Ventas Inc

NYSE:VTR

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Ventas Second Quarter 2021 Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Sarah Whitford, Director of Investor Relations. Please go ahead.

[Sarah Whitford, executive]

Thanks, Jamie. Good morning, and welcome to the Ventas Second Quarter Financial Results Conference Call.

Earlier this morning, we issued our second 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.

This earnings call does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities or a solicitation of any vote or approval. In connection with the proposed acquisition of New Senior, Ventas filed with the SEC a registration statement on Form S-4 that includes a preliminary prospectus for the Ventas common stock that will be issued in the proposed acquisition and that also constitutes a preliminary proxy statement for a special meeting of New Senior stockholders to approve the proposed acquisition. The proxy statement prospectus and other documents filed by Ventas and New Senior with the SEC may be obtained free of charge at Ventas' investor relations website at ir.ventasreit.com or New Senior's Investor Relations website at ir.newseniorinv.com, as applicable; or at SEC's website at www.sec.gov. You should review such materials filed with the SEC carefully because they contain or will contain important information about the proposed transaction, including information about Ventas and New Senior and their respective directors, executive officers and other employees who may be deemed to be participants in the solicitation of proxies in respect of the proposed acquisition; and a description of their direct and indirect interests by security holdings or otherwise.

I will now turn the call over to Debra A. Cafaro, Ventas Chairman and CEO.

[Debra Cafaro, executive]

Sarah, well done, your first public company merger. Congratulations.

Well, good morning, everyone. I want to welcome our shareholders and other participants to the Ventas Second Quarter 2021 Earnings Call.

Ventas delivered an outstanding second quarter. And we have strong momentum across the board in health and safety; capital deployment and access; realization of the benefits of prior successful investments; financial strength; and most importantly, in portfolio growth, led by our high-quality SHOP business with significant contributions from Office and stability in our triple-net lease business. We see a clear path to growth in our demographically driven, diversified enterprise through capturing the embedded upside in our senior housing business; the benefit of external investments; reliable cash flow from our Office and triple net businesses; and delivery and stabilization of ongoing developments, primarily in the life sciences, research & innovation and Canadian senior housing areas. Our experienced team is committed to winning the recovery for all of our stakeholders.

Let me first turn to our second quarter results.

We posted $0.73 of normalized FFO per share, which is above the high end of our previously provided guidance. I'm delighted that our same-store property portfolio grew 3.6% sequentially. Our outperformance was driven by SHOP, which produced $111 million in quarterly NOI, a recovery of $50 million of annualized NOI, representing industry-leading growth in same-store cash NOI and occupancy. July continued these positive SHOP trends, for the fifth consecutive month of occupancy growth. Importantly, by the end of July, lease reached their highest level since the pandemic began. Justin will unpack these trends more fully in his remarks.

As a result, we've never been more confident that the senior living business is supported by powerful demand that is growing and resilient while supply remains constrained. If the last 18 months have taught us anything, it is that, as soon as our communities and care providers are ready to welcome residents and their families, we experience a surge of leads and move-ins almost immediately which then builds sustainably and rapidly. That said, given the macro uncertainty in the COVID-19 environment, particularly the national and regional rise in cases and the measures that have been taken or may be taken to contain COVID spread, the path to full recovery may not be a straight line, but we believe it will point inexorably upwards. In our third quarter outlook, we have assumed the increase in COVID cases throughout the U.S. may have some impact on the velocity of leasing and expenses.

Rounding out our portfolio performance. Office grew nicely in the quarter, and our triple net portfolio continued its stability. Pete's efforts to increase leasing, keep high retention rates, improve customer relationships and grow NOI are showing results. Our on-campus and affiliated MOB strategy with leading health systems continues to shine.

Turning to health systems. Our investment in Ardent also continues to deliver benefits. In addition to strong cash flow coverage on our $1.3 billion leasehold position, our 10% equity stake in the Ardent enterprise is benefiting from excellent Ardent results; and our prior purchase of $200 million of Ardent senior notes recently paid off with a $15 million prepayment fee, providing us with a 13% unlevered return on our investment in the Ardent notes. When all is said and done, I believe and hope that our Ardent investment in real estate, equity and debt will prove to be one of our best risk-adjusted-return investments.

Turning to other capital allocation priorities. We certainly are on our front foot regarding external investments. In total, in 2021, we have over $3.5 billion in investments completed, pending or underway; with another $1 billion life science, research & innovation pipeline, with our exclusive development partner Wexford right behind that. Our team is also busy evaluating attractive deals across our asset classes. This year-to-date, we have already reviewed about as many investment opportunities as we saw in all of 2019. We will pursue those that meet our multifactor investment philosophy which is focused on growing reliable cash flow and favorable risk-adjusted returns, taking into account factors such as cost per square foot or unit, downside protection and ultimate potential for cash flow growth and asset appreciation.

Our $2.3 billion pending investment in New Senior announced in the second quarter is a great example. In this deal, we are acquiring over 100 high-quality independent living communities that are well invested and located in advantaged market at compelling pricing. The per unit cost is estimated to be 20% to 30% below replacement cost. The 5% cash going in cap rate is expected to grow to a 6% cap rate on expected 2022 NOI, with upside as the senior housing recovery continues. And the FFO multiple of less than 12x post-synergized 2022 estimated FFO are all attractive valuation metrics. I commend Susan Givens and her team for doing a tremendous job creating and realizing value for their stakeholders. We are also confident that Ventas shareholders will receive immediate and long-term accretion and upside from the deal as senior housing recovers and the large middle-market demographic expands significantly in the near term. As Justin will describe, the New Senior portfolio also fits in with our senior housing strategy and framework. New Senior also performed well in Q2 and into July, with occupancy increasing in its same-store portfolio for 5 straight months.

A unique strategic advantage of the New Senior transaction is the long-standing relationship we have with the principal managers of the portfolio, Atria and Holiday, 2 leading operators who recently combined to form the second largest senior housing manager. As a 1/3 owner of Atria, we are excited about the opportunities the combination creates. We will directly benefit from growth in Atria's management platform. And we welcome the combination of Atria and Holiday's talent in Atria's advanced enterprise. Congratulations to Atria for pulling together this industry-changing transaction.

Switching to our attractive life science, research & innovation business. It continues to provide us with value-creating opportunities to invest capital. The Ventas life science portfolio now exceeds 9 million square feet. It's located in 3 of the top 5 cluster markets, includes 3 ongoing development projects and is affiliated with over 16 of the nation's top research universities. We also have an incremental $1 billion in potential projects we are working on with Wexford. The first and largest new life science project in the pipeline totaling about $0.5 billion in costs is gaining steam. Expected to be 60% pre-leased to a major public research university that ranks in the top 5% of NIH funding, this project will be located on the West Coast and should break ground in the first half of 2022. Wexford, with its exceptional reputation among universities, is also exploring significant additional life science potential projects beyond those in our existing pipeline.

North of the border, we continued to invest capital in high-end, large-scale independent living communities with our partner Le Groupe Maurice in Québec. We have always tried to create value through both internal and external growth, and we're pleased that we've returned to being a net acquirer in 2021. Our team is active and engaged beyond our announced deals and our pipeline of potential investments across asset classes. To fund new investments, we have access to significant liquidity and a wide array of capital sources, including the asset dispositions and receipt of loan repayments, as Bob will describe in greater detail. The demand for senior housing has been robust and sustainable, proving out the value proposition our communities and care providers offer to seniors and their families. The SHOP recovery has begun, and we've started capturing the significant upside embedded in our existing senior housing portfolio from both pandemic recovery and the 17.5% growth in the senior population projected over the next few years. Our diversified business model continues to provide uplifts and stability to our enterprise. We are investing nearly $4 billion in announced deals and development projects, and our access to and pricing of capital are positive.

In closing. The U.S. is in the midst of an impressive economic recovery. That, together with demographic demand for all our asset classes, will benefit our business. We embrace the opportunity to take on any near-term challenges that are temporarily caused by the strength and speed of this recovery, especially because now, unlike last year and the beginning of 2021, our employees, residents, tenants and caregivers are largely safe and healthy. As a team at Ventas, we're incredibly pleased about the results we've delivered and the strength and momentum we've demonstrated.

Justin, over to you.

[J. Hutchens, executive]

Thank you, Debbie.

We remain excited about delivering industry-leading occupancy and NOI growth, and we are encouraged about recent trends in the senior housing portfolio. Although we are still in the early stages of the recovery, we are off to a very strong start. Ventas is well positioned to benefit from significant senior housing tailwinds, including the sector recovery upside, supportive demand fundamentals and continued improvement in leading indicators. I'll review 3 topics today: first, our second quarter performance; second, our perspective on the senior housing operating environment; and third, our continued execution of our senior housing strategy. I'll start by covering our second quarter performance.

In SHOP, leading indicators continued to trend favorably and accelerated during the quarter, as leads and move-ins each surpassed 100% of 2019 levels while move-outs remained steady. June marked the best month for lease and move-ins since the start of the pandemic, and July has sustained strong momentum. Strong sales activity has now driven 5 consecutive months of occupancy growth, inclusive of July. In the second quarter, approximate spot occupancy from March 31 to June 30 increased 229 basis points, led by the U.S. with growth of 313 basis points from accelerating lease and move-ins. In Canada, the trends were more muted due to a slower vaccine rollout, but approximate spot occupancy still increased during the second quarter, driven by 33 basis points of growth in June. Leading indicators remained strong in our portfolio, as the digital footprint of our operators has significantly expanded over the past year, casting a wider net as traditional high-converting lead sources such as personal referrals, respite and professional referrals continue recovering.

Turning to the SHOP operating results. Same-store revenue in the second quarter increased sequentially by $3.5 million, as strong occupancy growth was partially offset by the impact of new resident move-in incentives and pricing, specifically at Atria. I will touch on that more in a minute. Operating expenses declined sequentially by $9.2 million or 2.3%, excluding the impact of HHS grants received in the first quarter, driven by a better-than-expected reduction of COVID-19 operating costs, partially offset by a modest increase in routine operating expenses.

For the sequential same-store pool, SHOP generated approximately $111 million of NOI received in the first quarter, which represents a sequential increase of $12.4 million or 12.6% when excluding the impact of HHS grants. This marks the first quarter of sequential underlying NOI growth since the onset of COVID-19 and approximates a nearly $50 million NOI improvement on an annualized basis. During the quarter, we saw solid contribution to sequential NOI growth from both revenue and operating expenses as average occupancy increased 110 basis points and COVID-19 costs declined substantially and ahead of expectations.

Turning to triple net. Sequential same-store cash NOI was largely stable in the second quarter, and 98% of all contractual triple net rent was received from the company's tenants. Our trailing 12-month cash flow coverage for senior housing, which is reported 1 quarter in arrears, is 1.2x and down versus the prior quarter, reflecting the timing associated with coverage reporting which now includes effectively 4 full quarters of operations impacted by COVID.

Moving on to the current operating environment, which is full of green shoots. Our market-leading operators continued to demonstrate their strong market position through broad occupancy gains; Sunrise, by the way, with 627 basis points of spot occupancy growth from the low point in mid-March through the end of July, benefiting from a rejuvenated management team, significantly well-invested communities and a balanced approach, demonstrating very strong occupancy gains and pricing power. We would like to congratulate Sunrise's CEO, Jack Callison, for adding experience and depth to his management team with his recently announced hires. Atria, which benefits from a higher absolute occupancy of 81.8% at July end, continues to deliver solid volume growth. Spot occupancy in July increased 529 basis points since the low point in mid-March, resulting from the combination of their industry-leading vaccine mandate and strategic price incentives to capture movements. Atria anticipates tightening incentives moving forward as pricing power recovers and occupancy stabilizes. Supporting all of this is Atria's industry-leading vaccination rates, which are impressively high at nearly 100% of both residents and employees.

Looking ahead. As Debbie mentioned, the third quarter is off to a strong start, with July spot occupancy increasing 74 basis points versus June and lease continuing to stand strong at 105% of pre-pandemic levels. Our operators have been prioritizing resident safety; and weathering several nearer-term headwinds, including the delta variant and transitory wage pressures from staffing shortages in select markets.

Underpinning our leading operating partner relationships and recent sales momentum is our attractive market footprint which positions us to benefit from the compelling supply-and-demand outlook in the senior housing sector. Our communities in the U.S. are poised for improving performance over time due to our strong presence in submarkets that outpaced the U.S. national average and aging population growth and wealth demographics but with significantly lower exposure to new construction starts and construction as a percentage of inventory. Approximately 30% of our SHOP portfolio on a stabilized basis is located in Canada. The senior housing sector in Canada has performed exceptionally well, with occupancy exceeding 90% every year from 2010 to 2020 and demand outpacing new supply in 8 of that 11 years. As a foundation to these attractive fundamentals, the 75-plus population in Canada is projected to grow more than 20% over the next 5 years, about twice the pace of the U.S.

The Ventas team has been busy executing our senior housing strategy driven by experiential operating expertise and underpinned by our analytical capabilities to further strengthen our senior housing business. The underlying goal of our strategy is simply to execute portfolio actions that ensure we are located in the right markets with the right operator, with assets with strong local market positioning. A notable example of our strategy execution is the New Senior transaction. New Senior has a track record of strong operating performance, benefits from a geographically diverse footprint with favorable exposure to compelling market fundamentals and demographics and represents a well-invested high-quality portfolio catering to an attractive market segment. The acquisition also represents an excellent opportunity to further expand our relationships with 2 long-standing operators in Holiday Retirement and Atria Senior Living and with new relationships [ such as ] Hawthorn Senior Living.

New Senior will strengthen our existing senior housing business from several strategic perspectives. Operationally, New Senior will enhance Ventas' cash flow generation profile. Its margin has remained resilient in the 35%-plus range during the COVID-19, and occupancy has weathered the pandemic headwinds approximately 80 basis points better than the NIC industry average. Most recently, New Senior has seen strong sales trends as we progressed through the early stages of the senior housing recovery, with powerful upside as the portfolio occupancy grew 100 basis points in June. Geographically, New Senior has a diverse presence across 36 states, which includes exposure to markets with high home values and high household income levels, ideal proximity to premium retail and high-visibility locations and favorable supply outlooks versus industry averages. This transaction is a reflection of our focus on adding high-quality assets to our senior housing platform and maintaining balance across independent living and assisted living product types. We see New Senior's independent living assets as complementary to our existing high-end major-market portfolio, as it provides a lower average resident age and longer length of stay at an accessible price point, with REVPOR of approximately $2,700. The purpose-built nature of these communities, which include consistent layouts with 120 units per building, also will strengthen our ability to effectively and efficiently redevelopment -- redevelop and invest in these assets over time.

Moving on to new developments. We continue to drive value from our development pipeline through our relationship with Le Groupe Maurice, where we have opened 3 communities with more than 1,000 units over the past year. 2 of the 3 developments were delivered in the fourth quarter of 2020. Both projects have substantial pre-leasing activity and have already stabilized at approximately 95% occupancy. The third project, a 287-unit expansion of an existing Le Groupe Maurice community in Montreal, was delivered in June of this year. Initial leasing activity has been strong, with more than half of the new units occupied as of the end of July. Our plans across our broader SHOP portfolio include significant deployment of refresh and redevelopment capital, strengthening our market-leading position where we expect to realize occupancy growth and pricing upside over the next few years. We continue to actively manage our portfolio with the disposition of nonstrategic assets and the transition of operators in select markets to position our senior housing business for long-term success.

In summary. Our recovery is off to a strong start. We are well positioned in markets that benefit from outsized aging and wealth demographics, with less [indiscernible] we are executing our senior housing strategy to help ensure success in the near and long term.

I will now hand over to Pete.

[Peter Bulgarelli, executive]

Thanks, Justin.

I'll cover the Office and health care triple net segments. Together, these segments represents over 50% of Ventas' NOI. They continue to produce positive and reliable results.

Within these segments, we're seeing a changing business climate. Health system and university business confidence is rising, leading to longer-term commitments and strategic growth investments. During the pandemic, we kept our business confidence. We remain focused on growth, and we continue to invest in incremental leasing resources and in creating a leasing center of excellence led by an industry veteran. She is now 2 years in. We've built a technical engineering team to assist our local property teams in running our buildings more efficiently, also led by an industry veteran. He is now 18 months in. We doubled our capital invested in our MOBs to ensure their competitiveness, including major redevelopments in Phoenix, Atlanta and Austin, Texas. We expanded our tenant satisfaction programs under the leadership of our new property management leader. He is also 18 months in. Because of this focus, I'm proud to say that our MOBs now rank in the top quartile of tenant overall satisfaction as surveyed by Kingsley, the national real estate survey leader. Happy tenants equals higher occupancy.

Our focus on the fundamentals and growth is showing results. Let me describe them now.

Office, which includes our medical office and research and innovation segments, performed well, delivering 10.5% sequential same-store growth. Office quarterly same-store growth was 12.6% year-on-year. The R&I portfolio benefited from a $12 million termination fee from a large tenant in the Winston-Salem innovation center anchored by Wake Forest. Adjusted for the termination fee, Office sequential same-store growth was 90 basis points, and 2.8% for year-on-year same-store quarterly growth, a strong quarter. Medical office same-store sequential growth was 80 basis points, and year-on-year quarterly same-store growth was 2.4%. For the quarter, we executed 230,000 square feet in office new leasing; and 460,000 square feet year-to-date, a 78% improvement from prior year. Medical office had strong same-store retention of 94% for the quarter and 85% for the trailing 12 months. The result is the total MOB occupancy increased 20 basis points sequentially. Total office leasing was 750,000 square feet for the quarter and 1.8 million square feet year-to-date. We were also pleased that our annual escalators for the new MOB leases averaged 2.9% for the quarter, which caused MOB same-store portfolio annual rent escalators to increase from 2.4% to 2.6%.

Our R&I business continues to excel as it strives to provide effective facilities to support the record level of investment into life sciences research. Same-store sequential growth was 38.9%. Adjusted for the termination fee, same-store sequential growth was 1.1%. Year-on-year quarterly same-store growth was 42.6%. Adjusted for the termination fee, year-on-year quarterly same-store growth was a strong 3.9%. Quarterly same-store occupancy was an outstanding 94%, with sequential occupancy increasing by 10 basis points. Looking forward, we have 3 R&I buildings comprising of 1.2 million square feet of space under construction. Collectively, they are 78% leased or committed. Of the 2 buildings in our uCity complex in Philadelphia, the Drexel building is 100% leased, while One uCity Square is over 55% leased or committed. We are oversubscribed for the remaining space, with 11 above-pro-forma proposals currently outstanding. In Pittsburgh, our new building is 70% pre-leased, University of Pittsburgh and UPMC, with significant activity on the remaining space. At our recently opened project with Arizona State University in Phoenix, we are 86% leased or committed and expect to be 100% leased shortly. These performance numbers reflect the quality of our well-located R&I assets.

Now let's turn to health care triple net. During the second quarter, our health care triple net assets showed continued strength and reliability with 100% rent collections. Second quarter same-store cash NOI growth was 2.5% year-on-year. Trailing 12-month EBITDARM cash flow coverage through June 30 was strong across the portfolio. Health systems trailing 12-month coverage was an excellent 3.6x in the first quarter, a 10 basis point sequential improvement.

As Debbie mentioned, Ardent continues to perform extremely well in this dynamic market. Urban LTAC coverage improved 20 basis points to 1.9x in the first quarter, buoyed by strong business results. Although skilled nursing declined 10 basis points to 1.8x as the pandemic continued to impact census, total post acute coverage increased sequentially by 20 basis points to 1.9x in the first quarter of '21.

Finally, several of our partners have been approached for M&A opportunities. Kindred is expected to merge with LifePoint, and Spire recently entertained multiple offers by Ramsay. It is a testament to the underlying value of our health care operators and the associated real estate.

With that, I'll turn the call over to Bob.

[Robert Probst, executive]

Thanks, Pete.

In my remarks today, I'll cover our second quarter results; our recent liquidity, balance sheet and capital activities; and finally, our expectations for the third quarter of '21.

Starting with our results in the second quarter. Ventas reported strong second quarter net income of $0.23 per share and normalized funds from operations of $0.73 per share. Normalized FFO per share was $0.02 above the high end of our initial guidance range of $0.67 to $0.71 for the quarter and is consistent with our June update to be at the high end or better than that original range. The Q2 outturn was driven by growth in Office, continued stable performance from triple net, strong results from margins and better-than-expected NOI in our SHOP portfolio.

Turning to capital. We've been busy in proactively managing our capital structure, duration of debt and liquidity since our last earnings call. First, following the announcement of the New Senior agreement, we raised $300 million in equity at an average gross price of approximately $58.60 per share under our ATM program. This $300 million equity raise, together with $800 million of new equity to be issued to New Senior shareholders [ per ] the fixed exchange ratio and $1.2 billion of New Senior debt to be assumed or refinanced, constitutes the overall $2.3 billion funding of the New Senior transaction.

[ Second ], through August 5, we've received $450 million of disposition proceeds and receipts of loan receivables. Included in the $450 million received to date is repayment of 2 well-structured loans in July: Ardent's redemption of $200 million of 9.75% senior notes due 2026 and Holiday's repayment of $66 million of 9.4% notes due 2025. Medical office buildings sold during the second quarter also resulted in proceeds of approximately $107 million. Using proceeds from these dispositions, in the third quarter, Ventas will improve its near-term debt maturity profile further by fully repaying a total of $664 million in outstanding 3.25% senior notes due August '22 and 3.13% notes due June of 2023.

As a result of the recovery in senior housing NOI and our capital structure actions, we're seeing strengthening credit metrics. Reported Q2 net debt-EBITDA was better than expectations, improving 10 basis points sequentially to 7x. Within that 10 basis points improvement, underlying SHOP annualized EBITDA improved nearly $50 million or a 25 basis point beneficial impact to the ratio in just 1 quarter. This organic improvement was offset by the elimination of SHOP HHS grants in Q2. This provides a proof point of the anticipated material improvement in leverage resulting from the underlying recovery in senior housing over time. Pro forma [ for ] announced ATM issuance and capital activities, Ventas' Q2 net debt-to-EBITDA moved lower from 7x to 6.8x. I would highlight that the New Senior transaction is expected to be 30 basis points levering on projected New Senior 2022 NOI and is supported by the forecasted growth in cash flows from the New Senior portfolio.

Ventas has ample liquidity totaling $3.3 billion. As of August 5, the company had $2.7 billion of undrawn revolver capacity, $600 million cash and no commercial paper outstanding.

Let's finish with our Q3 guidance. Third quarter net income is estimated to range from flat to $0.05 per fully diluted share. Our guidance range for normalized FFO for Q3 is $0.70 to $0.74 per share. The Q3 FFO midpoint of $0.72 can be bridged from Q2, of $0.73, by a $0.02 benefit from the Ardent loan prepayment fee in Q3, net of the Ardent HHS grants in Q2, offset by $0.02 from lost interest income on the loan prepayments and the July equity raise [ and the line ] reduction from assets intended for disposition [ described last time ].

Key third quarter assumptions underlying our guidance are as follows. SHOP Q3 spot occupancy from June 30 to September 30 is forecast to increase between 150 to 250 basis points, with the midpoint roughly assuming a continuation of occupancy growth trends observed in July. REVPOR is expected to be roughly flat sequentially, and move-in incentives are expected to narrow in the quarter. Sequential SHOP revenue growth is expected to be offset by increasing operating costs due to an additional day in the quarter; higher occupancy; labor; and routine seasonal items, including repair and maintenance and utility costs.

No HHS grants are assumed to be received in the third quarter. Stable performance is expected in the Office and triple net segments. We continue to expect $1 billion in asset sales and loan repayments for the full year 2021, with line of sight for the remaining balance in the second half of this year. Fully diluted share count is now 383 million shares, reflecting the equity raise in anticipation of New Senior.

Guidance does not include any unannounced capital markets activity. Our Q3 guide excludes any impacts from the pending acquisition of New Senior. The New Senior transaction is expected to close in the second half of 2021 and, once closed, is forecast to be between $0.09 to $0.11 accretive to normalized FFO per share in 2022. I'd like to underscore that we're still in a highly uncertain environment. Though trends in SHOP are positive, the pandemic's impact on our business remains very difficult to predict.

Ventas is excited about our business and our future. And we believe we have the well-diversified portfolio, best-in-class operators and experienced team to win the recovery that is now underway.

That concludes our prepared remarks. [Operator Instructions] With that, I will turn the call back to the operator.

[Operator]

[Operator Instructions] Your first question comes from the line of Jonathan Hughes.

[Jonathan Hughes, analyst]

Justin, can you share some more details on your seniors housing occupancy versus rate philosophy; and why, when I look at the rate, it seems that there's a little bit more discounting here than some other portfolios, that actually REVPOR was down about 2% year-over-year? Some others were up low single digits. I guess it just seems -- given demand is rebounding and length of stay is only a few years and affordability is probably as attractive now as it's been in perhaps ever, why wasn't REVPOR growth maybe at least flat, if not positive?

[J. Hutchens, executive]

Let me start with the year-over-year kind of comment you made. So if you were to look at our year-over-year REVPOR and you exclude Atria which as I mentioned in the prepared remarks had some discounting, and I'll come back to that, and exclude LGM which performed really well in this past year but they're operating a lower-price-point active living product in Canada -- so there's a mix shift impact from LGM. So if you were to take those two out, our REVPOR would have increased 1.8%.

So set LGM aside. Let's get back to Atria. You might remember that Atria, starting back during the pandemic, had positioned themselves to go for volume a few different ways. Very early on, they were the first to execute testing, broadly. As they moved throughout the pandemic, they saw an opportunity for volume ahead of the worst part of the pandemic, which was emerging in the fall and then into the winter, so they offered price incentives. And if you were to look at Atria's occupancy growth, if you go a little further back from the low point and start back, for instance, December 31, they've grown 372 basis points versus the rest of our SHOP with -- or SHOP in total which would be like 227 basis points. And so they are an absolute, bona fide leader in driving occupancy volume. They chose to stay with the discounting. Into recent months, we've noticed in the underlying trends that they're starting to tighten. They also have a higher absolute occupancy than the rest of our portfolio and a lot of operators in the sector, so we believe that they are well positioned to start to push pricing in markets where they're seeing stabilization. That's their intent. They've started to do it. They'll continue to do it, and they have a long track record of driving both occupancy and price. And we're in the very early stages of this recovery, so we're comfortable and confident that, over time, they'll deliver.

One other point, and that is that we have Sunrise Senior Living in our portfolio. Sunrise is a $9,000 REVPOR. They're sitting at 72% occupied. They've been driving a lot of occupancy growth as well. And the mix shift that I mentioned that kind of went the other way with LGM outperforming will shift the other way as Sunrise starts to grow, so I think our REVPOR outlook will be [ fine ] in the long term.

[Jonathan Hughes, analyst]

Okay. Yes, that's helpful. It's just tough for us to see the mix shift on our side, but that color is really helpful, so we appreciate you sharing that. And then just one more for me, on the life science and the R&I pipeline: Are you still planning to utilize some JV partners on some of those future potential developments to help spread out risk and lower the earnings dilution? Or given the strength of that business, is there maybe a desire now to keep those wholly owned and let that value creation benefit drop to shareholders?

[Debra Cafaro, executive]

That's a great question. We're excited about this business that is going to continue to grow. And Wexford has a lot of opportunities. What I would say is we've -- some of -- it'll -- the answer will be some and some. There are some pre-identified projects that are in the pipeline that we'll do in joint ventures, and they're carefully selected to make sure we have a coherent strategy around the joint venture. And there are others that Wexford is working on that may go on balance sheet, depending on again the risk-reward profile. So I think we'll have a lot of benefits from this business initiative going forward both on balance sheet and with our joint venture strategy.

[Operator]

Your next question comes from the line of Nick Joseph with Citi.

[Nicholas Joseph, analyst]

I was hoping to get more color on the underlying assumptions for the SHOP occupancy growth in third quarter. Obviously you've -- already have July at about 75 basis points. I recognize the recovery won't be a straight line, as you said, but how do you think about the near-term risks from the Delta variant and the impact on at least near-term senior housing occupancy?

[Robert Probst, executive]

Sure. I'll start on that, Nick. So just in terms of the numbers, the outlook is 150 to 250 spot occupancy gains. You're right to say 74 in the first month, so times 3, that is above the midpoint. And you're right to say it's not a straight line. I mean clearly the pandemic backdrop is something we're thinking about, no doubt about it, as we think about occupancy. And it's never a month-to-month, if you look at it. Take 1 month, times 3. That said, the strength in leads in July is worth noting as well. In light of that is what translates into move-ins in the future, so we are still seeing very positive trend, now 5 consecutive months of occupancy and strong leads, but with a backdrop of caution [indiscernible] think about it.

[Nicholas Joseph, analyst]

And then you talked about the supply outlook on senior housing kind of being positive for the year and medium term. Given the recovery that's underway, when would you expect that supply to start picking up in terms of new starts?

[J. Hutchens, executive]

Yes. So it's Justin. There's a little bit of catch-up in terms of supply from last year that we're experiencing in the short term. It's a bump in the road, but starts and deliveries are very low. And so there's a window that we can look out, we think, a few years of runway to really have strong absorption in the sector. Certainly capital will follow the fundamentals. And we would expect to see development chase this sector, but when they do, they'll be faced with the strongest aging demographic that the sector has ever faced. So we're certainly bullish and confident on the demand for senior housing.

[Operator]

Your next question comes from the line of Joshua Dennerlein with Bank of America.

[Joshua Dennerlein, analyst]

Yes. Curious on Ardent since you got the loan repayment, just curious maybe if you have any interest to kind of expand further into the hospital sector. It just feels like -- yes, just kind of curious there.

[Debra Cafaro, executive]

Well, thanks for the question. Ardent has been a great investment in many different ways, great risk-adjusted return, great performance and, I think, even better days ahead. I would say that, if we were able to find additional assets in the health systems space that have the characteristics that we like about Ardent, we certainly would commit additional capital there. And those characteristics really are around growing markets; positioned in local markets; being one of the leaders; having pricing power with commercial payers; and those types of characteristics; obviously population growth and so on; and good, strong experienced care providers. So we continue to explore opportunities in the space. And if we can find anything even close to as good as Ardent, I think we'd be happy to commit additional capital there.

[Joshua Dennerlein, analyst]

Okay. And then on the disposition guidance, the $1 billion, did that originally include the Ardent repayment? And is that additional? Or it kind of takes the place of maybe some other sales that you were going to do.

[Robert Probst, executive]

Yes, Josh, that was in the initial $1 billion, the $200 million loan repayment. That was in our guidance originally, so no surprises there. And the balance, being property, real estate dispositions, continues to be the assumption both senior housing and MOBs, but that was in our [ first ] guidance.

[Joshua Dennerlein, analyst]

Okay. Just one real quick follow-up: If Colony was to -- I think Colony could repay back their loan. That's not included. Or is that [indiscernible]?

[Robert Probst, executive]

Correct.

[Debra Cafaro, executive]

That's correct.

[Robert Probst, executive]

That is not in the $1 billion. That is not assumed.

[Joshua Dennerlein, analyst]

Okay, got it.

[Debra Cafaro, executive]

You got it. Thank you.

[Operator]

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

[Michael Carroll, analyst]

Yes. I wanted to stay on the REVPOR outlook real quick. And can you talk about how operators are setting rates today? Are they able to be more aggressive pushing rates, I guess, in August versus February, beginning of this year? And then if not, at what point will they be able to be more aggressive? I mean, does occupancy have to hit back into the mid-80% range?

[J. Hutchens, executive]

Yes. It's Justin. So even throughout the second quarter, we could see underlying tightening, particularly in asking rents. Operators tend to use short-term incentives, first and foremost. And we think those will be -- those will persist as asking rents tighten. Clearly the demand is really strong for independent and assisted living. As that continues, I would expect pricing power to return and particularly as communities and markets reach pre-pandemic occupancy. So we think there's plenty of potential ahead to drive pricing. Of course, as Debbie mentioned, there's -- it may not be a straight line as we face this next phase of the recovery.

[Debra Cafaro, executive]

And different operators will clearly pursue different strategies, and we support and work with them on those strategies. And we should see the benefit from that going forward.

[Michael Carroll, analyst]

Okay. And then back in 2014 or '15, when the SHOP portfolio had occupancy of 90-plus percent, I mean, at that point, how aggressive were your operators able to push rate? I mean, could we expect REVPOR -- or maybe not expect, I mean. Could we see REVPOR get back into the mid-single digits if something like that occurs?

[J. Hutchens, executive]

It's completely different market, moving forward, than it was then. That would have been really the beginning of facing new supply. And there was still -- some pricing power persisted during that time, but the outlook moving ahead, given the demographic backdrop and the new supply backdrop that we're facing, it certainly supports occupancy growth and pricing power.

[Debra Cafaro, executive]

Yes. I mean, Michael, you're reminding me of the very good times, and thank you for doing that, where occupancies were in the low- to mid-90s and REVPOR was growing considerably. And so as Justin said, with demographic growth -- and we have this window where the supply is baked over a multiyear period and [ it's going to be baked ] at low levels, that is a very constructive backdrop for getting back to very positive outcomes, REVPOR growth, occupancy growth, et cetera. That's where we want to head, for sure.

[Operator]

Your next question comes from the line of Steven Valiquette with Barclays.

[Steven J. Valiquette, analyst]

So with the New Senior transaction focused mainly on the independent living market, I guess I'm curious to hear just any updated thoughts you have around strategy in senior housing by property type, just thinking about it on memory care versus AL versus IL. We've seen some operators [ and the largest ] operators talk about some of the biggest gains in occupancy in memory care, but just curious on your thoughts, by property subtype in light of the transaction, how you think about those 3 areas on the pace of recovery, yes.

[Debra Cafaro, executive]

Right. And Justin will answer that. Thank you. I mean, with the New Senior pro forma, I think we're going to be over 50%, including Canada, in the IL product, which we really like. And it's a less-labor-intensive model, for example, but we do like the diversification in our enterprise and we also like it within our senior housing portfolio. So I'll ask Justin really to describe the strategy and framework that we're thinking about as we build the portfolio with Justin's kind of imprint upon it.

[J. Hutchens, executive]

Thanks. So first and foremost, we just want to make sure, as I mentioned in our prepared remarks and I like to say this a lot, that we're in the right markets, with the right asset and the right operator managing that asset. And so that might be memory care or assisted living or independent living. They -- really all the product types have good characteristics, but assisted living and memory care are more need-driven. They do have higher price point. They also do run with higher costs. And so depending on the REVPOR associated with your product, your margins can vary, but it's a product that does tend to recover quickly. It did after the financial crisis. It's doing really well after the pandemic, so far, so it's great to have exposure, as long as you're in the right markets with the right operator to that product. Independent living has a longer length of stay. It also has less new competition facing it. In the case of New Senior, there's extreme affordability relative to an AL product. It's about at least twice as good in terms of if you're a resident making a choice within your local market for a New Senior independent living versus for AL. So it reaches a broader audience. It also has pricing upside through investment and faces the same strong demographic wave that I was describing earlier.

One other thing about independent living is, because it faces less new competition, it does have a higher ceiling. Pre pandemic, it was outpacing AL and memory care by about 400 basis points. We don't see any reason why, coming out the other side of that, it doesn't also have higher ceiling moving forward.

[Steven J. Valiquette, analyst]

Okay, great. That's helpful. Just one other real quick follow-up on the New Senior transaction: You have a bullet point about Ventas expecting to make revenue-generating capital investments for additional value and opportunities. Just curious to hear more about that and how critical that is as part of the overall transaction.

[J. Hutchens, executive]

Yes. So this is Justin again. There -- this is a product type that I mentioned that has great characteristics. It's 120 units, large units. If you [ bend it to a ] Holiday community, [ it's kind of bend ] to all of them because they're exactly the same big open floor plan when you walk in, open dining. There's 3 stories. And so it lends itself well to redevelopment and refresh investment. So -- and we are -- happen to be situated in several markets that are great locations. They're high-traffic locations. They're located close to premium retail. They're -- they have strong income and wealth and aging demographics. So in a lot of cases, we think we're [ pushing, opening the door ] to make additional investments. And the goal on a targeted basis is to make investments, support the occupancy growth but also push pricing. So we're in the process of evaluating those opportunities and we'll integrate that into our plans over the next couple of few years.

[Operator]

Your next question comes from the line of Juan Sanabria with BMO Capital.

[Juan Sanabria, analyst]

I was just hoping to talk a little bit about big picture strategy, just trying to gauge how much appetite you have to truly meaningfully grow the seniors housing exposure at this point in the cycle given this nice window you have over the next 3 years versus kind of the long-term stated desire to be diversified across asset types and different products. So just curious how you're thinking about it given the opportunity set in seniors housing and that nice window for the next couple of years.

[Debra Cafaro, executive]

Yes. Well, we've definitely put our money where our mouth is in terms of the New Senior investment of $2.3 billion in well-invested, well-located senior living. We're excited about that. That will increase our percentage NOI coming from the senior living area and will enable us not only to capture embedded upside in the Ventas portfolio in senior housing but also New Senior. So that's great, and we will continue to invest where we think there's good risk-adjusted return and upside in the senior living business. We do believe, as you know, in a diversified model. And we will continue to invest in other areas of our business that have performed exceedingly well for us and have really proven their value over the last year because the benefit of diversification really is that you never know really what the external market and environment are going to throw at you. And these different asset classes are unified by demographic demand that they perform differently in different environments. And we've gotten the benefit of that so much so in the medical office area, the life science area, the hospital area over the last year that we remain of a belief that, that is the best profile to deliver the kind of value proposition we want to deliver to our shareholders.

[Juan Sanabria, analyst]

Great. Super helpful. And then just on seniors housing, I guess, for Justin, just curious on the latest thoughts on the flow-through of incremental revenue to the NOI line. And if I could be sneaky, just any thoughts on or latest data points on the Delta variant and if there's any implications on operators' visitation policies as a result of the uncertainty in kind of the -- a very fluid landscape?

[J. Hutchens, executive]

Sure. So I'll start with the flow-through and maybe just kind of refer to it as margin. One thing that's interesting -- and you can kind of [indiscernible] supplemental. You'll catch this, that our operating margin even on a much lower occupancy right now is only like 150 or 200 basis points off of the margin from a year ago on a much higher occupancy. And so margin is kind of hanging in there. We think -- if you fast forward and get the portfolio back to pre-pandemic occupancy, we think you're very, very close potentially to within 100 and 200 basis points of the pre-pandemic margin, plus there should be some pricing power. Plus, there should be some more occupancy upside than we were seeing at that time, so we feel good about the flow-through. And it's going to be -- we're in this period where Atria is one of our best-performing operators, as I mentioned, in terms of occupancy, but they have another 700 basis points to go to get back to where they were pre pandemic. And it's during this kind of next wave of occupancy fill that we expect to see the flow-through really increase and margin grow as well. And then the second part of the question is to do with the Delta...

[Debra Cafaro, executive]

Right. I mean right now it's kind of business as usual, but as I mentioned in my remarks and you clearly understand, there is fluidity. And the environment is very dynamic. And so we want to be prudent in our thought process about the third quarter, but right now the communities are all open for new move-ins and visitation. And we hope that, that continues because the communities are so highly vaccinated and protected. And that is the comfort and the happiness, frankly, that we have sitting here today that we feel really good about.

[Juan Sanabria, analyst]

Fingers crossed.

[Debra Cafaro, executive]

Exactly. Thank you.

[Operator]

Your next question comes from the line of Lukas Hartwich with Green Street.

[Lukas Hartwich, analyst]

Can you provide any color on the in-process senior housing dispositions, just maybe level of interest? And is there a sense of how pricing compares to pre-COVID levels?

[Debra Cafaro, executive]

Well, we're making good progress. We have a line of sight to -- as Bob said, to the balance of the investments, which are composed of medical office and senior housing. And because the outlook for senior housing is very favorable, there is significant interest in the asset class. And we think pricing will be in line with our expectations.

[Lukas Hartwich, analyst]

Great. And then during the quarter, it looks like a tenant exercised a purchase option. Can you provide us a sense of how pervasive those types of options are in the portfolio?

[Debra Cafaro, executive]

They are absolutely de minimis because -- this is a historical one, frankly, that we got from an -- NHP, going back to PMB, so this is long-standing one. We did recognize a very significant gain on the sale, which was $30 million or $40 million, I can't remember, on a $100 million deal. So that was good, but we have very, very limited purchase options for tenants.

[Operator]

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

[Jordan Sadler, analyst]

I wanted to just quick follow up on the Colony loan investment. Any update there surrounding your expectations? Or the fact that you excluded it from the sales guide indicate that you still don't expect it to be repaid.

[Debra Cafaro, executive]

I think the latter. As you know from the Colony call, they've moved that portfolio to intended for disposition of the real estate portfolio that is encumbered by our loan, and the loan continues to perform well. And my guess would be that -- and it's only a guess, that the buyer of the real estate portfolio would likely assume the existing capital stock.

[Jordan Sadler, analyst]

Okay, although, I guess, if it goes to somebody, I mean, who looks to parcel off the portfolio or doesn't look to own or hold the entire portfolio, there is a possibility that they might have to repay the loan, right, because it's supported by the entire portfolio.

[Debra Cafaro, executive]

I mean they're -- yes. I mean we -- it is supported by the pooled portfolio, definitely. And it's a very well-structured loan. And we always feel good when our loans get repaid even though we have to recycle the capital, but it proves the merits of the investment, if you will. So we're open minded. I think either way could be favorable for Ventas.

[Jordan Sadler, analyst]

Okay. And then just as a follow-up relative to one of Pete's comments as -- in his closing to his comments: He mentioned some of partners being approached and pursued, the Kindred deal, the -- and Spire portfolio. Any anticipated actions you guys might see within your portfolio as a result of those transactions?

[Debra Cafaro, executive]

Yes. I mean, whenever there is activity, there can be opportunity. And we look forward to exploring those kinds of things. We've had a good relationship with Kindred for 22 years and we've done lots of really constructive things together, and I would hope that, that will continue.

[Operator]

Your next question comes from the line of Daniel Bernstein with Capital One.

[Daniel Bernstein, analyst]

Congrats on a good quarter with SHOP. I -- it's kind of a broad question here on seniors housing. I mean there's been some real success from the larger operators like Brookdale, Sunrise; obviously the merger of Atria and Holiday. [ It's kind of I just ] want to get your perspective on maybe the importance of scale in seniors housing going forward. Historically, scale has not worked out too well versus regional operators in terms of performance, but maybe that's changing. And just want to try to get your perspective on that and maybe how the -- how Ventas as a REIT can participate in that.

[Debra Cafaro, executive]

Well, that's a great question. It's clearly from someone who's been around the industry for a long time. As we said, as a 1/3 owner of Atria, we do like the combination of the talent, the IL and the AL capabilities coming together on a very advanced platform that Atria has to become the second largest operator. So that can really yield some benefits, I would say, with the data, analytics and technology capabilities and the talent all coming together. So it's more about that than it is about the scale, I would say. There also can be benefits from smaller operators. Justin mentioned we're going to have some -- a new relationship with Hawthorn. And those where, as you know, the original Holiday guys, if you will. And I think there are some strong benefits that those local operators can provide as well, so we look forward to having those relationships and building them out as appropriate.

[Daniel Bernstein, analyst]

Okay. And then, I guess, the other question, I just wanted to go back to labor. I mean we heard from some other REITs and operators that maybe a lack of labor could slow down or -- occupancy gains, I think, more maybe skilled nursing and seniors housing, but I kind of wanted to get your thoughts on whether there's any limits in terms of near-term occupancy momentum that could occur because of a shortage in labor.

[Debra Cafaro, executive]

Right. Well, I mean, again, I think we as a country and we Ventas with our strong second quarter have really what I would call -- my mother would call really a high-class problem. And that is that our economy is recovering. And demand is recovering in such a speedy and robust way that both the labor market and the supply chain are having trouble kind of keeping up with it. And that is an environment that we're -- we feel very comfortable kind of managing through to the other side because, when you step back, it's really all about that demand, the demographics, building that occupancy and pricing power and capturing that embedded upside in both Ventas senior housing as well as now New Senior. So we'd rather have this environment and many others. And I think we can successfully really manage through it because of the demand that is right in front of us.

[Daniel Bernstein, analyst]

That's a helpful perspective.

[Debra Cafaro, executive]

Right. And to the specific question: I mean our communities are able to take residents. There hasn't been any capacity constraint, to date, on our ability to accept occupancy.

[Operator]

Your next question comes from the line of Amanda Sweitzer.

[Amanda Sweitzer, analyst]

You touched on higher-conversion lead sources continuing to recover, in your prepared remarks. Can you just expand on where those higher-conversion sources are trending today relative to pre-COVID levels? Like how much additional upside do you think you could realize through those?

[J. Hutchens, executive]

Yes, sure. [ So there's ] probably kind of 2 things happening. One is the digital footprint that is expanding, and then the other is the traditional leads coming back. So referral agencies and Internet-based leads are way over 100%, 150%, 160%, of pre-pandemic levels. And so they've played a huge role in driving leads. That's maybe a silver lining that came from the pandemic, where it forced operators to invest into that source of referrals. And it's a game changer really. And so we've seen those leads pick up. Now those do convert at a lower rate, though, but the more the merrier. So in addition to that, there's 3 other lead sources. There's respite and professional referrals and personal referrals. Personal referrals in the second quarter for us we're at 110% of pre-pandemic levels, so those have come roaring back. Professional is still down, around 74%, 75%. And respites are just under that, so there's still a ways to go yet with professional and respites to recover and which we think is encouraging because the lead levels have been quite strong.

[Amanda Sweitzer, analyst]

Well, that's great and helpful. And then following up on some of your expense growth guidance and particularly for the third quarter, just your expectation that increased SHOP expenses will largely offset the increased revenue growth. I guess, what did you see in terms of sequential expense growth in July? And how meaningful are the potential COVID-related expenses that you're including in guidance?

[Robert Probst, executive]

I'll have a go at that one, for the third quarter. So you're right to say revenue growth pretty much offset by expense growth. There's a number of different buckets within the expense line, I think, worth highlighting. One is simply an extra day, which is meaningful when you think sequentially third quarter versus second quarter. That has a meaningful impact. The next is, I call it, typical seasonal cost increase in the third quarter. Utilities is the easy one. Repairs and maintenance is another, but you see that every third quarter. The third bucket is really a function of occupancy growth and activity levels increasing in the communities; and obviously you have incremental costs associated with that, which is a good thing. And kind of overlaying all that is back to this question of short-term wage pressure in light of the labor market, which is effectively embedded in the thinking, but there's a series of different bucket that all together add up to that third quarter expense number.

[Operator]

Your next question comes from the line of Nick Yulico with Scotiabank.

[Nicholas Yulico, analyst]

I just wanted to follow up on the -- that expense question, maybe if you can just give us a feel for how this is going to work in terms of, as you get increased occupancy in the portfolio, how much of an offset going forward that's going to be from same-store expense growth. Meaning that, if your occupancy instead was up 400 basis points in the third quarter and not 200 basis points, would you then have same-store NOI growth sequentially? Or I'm just trying to think about how -- as occupancy is going up, as well some of your -- the de-flexing of labor that worked on the downside is now, I guess, going against you a bit on the expense side.

[Robert Probst, executive]

Yes, Nick, I think it's right to say that, as occupancy grows, you're going to have some level. It's not a perfect linear one-for-one relationship whereby you add an occupancy, you add ahead. It is more of a step-change-type function. There's always great debate as to what level that is. I think qualitatively we would tell you we're in that. We're growing labor as we're growing occupancy right now as a consequence of having come out the other side flexing labor, as you say, which should reach a level where then there is some scale advantage, if you like, that you can then hold off until you get to the next level of occupancy. I can't give you a number on that, but we're certainly in that upward trajectory right now.

[Nicholas Yulico, analyst]

Okay, yes. I appreciate that. And I guess, just following up on...

[Debra Cafaro, executive]

And again -- yes. I mean some of it is really related to this mismatch that I discussed in terms of shifting gears in the economy, and that should be transitory.

[Nicholas Yulico, analyst]

Okay. And just following up on that: I know earlier, Justin, you were saying about the margin outlook. You thought there's a good chance you get back, I think you said, within 100, 200 basis points of pre-COVID margin as you're building the occupancy back. And I guess the way -- is that the right way to think about this, that in the meantime, over the next year, you're still going to be about 100, 200 basis points below on margin versus where you were? Because if I look at the third quarter guidance, it does feel like your margin is going to be about 20% in SHOP. In the third quarter a year ago, it was almost 22%, so that kind of fits that piece of still being down a bit, which is maybe it's COVID expenses. It's also, I guess, the REVPOR being down year-over-year.

[J. Hutchens, executive]

Yes, I would kind of stretch out your timing a little further. There's -- as Bob mentioned, there's going to be kind of -- you'll have periods where you have revenue increase and a little bit of expense catch-up. Debbie mentioned that the near term has a transitory effect as well, so if you -- it's kind of pushed out the timetable a ways. And we don't really have the crystal ball in terms of when we stabilize, but I was thinking more on a stabilized basis. When we get there, to that pre-pandemic occupancy, margins should be within reach of where they were. And then from there, pricing power and occupancy upside could support even higher margins over time. So that's all I was saying. And I didn't really mean to kind of paint it as kind of a near-term picture, except to say that our margins in Q2 were only like 150, 200 basis points off of a year ago.

[Operator]

Your next question comes from the line of Vikram with Morgan Stanley.

[Vikram Malhotra, analyst]

So I guess, Justin, going back to sort of the occupancy increase near term but also maybe over the next 12 to 18 months. So first, I guess, if I look at your slides and look at the lead volumes very recently, they're over 100% of 2019. And your move-outs are trending lower. And certainly the leads are higher than the last few months or the second quarter number, so why won't the -- why would the occupancy uptick just be similar to what you saw, in your view, in the second quarter? Why wouldn't the midpoint of your guidance be the low point? Because your leads are just higher than what you've seen in the last, call it, 4 months.

[Debra Cafaro, executive]

Yes. Well, this is Debbie. Again, in July -- well, first of all, we are really happy that leads in July are the highest they've been since the beginning of the pandemic. That is a very important and meaningful statistic and certainly portends -- it to me -- it means there is demand and it portends higher occupancy. So that is really good, as you say. In July, as we've talked about, we had spot-to-spot growth of about 75 basis points. And it's there is a lot of uncertainty in the environment, so if you just roll that forward, that's near the midpoint of the 150 to 250. And that's how our guidance is constructed.

[Vikram Malhotra, analyst]

Got it, okay. No, I was just -- I mean you're right. Like the July leads should translate into, whatever, August, September. I don't think it's more than that in terms of conversion times, but it just feels like the setup is one for you will pretty easily hit your mid- to maybe even high end of your numbers of your occupancy guide. I guess, just tied to that, a lot of smaller operators surveyed by NIC do have a view that they could get back to pre-COVID occupancy next year. I want to just ask you from your perspective. Like do you think that's too optimistic? What's your sort of broad view and the puts and takes? I recognize the strategies are different in terms of occupancy versus rents, et cetera, but where do you think -- or a, do you think those smaller operators are maybe too bullish? Or what are the puts and takes?

[Debra Cafaro, executive]

Yes. I mean the pace and slope of the recovery and the clinical environment broadly in the U.S. is really going to determine how quickly we get back to that pre-pandemic occupancy level. It's we're on a good path. I think it's very sustainable. It has been, so far, and we are very encouraged by that as well as the demographic growth that's right in front of us. I think Justin mentioned Atria had about, what, 700 basis points of occupancy to continue to get back to pre-pandemic levels. And again it's really going to depend upon this -- we're predicting the third quarter. We have visibility and line of sight to that, and thereafter, I think we want to be conscious that it continues to be a pretty dynamic environment. So we're encouraged. And I hope you're right about many of the things that you said, Vikram.

[Vikram Malhotra, analyst]

Debbie, if I can just -- sorry. Go ahead.

[J. Hutchens, executive]

I was just going to add quick just [indiscernible] kind of support that. So right -- as we currently sit, we are -- we only have just around or just above 20% of our communities that are at the pre-pandemic occupancy. Over 60% are achieving pre-pandemic move-in levels. So we have great activity and we're really pleased with this early recovery, but we have a long way to go and support -- and, so far, really good support for it. But there is still a ways to go yet.

[Vikram Malhotra, analyst]

Okay, great. Debbie, if I can just squeeze one bigger picture question. I'm struck now by how the big 3 health care REITs are now different from maybe several years ago where there were a lot more similarities. You have a very -- you have strong momentum in the life science, research segment. Obviously, senior housing, there's a lot of momentum, as you've just laid out on this call. I'm just wondering in -- from a strategic and maybe a differentiation of that, even value perspective. The MOB segment, there seems to be a lot of demand on the private side. Cap rates are really low, pretty good. I know, maybe 3 years ago, you set out to maybe sell. If -- correct me if I'm wrong. I think it was $600 million, $700 million of assets. Why is this not a good time to maybe exit a fair amount of MOBs; and become more pure play, I guess, or focused on 2 segments, life science and senior housing?

[Debra Cafaro, executive]

Love the question. Thank you. We -- again we do believe that we've created a lot of value with our MOB portfolio, as you point out. We have a differentiated strategy with our Lillibridge management platform that Pete runs, and that's going really well. We have mentioned that -- as part of the $1 billion of 2021 capital recycling, that it's MOBs and senior housing, so you're right on there. I do think that we've benefited from the stability of the cash flows at the MOBs with our strategy of being on campus and affiliated. And I think you're right. That commands a very low cap rate, but it's -- also provides a really good, differentiated and diversifying aspect to our overall cash flow stream. And so we like that. So we'll prune here and there. We'll recycle capital. We'll take advantage of some of the value that we've created, but we really believe that owning the MOB business as we do is a benefit to our shareholders.

[Vikram Malhotra, analyst]

Okay, I'll follow up on that off-line.

[Operator]

Your next question comes from the line of Rich Anderson with SMBC.

[Richard Anderson, analyst]

Well, I'm sorry to keep it going. I logged in about 2 hours ago and found out it didn't [ take ] for some reason. So one question for me...

[Debra Cafaro, executive]

It must be you.

[Richard Anderson, analyst]

Yes, fat fingers or something. [ I don't know ]. So one -- the one question I have or that I'll ask in the interest of time is concentration risk, with Atria following new holiday and following their own merger with -- New Senior, I mean, and their merger with Holiday, gets over 20%, depending on how you slice it. Curious how much of that is an issue to you and how quickly you'd like to whittle that down through other investments outside of it. The idea of concentration, in the past, at the time, sounds good. And I recognize Atria is a great operator, but people have come to regret concentration risks as time has moved on, so I'm curious if that's something that's sort of high on your radar screen, to get back down to something in the mid-teens or something like that over the next couple of years.

[Debra Cafaro, executive]

Yes. Thank -- yes. Rich, thank you for asking that because that has always been something that is near and dear to my heart. And there is always this tension, as you mention, between really putting your assets with the right operator, the right markets and certainly the best operators. And Atria has been that. Holiday has been a leading operator. So there is a tension between that and making sure you don't put all your eggs in one basket. And you manage your concentration wisely. And so we do think the combination of Atria and Holiday provides strategic benefits to us, and as an owner of Atria, we like that. We like the growth in Atria's platform. That having been said, I think we do have a lot of flexibility in the New Senior management contracts and our own Holiday contracts that gives us the ability, through both growth and the way the management contracts are structured, to move in the right direction on the diversification of manager point.

[Richard Anderson, analyst]

Okay, great.

[Debra Cafaro, executive]

So we have all the tools we need to manage it in the right way.

[Richard Anderson, analyst]

What's your -- like, long term, this is as much as I want to own of a -- or have a piece of my pie. Is it 10% or 15%? Is that the kind of the threshold for Ventas?

[Debra Cafaro, executive]

I mean it'll change over time and with specific situations, but that's -- that seems directionally the right kind of way to think about it.

[Operator]

And there are no other audio questions at this time.

[Debra Cafaro, executive]

Well, thank you all for sticking with us and for your interest in Ventas. We really appreciate it. We're so delighted with a great quarter of health and safety and results. And we look forward to seeing you all in person soon. Thank you again.

[Operator]

This concludes today's conference [ call, and thank ] you for participating. You may now disconnect.