Good day, ladies and gentlemen, and welcome to the Q4 2018 Ventas Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Juan Sanabria.
You may begin.
Thanks, Michelle. Good morning, and welcome to the Ventas conference call to review the company's announcement today regarding its results for the year and quarter ended December 31, 20 18. As we start, let me express that all projections and predictions and certain other statements to be made during this conference call may be considered forward looking statements within the meanings of the federal securities law. The company cautions that these forward looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the company's expectations, whether expressed or implied. Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward looking statements to reflect any changes in expectations.
Additional information about the factors that may affect the company's operations and results is included in the company's annual report on Form 10 ks for the year ended December 31, 2017, and the company's other SEC filings. Please note the quantitative reconciliation between the non GAAP financial measures referenced on this conference call and its most directly comparable GAAP measures as well as the company's supplemental disclosure schedule are available on the Investor Relations site on our website, www.ventasreit.com. I will now turn the call over to Deborah A. Cafaro, Chairman and CEO of the company.
Thank you, Juan. We're very happy to have you join us on this side of the table for your first call. And good morning to all of our shareholders and other participants, and welcome to the Ventas year end 2018 earnings call. I'm delighted also to be joined on today's call by my outstanding Ventas colleagues. In 2018, Ventas extended its 2 decade track record of sustained excellence.
We delivered positive total return to our shareholders, substantially outperforming both the REIT index and the S and P 500. We increased our dividend, harvested proceeds from successful investments that we redeployed to enhance balance sheet strength and invest in future growth. We added selective premier private pay assets to our portfolio and we built a high quality research and innovation development pipeline exceeding $1,500,000,000 with leading research universities. Importantly, we also enhanced and expanded our relationships with key industry partners Wexford, PMB, Ardent, Atria and Sunrise during the year. And we crafted new beneficial arrangements with care providers including Brookdale and ESL.
In addition to achieving these strategic objectives, we also delivered on our financial goals. 2018 normalized FFO per share was $4.07 at the high end of our improved expectations on a best in class balance sheet. During the year, we were gratified that our team and our company were recognized repeatedly for our track record of outperformance, our significant contributions to the industries where we have a major presence and for our leadership in environmental, social and governance matters. Along the way, our Ventas team remains strong, smart and unified. While I'd love to elaborate on our 2018 accomplishments, they are well described in today's release.
Instead, allow me to outline our expectations for 2019, highlight some of our key opportunities for the year and describe our commitment to returning to growth. We entered 2019 on a strong foundation. We expect 2019 normalized FFO to range between $3.75 3.85 dollars per share, assuming no acquisition activity. We also anticipate that our diversified portfolio will grow same store cash net operating income year over year. We expect 2019 to be a pivot year in our transition back to growth following a multiyear period of strategic improvement in our portfolio quality and mix from disposition and receipt of loan repayments totaling $8,000,000,000 We used the proceeds of these transactions to substantially improve our portfolio and tenant mix and replace lower quality assets and tenants with high quality health systems and research and innovation properties with highly rated leading universities.
While the specific timing of our return to growth following 2019 is difficult to predict, the building blocks are clear: deliver organic portfolio growth when senior housing operating conditions improve as other business lines continue to grow capture the benefits of our research and innovation business and development pipeline, utilize our financial strength and flexibility, and reignite our long standing history of completing successful accretive acquisitions. Let's talk about those building blocks in turn. First, looking at senior living trends nationally, we are very encouraged by the recently reported continued improvement in senior living starts, which have reached their most favorable point since the Q3 of 2012. As starts continued to moderate, demand for our product ramped to its highest level ever in 2018. The 75 to 81 year old contingent is growing 4% per year for the next 5 years and the 82 to 86 year old cohort begins to grow over 3% per year after 2019.
Assuming these trends continue, we anticipate a bottoming in senior housing so that the supply demand equation moves in our favor in the future, creating a powerful cyclical upside. Potential increases in the penetration rate would incrementally improve this picture. 2nd, we've enjoyed significant growth in our university based research and innovation business to date from the original portfolio we acquired in late 2016 and the delivery and lease up of additional properties. We expect research and innovation growth to continue in 2019. Building on our momentum, we have today announced the extension of our collaborative partnership with Wexford until 2029 and the creation of a strong development pipeline exceeding $1,500,000,000 in projects with elite research universities that will accelerate our growth in this high quality sustainable space.
The pipeline cements our leading position in the market and demonstrates again our ability to acquire and grow a differentiated value creating business. Our robust pipeline of developments with top tier research institutions contains about 10 expected projects, roughly half with existing university relationships and half with new ones. Pro form a for the announced development pipeline, our investment in high quality new real estate leased by leading research institutions will exceed $3,500,000,000 more than doubling our original 2016 investment. And NOI from research and innovation investments would represent about 10% of Ventas NOI. The pipeline projects have excellent risk adjusted return with expected unlevered yields of between 6.5% 8% at stabilization and significant pre leasing, creditworthy tenants and long term leases.
Today, we announced the first development in our pipeline, a $77,000,000 project with Arizona State University, a highly rated public research university and a new relationship for Ventas and Wexford. The project will be fully lab enabled and principally used for biomedical discovery and innovation and health outcomes. It is 50% pre leased to ASU and should open by the end of 2020. With best in class developer and manager Wexford, we look forward to meeting the needs of leading universities who want powerful knowledge communities on their campuses to supercharge research, innovation and economic activity. Our 3rd building block of future growth stems from our financial strength and flexibility.
During 2018, we paid down and refinanced debt totaling $3,400,000,000 So we entered 2019 with an industry leading credit profile, limited near term debt maturities, terrific liquidity and capital access. Finally, current market conditions are becoming more conducive for accretive external growth. Our team continues to evaluate investments across our verticals. Our strong relationship in all our business lines provide a competitive edge in acquisitions and we intend to be proactive and opportunistic to increase investment activity. However, because investment timing and volume are unpredictable, consistent with our historical practice, we have not built any acquisition activity into our projections for 2019.
In conclusion, with nearly 20 years of 23% compound annual return to shareholders, we are happy with our 2018 accomplishments and financial performance. We are introducing 2019 guidance that is consistent with our previous statements to you. And most importantly, we are confident in our positioning for another 20 years of growth and success. Now I'm happy to turn the call over to our CFO, Bob Propst.
Thank you, Debbie. I'm happy to report another solid year of performance from our high quality portfolio of healthcare, seniors housing and office properties. Our total property portfolio delivered same store cash NOI growth of 1.2% for the full year 2018, above the midpoint of total company same store guidance. In 2019, we expect our total portfolio same store NOI growth to range between 0% and 1%, benefiting from diversification of asset class, operator, geography and business model. Let me detail our 2018 performance and 2019 guidance for our properties at a segment level, starting with triple net.
We were very pleased by the performance of our triple net portfolio, which grew same store cash NOI by an excellent 3.6% for the full year 2018. In the Q4, triple net same store cash NOI increased a solid 2.1%. Across our total triple net lease portfolio, trailing 12 month EBITDARM cash flow coverage for the Q3 of 2018, the latest available information, was stable from the prior quarter at 1.5x. Within that, seniors housing remained flat at 1.2x, while IRFs and LTACs remained consistent at 1.4x. As we predicted, performance at the assets for our Kindred LTACs improved in the second half of twenty eighteen with operational strategies taking hold to mitigate LTAC criteria.
We expect this improvement to continue in 2019. Also, MedPAC just recommended a rate increase for LTACs, recognizing their value in the healthcare delivery system. Meanwhile, Ardent's Q3 2018 results were strong, and the 4th quarter showed continued momentum. Ardent recently filed for an IPO. Ardent's RED coverage remained robust at 2.9x.
And hospital Medicare rates increased approximately 3% effective in the Q4 of 2018. As we look at 2019, triple net same store NOI is projected to grow, albeit at a more modest rate. Rent escalators are assumed to be partially offset by expected lease modifications with certain smaller senior housing operators where rent coverage and credit is challenged. Though we have multiple potential approaches to these situations, including operator and business model transitions, our guidance at this stage assumes a $10,000,000 NOI reduction in our triple net same store pool, equating to 130 basis point year over year same store impact. In addition, the lapping of the 2018 Brookdale lease modification lowers triple net same store NOI growth by 70 basis points in 2019.
On these assumptions, we forecast that our overall triple net portfolio same store cash NOI will increase between 0.5% and 1.5% in 2019. I would highlight that guidance does not include any lease modifications for our portfolio of 26 communities managed by Holiday. These assets represent only 3% of our company's NOI with approximately $60,000,000 in annual contractual rent, which is fully current. Holiday has recently entered into a variety of transactions with its other landlords. In our case, we have a wide array of possible options and many tools and previous experiences at our disposal to obtain an optimal outcome if we believe a transaction is appropriate.
Importantly, we believe that in any transaction, we'd be made substantially economically whole and any impact would be immaterial to Ventas. Moving on to our senior housing operating portfolio. To summarize, our 2018 SHOP results were in line with our expectations both for the Q4 and full year. For 2019, our shop guidance at the midpoint represents a year over year improvement relative to 2018, though we continue to work through the near term supply demand mismatch. And as we look beyond 2019, we're excited about the powerful upside opportunity in seniors housing and in our excellent market position.
Let me unpack each of these topics in turn. In 2018, our shop full year same store NOI growth was minus 2.1%. Year same store occupancy in 2018 declined by 80 basis points versus 2017, driven by the cumulative impact of new deliveries in select markets. RevPOR growth for the year was 1.9%. Operating expenses rose 2.5% with wage growth partially offset by cost controls.
Positively, the year over year occupancy gap continued to narrow to minus 10 basis points in the 4th quarter, though new deliveries continued to pressure rate. Q4 expenses were up 3%. At the bottom line, Q4 same store shop cash NOI declined 3.5%, in line with our range of expectations. Turning to 2019 guidance. As we previewed on our Q3 call, we expect full year 2019 SHOP same store cash NOI to range from minus 3% to flat.
At the midpoint, this represents a 60 basis point improvement in year on year performance in 2019. Please note our 2019 same store pool now includes 74 assets operated by ESL. We forecast same store occupancy in 2019 will range from flat to down 50 basis points for the full year. We expect new deliveries in 2019 to be at a similar level to 2018 as we digest the high level of inventory initiated several years ago. In terms of rate, we continue to see healthy increases on in place rents and care for existing residents.
Encouragingly, the majority of the 2019 rate letters have gone out with increases that exceed 5%. That said, price competition for new residents is expected to result in negative rent releasing spreads in a high single digits range. Overall, we expect RevPAR growth for the year to approximate 1%. We forecast operating expenses to increase in the 2% to 3% range with continued wage pressure partially offset by strong cost controls and more modest incentive management fees. The early read in Q1 of 2019 suggests the flu impact to be more modest than 20 eighteen's severe levels.
Extreme weather conditions in many parts of the country the start of the year may also affect the Q1. Finally, as we look beyond 2019, we're excited about the very positive trend in new construction starts, together with accelerating demand. The implication for positive occupancy and NOI gains from this data supports the powerful upside we expect in seniors housing. To finish up the segment discussion, let's turn to our office reporting segment, which represents approximately 27% of Ventas' NOI. For the full year 2018, office same store cash NOI increased by 1 0.7%.
Within office, the R and I portfolio performed very strongly in 2018 and reached the high end of our guidance range by delivering full year same store cash NOI growth of 4%. Average revenue per square foot increased 4.9% and occupancy was 96%. For the same store pool in the 4th quarter, R and I increased same store NOI by an outstanding 8.6%, driven by continued execution on our lease up assets. In 2019, we expect attractive full year same store research and innovation NOI growth in the range of 3% to 4% and total R and I portfolio NOI growth to exceed 7%. With the number of new developments coming online in 2019, we expect the R and I portfolio NOI to really begin to accelerate into 2020 beyond.
Turning to our highly valuable medical office business. MOB same store cash NOI increased by 1.1% for the full year 2018. Tenant retention in 2018 was strong at 80%, and same store occupancy improved sequentially in the 4th quarter. In 2019, we expect 1% to 2% cash NOI growth from our same store MOB portfolio. Guidance assumes occupancy increases through new leasing, continued strong retention rates and less square footage expiring than prior year.
The total MOB portfolio is expected to benefit from the opening in 2019 of our new MOB development in Downtown San Francisco, which is now over 80% pre leased to Sutter Health. On a combined basis, our same store office portfolio of research and innovation properties and MOB assets is expected to grow cash NOI in the range of 1.5% to 2.5% for the full year 2019. Now on to our overall company financial results. In 2018, we delivered normalized FFO of $4.07 per share, matching the high end of our guidance range. Adjusted for Q4 natural disaster impacts, our GAAP net income and NAREIT FFO results were also in line with expectations.
Meanwhile, we successfully recycled $1,300,000,000 in capital and built a balance sheet that is the strongest in our sector. In 2018, we proactively refinanced near term debt to manage future interest rate risk and increased average debt duration by nearly 1 year to 7 years. At year end, net debt to adjusted EBITDA was 5.6x, fixed charge coverage an exceptional 4.6x and net debt to enterprise value was 34%. We have also enhanced our supplemental disclosure package to incorporate feedback from investors and analysts as well as industry best practices. We welcome your ongoing feedback.
I'll close out the prepared remarks with our full year 2019 guidance for the company. The key components of our guidance are as follows: net income is estimated to range between $1.23 $1.38 per fully diluted share normalized FFO is forecast to range from $3.75 to $3.85 per fully diluted share. We expect portfolio same store cash NOI will range from 0% to 1%, and net debt to adjusted pro form a EBITDA is expected to stay flat at 5.6x by year end 2019. Last quarter, we highlighted that 4Q 2018 guidance annualized of $3.76 per share in normalized FFO was a good run rate for 2019. Today's 2019 official guidance is in line with our first read discussed last quarter, with the 2019 range of $3.75 to 3.85 per share or $3.80 at the midpoint.
The 2019 normalized FFO guidance is explained by 3 drivers. 1st, underlying total property NOI is expected to grow modestly with solid organic growth in multiple asset classes, largely offset by the impacts of the supply demand cycle in senior housing. 2nd, we expect to recycle $500,000,000 in asset dispositions and receipt of loan repayments into funding $500,000,000 of developments and redevelopments, principally behind the R and I pipeline. This capital recycling is dilutive in 2019 but delivers strong future growth and value creation. And third, we expect higher interest expense in 2019 from higher rates and incorporate $0.02 in incremental leasing expenses from a change in lease accounting standards effective starting in 2019.
Finally, as is customary, guidance does not include new acquisitions and also assumes approximately 361,000,000 weighted average fully diluted shares. In conclusion, we are pleased with our performance in 2018. However, the Ventas team is intently focused on together delivering on our 2019 commitments and on our return to growth. With that, I'll ask the operator to please open the call for questions.
Thank Our first question comes from Nick Joseph of Citi. Your line is open.
Thanks. What's assumed in guidance for the timing of the asset sales and the loan repayments?
Sure, Nick. Good morning. Good morning. The $500,000,000 in dispositions and loan repayments is really back end weighted. The loan repayments open really beginning in the summer.
So our guidance is really midpoint of that back half at the midpoint.
Okay. Thanks. And then as you think about 2019 being a pivot year, where will you enter 2020 on a run rate basis from a quarterly FFO perspective? Obviously, the midpoint suggests $0.95 a quarter, but it will be variable given those loan repayments and contribution from development and redevelopment?
Yes. So you're right to point out in terms of phasing for the year quarter to quarter, we certainly would expect in the second half sequentially to see lower FFO per share, and that is indeed the case here. I wouldn't say wildly different, but it does trend down over the course of the year based on the timing of dispositions, which again are uncertain. So it's hard to say exactly quarter by quarter what that's going to look like.
Thanks. So is the return to growth more of a 2021 comment than 2020?
Nick, as we said that we're intently focused on returning to our historical growth and the timing is not easily predictable within a specific quarter or so, but we know we're going to get there. We know what we have to do and we know how to do it. So I feel good about that.
Thanks. Thank you.
Thank you.
Our next question comes from Josh Dinerlane of Bank of America. Your line is open.
Hey, thank you guys. Good morning. Good morning. You mentioned that your team has been underwriting acquisitions. I know you have nothing in guidance.
I mean, where would where is the team most active? Is it senior housing, MOBs, other segment?
Well, clearly, we've been very busy building this great research and innovation pipeline. And I thank John Cobb and his team for that. In terms of looking forward, I would say there's a combination of across our verticals, a combination of regular way type potential investments as well as more opportunistic type things that may come into focus over time.
Okay. And then on the Wexford, the 10 projects you've identified, is that over the kind of the lifespan of the contract being extended to 2029? Or is it kind of just what you have in the near term kind of lined up?
Yes, this is John. It's in the near term. It's not in the next 12 months.
It's in the next couple of years.
Next couple of years. Okay. So what do you think you can kind of do per year, like 2 or 3 of these projects, kind of good run rate?
Yes. With the $1,500,000,000 typically 24 months, 18, 20 to 24 months to start to finish to open the building and then a couple of years to stabilize from there depending on the pre leasing. So that's how you should think about the phasing of the 1.5.
Okay, okay, great. Thank you.
Yes.
Thanks.
Our next question comes from Nick Yulico of Scotiabank. Your line is open.
Yes. Hi, good morning, everyone.
Good morning.
Just following up on Wexford, is there any you talked about the 18 to 24 months start to finish. Is there a way you can get a feel for future starts you're assuming for this year and next year? Because if I guess I go back to the disposition guidance, it talks about $500,000,000 there, which would be used for development and redevelopment. And based on your current pipeline of supplemental, you don't have that much spending. It looks like you have like another $250,000,000 to $300,000,000 of starts that would be maybe as soon this year.
So can you just give us
a little feel for that?
Just some starts in 2019, but back end weighted and then a ramp in 2020 and some spend thereafter.
I'd build on that, Nick. In terms of the $500,000,000 of development, redevelopment spend forecast this year, call it, 70% of that is in fact development. And indeed, the majority of that is behind the pipeline just announced. So really, this is about accelerating that pipeline beginning in this year.
Okay, that's helpful. And then Debbie, I wanted to go back to when you're talking about external growth, you're saying current market conditions are good for accretive external growth. And I guess I'm just wondering, you have been a little bit quieter on the larger portfolio acquisitions in the last year, some of which have traded. How much was your cost of equity a factor in that? And now that the stock price where it is, it's up since significantly versus its low point in 2017.
How much is that also affecting your thinking on the ability to do accretive acquisitions?
Right. And well, as I said, I mean, we're excited about the investments we're making in research and innovation. I do think the environment is more conducive and it really is around the fact that we may be seeing a slight upward drift in cap rates and therefore rewarding our patients coupled with an improved cost of capital. And then there are certain, again, more opportunistic things that come and go and where perhaps over time those could become more interesting to us. So it's a variety of factors.
Okay. Just one last question, Bob. I want to follow-up. When you gave the triple net segment guidance, you talked about some certain lease modifications with senior housing operators, but I think you said that did not include holiday. Is that correct?
That is correct. Yes.
Okay. And then I know you also talked about there's a lot of different scenarios with Holiday, but you expect to be made substantially economically whole. I guess the question I have though is that there is some significant straight line rent associated with that lease. So I mean is there still a chance that I mean how should we think about an economic issue versus a GAAP FFO issue where there is some potential for a straight line rent reduction if you had to restructure that lease?
I'll take that one. There's again a wide array of options, many permutations. We're looking rightly as you said at being made substantially economically whole. We do have a structured guarantor whose credit has been directionally improved as a result of the other transactions. And so we're really looking at it from an economic basis right now.
And then the GAAP impacts and so on are will follow depending on whether we do a transaction, if so what that looks like and that the GAAP will follow whatever transaction, if any, we
do. Okay. Thank you, Debbie.
Thanks.
Our next question comes from Steve Sakwa of Evercore. Your line is open.
Thanks. I guess I just wanted to talk maybe about some of the timing of deliveries. I think some of the delivery dates got pushed out a little bit. I mean, just what are you seeing on the construction front? And how do you sort of see the delivery timetables maybe changing over the next 1 to 2 years?
Sure, Steve. It's Bob. So in terms of deliveries, we take the NIC data and we then risk adjust that, should I say, based on our experience of how long it typically takes to deliver. And in fact, that trend has been lengthening, I. E, it's been taking longer than normal.
I'd say we are pretty accurate in our forecast for 'eighteen in terms of those deliveries. And as we looked at 'nineteen as we look at 'nineteen, we expect to have similar levels in our portfolio of new deliveries as we saw in 'eighteen. Obviously, the trend down in starts is encouraging, as we said. That gives us some visibility now into 'twenty. Of course, that will be a function of timing of deliveries, but we do expect, based on the starts trend, which has been so favorable, to see in 2020, a reduction in the amount of deliveries.
So hence some of the commentary around the improving trends that we see over time in seniors housing.
And I guess maybe just to stay on that business, kind of the wage issues, I think you said expenses might grow 2% to 3% and embedded in that might be slightly higher wage growth. Just what kind of comfort do you have around sort of the wage component and that not putting upward pressure on overall expense growth in 2019?
Yes. This has been a pretty consistent theme, Steve. I think I asked the same got asked the same question this time last year. Wages have clearly been under pressure, no doubt. Tight labor market, we're all aware of that, minimum wage, etcetera.
What the operators have done is a phenomenal job of cost control, whether that be the business model, the operating model, how they staff, managing indirect costs, etcetera. And so if you look at our full year, for example, 2018 operating expense grew 2.5%. That's right in the midpoint of the range we've just given for 'nineteen. Our operators believe they have continued opportunity runway for cost control, but that is certainly necessary in light of the wage pressure, as you point out.
Okay. And then last question on the
R and I business, I guess the ASU deal, it sounds like half of that is at least going to the university. I guess, are your expectations that the other half would go to traditional kind of life science type tenants? Or would you expect the university to take the other half over time? And what are your prospects or pipeline look like for leasing up the balance of that building?
Sure. This is John. Historically speaking, we target the private sector, like you said, but we have had a lot of where the university does take additional space. It just happened to us at our Washoe building that we just completed and successfully filled up. So we target both
and our prospects are good.
Okay. Thank you.
Thanks.
Our next question comes from Andrew Rosivak of Goldman Sachs. Your line is open.
Great. Thanks for taking my question. Really fast, something I got this morning that I didn't know the answer to. 12% of your shop in the 4th quarter was outside of the same store pool and I think I modeled these wrong. First, you have that new line, the 16 properties intended for disposition on page 2, I'm guessing that's outside of the same store pool?
Yes. That's correct.
Any sense of how that portfolio trended in 2018?
Sure. So first of all, in terms of the same store pool, I'll just emphasize again, the ESL assets going into the full year pool in the 2019, they're not in the full year pool in 2018 as we transition them. So that's the biggest driver. 80% of our assets, that said, even before ESL are in same store. We do have some assets which are actively marketing.
Intended for disposition is the term we use. Typically, in seniors housing specifically, these may be in some higher supply markets. And so the trends would mirror those types of markets.
So I don't want to put words in your mouth, Bob, but probably that I just did look if you look at it, there's only $1,000,000 of NOI and $20,000,000 of revenue that that was probably a portfolio or assets that were pretty tough in 2018?
Yes, those have trended down very consistent with the market.
And then my second one, you mentioned ESL. If you broke your same store portfolio in 2019 between ESL and not ESL, would there be a difference in the expectation for performance?
Yes, great question. And perhaps a chance just to discuss ESL a little bit. The last call we mentioned they stabilized. We saw a good 4th quarter from ESL, really on the cost side in particular getting their operating model in place. So nice stabilization of performance there.
In terms of the impact in 'nineteen in the same store pool, that's a positive impact to the overall by about 60 basis points in the same store pool overall. So put another way, you can adjust the same store midpoint by that amount if you excluded it.
Got it. So basically, so there's a bit of an easy comp, if you will, where your SHOP can do better than kind of a generic SHOP portfolio in the U. S. Because of the ESL portfolio?
Well, we I would just say that we expect it to have a positive contribution and that's what we intended when we moved the assets.
Got it. Thanks a lot.
Thank you.
Our next question comes from John Kim of BMO Capital Markets. Your line is open.
Good morning. In your supplement, you provided what looks like new a new line of 8% to 12% range in stabilized returns on incremental capital.
Yes.
Just to clarify, is that a development yield or an IRR figure?
It's an unlevered yield on incremental capital, John. Good morning. I'm glad people are noticing some of our good additional disclosure and I'm glad it's helpful. But that's kind of that's an unlevered yield on incremental invested capital at stabilization.
And is that pertaining just to redevelopments or does that include developments as well?
That's the redevelopments, John. Specifically on that page, you'll see at the bottom for the redevelopments. Developments, we show expected stabilized yields, specifics to the projects.
Got it. Okay. I think previously you stated that your life science land bank can provide up to $2,000,000,000 of developments. And in today's press release, you're saying $1,500,000,000 So besides the ASU project, what was incrementally new as far as projects that you agreed upon?
One thing we did say is that with the 10 sort of half are with new relationships, roughly half with existing ones. I'm glad you remember that we do have a land bank with some of our better universities that could support about $2,000,000,000 in development. And to tie that all together
Yes, the half rule of thumb applies as well in terms of that land bank that we quoted going towards half of it roughly is going towards this new pipeline. Half still remains as an opportunity.
Okay. And then Debbie, you mentioned on an answer to previous question that opportunistic things come and go. Can you just maybe provide some more color on that? Does that specifically mean public opportunities?
Right. I mean, almost by definition, opportunistic is a little bit come and go, if to use your words. It is more expansive in terms of things where we have a unique insight or we have a unique relationship that we can employ to capture an opportunity that is unique.
Thank you.
Thank you.
Our next question comes from Jordan Sadler of KeyBanc Capital Markets. Your line is open.
Thank you. Good morning.
Good morning.
Good morning. Bob, could you clarify on the ESL piece? Did you say it's a 60 basis point positive contribution to the overall or just to the SHOP piece?
To the SHOP same store piece, not overall company.
Okay. I thought
so. And then as it relates to SHOP NOI trending throughout the year, we were talking about sort of the sequential trend in maybe FFO, but I was kind of curious, I think it feels like your toughest comps are probably earlier in the year. And so I would expect some sort of gradual improvement throughout the year. Is that how you guys are thinking about it?
Actually, we think it's likely to be pretty consistent throughout the year. Forget seasonality, I'm just thinking year over year performance. Some of the things notable last year in the Q1 were the flu. This year, we have, as I said, an easier flu, albeit above normal levels, but severe weather is kind of a new factor in the mix in Q1. But as we look out over the course of the year, I don't see anything that spikes any particular quarter, frankly, on a year over year basis.
Okay. And then just on the acquisition minor opportunities, are there any particular segments that are sort of cropping up as having better or worse opportunity? Has your interest level in senior housing picked up at all given sort of the fact that we're getting closer to sort of the ramp in the demos and possibilities and penetration?
This is John. I think it's across the board. We're seeing in all the sectors that we look at.
Is there anything that you could point to that's driving that? Is it just more willing sellers or prices or
I think what yes, Debbie said earlier, I mean, we're seeing a little bit uptick in yields. So that's making some of it more attractive. But sometimes deals just come to market.
Our next question comes from Derek Johnston of Deutsche Bank. Your line is open.
Hi, good morning. Good morning. For senior housing, are you seeing better supply demand dynamics in major metro markets versus secondary or suburban? And really, how economically viable is senior housing in markets like New York City and San Fran where costs seem somewhat prohibitive?
Sure. So in terms of supply demand, we it's really a market by market conversation. I quoted a few in the past of the major or primary markets like Atlanta, Chicago, where we have seen a significant amount supply demand that continues. Secondary markets, if you just look at the segmentation in our supplemental, you can see it does have what feels a little bit like a more significant impact in terms of supply, some of the smaller markets, Salt Lake City, etcetera. But it really is a market by market conversation.
And again, I think just pivoting back to the overall trend downward, it's in starts is the encouraging piece that we keep wanting to point to. It's clearly, as we look at 2020, kind of towards the tail end, coming down in terms of delivery expectations. So that's really good news.
Okay, got it. And just quickly for my second one, could you just talk about the West Coast strategy and the ultimately how Sutter is progressing and any updates there?
Great. This is Debbie. I would say that we are running the West Coast offense. We have been lucky enough to be partners with PMB that is a very well known West Coast developer of high quality medical office and outpatient. And we recently extended that relationship.
It's been a very positive one. And they continue to have a good pipeline of development opportunities and we have an exclusive pipeline arrangement with them. Sutter, as you point out, is 1 and it is I've just visited it during NAREIT, I believe, and it's looking great and ready for occupancy and right across from a $2,000,000,000 new hospital that Sutter is moving into shortly. So we're excited about that one and we look forward to taking investors there as soon as we can.
Thank you, Debbie.
Thank you.
Our next question comes from Chad Vanacore of Stifel. Your line is open.
Hey, good morning. This is Seth Canedo on for Chad.
Hi, Seth.
Hi. Hey, first question, looking at the dispositions, do you guys is there any update on the $30,000,000 of rent that was associated with Brookdale? Is that most of the $500,000,000 disposition including guidance? And have you identified those properties? And any insight on timing or expected yields?
Yes. So as you recall, early in 2018, we did a very attractive arrangement with Brookdale that extended our leases and also targeted about $30,000,000 of rent for disposition at a 6.25 yield to Ventas. We have identified an early tranche of those potential dispositions and that is part of the $500,000,000 to which Bob referred. And we're at the very early stage of marketing that portfolio and
that's where
we stand. And that will continue to improve the overall quality of our portfolio and be helpful to Brookdale as well.
And I would add the loans are, call it, dollars 300,000,000 $350,000,000 of that overall total.
Loan repayments represent the rest of it. Yes.
Got it. Thanks. And then when we looked at last quarter and we talked about your preliminary SHOP outlook, it was pretty much the same as 2018. It seems like the upper end of that range was improved. Was that predicated on the outperformance of ESL or overall supply demand dynamics or just any more color that gives you confidence that it's going to possibility of improvement in 2019?
Yes, great question. I'd highlight a few things, and this thematically applies not just to 'nineteen, but as we think about 'twenty and beyond. One of the things we have seen is solid occupancy. And I noted 10 basis point GAAP versus prior year, which had narrowed throughout the year in 2018. And in fact, sequentially, we grew occupancy in the Q4 for the first time since 2015.
So there's something going on that's very positive on the occupancy side. I think it's market share gains and penetration, but that's really one of the things we find very encouraging. ESL, you rightly point out, is another. And then the third I would highlight is redevelopments. We have redevelopments in our same store pool.
I mean, we are seeing some lift from the redevelopments in 'nineteen and into 'twenty. So to give you a few of the ideas that gave us that confidence and the midpoint improving in 'nineteen and then beyond.
Our next question comes from Jonathan Hughes of Raymond James. Your line is open.
Hey, good morning. Thank you for the time.
Good morning.
Good morning. And thanks for the added disclosure throughout the stuff, really appreciate it.
Good morning. You bet.
On the external growth front, earlier you mentioned pricing for deals has drifted up. That was on Nick's question. Not sure if that was specific to a certain healthcare real estate asset class or just a broad comment. But would you care to maybe quantify that rise with specific emphasis on the MOBs? Have they maybe moved up 20, 25 bps over the past 6, 9 months?
Again, it's we're starting to see a slight drift upward and it really is in several of the asset classes. And so I think you're on the right track.
Okay. Fair enough. And then then I haven't I don't think we've talked about Ardent in detail yet, but in the past, you really wanted to expand that platform. There was a recent acute care deal, granted outside of the U. S, but curious if you looked at that and then maybe where you're seeing any hospital
or acute care opportunities within the U. S?
As you know, high quality health systems and I'll just point to HCA as a public example of that have done and have the opportunity to continue to do well. We certainly have a great position within the health system market. It's a large market. And I think we would be very interested in continuing to grow that business if the right opportunities present themselves. We said at the beginning and continue to believe that we will be very selective in any investments we make in the space as we have been to date.
And we'll remain opportunistic. That's an area where I think we'll be disciplined and selective. But opportunities that could arise, we are in a good position to capture.
Are you open to any international acute care opportunities?
We have looked at acute care opportunities abroad over time and it obviously depends on the market and the yield after currency and taxes and whether we think it's a good risk adjusted return. But we have looked at opportunities outside the U. S. And quality health systems over time.
Okay. That's great. And then just one more for me. And I realized there were some accounting changes over the past few years, so this is a bit cosmetic. But G and A has gone up a good amount over the past few years, while the asset base has remained fairly stable.
And I know this is going to be impacted by accounting change again this year. But I was hoping you could maybe steer us to a good maybe growth number on last year's G and A line item, not guidance, but just a suggestion of maybe what we can kind of expect this year.
Thanks.
Sure. I'll take that one. G and A in 'eighteen v 'seventeen really follows the good performance that we had in 'eighteen. So it's really a function of incentives. Staffing has been quite stable, and we continue to be very lean as we think about and that's a variable therefore that moves around every year.
I would start with inflationary sort of increase on a normalized basis, as you point out, adjusted for accounting type impacts, inflationary increases 2019 v 2018.
Okay. That's it for me. I'll jump off. Thanks for the time.
Thank you. All right. We have time for a few more questions.
Our next question comes from Tayo Okusanya of Jefferies. Your line is open.
Hi, yes. Good morning, everyone.
Good morning.
Yes. Same thing. Thanks for the additional disclosure. I'm going to give all credit to Bob because Juan just started the queue.
It's all Juan's doing.
Anyway, I wanted to focus on SHOP a little bit this morning. The first thing is just the RevPAR trend, 1% this quarter, 1.8% last quarter, about 3.1% a year ago. I just wanted to get could you just talk a little bit just about what's happening with pricing power? I couldn't help but fixate on your commentary about for new leases that there's going to be a negative mark to market there, which seems to fly in the face of some of the data we're seeing from Nick?
Yes. So I love this topic, Tayo. I wouldn't focus on the NIC data because it really doesn't look at apples to apples. It's not actual rates and it's tough to divine certainly in our opinion. For our data though, we can see quite clearly trend.
And the RevPOR has 2 components, as you know. It has the in place increases for residents that have been here year over year. And that we continue to see very nice pricing power on. I mentioned north of 5% for those rate letters that just went out. And so that continues to be very encouraging with very few financial move outs, by the way.
What's driving the drift that you point out rightly in terms of RevPAR over the course of the year is the releasing spread. That has been in the mid to high single digits down versus previous resident, and that is a function, of course, of new competition. And so on a blended basis, we point to 2019 in the 1% range for RevPAR. It really reflects those two factors. But it's a blend, frankly.
Got it.
Thanks, Tayo.
Okay. Thank you very much.
Go ahead.
And then just one other point in regards to just that dividend outlook going into 2019. Again, when we kind of take a look at your guidance, make all the adjustments to kind of get to FAD, we kind of start getting to kind of like a mid-90s type FAD dividend payout ratio. And just in light of that, wondering how you guys are thinking about the dividend?
Yes. Well, thank you for asking. The Board just increased the dividend in December and we feel very confident about our position relative to the dividend. At the midpoint, it's in the low 80s relative to normalized FFO. And as we said, we're committed to returning to growth and confident we can do so.
Okay. Thank you.
Thank you.
Our next question comes from Daniel Bernstein of Capital One. Your line is open.
Good morning.
Hi, Dan.
Hi. I figured nobody said hi
to Juan, so I'll say hi to Juan. I thought I did earlier in
the Q2 given that he was out of the way. Maybe next
question. Go ahead.
I know it's hard to ask one question.
Go ahead.
I'll just ask one question.
So you've accelerated the development on the life science side. And I was wondering, did you see any potential for synergies between the MOB and life science development platforms given all of those university relationships? Most of these universities have some very good hospital systems affiliated with them. Do you see any synergies to accelerate Gram OB development as well?
Yes, it's a great question. So this is Pete Bulgarelli. Thanks for the question, Daniel. It's really a strategic focus for us. I mean, there is an incredible overlap between our research innovation portfolio and the opportunities with the MOB and the medical portfolio.
And kind of in between there is the academic medical function as well. So if you think about a typical many of these universities we're working with, they have life science research. They also have med schools and they have academic medical facilities and usually a leading research hospital. And so if we look at the opportunity, the cross selling opportunities and the integration that we can do with those institutions, we see a lot of clear blue water.
Okay. That's all I have given it's already 11 So I'll hop off.
Thank you for being considerate. We appreciate it.
Our next question comes from Michael Carroll of RBC Capital Markets. Your line is open.
Yes, thanks. Bob, I wanted to touch on the $10,000,000 rent adjustment you mentioned in your prepared remarks. Do you have the timing for those reductions? And how many tenants that relates to?
Hey, Mike, it's Debbie. It's a handful of tenants and it would be throughout the year.
And did Ventas receive anything in return, I guess for doing those rent adjustments? And was there any discussion to move that to the management portfolio?
Right. As Bob said, this has not occurred. And so this is a bit of an estimate, our best estimate, albeit regarding our expectations for 2019. While we've modeled it and forecasted as just a triple net roll down estimate, As Bob said, there is a whole variety of things that might happen including as you suggest a transition of those assets to other operators in a management contract and or asset sales. And so that's we expect really for it to be a combination of those things.
But the easiest way to think about it was how we put it in the numbers, which is in triple net.
Okay, great. And then last question related to 2019 guidance, does the range include any nonrecurring
We do not do not have fees or payments from tenants as we did last year.
Great. Thank you.
Thank you. All right. We have a couple more. We'll finish strong.
Our next question comes from Lukas Hartwich of Green Street Advisors. Your line is open.
Hi, good morning.
Good morning, Lukas.
Hi. I'll just ask one. So can you remind us what your plans are for the Arden stake assuming that company does go public?
Well, we have about a $50,000,000 investment in Ardent. And given the quiet period that Ardent is in, I would prefer to defer that discussion until another time.
Fair enough. All right. Thank you.
Our next question comes from Todd Stender of Wells Fargo. Your line is open.
Hi, good morning. Thanks for squeezing me in.
We're happy to do it.
Thank you. So CapEx spend was up in Q4. Just looking at the office segment, it was about 22% of NOI, but more like 12% for the full year. Just I wanted to see what accounted for that spike in Q4 and then maybe what you're budgeting for 2019.
Yes, Todd, it's Bob. We do see typically in the 4th quarter a ramp on FAD. We saw that again. That's true across the portfolio, including office. We saw that again this Q4.
And then as we look at the guidance for 2019 in terms of FAD CapEx, it reflects really some increases from in the office, in particular, from lease up and LC and TI as a consequence of that. That's the biggest driver.
And then percentage of NOI, what's a fair number for 2019?
For which For the full year.
For the full year,
just for the office segment.
Oh, mid teens, 15% or so.
Okay. Thank you.
Thank you. All right.
And our last question comes from Michael Mueller of JP Morgan. Your line is open.
Thanks. For the $10,000,000 rent reduction that's in 2019, how different is that from the full annualized amount that will carry over into 2020?
Again, it depends on when and how it's structured. There could be some potential carryover effect that would make it a little bit larger for 2020, but immaterial basically.
Got it. Okay. That was it. Thank you.
All right. Well, thank you. I just want to thank everyone for their attention to Ventas and your interest in our company. We appreciate it greatly. Our whole business continues to be driven by this great demographic demand and need based relationships with our partners and care providers, our balance sheet, our opportunity for growth externally and our large and growing development pipeline of terrific research and innovation assets.
So we're feeling good and we look forward to seeing all of you soon. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.