Hello, and thank you for being here. My name is Regina, and I will be your conference operator today. I would like to welcome everyone to the Ventas Fourth Quarter 2022 Earnings Release Conference Call. I will now turn the conference over to BJ Grant, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Regina. Good morning, everyone, and welcome to the Ventas fourth quarter financial results conference call. Yesterday, we issued our fourth quarter earnings release, supplemental investor package and presentation materials, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of factors 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 posted on the Investor Relations website. And with that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO.

Thanks, BJ, and good morning to all of our shareholders and other participants. Welcome to the Ventas fourth quarter and year-end 2022 earnings call. We are pleased to deliver a strong fourth quarter, which reflects the attractive operating and financial results of our diverse portfolio and the benefits of our key strategic initiatives. Fourth quarter normalized FFO was $0.73 per share, fueled by accelerating SHOP growth at 19%, record Medical Office Building performance, and profitability from our third-party institutional capital management business, VIM. The demand fundamentals that support our business are strong and getting stronger across all Ventas asset classes, which are unified in serving the nation's large and growing aging population. After significant capital recycling and asset management actions, our diverse portfolio of high-quality senior living communities, Medical Office Buildings, R&I labs, and other healthcare assets is well positioned to capitalize on these demand trends. In 2022, Ventas began what we believe will be a multiyear growth and recovery cycle led by SHOP and supported by favorable supply-demand fundamentals, actions we've taken in the portfolio, and our post-pandemic rebound. In senior housing, there are compelling supply-demand tailwinds. The over-80 population will grow at record levels in 2023. Yet, we continue to see construction as a percentage of inventory at its lowest level in five years and substantially better in Ventas markets. Over the last few years, we have taken decisive actions to position our SHOP portfolio to capitalize on this exciting demographically-led demand. We strengthened our team, enhanced our powerful analytic capabilities, rolled out the Ventas OI platform, sold, transitioned and acquired properties, and invested capital in communities with strong market fundamentals, all to win the recovery. Benefiting from these trends and actions, we are well underway to recapturing the post-pandemic SHOP NOI opportunity. Our portfolio has already enjoyed significant occupancy and NOI growth from the COVID trough, and we see even more recapture potential ahead of us in the coming years as we first seek to reach 2019 performance levels and then hopefully exceed them. Bob also took significant steps to maintain our financial strength and flexibility and improve our balance sheet and liquidity. These actions garnered three positive credit rating moves in 2022 and reduced our 2023 maturities to a very manageable level. In 2022, we also continued our long history of value creation with $1.2 billion of new investments, often with key partners. These include the $425 million Atrium Health/Wake Forest University School of Medicine Development in Charlotte, North Carolina; $200 million in senior housing investments, including the acquisition of Mangrove Bay and a new development with Le Groupe Maurice, both in very attractive markets; and $300 million in MOB investments highlighted by the acquisition of an 18-property MOB portfolio leased to Ardent. Finally, we remain committed to our values, including our ESG leadership. We accelerated our progress in 2022 as we further diversified and elevated our Board and made a bold commitment to achieve net zero operational carbon emissions by 2040. These efforts will be advanced under the leadership of our General Counsel, Carey Roberts, who has the passion and experience to move us forward. Now, we enter 2023 with strong momentum. Today, we are pleased to introduce full year normalized FFO guidance representing 5% growth at the midpoint. We are projecting unprecedented organic growth in our portfolio, once again driven by SHOP, and complemented by the positive compounding contributions of our office business led by Pete. We also will continue to build out our VIM business, which already has over $5 billion in assets under management, and mine our non-property investments for value as evidenced by both the pending Ardent equity stake sale and our recently completed Atria Glennis software deal while we also seek to optimize the outcome in our Santerre loan. Finally, we will continue to invest capital wherever we find compelling opportunities to sustain and reinforce our new cycle of success. The macroeconomic assumptions underlying our forecast include some slowing of the economy, moderating inflation, softening labor conditions, and continued, albeit less aggressive Fed tightening. Against that backdrop and in many other likely scenarios, we believe our business is relatively advantaged because demographic demand for our assets is large, growing, and resilient, we have demonstrated strong pricing power in SHOP and softening economic conditions should benefit our operations in multiple ways. One final note. In January, Justin assumed the additional role of Chief Investment Officer at Ventas. I know you want to join me in congratulating Justin, and I want to thank him for his continued leadership, which has been instrumental in our success and positive outlook. Working with our strong teams, Justin will use his experience and insights to create value by making good investments across our asset classes, enhancing the connection between our investment activity and business operations and deploying the powerful Ventas OI platform across our organization. And now I'm happy to turn the call over to the man himself. Justin?

Thank you, Debbie. I'll start by noting how excited I am about the execution in our SHOP portfolio. Over the past few years, we have taken many actions to put ourselves in a position to achieve positive performance as we aim to recapture NOI in this multiyear growth and recovery cycle. We have been successful executing portfolio actions, which include over 50 triple-net communities converted to SHOP and over 130 transitioned to new operators. We've acquired over 100 new communities and executed 30 dispositions and 8 new developments. Finally, we have over 100 communities that are in the process of getting refreshed and are expected to complete during the key selling season. I am really proud of our tremendous team that supports our senior housing business and has executed Ventas OI, our approach to collaborative oversight where we leverage our operating expertise and best-in-class data analytics to the benefit of our operating partners to drive positive results, which has gained tremendous momentum. Our programmatic approach addresses two priorities in parallel: first, timely market, financial, and operating insights to influence near-term performance and revenue-enhancing capital expenditures; second, tackling key strategic challenges that will deepen our competitive advantage and maximize the long-term value of our portfolio. Now I'll cover the fourth quarter SHOP results in our year-over-year same-store pool of 478 communities. Our SHOP portfolio continues to perform really well. The fourth quarter was ahead of our expectations while delivering excellent year-over-year growth due to pricing power, occupancy growth, and moderating expenses. NOI in our Q4 year-over-year pool grew 19.1%, which is above the midpoint of our SHOP guidance range and includes 22.2% growth in the U.S., led by Sunrise and Atria, while Canada demonstrated positive growth again with 11.7% led by Le Groupe Maurice. I would like to thank all of our operating partners for their significant achievements delivering excellent services and care and financial results. We continue to benefit from operating leverage, even at this relatively low occupancy, resulting in margin improvement from 23% in Q3 to 23.6% in Q4. Same-store average occupancy grew year-over-year by 140 basis points to 82.5%. Revenue in the quarter grew ahead of expectations, increasing 8.3% year-over-year due to continued acceleration in RevPOR growth and positive trends in occupancy. Pricing power continues to impress. At 6.5% year-over-year growth, RevPOR is the strongest we've seen in the last 10 years, primarily driven by in-house rent and care increases and improving re-leasing spreads. As expected, expenses were $4.7 million per day. As a reminder, our year-over-year expense growth peaked in Q2 2022 at 11%. It reduced to 8% in Q3 and was lower again in Q4 at 6%. Leading indicators in the U.S. remain strong as we experience leads as a percentage of 2019 at 120%, move-ins at 101% and outs at 101%. Canada continues to deliver growth and high occupancy at 95%. Demand accelerated in January with move-ins at 104% over 2019 in the U.S. and 111% in Canada. Now I will cover 2023 SHOP guidance and our expanded same-store year-over-year pool, which includes 508 communities representative of 92% of our portfolio. There are three primary drivers of our positive outlook: occupancy growth, rate growth, and moderating expenses. SHOP same-store cash NOI is expected to accelerate from 13.4% growth in 2022 to growth in the range of 15% to 21% year-over-year in 2023. The low and high end of the guidance range is driven by occupancy and expense performance. We expect margin expansion of 200 basis points at our midpoint. We anticipate year-over-year revenue growth of approximately 8% at the midpoint of the same-store cash NOI guidance range driven by continued strong rate growth and occupancy growth of 130 basis points to 170 basis points. With the deployment of our Ventas OI platform and excellent execution by our operators, we are able to achieve substantial rent increases this season of approximately 10%. This in combination with improved care pricing, rising street rates, and typical resident attrition results in about 6% expected RevPOR growth in 2023. It’s important to note that 80% of our revenue growth in 2023 will be driven by the RevPOR growth, much of which has already been realized as over half of our resident population have already received the rent increases. In regards to occupancy growth, we project that more residents will move into our communities in 2023 compared to the prior year. We also project our net move-ins to be higher. However, we expect to return to more normal seasonal occupancy patterns, which include typical clinical conditions and slightly elevated financial move-outs in the first quarter. We expect a significant occupancy ramp throughout the year, supported by an accelerating aging demographic and muted new supply translating to about 150 basis points of year-over-year average occupancy improvements in 2023. We also expect moderating inflationary expense impacts and lower contract labor year-over-year, with overall expense growth expected to be around 5%. Through the execution of initiatives to improve employee recruitment and retention, we have had five consecutive quarters of net hiring, which is providing the tailwinds needed to stabilize the workforce and support the moderation of expenses. Moving on to investments. I'm really excited to work with our deeply experienced investments team in my newly expanded responsibilities. I am very pleased to step into a situation where I can work to continue our strong track record and expert capital allocation. We have a wealth of existing relationships across our targeted asset classes of senior housing, life science, and R&I and medical office. I look forward to contributing to the ongoing success of our investment platform by combining the advantages embedded in the enterprise with my extensive network and investment experience to drive external growth. I look forward to expanding Ventas OI across the enterprise to drive portfolio optimization, external growth, and refresh redev capital across our senior housing and office portfolios. We will continue to pick our spots in investments and work with our best-in-class partners on attractive opportunities. Moving forward, I am confident in the demand drivers of the business and believe we are well positioned to continue this positive trajectory. Bob?

Thanks, Justin. I'm going to share some highlights on our fourth quarter performance, touch on our balance sheet, and close with our 2023 outlook. To start, we are proud of the fourth quarter results. Throughout 2022, we were accurate in our forecasts and followed our mantra to do what we say. In the fourth quarter, normalized FFO was $0.73, at the higher end of our guidance range. Fourth quarter property growth was particularly strong, with total company and SHOP same-store cash NOI growth of 8.5% and 19.1%, respectively. I'd like to give a shout-out to Pete Bulgarelli and our Office team. Office had a great year, growing same-store cash NOI by 3.8% in fiscal year '22. And that Office result was led by our MOB business, which posted some outstanding metrics, including strong leasing performance with same-store year-end occupancy of 92%, the highest level since 2017. Tenant satisfaction measures exceeded 93% of all MOBs. Same-store operating expenses increased just 2.6% year-on-year, well below inflation. And as a result, full year '22 MOB same-store cash NOI grew 3.4%, the highest on record for the company. R&I also posted attractive organic performance, growing same-store cash NOI by 5.1% in the full year '22, led by leasing at higher rates and solid expense management. I'd highlight two other items in the fourth quarter. We earned our first promote approximating $0.02 per share as a general partner of the Ventas Fund, which was $0.01 better than our guidance. We're also eligible to earn further promotes in 2023. Second, we recognized a $20 million noncash CECL allowance on our $486 million mezzanine loan investment to Santerre Health Investors. Interest coverage on the loan has declined through year-end, but the loan remained fully current through January 2023 and full interest is expected in February. Next, a few comments on our balance sheet. Over the last two years, we enhanced our portfolio and strengthened our balance sheet through $1.3 billion in asset dispositions and loan repayments, with proceeds used to reduce near-term debt. We also issued $2.7 billion of new debt in that period, extending duration at attractive pricing before the run-up in interest rates. As a result, we have just 4% of our consolidated debt or under $500 million coming due in 2023. And we've made good progress toward this refinancing, having locked in all-in cash rates of 4.2% on nearly 2/3 of this requirement. Consistent with our long-held risk management approach to maintain 10% to 20% in floating rate debt, 12% of our consolidated debt was floating in the fourth quarter. We have plans to issue $500 million in new secured fixed-rate debt, with proceeds designated to pay down floating rate debt in 2023, which would bring our floating rate debt to the lower end of our targeted range. We have significant liquidity of $2.4 billion at year-end 2022. And finally, our net debt to adjusted pro forma EBITDA improved by 30 basis points to 6.9x in the fourth quarter, with SHOP NOI growth steadily moving that ratio back toward our pre-pandemic target range. Last but not least, I'm extremely pleased to reintroduce full year 2023 guidance. This is tangible evidence that we are in a post-pandemic world, and our guidance demonstrates the exciting post-pandemic organic property growth opportunity for Ventas. The key components for our '23 guidance are as follows: net income attributable to common stockholders is estimated to range between $0.20 and $0.34 per fully diluted share. Normalized FFO is forecast to range from $2.90 to $3.04 per share. We expect our portfolio same-store cash NOI to grow 7.5% at the midpoint, led by SHOP same-store cash NOI growth of 18% at the midpoint. Our '23 FFO guidance at the midpoint of $2.97 represents growth year-over-year of 5% or $0.13 per share against the rebased 2022. The FFO bridge describing the $0.13 is straightforward with two main drivers: first, we expect $0.29 from outstanding year-over-year organic property growth in SHOP; and second, and partially offsetting, is a $0.16 reduction, principally from the impact of higher interest rates. A stronger U.S. dollar against the Canadian dollar and the pound is also a contributor. Other guidance items include receipt of over $300 million in capital recycling proceeds, no additional promote revenue, G&A approximating $151 million at the midpoint, and 404 million weighted average fully diluted shares. The low and high end of our FFO guidance range are largely described by changes in the macro environment, including potential changes in inflation expectations and interest rates. A few thoughts on phasing of our normalized FFO through the year. We expect FFO in the first quarter of '23 to be roughly flat to the fourth quarter of '22 of $0.71 when adjusted for the $0.02 promote received in the fourth quarter, with the first quarter of '23 as the seasonal low point for SHOP. As the key selling season in SHOP kicks in and interest rates plateau, FFO growth is expected to pick up in the balance of '23. A more fulsome discussion of our '23 guidance can be found in the earnings and outlook presentation posted to our website. To close, we entered 2023 with momentum. The entire Ventas team is fully engaged and excited to deliver on our '23 plans and to reignite a new cycle of success for the company and our shareholders. And that concludes our prepared remarks. For Q&A, we ask each caller to stick to one question to be respectful to everyone on the line. With that, I'll turn the call back to the operator.

Our first question will come from the line of Joshua Dennerlein with Bank of America.

I just want to ask about that Santerre Health Investors loan. Could you just provide more background why the allowance? And then, Debbie, I think you mentioned you're looking to optimize the outcome. So kind of just help us think through like the outcomes that you're expecting.

Sure. The loan is part of our normal business. Over the last five years, I think we've collected about $1.7 billion in loans that we've made on healthcare properties or to healthcare operators. This particular loan took a $20 million allowance in the quarter. And we continue to be current in terms of interest, receipt of interest payments. And it's under some compression of coverage because some of the assets haven't recovered from COVID while interest rates have been increasing. And so it's really a timing issue if you want to think about it that way. And so we would expect to work through that, and we have a lot of experience and tools and rights at our disposal to do that.

Our next question will come from the line of Vikram Malhotra with Mizuho.

I just wanted to understand in your deck, you outlined potential CapEx investments, I guess, in SHOP and maybe triple-net to position the portfolio. I'm wondering, the CapEx was a little elevated in the fourth quarter. So I'm wondering if you can give us a sense of just like the magnitude of these investments over the next, call it, two or three years to achieve what you want with the portfolio and perhaps tie those CapEx to the bridge you've outlined in terms of the SHOP NOI growth.

It's Justin. I'll start, and Bob you probably want to jump in. First of all, it is a large initiative. We have 100 communities that are in the process of being refreshed. We do believe that it will be impactful. It's about $1 million of pop. It should help improve performance. Certainly, we've considered that when we gave our guidance for 2023. And there's more to do. But at this stage, we picked our highest priorities and we've been executing aggressively. So we look forward to these projects coming online during the key selling season.

I'd add, the $1 million of pop, we've mentioned 100 properties, that's obviously $100 million. The timing of that clearly isn't all in one quarter. It will be spread over the course of time. But these are NOI-generating opportunities. ROI-generating opportunities are indeed embedded in the forecast we've given you in terms of the NOI growth. And I believe the top use of our cash, best use of our cash is to reinvest in these assets, given the backdrop of SHOP and in senior housing.

And sorry, could you just clarify this $100 million, is that this year or is it spread out? I'm just trying to tie it back to ultimately the FAD growth coming through because if these are multiple years of $100 million, then maybe the FAD growth gets depressed.

Well, first of all, we started this last year. So you mentioned the fourth quarter seeing some acceleration. That clearly is part of it. Second point to make is just in terms of classification of the CapEx spend. This is ROI generating a redev. So you'll see that acceleration in readout. At the same time, FAD CapEx will increase. Again, the top priority is investing behind our SHOP assets. So you'll see that increase at the same time. But it's a multiyear program.

And it's a multiyear NOI impact as well we will see going forward. We'll be investing into this multiyear recovery in senior housing and the supply-demand fundamentals in our market.

Your next question will come from the line of Ronald Kamdem with Morgan Stanley.

Just a quick two-parter. Thanks for the presentation. It was super helpful. Two things. The first was just the leading indicators and the lead generators being pretty strong, both in 4Q and January. Maybe just a little bit more color on what that's capturing conversion rates. Just thought that was really interesting. And then the second piece is, I think on the end of the presentation, you talked about sort of a $900 million SHOP NOI opportunity with all things said and done. If you take a step back, just curious how you guys are thinking about sort of the margin profile at that point versus pre-COVID?

Well, Ronald, we're glad you like the deck. We obviously pride ourselves on our analytics, but your old colleague, BJ Grant, is helping us put it in the best format for our external constituencies. So we're glad that you like it. And I'll turn it over to Justin to start to answer your question.

Sure. Regarding leading indicators, we believe we have recorded the highest fourth quarter lead volumes ever in terms of leads. Movements have been solid, and you mentioned the conversion rate. We had an operator implement a website upgrade in December that slightly delayed leads and move-ins, but those have recovered in January, so there are no concerns there. We expect to adhere to normal seasonal trends, which means move-outs may be a bit higher. It's common to see additional clinical and financial move-outs. In January, we are off to a strong start, with move-ins at 104% of 2019 levels in the U.S. and 111% in Canada. Overall, things look positive from a leading indicator perspective. As for the margin question, we are all excited about the pricing power that has significantly contributed to our margin expansion. Occupancy growth is also a key factor, and we expect margins to continue growing. Additionally, we hope to return to the 2019 levels, and margins should stabilize while continuing to increase due to strong demand in the senior housing sector.

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

Just regarding to your SHOP same-store growth forecast. Is there a meaningful difference between the legacy same-store assets versus the new properties coming in, in terms of growth? I mean, I think that a lot of the new stuff being added from new seniors, so is the growth profile of the new senior assets different than the legacy same-store portfolio?

Mike, I'm glad you asked that, and I'm going to ask Bob to answer it.

Yes. Mike, I'd say, first off, all the pools, all of the operators are contributing really attractive growth across the board literally as you look at it. This is broad-based growth in recovery and improvement across the portfolio. And you mentioned new senior, new senior importantly part of that contribution. And when you look at the fourth quarter of '22, you'll see almost the same asset pool, and that growth in the fourth quarter reflects that broad-based strength.

Yes. I mean, what I think you should like about it is we now have the vast majority of our SHOP business in the same-store pool. So that makes it more meaningful for investors to understand the performance of the business.

Your next question will come from the line of Steve Sakwa with Evercore ISI.

Justin, I guess I was just hoping you could speak a little bit about the occupancy growth. You picked up, I think, 300 basis points in '22. Your forecast is for 150 at the midpoint this year. So I'm trying to figure out, was the 300 maybe picking up low-hanging fruit in the early parts of the recovery and the 150 is a more normalized pace? Or do you think the 150 is a bit of a slowdown as you have maybe got a bit of a cautious view towards the economy? I'm just trying to reconcile that with the leads and the move-ins that you sort of talked about.

Yes, that's a great question. So let me start with describing the 300 basis points, and I want to relate it to seasonality. When we grew 300 basis points in 2022, we had two things helping that growth metric. One was that Q1 of '22 performed better than typical seasonality. So a very strong start in '22. There really wasn't much clinical activity at all. And so that was helping us. It was also comparing to a prior year, Q1 of '21, that was pandemic impacted. So you have a stronger start in '22 and you have a favorable comparison. Moving ahead into '23, I mentioned in the prepared remarks that we're experiencing normal seasonality. So we have a lower starting point in Q1, so effectively Q1 has lower occupancy than Q4. It's in line with normal seasonality. Typically, you see about 100 basis points change downward from Q4 to Q1. And then what we'll see this year is an acceleration in growth. And as I said, we're expecting more move-ins. We're expecting more net move-ins. So in fact, the growth rate in '23 will be stronger. The effective growth rate is stronger, but the average overall is at the midpoint of 150 basis points of growth.

Because of timing in phasing.

Your next question will come from the line of Jonathan Hughes with Raymond James.

I appreciate the full year guidance and the confidence in the seniors housing recovery that providing that outlook conveys. But I was hoping you could give us the SHOP NOI growth guidance breakdown between the U.S. and Canada. Canada seems to have been where some of the upside versus guidance came in the fourth quarter. But I know there are price restrictions and some providences north of the border. I'd just that breakdown between the U.S. and Canada for this year would be helpful.

It's Justin. Well, everything is included in the full year guidance in '23. And as Bob said, everyone is contributing. Canada is at a higher occupancy. It does tend to generate less growth overall, but it is contributing growth and we'd expect the U.S. to be on the higher end of the average of the guidance range, Canada a little bit on the lower side, but with everyone contributing to the growth.

I would emphasize 95% occupancy in Canada, and we delivered 12% growth in the fourth quarter. That business is performing well. However, the U.S. is the main driver of the overall midpoint.

Your next question will come from the line of Michael Griffin with Citi.

Justin, in your conversations with your operating partners, can you give us a sense of what the better performing partners are doing right on the labor side of the equation? And then conversely, for those that might be underperforming, what the plan is to bring them sort of up to snuff? And ultimately, if they're not performing, could you look to transition that maybe to some of your better partners? But any expansion there would be great.

Sure. First, similar to how everyone is contributing to the NOI growth in 2023, all of our operating partners are helping improve labor cost management in several ways. One method is by professionalizing the recruitment of line staff, which had been a local priority but is now a central focus for operators. This is achieved through automation and by aligning recruitment professionals with this goal. There is also greater emphasis on retention. Competitors implemented wage increases as far back as 2021 and throughout 2022 to enhance competitiveness. Additionally, there's a strong focus on agency staffing, which we noted has been declining in our numbers. However, where communities or markets are entering agency, it's important to increase focus on those areas. Overall, there has been effective execution, and I believe the changes implemented will lead to lasting process improvements.

Your next question will come from the line of Juan Sanabria with BMO.

Just a question on FAD CapEx, maybe to piggyback off of Vikram’s question. Just curious I guess what the guide is for what we should be thinking about is in the '23 guide? And then as well as maybe a little bit of color on what gets included in the ICE versus normal FAD CapEx. if I kind of add the two together and compare that to the average units for '22, it implies about $2,300, $2,400 per unit per year, which seems a little low given the inflation. So just curious on cap rate, kind of what we should be expecting for the year?

Well, I mean start out with the principle that FAD CapEx is really routine recurring non-income producing kind of steady-state activity. And then Bob will go further.

The second point is that ICE is primarily related to either transitioned or acquired assets that are being updated to market standards. You will notice a significant decrease in ICE in 2023 compared to 2022, mainly because we haven’t had that activity over the past year; as a result, it is leaving the system. This brings us back to core CapEx in FAD, which I anticipate will see some acceleration, as I mentioned earlier. We believe the best use of cash is to invest in our properties, both front of house and back of house, leading to an increase in that area. Additionally, we expect a meaningful increase in redevelopment projects, particularly the front-of-house refresh ROI projects, for which we’ve cited a placeholder of $100 million. Therefore, both areas will witness growth. Overall, I would expect the FAD contribution to the bottom line in 2023 to also increase, driven by the cash flows from the properties.

Any dollar guidance for total CapEx spend then?

No, simply the change. I'll give you a redev up by $100 million as a year-on-year as a number.

You've got something out of him, Juan.

Your next question will come from the line of Tayo Okusanya with Credit Suisse.

A quick question on the guidance side. Again, very strong underlying fundamentals built in '23. I'm trying to understand a little bit more about some of the kind of the drags on the numbers, if I may use that word, that results in the guidance. And specifically on the interest and FX side, trying to understand the FX assumptions being made and quantitatively how much of a drag that is on earnings this year, in case FX becomes better than expected? And also trying to understand the assumptions around the $500 million of refinancing that's baked into the numbers, exactly what kind of rates are you expecting to refinance that at?

Great. I'll take that. So Page 14 of the deck we posted yesterday is helpful here because it really focuses on the impact of rising interest rates. Of the $0.16 I noted in the bridge, the vast majority is interest rates. And the vast majority of that is really the curve on floating rate that we see and show in the deck. FX is a contributor but a small contributor. And in large part because we have, in Canada, Canadian debt, and that's a natural hedge to what is a stronger U.S. dollar, which is having translation impact on NOI. So that's the primary driver. In terms of the $500 million this year of refinancing, again, that's in Canada, principally. And we've been able to secure some attractive pricing on mortgages in Canada. That's going to be a key source of funds as well as some agency debt here in the U.S., which we're planning to issue, which we'll use to pay down floating rate debt. And those are really the two key drivers of the guidance in terms of refinancing.

And specifically for the $500 million, could you give us a sense of what the new rate is going to be versus the old rate?

Well, I mean it depends on the 10-year.

Yes, it depends on the 10-year. In the 5s would be a reasonable expectation, depending on where the 10-year is.

Okay, great. Pete, you're giving me 2% to 3% MOB next year. Going down, but I still like it.

Our next question will come from the line of Nick Yulico with Scotiabank.

I just also in terms of the guidance, a question on the $300 million of capital recycling proceeds that you're getting. If you could just give the breakdown on the loan repayments versus property dispositions in that number. And as a second on that would just be how we should think about your using those proceeds? I mean, are you earmarking for debt paydown, acquisitions or development? Any color there would be helpful.

Nick, it's Debbie. On the $300 million, a couple of hundred million, as we show in the deck, is based on office dispos, some of which are purchase option-driven. We got full repayment on a Freddie Mac loan in January, that was $43 million, I think, at a double-digit interest rate. We got paid in full on that. And then the balance is other small items.

Our next question will come from the line of Rich Anderson with SMBC.

So I want to talk about the supply side of the house. As some people may not remember, the senior housing business was not in a great spot prior to the pandemic because of oversupply. And I know that you trended down. It's trending down substantially as shown in Page 11 of your deck. But the rule of thumb for supply is, in my mind, is if you're anywhere over 2% of existing stock, it's on the table as a possible problem. So tell me why, even though it's down substantially over the past five years, that that comp year of five years ago was not a great fundamental period for the business. So tell me why this is a good thing beyond just the optics of it being down. And also what you think the window is for you to sort of see this ramp in demand that we're all seeing and expecting. And when you think supply starts to sort of muddle in the story again because it certainly will, particularly with development costs coming down now. So if you could comment more color on that, that would be great.

Good. It all begins with demand, especially given the record population growth of over 80 in 2023. Regarding supply, I would compare our current situation to a bit after the financial crisis. During that time, construction and development were put on hold due to the financial crisis. This resembles what we're experiencing now, stemming from the pre-COVID period and continuing through COVID, as costs remain very high, especially for capital. Construction loans are significantly more expensive right now. Consequently, costs are still quite elevated. Due to low starts in our markets, Justin can provide the details, but we believe there’s a favorable multiyear window ahead where we can meet the demand profile. However, deliveries are expected to remain very muted, similar to the post-crisis era when deliveries were low. At that point, occupancy rates reached around 92%, which is our goal as we navigate this advantageous window.

Yes, I believe you summarized it perfectly. I want to emphasize that the population over 80 is growing at unprecedented rates and will continue to do so for the next several years. This clearly supports demand. In terms of supply, most of it is supplemental, and we have starts. In our leading markets, it's very low, around 10 basis points, which supports the favorable conditions Debbie is mentioning for the next few years. This sector has strong demand fundamentals, and we will eventually see the capital come in to increase supply. However, we currently have an exciting window that is encouraging for the recovery we've been discussing.

Your next question will come from the line of Mike Mueller with JPMorgan.

I'm curious for SHOP. Should the RevPOR growth moderate a lot in '24 and '25, just given the pace of how your expense growth has been moderating?

So it's Justin. So I'm going to go back to what I was just talking about, which is demand. So another part of this is just affordability in our markets, which is very high and there's demand for the services. So you have the combination of people needing the service and people having the ability to pay. And with numbers that we've never seen before in terms of demand at the doorstep. So that should be supportive of pricing power moving forward. There's always some sensitivity relative to inflation and CPI. But what you're really working to do to generate earnings growth is to create a spread. And we've been effective in doing that in this cycle.

And you would think as you take capacity out of the market through higher occupancies, that you may maintain some or more of this pricing power.

Your next question will come from the line of Derek Johnston with Deutsche Bank.

On SHOP OpEx release and specific to labor costs and agency, pre-pandemic, I don't recall agency labor being material at all or even utilized outside of very special situations. So there's been improvement, no doubt. But how do you plan to get agency labor out of your centers? And can you achieve pre-pandemic levels of agency labor by year-end '23?

It's Justin. You're absolutely right. Agency was nearly nonexistent before the pandemic. There have been significant changes in the labor market since then, and we've seen it affect our sector as well. We've successfully reduced our agency labor, as you've pointed out. In our 2023 guidance, we expect lower agency labor compared to 2022, which supports our efforts to moderate expenses. However, we are maintaining the Q4 run rate, which is about 2% of revenue, throughout the year. I mentioned the guidance range earlier; it anticipates lower expenses and higher occupancy at the top end, while the bottom end works in the opposite direction. We have factored that into our analysis, but we expect agency labor to remain fairly stable.

And this is true across healthcare at large and is principally a function of the labor force participation rate and other kind of macro factors. And the key is really to take the actions at the hiring level that Justin mentioned about positive net hiring, where you're at least getting your fair share of that workforce.

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

So just on the SHOP, you talked about the seasonality earlier. But on Slide 18 of the presentation, you talk about expecting normal historical seasonality in 1Q '23 versus 4Q '22. It's a little bit of a sensitive subject, but I guess to the extent that high flu prevalence historically leads to, let's call it, elevated levels of resident expirations, I thought that would have been a trend that maybe would hurt occupancy a little bit in the fourth quarter, just given the normal spike in flu happened so much earlier this season in the fourth quarter instead of 1Q. And then inversely, with flu really kind of falling off dramatically here in 1Q '23, I would have thought the historical downtick maybe would not really happen this year in 1Q. So hopefully, all that kind of makes sense. I just wanted to get your thoughts on the early flu potentially altering some of the normal seasonal trend.

Yes, those are great observations. I'll begin with the clinical aspect, which I would describe as quite typical. It certainly did not reflect the headlines regarding flu. We are seeing normal seasonal patterns in both December and so far in January. We have experienced financial move-outs, which is also typical for this time, as I mentioned that over half of our residents received in-house rent increases this year, which are relatively high. This is contributing to the move-out trend, and it's a normal occurrence. That's the point I was trying to convey, and in that regard, we are returning to normal trends. From the perspective of move-in expectations, we anticipate continued improvement due to strong demand.

Your next question will come from the line of Tao Qiu with Stifel.

So Justin, the SHOP guidance reflects a 6% growth in RevPOR, which is slightly lower than the higher single-digit and even 10% rate increases that some senior housing operators have mentioned. Could you comment on the expectations regarding the moving rates in the current promotional activities? Are you still anticipating positive re-leasing spreads for 2023? As a brief follow-up, concerning the Colony loan, how much of the $50 million annualized interest income did you remove from the guidance?

How about I'll start with the pricing question? There's a page in the deck for those that have it, Page 20, that addresses this. First, the contributors to RevPOR, strong in-house rent increases running around 10%; care pricing, 11%; and then street rates have increased as well. So really, everything is going up in that regard. One thing about care, it's adjustable throughout the year, represents about 15% of our RevPOR. And then there's just normal attrition, typical attrition. And so in other words, not every resident is receiving the full benefit of these increases throughout the whole year. So that's why you're seeing a 6% RevPOR rather than around 10%, which the numbers above might indicate.

And then on Colony, I would say there's a range of outcomes basically bracketing the FFO contribution in 2022.

Your next question will come from the line of John Pawlowski with Green Street.

I just had a follow-up question on the mezzanine loan. Can you remind me what loan-to-value range your mezz tranche set out in the capital stack when you originated the loan? And then can you give us a sense for what magnitude of NOI increases are needed at these properties to fully service the debt? Because I believe the interest rate is LIBOR plus 640 bps and that's really, really painful for cash flows. And so just any thoughts on how you got comfortable about not taking a larger impairment would be helpful.

Sure. As we mentioned, there is a post-COVID impact on some assets, and rates have increased. The total loan stack is closer to 330-ish in both senior and junior loans. Originally, the underwriting was quite conventional, around 75% to 80% loan-to-value. This situation is more about a timing mismatch. We believe the borrower is taking action regarding the portfolio. The rates are what they are, and we assessed the collateral when making our decision based on the balance sheet from December 31, using reasonable and consistent assumptions about valuation.

On the timing mismatch. If rates stay where they are, when will NOI operating income start to fully cover the loans?

Well, it's being paid now so it's covering the loan. So interest is being paid.

Our final question will come from the line of Dave Rodgers with Baird.

Probably for you, Justin. In terms of capital deployment this year, you guys put out, I think, $1.2 billion last year. Where are you seeing kind of the best opportunities today outside of the redevelopment, which you've mentioned earlier in the call? But are you seeing more opportunities commercially to put more money to work in life science or MOB? Or do you think it will continue to be in SHOP by bringing new portfolios on? I guess, what are the biggest dislocations today in your mind? And how much are you interested in taking advantage of those?

Yes. So first of all, we're fortunate to have a wide variety of capital sources to further acquisitions. We'll prioritize our key asset classes, senior housing, obviously, is one of those, life science, Medical Office as well. The market itself is not normal. There's exceptions to this, but there tends to be fewer market participants right now. The deals that that we're seeing are getting repriced. Again, there's exceptions to that. Pricing could be unclear on the stabilized assets. But we remain very interested in expanding the portfolio and growing in our preferred asset classes.

At this time, I'll turn the conference back over to management for any concluding remarks.

Thank you so much. I want to sincerely thank everyone for joining us on the call today. We really appreciate your interest in the company. We look forward to seeing you. We're all very optimistic and aligned around our 2023 momentum and opportunities and are ready to get after it. Thank you very much.

Ladies and gentlemen, that will conclude today's meeting. Thank you all for joining. You may now disconnect.