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Ventas Inc
Earnings Call Analysis
Q3-2024 Analysis
Ventas Inc
Ventas delivered a remarkable third quarter in 2024 with normalized funds from operations (FFO) per share reaching $0.80, a 7% increase year-over-year. This performance was primarily fueled by significant occupancy growth and revenue outperformance, notably in their senior housing operating portfolio, where cash net operating income (NOI) soared by 15% compared to the previous year. The company's focus on profitable organic growth has led to nine consecutive quarters of double-digit NOI growth—a promising sign for current and potential investors.
Following such strong results, Ventas raised its 2024 guidance for the third time this year. The company now expects net income attributable to common stockholders to be between $0.09 and $0.13 per diluted share, and has adjusted the midpoint of its normalized FFO guidance to $3.16 per share, up slightly from $3.15. This revision underscores management's confidence in the strength of both their portfolio and future investment opportunities in senior housing.
In a strategic move, Ventas has ramped up its investments in senior housing, committing $1.7 billion to new acquisitions, significantly up from previous quarters. The investments primarily target high-performing communities where strong market fundamentals and a growing demand can drive further NOI growth. As a result, they expect their senior housing business to dominate the company's portfolio, growing to represent more than half of their business by year-end. This diversification in investments not only strengthens their revenue base but also positions them well for future growth.
Occupancy in Ventas' senior housing operating portfolio experienced a noteworthy improvement, rising by 350 basis points year-over-year, leading to an industry-leading occupancy growth in the sector. With the over-80 population expected to grow by 27% over the next five years, demand for senior housing is anticipated to remain robust. This demographic shift combined with limited new supply in senior housing is expected to sustain pressure on occupancy rates and drive further growth in NOI.
Venture's operational strategy focuses on maximising occupancy rates across its portfolio; properties achieving occupancy rates above 90% benefit from a 70% flow-through to NOI. The operational margin for the senior housing operating portfolio is currently at 26.3%, reflecting a 150 basis point improvement year-over-year. As occupancy levels continue to increase, margins are expected to further expand, presenting a valuable upside for investors.
While Ventas is well-positioned for growth, potential investors should be aware of market risks. The transition phase of certain leases, particularly with major operators like Brookdale, adds a level of uncertainty. If these leases transition fully to the senior housing operating model (SHOP), it could create significant opportunities for NOI improvement. However, the successful execution of this strategy hinges on favorable market conditions and operator performance.
Overall, Ventas appears to be on a strong growth trajectory backed by solid financial performance, an aggressive investment strategy, and favorable demographic trends. The company's proactive approach to expanding its senior housing portfolio is likely to create additional value for shareholders. Investors looking for stability and growth in the healthcare real estate sector should consider Ventas as a compelling opportunity.
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Thank you for standing by. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ventas Third Quarter 2024 Earnings Call. [Operator Instructions]
I would now like to turn the call over to BJ Grant. Senior Vice President of Investor Relations. Sir, please go ahead.
Thank you, John, and good morning, everyone, and welcome to the Ventas 2024 Third Quarter Results Conference Call. Yesterday, we issued our 2024 third quarter earnings release, presentation materials and supplemental investor package, which are all available on the Ventas website at ir.ventasreit.com.
As a reminder, today's remarks 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 investor package posted on the Investor Relations website.
And with that, I'll turn the call over to Debra Cafaro, Chairman and CEO of Ventas.
Thank you, BJ. I want to welcome all of our shareholders and other participants to the Ventas Third Quarter 2024 Earnings Call. Today, I'll discuss Ventas' strong results in the quarter and our improved 2024 expectations as we execute on our focused 1 Q3 strategy to capture the unprecedented multiyear growth opportunity in senior housing.
As one of the largest participants in the longevity economy, Ventas thrive in meeting demand from a large and growing aging population. Within this favorable macro environment, we are taking 2 clear actions to deliver results and growth now and into the future.
First, we are driving profitable organic growth in our senior housing operating portfolio, generating our ninth consecutive quarter of double-digit NOI growth from our in-play shop business. Our team is using its experiential insights and data analytics to propel results and take advantage of this unique opportunity of favorable supply/demand in senior housing.
Second, at the same time, we are ramping up our investments in senior housing. Here, we also enjoy a compelling value creation opportunity of private to public arbitrage. We can and are acquiring assets with highly attractive financial return expectations at accretive year 1 yields that expand our senior housing footprint, increase our enterprise growth rate, and strengthen our balance sheet.
We rarely see this powerful combination of organic and external growth opportunities, and we are dedicating our resources to seed them to create value for our stakeholders.
Before I have those themes, let's get to the numbers. Ventas delivered $0.80 of normalized FFO per share in the third quarter reflecting 7% year-over-year increase driven by occupancy and revenue outperformance. This result was powered by SHOP with 15% year-over-year cash NOI growth.
Total same-store cash NOI grew nearly 8%, and our credit statistics continues to improve. As a result, we're once again raising our 2024 normalized FFO per share guidance, as well as our SHOP and total company same-store cash NOI expectations.
As we execute our strategy, SHOP organic growth is the engine and is powering us forward. Year-to-date SHOP NOI has increased nearly 16%, and our RevPOR OpExPOR spread is a strong 300 basis points, leading to margin expansion. Margin is increasing and should expand further as occupancies continue to rise and operating leverage home.
With the over-80 population expected to increase 27% over the next 5 years, our communities are well positioned for future NOI growth because they provide exceptional affordable environment in markets with compelling supply-demand dynamics. As we look ahead, we believe we have a long runway for continued growth in senior housing.
Our prior occupancy peak and SHOP reached 92% in late 2014 when conditions weren't nearly as favorable as they are now. Our goal is to shoot for and exceed prior peaks of occupancy and NOI over time and searching demand outpace senior housing construction, which sits at record low levels and inflation moderate.
Our markets show particularly favorable conditions and we expect to continue to drive significant upside as our Ventas team and OI platform work with our care providers to drive outperformance. We've also ramped up our investments in senior housing to $1.7 billion this year. Here, too, we are utilizing our OI insights, field experience and industry relationships to identify attractive opportunities, increase our enterprise growth rate and expand our senior housing footprint.
As a result of this investment activity, we expect SHOP NOI to increase by 12 percentage points and senior housing to grow to well over half of our business by year-end. These acquisitions fit squarely into our articulated strategic and financial framework and should create value for shareholders. We've rarely seen such favorable investment market conditions, where the pool of available assets is large and growing, and investments should generate relatively high year 1 yields and offer significant future growth.
Importantly, we are well positioned from a balance sheet, cost of capital and experience standpoint to be highly active and successful. We intend to build on our momentum to continue to expand our participation in the unprecedented multiyear growth opportunity in senior housing.
At Ventas, we have a long history of taking a holistic view of delivering sustainable growth for all stakeholders. Last month, we released our 2023, '24 corporate sustainability report which details our key initiatives as we enable exceptional environment benefiting a large and growing aging population.
I am proud of our sustainability leadership and accomplishments and our team, which are widely recognized. Our integrated approach has enabled us to deliver nearly 19% annual TSR since the beginning of 2000.
In sum, I feel great about where our business is and where it's heading. Our enterprise enjoys durable inelastic demographic demand powering a multiyear runway for growth. Our platform and team are driving outperformance and capturing market share. Because of these favorable secular and structural advantages, we are well positioned to deliver value for our shareholders and advance our important mission to help people live longer, healthier and happier lives. And the whole Ventas team is enthusiastically going after it.
Now I'm happy to turn the call over to Justin.
Thank you, Debbie. I'll start with our efforts to deliver profitable organic growth in senior housing. The third quarter same-store SHOP portfolio grew occupancy by an industry-leading 350 basis points year-over-year, leading to our ninth consecutive quarter of double-digit NOI growth at over 15% and an overall operating margin of 26.3%, which is up 150 basis points year-over-year.
We also had one of our best occupancy growth quarter sequentially with 140 basis points. Leading indicators of leads and tours have been outperforming all year and continue to do so in October. Revenue growth was around 9% across the portfolio, and the U.S. NOI growth was 17.7%.
Sunrise, Sinceri and Discovery continued to deliver excellent operating results in the U.S. Double clicking on our occupancy performance. Our Canadian portfolio is an all-time high 97% occupied in September, led by the Groupe Maurice and Atria.
Occupancy outperformed the market. The U.S. spot occupancy grew 370 basis points year-over-year in the top 99 markets, which is 140 basis points faster than the NIC average. Furthermore, we grew 130 basis points in these markets, which is almost double the NIC average.
Moving on to guidance. As the third quarter exceeded our expectations and October is off to a good start, our average occupancy growth expectations have increased to about 290 basis points, which is up 40 basis points versus the original guidance. Year-to-date RevPOR growth has exceeded OpExPOR by 300 basis points, and we expect a continued healthy spread as pricing continues to outpace the moderating inflationary pressures we have experienced this year.
All of this considered, we are pleased to raise SHOP full year guidance expectations for the third time this year to 15%. Furthermore, we believe rate growth will be favorable into 2025 as we anticipate significant demand, well-positioned communities and a value proposition that is attractive to seniors and their families.
Moving on to Ventas OI. Our SHOP performance stems from our right market, right asset, right operator approach, enhanced by the Ventas OI platform, which leverages 1 billion operational and financial data points and experiential insights. This platform empowers our SHOP operators with advantages in sales, pricing, market positioning, CapEx and digital marketing, to name a few.
Key drivers include acquisitions, new SHOP operators, CapEx investment and strategic conversions from triple net to SHOP all aimed at boosting occupancy and NOI in this favorable supply-demand trends in senior housing. The OI platform also enables us to segment the portfolio in ways designed to increase NOI and margin. We are all familiar with the rule of thumb, a 50% incremental margin flow-through in communities that are between 80% and 90% occupancy. And the 70% flow-through in communities that are above 90% occupied. I don't think it's widely understood how higher occupied communities compile our growth.
Let me walk you through a case study to highlight this opportunity. If you want to follow along, you can see this case study on Page 12 in our earnings deck. Our Zero Loss Revenue Day initiative aims for full occupancy across select communities in our portfolio, minimizing vacancy and maximizing NOI growth. 40% of our SHOP portfolio is in the 90%-plus occupied category offering substantial outperformance potential.
Due to the operating leverage in our business, scarcity value and lack of frictional vacancy, we have significant opportunity to drive NOI growth in highly occupied communities. It's important to note that we typically don't experience frictional vacancy in senior housing due to the relative small unit size, lengthy notice periods to vacate and low wear and tear on the units, ultimately allowing for sufficient time to plan a unit turn.
As occupancy grows across our portfolio, the benefit of highly occupied communities are materializing. I'll highlight 8 communities in September that reached 0 loss revenue days, maintaining 100% occupancy every day in the month. These properties saw a 440 basis point occupancy increase over the last year, a 7% RevPOR improvement, 12% revenue growth and over 25% NOI growth. These communities all deliver market-leading quality care and services, which is essential to attracting and retaining residents and employees.
The philosophy is simple, full is full, and it underscores the value of renting every unit daily, maximizing NOI through operating leverage, scarcity value and 0 vacancy. We'll not achievable for every property. We aim to continue to replicate this result with operators and targeted communities throughout our portfolio, including our new acquisitions.
I'll summarize my SHOP commentary by highlighting our continued occupancy outperformance and double-digit NOI growth. We truly are seeing momentum in the business.
Next, I'll comment on our triple-net lease with Brookdale, which expires at the end of 2025. Brookdale has the option to renew by November 30 of this year. It is a well-covered lease with strong and improving coverage, comprised of underlying assets that sit in markets with 1,000 basis points of potential occupancy upside. Due to the strong underlying performance of the portfolio and compelling projected tailwinds, there are a variety of outcomes that are positive for Ventas, which could include full renewal, full transition to SHOP or something in between. We'll update you about the progress of this lease when we know more.
Now I'll move on to investments. We continue to execute on our focused strategy, which is to capture value-creating external growth concentrated in senior housing. The market is presenting compelling opportunities. We are in a great position to capitalize on these opportunities, given our advantaged position as a large owner of senior housing with financial strength and flexibility, far-reaching senior housing sector relationships and its successful transaction track record.
Our investment pace is accelerating with $1.7 billion of senior housing investments closed or under contract, which is $1 billion more than we stated a quarter ago. The $1.7 billion is comprised of 43 new senior housing communities, 16 different transactions with the median size of $47 million. We have targeted high-performing communities with upside that have demonstrated market-leading performance and should continue to grow NOI due to the strong market fundamentals, increased operating leverage and competitive pricing.
The communities we have purchased are generally large-scale offering a variety of services, including independent living, assisted living and memory care. We are purchasing communities in an attractive investment basis of $250,000 per unit, which is a significant discount to replacement costs.
These investments are right in our strike zone. Our stated financial criteria of 7% to 8% expected year 1 NOI yield, low to mid-teens unlevered IRR, and we continue to purchase below replacement costs. The affordability in the new markets we are entering is supportive where residents can afford greater than 7x our length of stay. We also expected a significant net absorption opportunity during the next few years as a result of growing demographics and minimal new supply in the markets we have selected.
We continue to expand with our existing operator relationships as well as welcoming new high-performing operators in the line management agreements. I'll spotlight an investment where we acquired 20 senior housing communities currently operated by Grace management. This strategic acquisition includes communities offering a mix of independent living, assisted living and memory care, aligning with our focus on value-creating growth in senior housing, these communities are located in markets that support significant potential occupancy growth and price opportunity over the next few years.
At 92% occupancy, this investment should benefit from the high operating leverage opportunity, as I noted earlier. We expect 7% to 8% year 1 yield and low mid-teen unlevered IRRs consistent with our target financial metrics. This investment expands our relationship with Grace, who is a strong performing existing Ventas operator.
Our investment pipeline remains active as we continue to pursue high-performing senior housing communities with attractive financial returns. In summary, we are effectively executing on both our organic growth priority in senior housing and value-creating senior housing investments. Bob?
Thank you, Justin. I'll give an update of our financial results, provide an overview of our balance sheet and close with our improved outlook for the year. Ventas reported net income attributable to common stockholders of $0.05 per share in the third quarter. Our Q3 normalized FFO per share of $0.80 represents a 7% increase year-over-year.
Our total company same-store portfolio cash NOI increased 7.6% in the third quarter, led by over 15% growth in SHOP. Our outpatient medical and research segment or OMAR, same-store cash NOI increased 2% in the third quarter and grew over 3% on a year-to-date basis.
In our outpatient medical portfolio, Pete and team remain active on leasing, executing 1 million square feet of new and renewal deals in the quarter for a total of 2.5 million square feet year-to-date. Tenant retention of 85% has improved 300 basis points from the prior year. As a result, outpatient medical same-store occupancy improved 20 basis points year-over-year in the third quarter.
Our university-based research same-store portfolio increased cash NOI by nearly 5% both in the third quarter and year-to-date, led by new leasing and higher rents. Our core research portfolio is performing very well to strengthen our markets and institutional demand.
As Justin described, we have increased our investments in senior housing with $1.7 billion of senior housing investments closed or under contract. We funded the $1.4 billion of closed senior housing investments via $1.1 billion in equity issuance at an average price of $54.20 and $300 million of completed dispositions.
I'd note that since the second quarter, we have raised approximately $570 million of equity at an average price of $61.27. Consistent with our strategy, organic SHOP growth in equity funded senior housing investments have materially improved our balance sheet.
Our 3Q net debt to EBITDA of 6.3x has improved by 60 basis points since the start of the year, and we now have line of sight to our targeted 5 to 6x range. We also have robust current liquidity of $3.1 billion. We have addressed our 2024 maturing debt and proactively refinanced a portion of our 2025 debt maturities, including through a $550 million 5% bonds issued in September prior to the recent run-up in long rates.
I'll close with our updated 2024 guidance. We've raised our outlook for '24 for the third time this year. We now expect net income attributable to common stockholders to range from $0.09 to $0.13 per diluted share. We increased the midpoint of our full year normalized FFO guidance to $3.16 per share from the previous midpoint of $3.15.
Our improved full year midpoint is driven by a $0.02 improvement from increased investment activity and higher SHOP same-store growth expectations, partially offset by a $0.01 dilutive impact of our strong stock price performance on our exchangeable notes.
I would note that $1.2 billion of our $1.7 billion in senior housing investments, our closing on a weighted average basis in the middle of Q4 thereby limiting the 2024 accretion. We have raised our total company same-store cash NOI to now approximate 7.4% year-over-year at the midpoint, as well as increased our SHOP same-store cash NOI midpoint expectation to 15% growth year-over-year.
For additional 2024 guidance assumptions, please see our Q3 supplemental and earnings presentation deck posted to our website.
To close, we are pleased with the results both in the quarter and so far this year and to once again have improved our full year expectations.
With that, I'll turn the call back to the operator.
[Operator Instructions] Your first question comes from the line of Nick Joseph from Citi.
Debbie, you mentioned the long runway and obviously, the improving operating fundamentals, pricing, expenses, occupancy, everything. I guess my question is just what are the early indicators that, that supply could start to reemerge. We obviously haven't seen it in the starts data yet, but just kind of wondering what you're seeing from the sector overall as you talk to lenders or others within the industry kind of what could spur that just given the really strong forward outlook?
Thanks, Nick. So the construction as a percentage of inventory at record as I mentioned, I think at just a little over 2,000 units were starting this quarter, and we're seeing annual increases in the resident customer base of over 500,000 a year growing. And so we're still seeing constrained supply considerations including lending, including cost and including net levels, which would have to be significantly higher to justify new construction. So there is a long runway. We know there is a significant lag as we saw in the financial crisis, it was 4 or 5 years and then we really peaked in occupancy.
And as I mentioned, conditions for far less favorable than the senior population grew 4% over 5 years and now it's growing 27%. We see that step function a few years from now in the population and the baby boomers start to enter the over-80 population. So it is a long runway and we feel really good about it and that's why we see all that this combination of organic and external growth is to grow winner.
And then maybe just on that ramp in investments in senior housing. Just given that kind of runway, can you talk about the seller mode at this point and kind of the opportunity set that you're seeing there? I would think that a seller can also see improvements from the fundamental perspective, why sell now into this runway?
Yes, a good question.
It's Justin. Yes. If you just look at like, for instance, the $1.7 billion that we've either closed or under contract. There's been, what, 16 transactions about 9 of those have been developers that were catching in. There were some repeat sellers. These are just groups we've done transactions with before came back to us to to do it again, just given a good track record we have with them.
And then there's a handful of just PE firms who were selling for a variety of reasons. I think it's very clear that the fundamentals are really good and that's a great -- given all the backdrop and the long runway that Debbie described, it creates a great buying opportunity for us, given our capabilities and our financial strength and flexibility, but it also has created a selling opportunity for certain players as well. So the opportunities have been certainly growing in our pipeline.
And assets should perform better in that.
Your next question comes from the line of Jim Kammert from Evercore. .
If I could just Justin drill down on your case study on Page 12 of the very high occupied cohort of units or communities. Was that a cross-section and thinking about the whole 111 communities a cross section of operators?
Yes. So we do have -- it's a cross-section -- in the case study, I really focused on 8 communities, particularly and even those were a cross-section, you had a mix of majority IL, AL, a couple in Canada, most of them were in the U.S.
So it does speak for the opportunity, I think, really across the board. And we're going to have really the best opportunity to be 100% occupied or really achieve that 0 bake unit standard in communities that have already established themselves as market leaders. And we have many of those certainly, the acquisition pipeline that we pursued are with bonafide market leaders that have a lot of upside ahead. So we're really pushing to support that outcome, and we're pleased to see it start happening.
Great. And then a second question, if I may. Just stepping back more secularly, what does all your wealth of data collection tell you about sort of penetration rates for senior housing in your markets? Are you able to track that or get some -- share some insight as to how these -- by age cohort, how people are increasing or decreasing their usage of the product?
Well, I can tell you that we do track penetration rate. We track -- there's a number of factors that go into our net absorption projections. Penetration across the sector is at 11%. It's basically exactly where it was pre-pandemic. There's penetration tends to follow affordability. It's -- now it's one of the reasons why we tend to prefer markets have very strong affordability because you're going to have a higher utilization of senior housing in those markets, and it's trended up.
I mean, clearly, a few years ago, penetration has fallen off a little bit. It's back to where it was, and really to get the results that we're anticipating over time in this multiyear kind of occupancy growth opportunity, you really don't need to see penetration rate move much if at all. So there's a strong aging demographic, there's very strong affordability. We're selecting markets that, first and foremost, that have those characteristics. And as Debbie said, we have the platform to really ensure good performance in these markets, and it's certainly helpful to have strong tailwinds.
Your next question comes from the line of John Killechawski from Wells Fargo.
Just on the guide for SHOP. I -- and forgive me if I missed this, but I noticed there wasn't an updated RevPOR, OpExPOR guide. This quarter, RevPOR came in at 4.4 and OpExPOR 1.3 year-to-date. Is that -- and just kind of going back to your 2Q guidance, I believe it was 5 and 2.5, are those both in line with your 2Q guidance? Or are you seeing maybe a little softer RevPOR but also softer export that's kind of balancing that out. Curious if there's any conservatism heading into 4Q?
Right. So first of all, we focus on the spread between the 2, and that's been around 300 basis points. And that's really how we expect that to continue. So that was considered in the guidance update that we gave. That full year number you mentioned, that's a pretty good proxy for where we've been running. So -- and the 300 basis point spread is reflected in the year-to-date performance.
Put another way -- this is Bob. I would say that year-to-date P&L in the supplemental a good indicator of the piece parts in terms of RevPOR and OpExPOR growth as we think about the year.
Got it. And then maybe just jumping to your top tenants and more specifically, Atria, but please touch on any others, if there's anything newsworthy. But just could you talk about Atria's performance and maybe bifurcate the IL and AL portfolios?
Yes, sure. So Atria is our largest shop operator. We have a legacy portfolio with them in the U.S. and Canada, and then we have the holiday portfolio. They've consistently been a really good performer in our legacy portfolio. We've had a working relationship in over time where we've been really helping them to focus their footprint into cluster markets. And so with the -- at 1 point, you might have thought of Atria as a national platform.
Now I think of them as a super regional because they're well clustered. We're getting solid execution in the legacy portfolio. The Holiday portfolio has been a work in progress. They're a big contributor to the occupancy growth we've had year-over-year, though. So we like what we're seeing has been around 400 basis points of occupancy growth year-over-year.
So I would say they're checking our boxes out in the U.S. I also mentioned in Canada that they're one of the leaders in terms of driving high occupancy, where Canada is 97% occupied, Atria has been a key contributor to that, the other being the Groupe Maurice.
There's a new CEO at Atria as well. Holly has been in place for a couple of quarters now. She's brought a lot of enthusiasm and experience and direction to the company that we're really pleased about.
Your next question comes from the line of Jeff Spector from Bank of America.
My first question on opportunities. Is it time to lean into life science? Or will there be a time over the coming months to lean into life science again?
Hi, Jeff, it's Debbie. We're definitely prioritizing investing in senior housing that's really conditional to the strategy that we're executing. And certainly, we believe in the business long term. But right now, our key focus is investing in senior housing.
Okay. Fair. And then my second question, can you discuss the margins during the quarter? It looks like they compressed across the different formats. And I apologize if I missed this. Can you explain margins during the quarter? .
So SHOP had -- we had -- year-over-year, we've had, what, 150 basis points of margin expansion. That's what -- the kind of expansion we expect to see, given the revenue growth we're having relative to expense growth overall is driven by occupancy and rate, mentioned that RevPOR, OpExPOR metric, there's a sequential change that was impacted by some -- we have insurance renewals in the third quarter. There are seasonal expenses that we faced -- there's -- so there's just -- typically, for us, we don't see improvement from between second and third quarter, and so there's a little bit of decline sequentially. But on a year-over-year basis, we're certainly seeing margin expansion.
Your next question comes from the line of Ronald Kamdem from Morgan Stanley.
Just 2 quick ones. With the acquisition sort of ramping and I think becoming more and more clear that '25 is going to be strong. Maybe any updated thoughts on when you think private capital private equity, you will start to look at the space, come into the space and why you think they have not done it so far if everything is so good?
Yes. So this is Justin again. Definitely, would say private capital is always circling. The conditions over the past year really haven't been supportive of private capital just due to the availability and cost of debt. That's put us in really in an advanced position. But I would expect that given the fundamentals that we'll see the competition again. We're clearly used to facing competition and feel very comfortable that we'll get our fair share.
We have an advantaged platform, financial strength flexibility standpoint. We're advantaged from a fantastical standpoint where we have the team and the capabilities to really drive outsized performance and also just to underwrite see opportunities where others might not. So I'd like -- really like our opportunity to continue to compete.
Great. And I guess my second question was, look, almost 9% top line growth is pretty impressive. And we're obviously trying to figure out what next year and the year beyond sort of bring. I guess my question is when I look at this 350 basis point occupancy gain and almost 4.5 RevPOR, is there anything -- is there any obvious reasons why that should start to slow? Was there maybe some low-hanging fruit that we picked this year maybe we should be thinking about? Just trying to think about the sustainability of these sort of very impressive numbers.
Yes. So I'd say, first of all, we're not going to -- what give you 2025 guidance expectations in answering this. One thing that did flatter expenses this year is we had a year-over-year comparison versus agency costs last year. So that impacted OpEx for labor core metrics. That agency is pretty much out of our system now.
So that's a comp to consider moving forward. But the supply/demand, the pricing opportunity, all these fundamentals that we're facing, we expect to continue. So we'll look forward to talking more about our expectations moving forward.
Your next question comes from the line of Vikram Malhotra from Mizuho.
This is Georgi on for Vikram. Can you just give us some details on how the transition assets are growing relative to the same-store and when they would become part of the same-store pool? And separately, what's the average occupancy of the acquired assets this quarter?
Yes. Our same-store pool -- thanks for the question. I think it's important to start by saying that our same-store pool is really the lion's share of our total SHOP portfolio. And so is a good representation of the overall performance.
Yes. So when we talk about transition communities, a lot of those are in the same-store pool already. There's some that we transitioned last year that will come into the pool. And in that case, we've had really good occupancy growth, we're looking forward to NOI opportunity moving forward in those communities. But honestly, it's largely represented already based on the pool that we've been reporting on.
Also, in terms of your question around acquisitions, the acquisition occupancy has been around 90%, 91%. That's across the board. And the reason for that is we're targeting modified market leaders in markets that have more upside so that we can drive off and see and price in communities that have a proven track record of delivering best-in-class quality care and services and should continue to really outperform. And so we like -- really like how the acquisitions are positioned.
Okay. And just a second question in terms of capital allocation. Given the Canadian portfolio is nearly fully occupied, how do you think about monetizing part of it or maybe the entire portfolio and redeploying for assets?
Thanks for the question. Yes, you're right. The Canadian portfolio is an incredible tool it really has been terrific and continues to be a significant contributor to growth. And so we manage that portfolio by basically leveraging it in a way that provides a great value and instead want to continue to work with the operators to drive occupancy and performance. Yes. I mean our philosophy is related to grow our SHOP footprint.
Your next question comes from the line of Richard Anderson from Wedbush.
So back to the question about competition for assets and the lack of sort of maybe relative lack of PE because of the debt. When you look at cap rates, I think you did on the activity so far, 8% yields on your senior housing activity. And then you compare that to multifamily for 5%, industrial 4%, 5%, you can argue your outlook is by far much better in terms of visibility.
Is the lack of competition putting aside the PE component, just that people can't do it. You need a certain level of operating talent to go after some of these assets. So it's always going to be a limited competitive set? Or do you think it comes back? And correlated to that question, if your cost of equity is in the range of 5, is that the way we should be thinking about a 300 basis point type spread when we think about 2025 estimates?
Thanks, Rich. Look, I think that there are multiple reasons that we're enjoying selling investment opportunities now. Obviously, our cost of capital and the it experience are helping. There is limited competition because of that market, but you only hit on, I think, something very important and differentiating. And I'll [indiscernible] and the team a little bit. We -- there is a lot. It is a business that require significant expertise and also be analytics and that the more it feeds on itself in a positive way.
And so we have the scale, we have the data. We have the experience with Justin having operated and we have industry relationships with the operators. And all of those things create a significant competitive advantage that should enable us to really be a premier global owner of senior housing and that dating keep competition left, and of course, we are always seeing the competition over the last 25 years, and we know how to get more than their share. But that is you really hit on, I think, a very important reason, and that is the competitive moat that we have that site compelling investment opportunity.
And in terms of spread investing is kind of 300 basis points where you're thinking if you just do an inverse of the AFFO yield -- AFFO multiple?
I mean -- yes, I mean, look, we're very pleased to be delivering strong stock performance for our shareholder here for, and that's obviously a variable metric that goes into our calculus, and it changes over time. And right now, it's working for us and hopefully, we'll continue to do so even...
Last question on Brookdale. I know you're not going to say much, but maybe a little bit more. Could they go past their November 30 decision day would you allow them to? Or is that a full stop, you got to know by then. Just curious what your flexibility is to allow the negotiation to extend into perhaps next year?
Well, I mean, it goes beyond the contractual notice date that we feel no longer has the option to renew in both. .
Your next question comes from the line of Juan Sanabria from BMO Capital Markets.
Just hoping you could talk a little bit about the SHOP lead indicators. Would you be able to provide kind of a SHOP same-store occupancy for October and/or a comment on what the OI or data would suggest about rent bumps Jan 1, which I'm sure you're thinking about this coming year versus what you experienced in '24?
I'm going to try to answer this. So without giving too much information up here, I'm going to start with the rent because we're just not going to get into the the '25 numbers, but we do think the environment is favorable for pricing. And so we'll report more on that in the future.
In terms of the leading indicators, we've had throughout the entire year, leads and tours have been running higher than last year. That was true -- through the third quarter, it's true in October. So that's obviously driving move-ins and occupancy growth. As I mentioned, we've had industry-leading occupancy growth, and that really all starts with our ability to drive business to the doorstep. So we're pleased with that performance and encouraged by that even this late in the season to see the activity that we're seeing.
Okay. And then just on your 0 vacant days, I guess a couple question here. You mentioned notice periods. How many people actually give notice that they're moving out, I thought, a fair amount of people unfortunately pass away. And is there an element where you can start booking revenues for a person moves in associated with shrinking those vacant days?
So there is -- so there's no miss periods in the resident agreements that can range anywhere from 10 days to 30 days depending on circumstances. So you have visibility into when a unit become available. There's also the opportunity for new residents. If you think about the demand that you're experiencing in a community that's 0 making units, prospective residents are going to want to make sure they have access to the unit. So they take financial possession proactively that happens oftentimes. But even if they don't, if you really think about what we're talking about.
We're talking about a 400 square foot unit that has -- it's lightly furnished. It has some personal belongings, but nothing like we have in our own homes. And you're -- 1 operator targets a 30-minute turnaround because it's a deep claim and a touch-up pain. If it needs more than that, you might add a few hours to that. But this is not a complex U-turn. It's extremely simple. It can happen quickly. You can plan for it. And so that really leads to this opportunity to have 0 making units. That combined with the demand on the doorstep and most importantly, positioning yourself as the market leader because we're the best of what you do in your market.
Your next question comes from the line of Omotayo Okusanya from Deutsche Bank.
Yes. Most of my questions have been answered, but Debbie and Justin curious as again, we're kind of going through election season, if there's anything out there you guys are looking at that could potentially impact health care as a whole and maybe senior housing in particular, one of the things I'm kind of looking at is if we end up in a world where regulation makes it harder for PE to be involved in health care. But anything that kind of top of mind would be helpful.
Well, we're really focused -- I'm glad you got on even though most of your questions were answered. But I do think that we are in a favorable spot as we participate in this longevity economy because we do have a consumer-driven products that have significant demand, and we have the platform that is driving out performance there. It should have limited impact really regardless of what happens in the election. There may be impacts on long rates depending on who's elected that could affect kind of the real estate sector at large, but as a public company who is in an advantaged position relative to private equity in real estate right now, I would think that we would be -- we would have a better position than the real estate market public and private. The public guys should have private it with or have an advantage because of access to cost of capital. .
Your next question comes from the line of Michael Stroyeck from Green Street.
Maybe one on the outpatient medical portfolio. So now that, that legacy ELP portfolio is part of the same-store pool. Can you just quantify how much NOI or occupancy upside actually remains across those assets? And has there been any deceleration in NOI growth or occupancy gains in recent quarters, now that just the lowest hanging fruit within that portfolio may be already taken care of?
Yes. Thanks, Michael. This is Pete. I appreciate the question. Just to level set, we've got about 79 buildings to enter the quarterly same-store pool for ELP this quarter. And we've been really hard at work in applying the Lillibridge playbook to the ASA portfolio. We've replaced 19 property management teams. We've replaced half the leasing brokers and we replaced virtually 100% of the contracts that relate to the services and the buildings.
So you're starting to see a lot of results, tenant satisfaction went from the bottom quartile to the third quartile. So we're really happy about that. And then not surprisingly, retention has been up as a result of happier tenant satisfaction. Occupancy is up and so is NOI growth. So we're really excited about all that. We think that this portfolio will be in a solid for us going forward. If anything, our growth outlook on this portfolio is stronger than what it was when we first got .
And there's probably 8-plus percent occupancy improvement potential to get it to the level that the rest of the portfolio is. So upside there from occupancy growth. .
Absolutely.
Got it. That's helpful. And then maybe on the secured loan investment during the quarter. Could you provide just some additional details surrounding the ROFO on that? And then any details on the actual underlying properties in terms of location, occupancy levels, acuity mix? Anything you can provide there would be helpful.
Yes, sure. It's Justin. Yes, this is a unique opportunity to potentially own one of the high-quality senior housing assets in the country, quite frankly. This is -- it's [ Merono ] Senior Living. It's a high rise in Seattle that it has a mix of independent living and assisted living and memory care product. It's high price point, very attractive physical plant. You get the rents are anywhere from $10,000 to $20,000 per month and a good opportunity to get a high-yield loan. It's a senior secured loan. So we're the only lender. We have properties collateral and other credit enhancements. But I think what's most exciting and interesting to us is potentially buying it. So we have a typical ROFO. Clearly, we're the right type of buyer for an asset like this, and it was just a neat opportunity to put money out at a really nice return.
Cambridge the potential ownership.
Your next question comes from the line of Michael Carroll from RBC Capital Markets. .
And I know you guys don't like to talk about individual operators, but you did comment on holiday earlier in the call, I was wondering if you can provide more details on how they're performing or the changes that they've implemented last August, have those really taken hold and you're seeing better results that you think are sustainable going into 2025?
Yes. I think that probably the best way to attack that is really just to talk about our overall independent living performance in the U.S. Independent Living has been a strong really equal contributor to the overall occupancy growth that we've had. Holiday is part of that. We've had other operators, operator and tenant living as well. And there's been really strong demand. There's it also tends to be a higher occupied asset. So it all very high operating leverage. And so as occupancy grows, we expect it to be a big contributor from an NOI standpoint. But we've seen really good progress and momentum in the independent living product across the board.
Okay. And then I think earlier -- Justin, I think there's question about the occupancy trends throughout the quarter. I mean I'm just trying to really understand like what's the typical seasonal trend you see in occupancy. Does it really start to accelerate in mid-summer then kind of tail off in the late summer? And have you seen that? And I believe there's a question about what was spot occupancy at the end of the quarter. I don't know if you answered that, if you did, apologies. But if you didn't, I mean, is that something that you can disclose?
We had great sequential average occupancy growth and Justin talked about and we can repeat it here from the second to the third.
Yes. So typically, you would see the key selling fees that is made in September, most of the occupancy growth is going to come during that period. It is also typical seasonality to see a downturn in occupancy in the fourth quarter. We are not seeing that. We're expecting growth in occupancy in the fourth quarter based on the performance that we've seen so far. So everything is off to a really good start in that regard.
We've talked about our outperformance as well, and I think that's notable, when you compare us to the top 99 markets, we've been up -- we had 380 basis points of growth in the top 99 versus 230 across the sector and then our sequential growth was really strong. And so we're -- as I mentioned, now 140 basis points outperformance versus 70 basis points. So 2x the sector sequential occupancy growth in the third quarter. And as I mentioned, all the leading indicators and our expectations around occupancy remain very confident. So that's leading to a good fourth quarter so far.
Your next question comes from the line of Mike Mueller from JPMorgan.
I guess if you look ahead to 2025, are you expecting to fully or substantially equity fund acquisitions again?
Yes, this is Bob. I'll take that one. So we've been very successful in executing on the strategy we laid out at beginning of the year. which is investing behind senior housing to grow our participation. And if the market is there to fund that with equity, that has been working for us. Clearly, that's been the playbook. And you can see that not only in the growth in our senior housing portfolio, but also in our , which has improved 60 basis points year-to-date. So that playbook is working, and I'd like to be more [indiscernible] we like what we're up to. And given the market conditions, hope that can continue.
Got it. Okay. And then second question, can you give us a sense at this point of the initial drag if the full Brookdale lease transitions to the SHOP?
Well, yes. Remember, there's -- what I would comment on is that if the transition to SHOP, remember that the lease has is well covered from an EBITDAR or NOI standpoint to rent. And so there's an excess amount of EBITDAR compared to rent. So that would have to be taken into account as you consider what the impact would be of a conversion of the whole Brookdale lease to SHOP. And that's a favorable fact pattern.
Got it. .
Does that make sense? Do you -- is that what you're saying? Okay, good. There's more EBITDAR than cash rent. .
Your next question comes from the line of Wes Golladay with Baird.
I just had a quick follow-up on the Brookdale com. Would there be an ROI opportunity and potentially deferred CapEx on those assets?
Justin. So I mean I think the best way to look at Brookdale at this stage is that they have an option to renew. And so if they renew, then there's 2026, there's a 4%, 3% escalator, could be 5% to 10% that's subject to a fair market lease review.
If there's some kind of hybrid deal, obviously, that would be mutually agreed upon. And if they don't then it becomes a SHOP opportunity. And we do like the opportunity to run the playbook. We have a Ventas OI platform. We have well-established operators have been great turnaround. We've proven we know where to invest and when to drive occupancy and they're in markets that have significant tailwinds. And so it's a good opportunity. But there's -- all the options are really on the table right now, and it's coming down to the deadline.
And [indiscernible] favorable.
Okay. Fantastic. And then maybe revisiting Kindred. I know that there was some talk about the noncash moving around and now that everything is finalized. Can you tell us more about -- or quantify the impact of the noncash rent for next year?
So this is Bob. Yes, we talked about this last quarter in terms of the noncash impact this year, the pull forward effectively of the restructure of the lease and the extension of the lease. And that's pretty much in line, frankly, with where we were at this time last quarter in terms of our estimate for this year. The rent reduction in all those details are in the press release. So I'd refer you to that for all the details, but it's pretty much as expected. .
Your next question comes from the line of Nik Yulico from Scotiabank.
Just going back to the senior housing investments, the over $900 million that are closing or I guess, partially closed already. The 7.5% expected yield on that. Can you just talk about what the day 1 yield is. So would you just understand how much NOI growth is assumed for the assets next year?
Nick, it's Debbie Yes. I mean, you could expect that the year 1 yields are kind of 7.5% that you'd have kind of a current yield in kind of the low 7s, go into that higher number over the next 12 months after acquisition. So there's growth in the assets.
Okay. And then second question is just in terms of the LTAC purchase, can you just talk about what triggered that? What was the reason to do that after the resolving of the Kindred leasing?
Sure. So we had really a favorable resolution with Kindred that has used a lot of the tools in our toolbox and our experience in these types of situations. So the goal of all of it was really to improve coverage on release with the investments really fit in to that philosophy because they will bring up coverage and they have product coverage in the overall master lease, their well-performing assets that have additional EBITDA improvement and positive trends.
And so it really is significantly improved Kindred's credit profile. So it helps believes -- that it helps them task with a good risk-adjusted return and made for a stronger tenant overall because it enables Kindred to improve its balance sheet. So overall, it's just been in nicely along with the warrants in revenue-based rent, which will give us potential upside if performance or valuation improved. So it's an overall holistic approach as we would always do in these situations to get an outcome that is the best for our stakeholders.
Your next question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets.
Great. What's the average occupancy across the senior housing assets that you've closed or under contract to buy this year? And I'm just curious as your cost of capital improves or if it continues to improve, if you'd consider pursuing even lower yielding assets that may have a longer occupancy tail to growth, or whether or not the assets in that close to 90% or 90% plus occupancy range or more attractive given the flow-through profile you highlighted in your prepared remarks?
Great question. What we really like right now is the investments that we're -- that we've made in that are under contract really or right down a fair way in terms of what our financial and strategic objectives are. So as I mentioned in my remarks, really high kind of immediate yields and they have significant growth embedded in them. And that's a very attractive profile, and we want to continue executing on that profile, because we think it's a really good risk-adjusted return.
Now we could expand the aperture along the lines of what you've described, but we have to feel that the risk-adjusted return is the same or better than what we're currently doing, which is pretty darn exciting.
That's fair. And then just going back to Brookdale, I guess, why would something in between kind of outcome be on the table given the all-or-nothing renewal. And the internal view around prioritizing senior housing acquisitions. I mean this seems like a great avenue. So just kind of help me understand what something in between outcome might look like.
Well, I mean, you're -- from our perspective, we like the opportunity to have some or all of those communities in our SHOP portfolio. But the reality is Brookdale has the option to renew. So the decision really sits with them.
If there is something in between it really being a win where we could have some amount of the community move to SHOP and go pursue the opportunity of the playbook like I mentioned. But that's hypothetical. What we really need to have happen is to see what Brookdale's decision is, and then we'll go from there.
Yes. There can always be something better than a binary out, and that's what we always look for. .
As there are no further questions at this time. I would like to turn the call over back to Debra A. Cafaro, Chairman and CEO, for closing remarks.
John, thanks so much. I really want to thank all of our participants in the call for your interest in Ventas and your participation today. We look forward to seeing you in Las Vegas soon.
Ladies and gentlemen, that concludes today's meeting. Thank you all for joining. You may now disconnect.