Ventas, Inc. Q3 2025 earnings call

Thank you.

Good morning everyone and welcome to.

The Ventas third quarter 2025 results conference call. Yesterday we issued our third 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, BJ. I'd like to welcome all of our shareholders and other participants to the Ventas third quarter 2025 earnings call. Building on our momentum, Ventas delivered excellent performance and growth in the quarter as we continue to execute on our 1-2-3 strategy. Our strategy is based on the megatrend of longevity. As one of the world's largest owners and acquirers of private pay senior housing, we are positioned to capitalize on the sustained growth and demand from a large and expanded aging population. Our strategy emphasizes growing our private pay SHOP business organically and by investing in senior housing. We are doing both as we expect 2025 to be our fourth year of double-digit SHOP NOI growth, and we anticipate closing $2.5 billion of private pay U.S. senior housing investments during the year.

Most importantly, we foresee at least another decade of accelerating demand for senior housing. The Ventas strategy, organization, and team have been built to meet this moment and capitalize on the favorable external demand backdrop. Over the past several years, we have added expertise, acquired over $4 billion of senior housing communities, converted communities from triple net to SHOP, expanded our SHOP operator base, made significant strategic dispositions, increased our scale, and improved our financial profile. As a result, our enterprise is now delivering $2.5 billion of net operating income. Our SHOP percentage of NOI has increased nearly 2,000 basis points to represent half our business. We are working with over 40 SHOP operators. We have created significant occupancy and NOI upside potential in our 85% occupied U.S. SHOP portfolio through our deliberate portfolio composition, and our leverage has improved by two full turns.

These actions and outcomes are designed to take advantage of powerful secular tailwinds in senior housing, where supply and demand are tipped strongly in our favor, and we have the scale, platform, and financial strength to win. Demographic demand is accelerating as baby boomers are starting to turn 80 this coming year, and more people than ever are choosing senior housing for the valuable benefits it provides. The over-80 population is expected to surge into the coming decade and grow 28% just in the next five years. Yet senior housing supply is at record lows in both inventory growth and the number of new construction starts, with just over 1,200 units started in the third quarter. Our strategy is producing strong results, increasing our enterprise growth rate and building financial strength. Let's now turn to the highlights of our quarterly results and latest 2025 guidance.

Increase our outsized organic growth in our senior housing operating portfolio and our active and increasing investment activities. Normalized FFO per share grew 10% year-over-year and total company same store cash NOI increased 8%. SHOP once again powered our results, enjoying a strong key selling season. We saw broad-based demand for our communities and excellent RevPOR and revenue strength. Our U.S. communities led the way with 19% same store cash NOI growth and 340 basis points of occupancy growth. I want to extend a sincere thanks to our operators and the Ventas team who delivered this performance while helping seniors live longer, healthier, and happier lives. We're pleased once again to increase our full year guidance driven by our SHOP performance and increased senior housing investment activity.

We now expect year-over-year growth of 9% in normalized FFO per share and 7.5% total company same store cash NOI at the midpoint of our improved guidance. These growth rates will put us in the top tier of companies across the REIT landscape if achieved. On the investment front, we are seeing a strong upward trend in transaction activity and our pipeline continues to grow with quality investment opportunities in senior housing. We are accelerating our senior housing investment activities to expand the Ventas SHOP portfolio and increase our enterprise growth rate. Private pay U.S. senior housing is the company's number one capital allocation priority. The environment is highly favorable. Private to public arbitrage opportunities are increasing. Our strong and broad-based industry relationships are generating significant deal flow and our capabilities, track record, and financial strength provide meaningful competitive advantages.

We've already closed $2.2 billion of senior housing acquisitions in the U.S. year to date and we've increased our 2025 investment guidance to $2.5 billion. We intend to build on our momentum following our right market, right asset, right operator framework. We are prioritizing investment opportunities in private pay senior housing that have different combinations of growth and yield to produce attractive risk-adjusted returns for our shareholders. Next, I'd like to highlight a key SHOP growth initiative. The previously announced transactions relating to 121 triple net leased senior housing communities are well underway. We've already converted from triple net to SHOP 27 of the 45 senior housing communities slated for management transitions by year end. We continue to expect to achieve significant occupancy and NOI upside in these communities over time.

For the 65 communities remaining under the lease, cash rent will increase 33% beginning in 2026 and the disposition of the remaining 11 assets is in progress with sale proceeds to be retained. A final note on our research portfolio, which is generating only 8% of our enterprise NOI. Our portfolio has been constructed in a unique way within this small portion of our business. About three quarters of our base rents are from creditworthy institutional leaders in medicine, pharma, and research, with a weighted average lease term of over nine years, making this portion of our NOI relatively well insulated from current market challenges. Importantly, only about 10% of our research portfolio is leased to pre-revenue or co-working tenants. We have no ground up development in progress and we continue to see institutional demand in new and renewal leasing from university, medical, and global pharma tenants.

In conclusion, we have built Ventas to meet this moment and capitalize on the secular demand from a large and growing aging population. We are executing our strategy to grow senior housing and delivering outstanding results, and we are well positioned to increase our deal activity. The future is bright as we use our many competitive advantages to deliver value for stakeholders and seize the unprecedented multi-year growth opportunity ahead. The entire Ventas team is in it to win it and now I'm happy to turn the call over to Justin.

Thank you, Debbie. I'm excited to share an update on how 2025 has been progressing as we continue to execute on our strategy and to drive both organic and external growth in our senior housing business. Let's start with SHOP. Our SHOP same store portfolio delivered 16% NOI growth year-over-year in the quarter, led by the U.S. with 19% growth. Margin grew 200 basis points to 28%, driven by over 50% incremental margin. Revenue grew 8% due to strength in both occupancy and pricing. We saw broad-based contributions to SHOP performance across our operating partners, delivering exceptional care and services to our senior population and very strong financial results, with Sunrise and Atria leading the way. RevPOR grew 4.7% as our dynamic pricing continues to strike the balance between price and volume. Average occupancy grew 270 basis points year-over-year, led by the U.S.

at 340 basis points, with a particularly strong contribution from our independent living communities. We had industry-leading sequential occupancy growth of 160 basis points overall and 200 basis points in the U.S. Furthermore, we expect sequential average occupancy growth to continue into the fourth quarter. Moving on to SHOP guidance, I am pleased to raise SHOP guidance again with an NOI growth range of 14%-16%. We continue to anticipate occupancy growth of 270 basis points and higher RevPOR, driven by strong pricing as move-in rents and in-house rates are both increasing year-over-year. I'd like to turn your attention to page 12 in the earnings presentation. On the left side of the page, you'll note we have consistently outperformed the NIC top 99 markets. The third quarter resulted in 120 basis points of outperformance versus NIC top 99 both year-over-year and sequentially.

On the right side of the page, you can see the key selling season was excellent with 230 basis points growth, representing our best key selling season performance in a number of years. Now I'll comment on portfolio strategy. Our portfolio strategy, executed through our Ventas OI platform, is centered on what we call the right market, right asset, right operator approach. It's a disciplined framework that ensures every investment we make and every partnership we pursue enhances long-term value creation. We've spent years building a platform that's ready for this wave of demand in senior housing. We now have sophisticated data analytics and the ability to deliver those insights directly to our operators. Through our Ventas OI platform, we've enhanced our CapEx management, optimized dynamic pricing, and developed broader platform capabilities needed to effectively drive performance and support 40 operators managing our communities, and that number continues to grow.

Equally important, we have tremendous respect and appreciation for the critical role our operators play in delivering care and services to seniors and achieving market-leading performance. Having walked in their shoes, we understand the importance of what they do, and we place the quality of our relationships with our operators among our highest priorities. This level of readiness doesn't happen overnight. It's a result of a deliberate multi-year evolution of our platform that positions us to capture the significant opportunities ahead. We have taken numerous actions over the past five years to ensure success in our senior housing business. Those actions include 215 acquisitions, 116 dispositions, 295 transitions to new managers, 307 community refreshes, and 157 conversions of low-occupied communities from triple net to SHOP. The net result is a much larger and well-positioned SHOP portfolio fueling double-digit NOI growth with embedded occupancy upside.

This framework drives our underlying decision-making in our senior housing business. Why our portfolio is well positioned to grow: it's a focused, data-driven approach, and it's working. For example, I'd like to refer you to page 9 of the earnings presentation where we lay out our Ventas OI performance management strategy. I want to make it clear that our SHOP portfolio is well positioned for occupancy growth as our U.S. portfolio is only 85% occupied due primarily to our deliberate actions converting underperforming communities from the triple net structure to SHOP. Our U.S. portfolio is well positioned to achieve substantial upside in markets that offer significant net demand over the next several years and will benefit from operational enhancements driven through our Ventas OI platform.

As we've been expanding our SHOP footprint to half of the company's NOI, our Ventas OI capabilities continue to evolve, and we have been deliberate in positioning the portfolio for significant occupancy and NOI upside. Our most recent example of the triple net to SHOP conversion is the 45 communities, which are 78% occupied, converting from the Brookdale lease to SHOP and transitioning to five aligned, proven, high-performing, local market-focused operators with significant transition experience and track records of delivering excellent results. This transition is well underway. We have completed 27 of the transitions through October, and we expect to be finished by the end of the year. The communities have performed well year to date, with both occupancy and NOI growth. We have already made progress with the REDEF plans, with a significant number of the projects expected to complete by the key selling season of 2026.

We continue to expect greater than $50 million of NOI upside over time as the new operators execute, and we invest NOI-generating CapEx of around $2 million per building. Senior housing is a high-touch business, and I'm pleased to report that in the communities that have already transitioned, there's a strong level of engagement between local management teams and the new operators, along with a great deal of enthusiasm. I'd like to note that this transition is occurring with the full cooperation and support of Brookdale, which is greatly appreciated. Furthermore, we look forward to collaborating with Brookdale on the 65 assets where the lease has been renewed.

Moving on to investments, we continue to build on our momentum in our relationship-driven capital allocation plan targeting private pay senior housing in the U.S., and we have now completed $4.1 billion of senior housing investments since the middle of last year, of which $3.5 billion closed during the past four quarters. We have closed $2.2 billion of senior housing acquisitions year to date. We have a robust pipeline that continues to expand, and our latest guidance for 2025 is now $2.5 billion. Our senior housing flow business is in full swing as our year to date senior housing investments total 20 transactions for 50 communities with approximately 6,200 units across 15 states. The average deal size is $110 million, including a range of singles, doubles, true triples, together with select larger portfolio deals.

These properties improve our SHOP portfolio quality, increase the company's enterprise growth rate, and are located in attractive markets that are poised for outperformance due to favorable supply and demand dynamics. We continue to have an advantaged position to source and close meaningful and attractive senior housing transactions, and the opportunity set is growing at an accelerating rate. We look for a range of senior housing investment opportunities, each with its own balance of growth and yield, so we can deliver attractive returns that align with our targeted low to mid teens unlevered IRRs. It has become clear that Ventas is a senior housing partner of choice across our many transactions. Our growing stable of strong operator relationships provides us with preferred access and the opportunity to win deals. Our transaction execution track record has also created opportunities for repeat business with sellers.

In summary, we have conviction in our strategy, and we are intensifying our efforts to drive outperformance in our senior housing business, and the best is yet to come. I'm confident in our ability to execute and create value for our stakeholders in senior housing and investments execution, including a valuable living experience for residents, valuable workplace experience for the tens of thousands of dedicated community staff, and ultimately leading to significant value creation for our shareholders. Now I'll hand the call to Bob.

Thank you, Justin. I'll start with our third quarter performance, highlight our balance sheet, and conclude with our improved guidance for the year. Starting with our enterprise performance, Ventas delivered normalized FFO per share of $0.88 in the third quarter, which represents a 10% increase year-over-year. Driving the strong year-over-year growth was total company same store cash NOI of 8%, led by SHOP growth of 16%. Our Outpatient Medical and Research business, or OMAR, reported same store cash NOI growth of 3.7% year-over-year, led by Outpatient Medical. Outpatient Medical third quarter occupancy improved 50 basis points year-over-year to 90.6%, a 20 basis point sequential increase versus the second quarter. TTM tenant retention was a strong 87% in the third quarter, an increase of 200 basis points year-over-year, reflecting tenant satisfaction scores in the 95th percentile.

Our research business represents 8% of our NOI. In the third quarter, research same store cash NOI was $400,000 lower year-over-year, driven by lower rents on certain Innovation Flex Space tenants as previously discussed. Next, turning to our balance sheet and liquidity, our net debt to EBITDA of 5.3 times in the third quarter represents a full turn improvement from the third quarter of 2024. This leverage reduction was driven by a combination of organic growth and equity-funded senior housing investments consistent with our strategy. I would note that this significant improvement in leverage was achieved while delivering normalized FFO per share growth in the top echelon of REITs. We've already fully equity-funded our $2.5 billion investment guidance for 2025 with $2.6 billion of equity raised, including half a billion of unsettled equity forwards.

We have over $4 billion of liquidity as of September 30th, which supports Ventas growth and financial flexibility. I'll close with our updated and improved 2025 guidance. We expect net income attributable to common stockholders to range from $0.49 per share to $0.52 per share. We are also improving our full year normalized FFO guidance midpoint by $0.03 to $3.47 per share. This improved 2025 guidance midpoint represents 9% year-over-year growth in normalized FFO per share. Approximately two-thirds of our $0.03 guidance increase at the normalized midpoint can be explained by our improved SHOP performance and senior housing investments completed year to date, with the final third representing improvements across the balance of the enterprise.

We've also raised our total company same store cash NOI growth by 50 basis points to 7.5% year-over-year, led by the SHOP same store NOI midpoint improving by 100 basis points to 15%. In our updated guidance, with the 45 Brookdale conversions now underway, we are reflecting the shift in NOI from these conversions from our triple net segment to our SHOP segment. Because cash rent on these 45 conversion assets approximates current NOI at the assets, the net impact on 2025 FFO is de minimis. I would point you to our earnings presentation deck and Supplemental for more detail on these and other assumptions underpinning our guidance to close. We are pleased with the results both in the quarter and so far this year. The entire Ventas team is determined to build on our momentum and to continue delivering superior performance for our shareholders.

With that, I'll turn the call back to the operator.