Ventas, Inc. Q2 2025 earnings call

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

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

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

Our 1-2-3 strategy is designed to deliver superior FFO per share growth, enhance our financial strength, and create value for our shareholders. The second quarter demonstrated the positive impact of our approach. Year-over-year, normalized FFO per share grew 9%. Total company same-store cash net operating income, or NOI, increased 7%. We also raised our full-year normalized FFO guidance midpoint to $3.44 per share, representing 8% accelerating year-over-year FFO per share growth at the midpoint. We also improved our company-wide same-store year-over-year cash NOI growth expectations to 7% at the midpoint. If achieved, these growth rates would put us in the upper echelon of REIT growers. Underpinning our strong results and improved expectations are the three components of our strategy. Let me take you through them in order. One, drive organic growth in our SHOP communities using our platform advantages, data analytics, and experience. Check. Our SHOP communities in the U.S. delivered 18% same-store cash NOI growth in Q2, adjusting for a tax refund we received in the prior year.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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