involves some of our SHOP properties. We don't really view suits like this to be an ordinary course in our business. They do come up from time to time, especially in California. Because they don't relate to the core business performance, we think, you know, adjustment to the FFO is appropriate.
Okay.
Our next question comes from a line of Mike Mueller with JP Morgan. Please go ahead.
Yeah. Hi. Looking at the SHOP occupancy guide, for this year, can you just talk a little bit about the, I guess, the cadence of occupancy? Does it assume, more of a normal year for sort of seasonality, or, you know, how does it compare to what you experienced in 2023?
Hi, Justin. So great question. Appreciate it. There's a page eight in the deck for anyone that has that in front of them that helps to articulate this. So we had 120 basis points of occupancy growth year-over-year in 2023. We had acceleration of move-ins and occupancy in the third quarter, which led to solid growth in the fourth quarter, which was at 170 basis points year-over-year. In January, we're already starting at 200 basis points of occupancy year-over-year. And we are seeing a better than typical seasonal results, you know, ending the fourth quarter and starting the year so far, which is really encouraging and supportive of the 250 basis points at the midpoint, you know, that we included in our SHOP guidance.
We have a good run of occupancy growth, and also move-ins have been really strong as well. I mentioned that they're around 110% versus prior year in the fourth quarter. We've continued to see, you know, strong move-ins in, you know, the beginning of the year as well.
Our next question comes from the line of Michael Stroyeck with Green Street. Please go ahead.
Thanks. So going back to Kindred, and I'll try to ask this in a slightly different way. I know it's too early to say what the ultimate outcome will be, but hypothetically, if you did go down this path, as of today, what magnitude of rent reductions do you believe will be required in the near future in order to return those rents to a stable level, either for Kindred or the next operator assuming operations on those properties? Mm-hmm. Thanks.
Hi, hi, Michael. Now, remember, we own the assets, and we own the EBITDAR in those assets, and that's an important - that's very important. And again, it's too early to say. We have favorable trends in the Brookdale situation, and in Kindred, we hope to have favorable trends as you look out to 2025. So there's a lot more that goes into it when you think about what the outcome's gonna be, and we'll be happy to share more with you as the facts develop.
Our next question comes from the line of Connor Siversky with Wells Fargo. Please go ahead.
Good afternoon, and thank you for the time.
Thank you.
I want to jump back to a conversation on the Q2 2023 earnings call, excuse me, in regard to the Equitized Loan Portfolio, specifically the outpatient medical assets. You outlined that you were going to put in place a capital improvement plan to bring occupancy back into those assets. So I'm wondering, at this time, if you could quantify what that capital improvement plan looks like, what occupancy expectations are for those outpatient medical assets, and then what a return profile could look like for that capital improvement plan?
I mean, I think the key point, the topic sentence, and we'll get to the answer, is, you know, those assets overlapped with our own portfolio in many respects. Our portfolio is over 90% occupied and managed by Pete and the team very effectively. This was under 80%, so there was, there is and was significant occupancy upside as we get in there and self-manage those assets. And now I'll turn it over to the team to take your question.
Yeah. Thanks, Connor. This is Pete. Yeah, we're excited for the ELP portfolio. It gives us, I think, over the long haul, upside. We've been extremely active in absorbing that portfolio and, and, renewing that portfolio. We've transitioned 44 of our locations to Lillibridge Management using the Lillibridge playbook. We've surveyed all the tenants. We have specific asset plans for each of the buildings, and we're really happy with the results so far. We have, increased occupancy by about 1%, and we're also well above plan, in our underwriting. So as it relates to what- how we look forward on this portfolio, we expect in 2024 to have about a 3% increase in occupancy, and, so we're very happy about that.
We will do some upgrades in the common areas and so forth, and you've seen some of the ICE Capital in the supplemental here. We'll do a bit more of that. And we'll have kind of normal-as-you-go tenant improvements and commissions, so I don't expect anything extraordinary out of the capital being used for that, for the ELP portfolio.
Our next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Hi, good afternoon. Thanks for taking the question. Just, two quick, you know, I guess, senior housing questions, if you can indulge me. First, just the comments about exit into 2024 looking, you know, better, or I guess, acceleration. I'm wondering kind of what gives you that confidence? Because I may be wrong, but I think the occupancy comp will get harder, and the expense comp also gets harder. So I'm just wondering what gives you the confidence of acceleration, number one. And just number two, on senior housing, you guys had a great investment in Canada a while ago, you know, through the Groupe Maurice investment. I'm just wondering, though, the portfolio is now generating, like, 4% same store, arguably into next year.
Is there an opportunity in your minds to recycle that into, say, maybe a U.S. asset where you could get higher growth? Thank you.
Hi, it's Justin. So let me start with the, you know, the jumping off point at the end of the year. So what's happening this year is we have, you know, significant occupancy growth in our plan. Occupancy is, as you know, a lot of it comes during the key selling season. You know, we're off to a pretty good start because we're already, you know, already outperforming just typical seasonality. But what's most important, what is what's coming next, which is that kind of May to September period, which provides occupancy growth. Typically, we see the numbers, that the demand's there. We see in the underlying performance that we're executing on the demand, so that gives us the confidence that we'll be able to grow occupancy.
Then when you have the build during the year, clearly, you know, that you, you end up ending the year at a higher NOI, and that NOI, the point we're making is it, it's a good launching pad for 2025 growth, when you run that through, and then you, then you start adding more occupancy on top of that. The other thing that happens is margin expansion. You know, we're in a place right now where we're in the, you know, you mentioned Canada is 95% occupied. U.S. is around 80, 80, 81%. Well, a lot of, most of our occupancy growth in the U.S., and when you, we're just at the early stage of that occupancy band, where margin starts to grow, and we're at an inflection point. And so we're also looking forward to next year as well.
As occupancy grows, the operating leverage goes up, margin expansion, you know, could or should be more, you know, in 2025. So, you know, we think there's good support for this growth, and we're executing, and, you know, and it's not. You know, it should help with 2025 number, and then the demand is such that the runway should be even longer. So, we like what we're seeing there. In terms of Canada, you know, we do have a really, really good portfolio there. And I'm really glad you asked about it because it is a, you know, a core-like asset, very high quality. Physically, it's very high quality in terms of, you know, execution and occupancy and margin. It's been a consistent performer for us. There's good demand in these markets. It's a great operator.
Primarily, most of the NOI, you know, is with Groupe Maurice in Canada. And we look forward to continuing with that, and with that relationship, and the compounding growth that it can offer, and also opportunities to expand that footprint over time.
Yeah. And also, as we do new investments, obviously, the percentage that that represents of the overall SHOP portfolio and then that will shrink because the denominator will be growing, and emphasis on U.S. senior housing. So that will change the impact as well.
Yeah, and actually, I'll take this opportunity to make one of my other favorite points, and that is that the U.S., okay, that grew 24.5% in for us last year in our same store pool, and we're expecting mid- to high-teens NOI growth in 2024. That's the growth engine, and that's comparable to other portfolios that have similar, you know, upside and less stability. Where Canada is, is what it is. It's high quality and stable. But when you blend the two, obviously, you know, it hampers our growth a little bit, and it's being hampered by a very high quality, high-performing portfolio, and the U.S. is growing, you know, as well as anyone.
Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Great. Thank you. It sounds like Kindred's a no-go here, but at least after all these years, I guess it's only 5% of NOI for this master lease and not 50% plus. So Debbie-
99. 99. Right.
That's even before my time.
Yeah.
But, you did, you did highlight. I wanna hit on the acquisition piece a little bit. And you highlighted, you know, $300 million of investments you have confidence in completing in the first half of this year, and, you know, there's a, there's a chance it sounds like maybe that could increase, given, you know, the target-rich environment that, that you, you know, kinda, laid out. I guess, can you and you or Bob discuss about the funding plans for those assets and maybe where equity fits into the plan? And I'm just curious, given that line of sight, you know, why not issue under the ATM late last year, given kind of the favorable move in the stock and, and more attractive, cost of capital you had?
Well stated. I think, Bob, Bob, do you want to talk about funding and-
Yeah. As I mentioned earlier, look, the returns on these investments that we're seeing make this attractive from day one to our shareholders, in our view, even at the current cost of capital, when you look at the numbers. And we started this discussion with investors really late last year, at NAREIT, where cap rates had changed. And I think the consensus view at that point continues to be, that's a good investment. And so effectively, we've built that into our guidance in this $350 million. And I mentioned the opportunity of over-equitizing alongside that. That is also assumed. That being said, in a very disciplined way, and I think that's an important part of the narrative.
Sure.
And so there are assumptions around that, but we'll be very prudent in all, always a function of the market.
I'm glad you asked it, too, because, you know, I think with Ventas really giving, you know, FFO guidance into 2024, that really is in the top 10 of all REITs, that we are aiming to have an improved multiple that benefits and rewards shareholders, and that represents a cost of capital that can be very effective as we build on the organic growth story and layer on attractive investments focused on senior housing.
Our next question comes from the line of Ronald Kamden with Morgan Stanley. Please go ahead.
Hey, just a two-parter from me. Just was looking through the deck one, I realized that the slide on the NOI recovery opportunity looks like you guys removed it, which was a pretty helpful slide. So I guess the question number one would be, you know, that conviction of getting back to $1 billion, presumably the occupancy still feels pretty good with the guidance, but has anything changed about either the views on the margins or the occupancy and the recovery story to sort of pull that slide. And then question number two, sort of part two, is really it's a sources and uses question, because I don't see the redevelopment CapEx or the asset dispositions guidance that you guys provided last time. So could you be a little bit more specific?
We know you're going to do 300 ± of acquisitions, but maybe a little bit more specificity about how you're thinking about redevelopment, CapEx, dispositions, and even an equity issuance. Thanks.
Yes. I like that slide too, but I'll give it to Justin to answer.
Yeah, I, I like it, but what, what really dawned on us, quite frankly, is it's not high enough. You know, it really isn't. You know, we were focused on 80, 80% occupancy and getting back to pre-pandemic cash flows, and, you know, we're kind of moving beyond that, because we see that the ceiling can be a lot higher and the, the demand, you know, backdrop supports that. So we don't want to put a ceiling on the opportunity. We think it's more over time. We've got a good run rate established. We're, we're putting up, you know, $100 million, around $100 million, a little bit more per year in the SHOP portfolio. So, we decided to, to move on and try to focus on looking forward.
Yes.
One of the things that before I'll hand over to Bob, I just want to mention on the. You mentioned CapEx projects. I just want to throw in something on the senior housing. We did complete 167 projects by the end of 2023, and those started in October of 2022. And so we had a really strong run of getting our portfolio refreshed. We think there's about another 70 that completes by this May for the key selling season, and then another group of 82 or so, hopefully by the beginning of next year's key selling season. So we're well past halfway done, and like the opportunity to do more and increase our opportunity to be competitive.
That's a good segue to some of the assumptions you asked about in our guidance, especially redev. Let's start there. So, you know, we said our number one use of cash is investing behind senior housing redevs. I know you're seeing the growth that's coming from that and the attractive returns. So last year was $210 million round numbers of redev. Because the projects are starting to come down, and I'd mentioned in previous calls, we're going to normalize over time. We would expect some reduction in that redev spend this year. I'll call it $175 million in 2024, and again, that should normalize over time as these projects complete. Other assumptions, capital recycling.
We are assuming after $450 million of dispositions last year, our current guidance is $100 million, so a, a significant reduction, and those are very focused on some senior housing non-core assets in that $100 million. And then finally, on, on the equity assumption, to just underscore what I mentioned earlier, we do have in our assumption, both investments and the funding of that, and the share count is listed in the assumptions that comes out of that.
Our next question comes from a line of Rich Anderson with Wedbush. Please go ahead.
Sorry to keep things going, but what the heck? I want to ask perhaps an unanswerable question. So you guys lead the league in sort of normalization between NAREIT FFO and normalized FFO. There's a lot in there. You know, you have $0.13 of normalizing factors in your guidance. To what degree does that offer an opportunity for, I don't know, if something were to materialize during the year, it sort of allows you to maintain your guidance? There's a lot of movement in your presentation that's really difficult to model. Let's put it that way.
Is there a way to either tighten it up, or does it offer an opportunity to say, "Well, you know, we can do something with Kindred this year, and we're not going to have to change our guidance in the process?" I know, unanswerable, but- you know, I do-
Well, one part is-
I do feel like it's com-
Yeah.
It's way more complicated-
Yeah
... than perhaps it needs to be is the main point.
I mean, one part I would comment on is that we are very disciplined about it and don't lead the league in any, and this is the area we don't want to lead the league in, and we can talk about that further. It's a very defined category, and we use it as such. So...
All right.
But what's the-
I would just simply say that, you know, measuring between NAREIT FFO and normalized FFO and across peers, I would suggest to you that, you know, they're, they're very similar in terms of our numbers. In benchmark, well, I would, I would push back.
You would say benchmark favorably.
How often do you hit that number? How confident you are to hit that $0.13 number, I guess, is the question. How predictable is that to you?
Which $0.13 number, Rich?
The, uh-
That's the historic.
Between NAREIT and normalized FFO.
Oh, I see.
Oh.
Some of those are market-based, importantly. You know, I'll, I'll just highlight one, which is Brookdale warrants.
Yeah.
We have $16 million of Brookdale warrants, and that is marked to market every quarter, and there's a lot of volatility in that. And that flows through between NAREIT and F-
That's it.
Normalised adjustment.
Yeah.
That's impossible to predict. But we think in terms of portraying the underlying performance of the business is absolutely the right adjustment to make it normalized. So that's a good example.
Mm. Okay. Thank you.
Thanks.
Our next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Thanks so much for indulging me. I just wanted to clarify the legal costs that were normalized. Is that—are those just legal fees? Is there like an associated potential fine that Ventas may be liable for? Is this hard to know, or is that just a one-off, and we won't hear more about it from here on? You know, number one, and number two, if you could just clarify the $300 million acquisition, how should we think about accretion going forward in terms of, like, potential cap rates and how you see that flowing to the bottom line? Thank you so much.
Okay. It's a typical litigation reserve, and it affects us and other REITs. In terms of the acquisition investment opportunities, I think, again, looking at the pipeline that we have, I think Justin talked about 7%, plus or minus going in cap rates, which is affected by the growth rate, leading to low- to mid-teens IRRs. Which, depending on how we fund, will be, you know, that's how the accretion, obviously, in year one will be determined. We're not counting on a lot of accretion in the year one, but rather enhancing our growth rate over time. And we think that those IRRs are attractive and we want to expand our presence in U.S. senior housing.
Our final question comes from a line of Juan Sanabria with BMO Capital Markets. Please go ahead.
Hi. Thanks. Just a quick follow-up for me, focused around dispositions again.
Okay.
I'm curious if you have a bit of a background on the two R&I assets disposed of in the fourth quarter as to why you chose to sell those. The cap rates looked a little elevated from the outsider's perspective. And then just curious if what your latest thoughts on the Centerre SNF business is. Are you kind of happy to hold what's remaining there, which is still fairly substantial, I guess, and comfortable with that SNF exposure, or how are you thinking about that?
Yeah. So on the latter part, and as I mentioned, I think we'll be, we'll pick our spots on disposing of certain of the Centerre assets over time, including the SNF. We've been, we've sold some at very attractive per-bed valuations, and we're happy with that. And on the others were embedded purchase options that we got in the acquired portfolio with universities who have a better cost to capital than God, so they chose to exercise them. So that's all that was.
I would now like to turn the call over to Debra Cafaro, Chairman and CEO, for closing remarks.
All right, Mandeep, thank you very much, and I want to thank everyone for joining us today. It's a pleasure to speak with you and have a chance to answer your questions. We really appreciate your interest in Ventas, your support of Ventas, and we look forward to seeing you again soon.
This concludes today's call. You may now disconnect.