Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Ventas fourth quarter financial results conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. We ask that you please limit yourself to one question to allow everyone an opportunity. If you'd like to ask another question, you may re-enter the queue. Thank you. Sarah Whitford, Director of Investor Relations, you may begin your conference.
Thank you, David. Good morning, and welcome to the Ventas fourth quarter financial results conference call. Earlier this morning, we issued our fourth quarter earnings release supplemental and investor presentation. These materials are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks made today may include forward-looking statements, including certain expectations related to COVID-19 and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website. Certain non-GAAP financial measures will also be discussed on this call.
For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental posted on the investor relations section of our website. With that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO.
Thank you, Sarah. I want to welcome all of our shareholders and other participants to the Ventas fourth quarter and year-end 2021 earnings call. 2021 was a year that was bracketed by two very positive developments. At the beginning of the year, we rolled out life-saving vaccines in our senior housing communities to keep residents and caregivers safe from COVID-19. As we close out 2021 and begin a new year, we look forward to posting growth in the first quarter and sustained improvement in our senior housing business through 2022. In between those bookends, our Ventas team found a way to drive our business forward in a highly dynamic environment. While prioritizing health and safety, we took proactive steps to capture upside in the senior housing recovery, delivered strong organic growth in our office and triple net healthcare businesses, and stayed financially strong.
We also extended our long track record of value-creating external growth with $3.7 billion in new investments focused on our strategic priorities of senior housing and life science. As we enter 2022, we are reporting a fourth quarter that exceeded our expectations on the strength of senior housing and office performance. Carrying that momentum forward, we expect total portfolio NOI growth once again led by our senior housing and office businesses with additional contributions from investment activity and deeply appreciated grants from HHS for our assisted living communities in the first quarter. We're pleased that we can benefit from both organic and external growth in the first quarter, consistent with our long-standing value proposition for shareholders. Let me put our investment activity in a broader context and discuss some of the highlights.
Since 2010, we've averaged over $3 billion per year in average investment activity across asset classes executed in a variety of transaction types, large and small. 2021 provided excellent examples of our approach and execution. Consistent with our current capital allocation priorities at this point in the cycle, our 2021 investment activity was allocated 70% to senior housing in attractive markets with significant growth potential, 20% to our high-value life sciences business, including the ground-up development of a new research facility anchored by University of California, Davis, and 10% to expanding our successful medical office building franchise. Within the senior housing capital allocation sleeve, we completed both the New Senior Investment Group, acquiring over 100 independent living communities in advantaged submarkets at attractive pricing below replacement cost. We also closed a Canadian senior living deal with a handful of well-performing assets with additional lease-up upside.
The Ventas investment team is using its decades of industry experience, strong and varied relationships, and deal structuring ability to address an extremely robust pipeline as we enter 2022. We continue to identify areas of competitive advantage and pick our spots consistent with our strategic priorities and our analytic assessment of risk reward. We started the year off well, closing over $300 million of investments in the medical office and senior housing areas, both with good in-place returns and both generated by ongoing relationships.
With significant opportunities in our sights, we are also confident in the array of funding sources available to us as we demonstrated by recycling over $1 billion of capital in 2021, split between $850 million of divestitures of non-core senior housing and MOB assets at attractive valuations and over $350 million of full repayment of well-structured loans that yielded unlevered IRRs exceeding 11%. In addition to capital recycling, these transactions improve the quality of our portfolio and the sustainability of our go-forward cash flows, which also supports our well-covered dividend. We also grew our Ventas Investment Management business during the year and successfully accessed multiple capital markets opportunistically. VIM is a huge success story and now has over $4.5 billion in assets under management with leading global institutional investors.
Our perpetual fund alone raised nearly three-quarters of a billion dollars in untapped commitments this year. These embedded capital relationships provide another powerful tool to fund growth and build a valuable business at the same time. Turning to our values that dovetail with shareholder priorities, I'd like to highlight our enduring commitment, achievement, and recognition in the area of environmental, social, and governance, or ESG. Our ESG leadership continued during 2021 as we substantially elevated our ESG profile. Among other things, Ventas made meaningful investments in energy-saving technologies at our properties. We were named to CDP's A List, the top 2% of global companies for tackling climate change, and also named Nareit Healthcare's Leader in the Light for the fifth consecutive year. We have also ramped up our actions to improve diversity, equity, and inclusion in our company, our industry, and our country.
We've taken definitive steps in recruiting, investment, and community engagement and adopted goals to drive ourselves even harder in the coming years. Finally, our commitment to outstanding governance continues with rigorous and regular board refreshment, adding directors who are independent and diverse, and who bring a record of accomplishment and subject matter expertise to our company, such as recently added directors Maurice Smith and Marguerite Nader. In closing, I'd like to give a huge shout-out to my Ventas colleagues whose talent, resilience, agility, and commitment to doing their best over these past two years has been inspiring. To our operating partners who have navigated the pandemic on the front lines with courage, caring, and commitment. We also deeply value and appreciate our lenders and equity investors who support and encourage us.
We are committed to using all the tools at our disposal, including our high-quality, diverse portfolio, experienced team, and platform to excel for their benefit. Justin.
Thank you, Debra. The senior housing outlook remains bright. Today, I will speak to the favorable trends informing our outlook for growth in the first quarter, provide an update on key portfolio strategy and actions, and recap our strong fourth quarter results. I'm happy to report that we expect occupancy, revenue, and NOI to grow in the first quarter. Demand remains robust with January lead volumes at all-time highs since the onset of the pandemic and clinical conditions are dramatically improving. Core operational performance continues to deliver strong results as operators weather cost challenges, and the macro supply-demand backdrop should continue to power underlying growth. I'm proud of the team and operator base we've assembled as we've accomplished a lot over the last two years.
Our senior housing business is competitively positioned to capture the benefits of the ongoing sector recovery, and I could not be more excited for the path ahead. During recent community visits, my team and I witnessed firsthand the strength of the top of the sales funnel as tours were abundant. As COVID cases have declined and tours have picked up, the energy at our communities has been evident. We are expecting significant revenue growth of 10% in the first quarter, supported by pricing power and robust underlying demand. We executed our pricing strategy to drive outsized rent increases led by Atria and Sunrise. Leads in our year-over-year same store pool of 321 assets exceeded 16,400 in January, the highest volume achieved since before the pandemic. We expect a strong supply-demand backdrop to further support lead and occupancy growth.
Supply levels are expected to trend favorably as construction starts and deliveries have improved significantly versus pre-COVID levels. Additionally, our footprint is well-positioned as we witness new starts in just three of our top 20 markets. Needless to say, I am very encouraged by the fundamentals supporting our business and the opportunity for growth moving forward. Bob will cover our first quarter guidance shortly, but for SHOP, it includes 10% revenue growth at the midpoint and 6%-15% NOI growth at the lower and upper ends, respectively. The main variable affecting the NOI range will be operating costs. In January, the surge in COVID cases among employees pressured the availability of caregivers in what was already a challenging labor market. Our communities have continued to make progress implementing workforce management and efficiency initiatives.
Net hiring trends are showing early signs of improvement as recruiting resources have been bolstered, labor monitoring capabilities have been enhanced, and targeted competitive wage increases have been executed. We are hopeful the improving clinical backdrop and the operating initiatives will take hold and support the high end of our guidance range, but the midpoint assumes the costs remain elevated. Moving on to portfolio actions. Having been here for two years now, I couldn't be happier with the ability of Ventas to execute on key priorities related to senior housing. We have been extremely action-oriented, executing on acquisitions, dispositions, transitions, resolutions, and targeted capital investments, and strengthening our strategic approach to managing the senior housing platform. The Ventas advantage is that we have very deep operational experience in the senior housing sector.
We've married this operational expertise with our sophisticated analytical capabilities to execute strategic portfolio actions, enhance performance management, and drive targeted capital investment. Building on the strength of our experienced best-in-class operating partners, we are fully engaged in our aligned interest to create value in our senior housing business. Our latest initiative involves the deployment of our Ventas OI in close partnership with our operators. Ventas brings to the table an emphasis on operational insights, geospatial analytics, and capital allocation priorities. I couldn't be more pleased with the excitement amongst the operators and my team as they've engaged in this together. Some examples of outputs include in-depth pricing strategies, workforce recruitment and retention management, targeted value creating CapEx, and formulation of best practices. This approach takes the best of what Ventas has to offer in a collaborative effort with our operators to drive business results.
We've taken several decisive actions as we continue executing on our strategy of the right asset in the right market with the right operator. Since the start of 2021, Ventas has added six new senior housing operating partners, bringing our portfolio to a total of 37 relationships. This portfolio balance, along with the deep industry experience of our operators in their respective markets, positions us to grow our relationships and strengthen our senior housing platform over time. Recent portfolio actions include the sales of 29 non-core senior housing properties in 2021, resulting in approximately $400 million of gross proceeds. These communities represented orphan assets in markets with elevated competition and in need of significant capital investment. More recently, we completed the acquisition of Mangrove Bay and are thrilled to add this premium, 160-unit senior housing campus to our growing portfolio.
What a great opportunity to recycle capital out of non-core assets at a 2.5 yield and into a Class A asset at 5.5 in an attractive market. Turning to fourth quarter performance, total SHOP NOI achieved the high end of our expectations in the fourth quarter of 2021, and same-store average occupancy in the fourth quarter of 2021 versus the fourth quarter of 2020 grew by 200 basis points to 83.4%. Rate and revenue grew for the first time since the start of the pandemic as same-store revenue increased 3.3% year over year. As we anticipated, operating expenses excluding HHS grants increased sequentially by $8.7 million or 2.6%, the majority of which was driven by incremental labor expenses.
SHOP NOI, excluding HHS grants, for the sequential same-store pool declined modestly by just $1 million or 90 basis points, and NOI for the year-over-year same-store pool declined $3.8 million or 3.6%. Both are leading results among peers. For the non-same-store pool, underlying performance was stable. In closing, my enthusiasm for the outlook in our senior housing business remains high as we are well-positioned to succeed in what we expect to be a favorable macro backdrop. With that, I'll hand the call over to Bob.
Thank you, Justin. I'm going to jump straight to our first quarter outlook and finish up with a few summary thoughts on our balance sheet before turning the call to Q&A. Our Q1 guidance is for net income to range from $0.07-$0.11 per fully diluted share. Q1 normalized FFO is expected to range from $0.76-$0.80, or $0.78 at the midpoint. Incorporated in our guidance is $0.08 of HHS grants received in Q1 2022. When excluding HHS grants in both periods and adjusting our Q4 for the one-time $0.03 Kindred M&A fee received in the quarter, we are describing a Q4 of $0.68 to a Q1 of $0.70. That growth can be simply described by $0.02 sequential growth from our senior housing portfolio.
In terms of Q1 2022 property expectations net of HHS grants, we expect Q1 year-over-year same-store cash NOI for the total same-store portfolio to grow in the range of 2.5%-5.5%. At a segment level, our SHOP guidance is to increase occupancy 410 basis points year-over-year, to grow revenue by 10% led by occupancy gains and strong in-place rate increases, and to grow NOI in the range of 6%-15% ex HHS grants. At the guidance midpoint, Ventas expects operating costs to remain elevated through the first quarter, even as COVID-19 clinical conditions moderate.
We expect our triple net portfolio to be down 1.5% to flat in the first quarter, with escalator-led growth offset by modest rent reductions in the triple net senior housing portfolio from the impact of the pandemic on some of our smaller tenants. Over time, we anticipate the benefits of the senior housing recovery will accrue to these operators as well as to Ventas. We expect the third of our portfolio that is the office business to grow Q1 same store NOI by an attractive 4%-5%. Pete Bulgarelli has led a series of differentiated operational initiatives in MOBs in the last few years, which are really bearing fruit.
The results of these efforts were evident in the excellent fourth quarter performance for the MOB portfolio, which grew same store fourth quarter NOI by 3.4%, the second quarter in a row where same store growth exceeded 3%. Meanwhile, MOB new leasing was up approximately 55%, and customer retention was 92% for the quarter. That strength is expected to carry into the first quarter. Final Q1 guidance assumptions of note include no new HHS grants beyond the $33 million already received, no new unannounced material acquisitions or capital markets activities, and 403 million fully diluted shares.
We have provided additional insights and disclosure in our business update deck and our supplemental, including our Q1 versus Q4 sequential SHOP assumptions, as well as a reported segment NOI to FFO trending schedule to allow for easier insight into unique items in our results. Some final comments on balance sheet leverage and liquidity. In 2021, the company enhanced its portfolio and strengthened its balance sheet through $1.2 billion in asset dispositions and loan repayments used to reduce near-term debt. Meanwhile, we extended duration and increased our fixed rate debt to 91% by tapping into the bond markets in the U.S. and Canada, including a 10-year U.S. unsecured offering at 2.5%, the best 10-year healthcare REIT rate in 2021.
Net debt to EBITDA was stable at 7.2x in the fourth quarter, with the senior housing recovery now underway, expected to improve that ratio over time. That's a good segue to close with our enthusiasm as we look into 2022 based on the strong senior housing recovery that is now underway and the confidence that we have the portfolio, partners, and team to create value for all our stakeholders. That concludes our prepared remarks. Before we start with Q&A, we're limiting each caller to one question to be respectful to everyone on the line. With that, I will turn the call back to the operator.
Thank you. At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll take our first question from Nick Joseph with Citi. Your line's open.
Thank you. First of all, thank you for the increased disclosure. It is very helpful. I guess my question will be on senior housing. Clinical trends continue to trend favorably and assuming there's no disruption from another variant or anything, how do you think about the ability to decrease the use of agency labor going forward?
Hi, it's Justin. If we step back and you look at, you know, the kind of macro backdrop that was causing labor shortages, this was happening in the third quarter. We anticipated that would continue into the fourth quarter. What happened, you know, during that period is we had net hiring in our portfolio, so we were encouraged about the hiring trends. Omicron happens, and that really had a big impact in, you know, the first part of the first quarter. You can see some trends in our business update where we show the clinical cases among our employees. What's encouraging is you can see that those cases are coming down. We're not all the way out of the woods yet.
First thing we're gonna look for is to have a healthy workforce. The second thing is to continue those net hiring trends. You know, as that continues, we would expect the agency cost to be able to come down.
Next, we'll go to Steve Sakwa with Evercore ISI.
Great. Thanks. Good morning. I just wanted to stay on senior housing. Justin, you know, the leads and they're certainly positive here. I'm just wondering if you could talk about maybe the sales cycle. I realize you're forecasting, you know, for a modest decline in occupancy in Q1. I'm just wondering, given the pent-up demand that seems to be there and the fact that cases are coming down so quickly, you know, what's the chance that you could actually, you know, move folks in, you know, maybe later this month and into March and exceed kind of the minus 20 basis points on the occupancy side?
Hi. Sure. You know, you've probably noted that leads are really high. In fact, I'd mentioned that they're the highest they've been since the onset of the pandemic. Leads are gonna be critical, you know, to supporting this senior housing recovery that's underway. Getting to kinda your question, it certainly seems possible that the move-ins that didn't move in late January could flow over into February and we would definitely qualify that as pent-up demand. As you know, a lot of the moving activity happens towards the end of the month, so we're looking forward to see how that plays out.
Next, we'll go to Rich Anderson with SMBC. Your line's open.
Thanks. Good morning. So, you know, Welltower had their call this week and suggested that they would never be an elephant hunting type of company in terms of external growth. I'm curious if you have a red line through that mentality as well, and specifically I'm thinking about how you identified senior housing and life sciences, your strategic priorities. Could a scenario unfold where MOBs become, you know, given the pricing that's being attributed to that sector, a significant source of funds to be redeployed in some significant way that would qualify as elephant hunting? Thanks.
Hi, Rich. Good to hear your voice. Look, I think our competitive advantage has really always been our ability to do all different types of deals across our asset classes, and to do so in a way that's created value. That includes sort of getting into MOBs early and building a great business. It includes, of course, allocating capital to senior housing and, most recently, our significant investment in value-added life sciences. I mean, that has just been really incredibly positive for our shareholders. We have sold MOBs, as we talked about this quarter.
I think recycling that capital has enabled us to upgrade our portfolio in a very positive way, and we'll continue to look for opportunities to do that, while at the same time, our investment activities will continue our long pattern of really picking our spots where we have a competitive advantage and think we're gonna add value from good risk-adjusted return.
Okay. Next, we'll go to Nick Yulico with Scotiabank. Your line's open.
Great. Thank you. In terms of just going back to the agency labor costs, I wanted to see if you guys had the number for the whole portfolio or at least. You know, I know you break it out for the same store in the presentation, which is very helpful. It's, you know, 7.7% of labor. But you have the bigger portfolio now with New Senior and other. So I'm just trying to understand, like a full agency labor number that was in for the fourth quarter, and when you're saying for the first quarter that it's gonna be elevated, or is it just, you know, literally like the same amount of agency labor in the first quarter? Thanks.
Hey, Nick. It's Bob. I direct you to page 16 of our investor deck. I think there's a nice description of the pie chart of revenue and its decomposition, and you can see within that in-house labor is 42%, contract labor is 4%. You can apply that to the entire portfolio or subsets of the portfolio. It'll give you know, the same relative composition. You'll see the picture down below of what that means for the year-over-year pool. Though contract labor is important, and it has accelerated, and indeed in January accelerated even further, the underlying costs really are driven by the in-house labor, and that is really the key, and hence that's why we're so focused on bringing that in-house. Should we do that successfully, that's clearly upside given the cost per hour.
But ultimately, it's a much smaller piece of the overall cost than in-house labor, but clearly an opportunity there. You can apply that percentage to whatever pool you'd like to get to the answer.
Okay. Next, we'll go to Jordan Sadler with KeyBanc Capital Markets. Your line's open.
Thank you, good morning. Can you guys discuss, you know, Justin, you touched on the non-same store portfolio in the quarter. I think the comment I heard was that performance was stable. I'm curious if you could kind of flesh that out for us a little bit, specifically as it relates to the 90 transition properties that took place. What's going on with those? And then what's embedded in your guidance for 1Q sequentially for the transition portfolio?
Let me take the numbers first, Jordan, and I'll let Justin give some of the color. The outperformance, the high end of our range that we delivered in the fourth was led by senior housing and within led by the non-same store portfolio. You know there are two pieces of that. In the fourth, there's New Senior and the Transition 90 assets. Both those pools performed well at the higher end of our expectations, which we're really pleased with. The assumption carrying that then into the first is continued stability, notably within the Transition 90. The New Senior assets I'd highlight are in the sequential pool in the first. As you look at the guidance for the sequential pool, you'll see the impact of New Senior, which is growing nicely.
That's the outlook. Justin, any commentary on the 90 and how it's going?
Yeah. The only thing I'd add is that, we, you know, as planned, we successfully transitioned all of those communities by the first of the year to seven different operators, and everything's going relatively smooth.
Next we'll go to Steven Valiquette with Barclays. Your line's open.
Hey, thanks. Good morning, everybody. Just a question or two here on the triple net portfolio. You know, Ventas turned the corner with a slightly positive SSNOI in the fourth quarter and triple net. With the guide for that to be down, you know, 1.5% to flat in the first quarter of 2022. With senior housing on the road to recovery overall, can we, you know, assume that the rent resets are, you know, hopefully behind us now within the triple net portfolio?
Good morning. Thanks for your question. I think we have a page on this also in the business update. We have really been action-oriented, as Justin talked about and have addressed, you know, the lion's share of our senior housing portfolio, which is really 50% Brookdale. You've seen the EBITDA guide they have there. Because of the length of the pandemic, there are a couple of small operators that are still challenged by the length of the pandemic. Really the outcome there is pretty dependent upon, you know, HHS support, but more importantly, the recovery in the senior housing business, which we expect to be robust and we expect to get the benefit of that over time.
Okay. Next, we'll go to Juan Sanabria with BMO. Your line's open.
Hi. Just hoping to follow up on Steve question. On the triple-net portfolio, what percentage is paying kind of cash 1x EBITDA? And can you quantify the potential upside as those leases revert to market to the contract rents?
Yeah, sure. You know, there's you know, as Debra said, you know, the operators that have had you know, elongated challenges are. There's just a few, and they were, you know, each represent less than 1% of our overall portfolio. Those operators will benefit from HHS funds. They'll benefit from operational improvements and the recovery of senior housing, just as our SHOP portfolio does as well. We're anticipating that the triple net would behave you know, similarly to our SHOP portfolio. We do have some cash flow paying tenants, and that's in a range of around 15%-20%.
Next, we'll go to Vikram Malhotra with Mizuho. Your line's open.
Morning. Thanks for taking the question. Just maybe stepping back, Debra and Justin, just thinking about sort of the external growth piece of it, have you outlined the track record and what you've done in 2021? As we look to 2022 and 2023, can you talk about just how you think about growing in seniors housing, in particular with what you're seeing fundamentally, the longer term growth opportunities, and maybe specifically talk about on balance sheet versus maybe using more of a JV structure?
Good. I'm gonna ask John Cobb to address the senior housing question, and I would expect most of our senior housing to be on balance sheet.
This is John Cobb. I mean, I think most of our pipeline, which is fairly robust today, really kind of mirrors what we talked about in 2021. We're seeing a lot of senior housing. We're seeing some select life science development, you know, opportunities with our partners, Wexford. We're seeing, you know, a few medical office buildings, mainly with our existing partners that we have in our portfolio. By and large, it's senior housing. We're seeing some really good high-quality portfolios out there that we expect to transact in 2022. We're very excited and looking forward to, you know, looking at these transactions and hopefully acquiring them.
Okay. Next, we'll go to Tayo Okusanya with Credit Suisse. Your line's open.
Tayo?
Go ahead. Your line's open.
Hello? Can you hear me?
Yes. Go ahead.
Yes, we can.
Oh, perfect. Yes. Good. Good morning, everyone. Good quarter. Great to see things heading in the right direction. I wanted to move off senior-
Thank you.
wanted to move off senior housing, talk a little bit about the office portfolio. I mean, in 4Q, really strong same-store NOI growth yet again from the MOB, somewhat weaker on the life sciences side. I wondered if you could talk a little bit about what happened with both areas: the strong performance, the somewhat underperformance, and then how to think about that going forward in 2022.
Well, you made Pete Bulgarelli's year. Pete, can you address the fourth and the first?
To figure out how to turn on my mic. It's just so rare that I get questions. Let's first talk about MOBs. We had a terrific really second half in 2021. As Bob had already mentioned, we did a significant amount of new leasing, really for all of office. We did 3.7 million sq ft of total leasing. The new leasing was substantially higher than 2020 for MOBs and even higher than 2019. Retention, as Bob mentioned, was 86% for the full year. For the quarter, it was 92%, and most exciting for December was 95%. What I would say is that it just wasn't a lot of leasing in MOBs, it was really high quality leasing.
Just to give you an example or two. Our weighted average lease term for new leases were nine years. What that did in the quarter. That's for the quarter. What that did is extended the whole portfolio's WALs from 4.8 years to five years. Same thing on escalators. Our escalators for new leasing were 2.9% for the quarter, and that increased the whole portfolio's escalators by 30 basis points. Very substantial. What that allowed us to do is to grow for the first time in a long time, two quarters in a row at 3% per quarter. If you project forward on MOBs in the first quarter of 2022, we'd expect that trend to continue really on the basis of you know, having higher occupancy late in the year and that carrying over.
I can tell you in January, we're on track in MOBs to achieve what we said we're gonna do. Moving to R&I, and I'll go back to the fourth quarter. I think you need a little context. You know, in R&I, we had a very good year. We grew by 13.9% for the full year. Without the termination fee, we still grew by almost 4%. If you look at the supplemental, revenue was fine. We had good revenue for R&I in the fourth quarter, but we had some higher expenses than normal in the fourth quarter, mainly around, you know, as buildings start up, you go from raw, you know, dirt to a building to an occupied building. Real estate taxes take a while to kind of catch up.
That's one of the factors in the fourth quarter. We had a very large tax payment in the fourth quarter. Secondarily, many of the buildings kind of came back to life. They became occupied again in the fourth quarter. As a result, utilities went up significantly. In addition to in Baltimore and in Philadelphia, two of our larger locations, there were large utility rate increases. We're very happy with the R&I performance in 2021. If you project forward to 2022, they will cover the balance of what I already described for MOBs. It'll be largely on occupancy growth carrying into the first quarter and strong expense control. I'm very bullish about the office business, really in 2022. Sorry for the long answer. I got carried away.
All right. Next we'll go to Joshua Dennerlein with Bank of America. Your line is open.
Yeah. Hey, everyone.
Hi.
Just wanted to ask about maybe the residential or the resident renewals going out now. I know for the January 1, it was 8%. Just curious how they've trended for the people rolling later. Maybe just an update on the re-leasing spreads and how we should think about them going forward.
I'm glad you raised that because obviously as we talk about revenue growth and the in-place January 1 rate increases are extremely important. I think it's important to note that applies to a part of our portfolio, and we'll continue to have pricing opportunities as we deal with the anniversary re-renewals and rate increases, as we deal with new residents coming into the portfolio as occupancy is increasing, and also the care component, which can increase throughout the year. Those are all opportunities that we have in front of us. Obviously, it was a good start with the 8% increase in January.
I would just add that, you know, as we're working to you know identify what the appropriate pricing is moving forward, you know, as I mentioned, Ventas OI, which really stands for Operational Insights, and really taking the best of our data analytics, combining it with our operating experience and the experience and expertise of our operating partners, we collect vast amounts of geospatial data on demographics, wealth, penetration rates, new construction to train our demand and supply forecasting models, which have been remarkably accurate as it pertains to decision-making on pricing, acquisitions, dispositions. We have that approach at our disposal and the levers that Debra mentioned around care, street rates, and the anniversary rent increases that'll happen throughout the rest of the year.
The demand that we're seeing from the leads obviously demonstrates the value proposition and the strong, you know, consumer demand for these services. That is a tailwind as well that should support these efforts.
I'll add, I don't know if you mentioned this, the re-leasing spreads have been improving. You know, market price is firming. You know, it's obviously fundamental.
Yes.
The combination of the in-place increases and improving re-leasing spread, the care component, which can be priced throughout the year, and the anniversary pricing, you know, in a dynamic inflationary environment, there's a number of different levers at our disposal.
Mm-hmm. Thanks, Josh.
Next, we'll go to Richard Hill with Morgan Stanley. Your line's open.
Hey, you have Adam on for Rich. Good morning, guys. Hope you guys are all well. Just wanted to kind of ask about the kind of the expense control in the agency labor. You know, recognize the kind of the pressures there. Kind of wanted to see if you could maybe kind of quantify the kind of December versus January versus February to date impacts. You know, how have trends gone? You know, has agency labor usage increased over these three months, decreased? Kind of if you could just kind of quantify the sequential moves, I think it would be kind of helpful to think about how kind of the quarter's playing out and what kind of the outlook would be for the next couple quarters.
Sure. Again, I'll direct you to page 16 of the business deck, 'cause I think it's nice to be able to see how labor breaks down. For this pool, there's $16 million of contract labor in the fourth quarter. I'll call it just $5 million on a run rate basis. You know, we saw that accelerate to call it $6 million in December and into January. That's what we've effectively carried forward in our assumptions. You know, each pool is different, but that's kind of gives you a flavor of it. Clearly, if the clinical situation improves, the staffing continues to get traction, yeah, that would be an opportunity. That's how we dimensionalize the cost.
Next, we'll go to Michael Carroll with RBC Capital Markets.
Yeah, thanks. You guys did a good job detailing your recent capital recycling transactions. I guess, where does Ventas stand in that overall process? I mean, how much of the current portfolio, specifically in the seniors housing, kind of falls in that non-core bucket that the company would likely to eventually sell out of?
Hi, it's Justin. You know, I'm happy to report as I was mentioning all the actions we've taken that the heavy lifting is really behind us. There'll always be some non-core assets that we're looking to sell or transition or invest in or do something to create value, but it'll be a small number moving forward.
Okay. Next, we'll go to Michael Mueller with J.P. Morgan.
Yeah, hi. For the $205 million of 4Q SHOP labor, where do you think that number goes to if you're fully staffed at market prices but without the heavy contract labor component?
The real question I think that you have to answer for that is what's happening to the $189 million of in-house labor.
Right.
Again, I think the focus is very much, and rightly so, been on contract labor. The key in terms of total cost is in-house labor.
Mm-hmm.
That gets to the macro question of where the labor market and therefore inflation go, which I'm not gonna pretend I know the answer to. I think the economists will tell you, many of them, that that will improve in the back half. We subscribe to that, but very tough to call. You know, we're not gonna make a long-term forecast for that.
In the near term, we're projecting essentially a run rate in the quarter.
Right.
Next, we'll go to John Pawlowski with Green Street.
Hey, thanks for the time. Justin, quick question for you. Apologies if you've chatted about this in recent quarters, but I'm hoping you can help quantify the operating upside of recent initiatives you've rolled out and you are currently rolling out. I'm new to the company, so just trying to understand how much higher the earnings, the NOI, the SHOP portfolio will be under your purview versus the Ventas of old.
All right. Yeah. Well, you know, so there, you know, there's been a lot of actions over the last couple of years. Certainly some priorities were accelerated based on the fact that we've been going through, you know, the pandemic. You know, the goal of all of the actions, you know, whether we're acquiring or disposing or making a decision to invest CapEx, transitioning assets under new management, is to create value and create just a greater opportunity to drive NOI over time. I think really time is gonna tell. We're off to a good start. We're pleased with you know that we set expectations in the fourth quarter, and we're able to meet those expectations. We are, you know, excited about the growth in the first quarter. Off to a good start.
Next, we'll go to Daniel Bernstein with Capital One. Your line's open.
All right. Good morning. Nobody get excited. I'm gonna ask an MOB question. I just, you know-
Hi.
Go ahead. Not just you guys, but your peers have also spoken the last several quarters about better re-leasing spreads, better annual rent bumps in MOBs. Given an inflationary environment, you know, how do you think the rent bumps can improve going forward? I mean, can we push north of 3% on rent bumps? Can we see higher re-leasing spreads? Kind of what's the willingness of tenants and MOBs to accept that? In the past, that hasn't been the case, but recently it seems like it has been.
I mean, one thing that's really important to remember in the MOB business is that the assets are priced and have a low cap rate because of the reliability of the cash flows, as we've seen over the past two years, the benefit of that and the reliable growth. They also have higher margin, a much lower labor component, and so you have to look at both sides of the equation, I think, when you're thinking about the risk reward of the asset class. You know, Pete can answer. You know, we ask him every 15 minutes if they can get higher escalators and so, we'll let him answer that.
Daniel, I think it's a great question. This is Pete. You know, given that our portfolio is largely on campus, there aren't a lot of options just sitting there waiting to compete with you. Usually it requires new construction to compete. Certainly with inflation and the environment we have today, the cost of building a new MOB and the required leasing rates have gone up. Our leasing team is very, you know, it's very location and city-specific as far as what's happening to the demand for medical office space as well as construction costs. In many cases, we're competing against brand-new medical office buildings, which does give us room to raise our escalators and honestly our, you know, initial rental rates.
Yeah. Remember, you're pushing through the expense increases to the tenants as well. You really have to look at the revenue and the expense side to really evaluate the benefits of the MOB.
Yeah, we only have a couple of percent of our leases that are gross leases. The rest are some fashion of pass-throughs of expenses.
Thanks, Daniel.
Okay. Next we have a follow-up from Juan Sanabria with BMO.
Hi. Just a quick modeling question. For 2022, realizing you're not giving full year guidance for earnings, but just wanted to get a sense of what you guys are expecting from a FAD CapEx and G&A perspective for those two line items.
Sure. I'll start with G&A. We did give a $37 million number for the first quarter with stock comp amortization, which is, you know, our FFO treatment on that, so $37 million. If you look at just 2021 G&A, you know, obviously that was a very good year in terms of year-over-year in cost management. We hope this year we get back to normal, you know, business as usual to some degree, which will obviously have an impact in terms of just T&E and things like that going up. First quarter, you know, very much in line with first quarter year-over-year, frankly. In terms of FAD CapEx, really there's few things I'd highlight. Obviously with the acquisitions we've done, particularly New Senior and a higher SHOP portfolio base, there's more FAD CapEx dollars.
Secondly, Justin should touch on this, more opportunities for us, I think, to really focus using our OI as now branded to identify opportunities to invest in the portfolio, and so we'll see some acceleration there.
Yeah. I'd just say consistent with, you know, some of my other comments, and the goal is to create value. You know, CapEx is a tool at our disposal, and with the use of our analytics and operational expertise and combined with the operating partners' local market experience, we can make smart choices and anticipate returns on that investment.
Okay. Next we have a follow-up from Jordan.
Thanks.
We have a follow-up from Jordan Sadler with KeyBanc Capital Markets.
Okay.
Thank you. Quick one here for you, Justin, and then a follow-up to Bob. Just Justin, shape of the recovery this year. I'm just mathematically curious if you've taken a look at the portfolio uplift potential throughout the year. I mean, could this year look similar to last year in terms of the occupancy gains given sort of the strengths and leads you're seeing early on? I know it's very difficult to look out, but I'm kind of saying mathematically, given sort of the outlook, you know, a bit of an increase in occupancy already, how are you thinking about, you know, sort of, the potential uplift in occupancy throughout the year in the SHOP portfolio?
Then Bob, just on the asset sales, or actually there's a loan maturing this year, it looks like almost $500 million. I'm just curious about timing or expectations. Will it be repaid or extended? Thanks.
Mm-hmm. Yeah. I'll take the loan. That's a loan that can be extended. That's our expectation at the current time. In terms of occupancy, you know, I think we're projecting significant year-over-year occupancy in the first quarter, which has been outperforming yet following seasonal patterns. That is something to think about when you're looking at the slope for the year.
Next we have a follow-up from Tayo Okusanya with Credit Suisse.
Yes. Thank you very much. This one's for Justin, maybe Bob. You did talk about the re-leasing spreads improving but still being negative. I guess the question I have is with that still being negative, I guess I'm still somewhat surprised that you can push rent renewals as high as 8%, especially kind of given, again, industry-wide occupancy is still kind of well below where it was pre-pandemic. Trying to understand those dynamics of why is it that you don't get that much pushback when there's still high vacancy industry-wide and market rates are still kind of below where renewal rates are.
That's a great observation. I think it really does go to the value proposition that's being offered by the communities for the teachers and their families that at this level of occupancy, we have been able to successfully drive pricing, you know, as of the beginning of the year. That portends well kind of for the future as occupancy increases. Justin, do you wanna talk about the normal re-leasing spreads and how-
Sure. Yeah. The re-leasing spread, you know, Bob mentioned this, that you know, we saw it tighten through the end of 2021, even all the way back to pre-pandemic levels, which were like negative mid-single digits. You know, the high class problem is that we have the large increases that happen in January, and then you start comparing to relatively higher rents. You know, technically, the re-leasing spread widens, but it doesn't mean that your pricing power doesn't continue to improve.
One thing that we do look forward to that this backdrop seems to support is the opportunity given the demand at the doorstep to eventually get to a place where you have positive re-leasing spreads again, which we've had in, you know, other parts, you know, throughout the sector's history. We've seen that at times. Certainly there seems to be support moving forward for that to happen again.
Thank you, Tayo.
Okay. Next, we'll go to a follow-up for Vikram Malhotra with Mizuho.
Thanks so much. Justin, maybe one broader question as we look into second half 2022 and 2023. You know, with new senior and just your other acquisitions, you now have more of a tilt towards IL versus AL in the RIDEA pool eventually, same store pool. What does that mean from an expense growth standpoint and then a pricing power standpoint for the second half in 2023?
Well, you know, certainly, you know, independent living is a high margin business, has relatively low labor costs compared to assisted living. It's a little less need driven, so you may not see a, you know, the occupancy pop, but we expect a higher ceiling in occupancy and independent living over time because there's less new supply that faces it, and that's consistent with historical track record of independent living as well. We look forward to, you know, revenue growth in the independent living communities and certainly assisted living is need driven. It performs well. It seems like no matter what the backdrop is, as long as there's a way to pay for the service, which you know, given the housing values and wealth demographics there is.
We expect that to continue as well, and the opportunity really is to price in labor costs over time, as we've said, we're off to a good start given our high in-house rent increases.
One other thing we like about independent living is really it meets. You know, we're getting to the period now where the over 80 is growing over 3%, so we're really hitting kind of that demographic boom. The independent living tends to meet that customer at a little bit earlier age. That's another part of the business in addition to kind of the lower labor costs that we like. Great. Okay. Oh, we have one more question. Okay.
Next, we'll go to Nick Joseph with Citi.
Hey, it's Michael Bilerman here with Nick. Good morning. I just wanted to go just in terms of acquisitions, in terms of the fund. You know, as your cost of capital's improved, both from a debt and equity perspective, how do you sort of look at that opportunity to buy within the fund relative to on balance sheet, and how are you balancing that as you're looking at the transaction market?
Mm-hmm.
for opportunities?
Yep. Thank you. Yeah. The fund's a great tool. Obviously, our VIM business is going strong, and it gives us a great tool to continue to grow. The fund itself was very thoughtfully conceived in order to be a net additive component of our growth strategy so that it really is designed to address you know, we're very disciplined about capital costs and capital allocation, and so it's really designed to address many of the opportunities that were really not as attractive to us on balance sheet because of the relationship between our cost to capital and the pricing of that type of assets. You know, a great example is our South San Francisco life science building, our Johns Hopkins life science building, which were put in the fund with great success.
Those are things that we may not have been able to acquire had we been doing it on balance sheet. Now we have 20% interest in it. We have asset management fees. We have ultimately other types of economic incentives if the performance is good, which it has been. A very thoughtful, kind of defined strategy to use them to grow our business for the benefit both of our public shareholders and the third party institutional capital.
That concludes today's question and answer session. I'll now turn it back over to Debra Cafaro, Ventas Chairman and CEO.
Well, it's been a great call, and I'm very glad to end the year on a very good quarter and look forward to another positive one in the first. I really wanna thank everyone for joining our call today. I can't tell you how much we appreciate your ongoing support and interest in the company, and we look forward to seeing you in person soon. Thank you.
This concludes today's conference call. You may now disconnect.