芬塔 (VTR) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2017 Ventas Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ryan Shannon, Investor Relations. You may begin.

Thanks, [Leanne]. Good morning, and welcome to the Ventas conference call to review the company's announcement today regarding its results for the third quarter ended September 30, 2017.

As we start, let me express that all projections and predictions and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the federal securities laws. The projections, predictions and statements are based on management's current beliefs as well as on a number of assumptions concerning future events. These forward-looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the company's expectations, whether expressed or implied.

We refer you to the company's reports filed with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2016, and the company's other reports filed periodically with the SEC for a discussion of these forward-looking statements and other factors that could affect these forward-looking statements. Many of these factors are beyond the control of the company and its management. The information being provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations.

Please note that quantitative reconciliations between each non-GAAP financial measure referenced on this conference call and it's most directly comparable GAAP measure, as well as the company's supplemental disclosure schedule, are available in the Investor Relations section of our website at www.ventasreit.com.

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

Thank you, Ryan, and good morning to all of our shareholders and other participants, and welcome to the Ventas Third Quarter Earnings Call. We are very pleased with our results this quarter, our improved prospects for the full year and the accelerated execution on our strategic priorities.

Today, I'll touch briefly on our positive performance and full year guidance, highlight the extraordinary recent efforts of our leading care providers to keep residents and patients safe during recent natural disasters, introduce some exciting opportunities we are pursuing and conclude with a few words on public policy and the excellent, cohesive Ventas team. Following Bob's review of our financial results, we will be delighted to take your questions.

At Ventas, we continue to focus on delivering reliable cash flows from a diversified portfolio of high-quality assets on a strong balance sheet. The third quarter continued our pattern of resilient results as we grew normalized FFO to $1.04 per share, driven principally by increased property NOI and accretive investments.

During and following the quarter, we recognized over $500 million in gains on sale, mostly from our accelerated exit from the skilled nursing business with attractive pricing. Our financial strength improved as well, with enhanced liquidity and even better credit stats sequentially.

We are also delighted to improve our full year expectations for company-wide same-store NOI growth by 25 basis points to 2% to 2.5%. This improvement in property NOI growth expectations enabled us to maintain the midpoint of our normalized FFO per share guidance range despite the previously announced $0.04 reduction in earnings impact from our accelerated SNF sales. Our resilient, diverse portfolio gives us confidence.

Now I'd like take a moment to focus on the recent natural disasters and the tremendous efforts of our operating partners, whose employees and executives kept residents and patients safe. Thanks to the excellent preparation and actions taken by care providers, including Atria, Kindred and Brookdale, all residents, patients and personnel remained secure through evacuations, flooding, hurricanes and wildfires.

Emergency preparedness and evacuation for frail seniors and acutely ill patients is logistically complex, complicated further by dangers and impediments faced by on-the-ground caregivers and their families. In the face of extreme conditions, the level of heroics and personal self-sacrifice by employees of our business partners was overwhelming and humbling. Successful disaster preparation, effective evacuations and secure sheltering in place are examples of why we place such a high emphasis on doing business with financially strong, capable and caring business partners.

I'm happy to report that virtually all of our communities and facilities are back to normal. And on behalf of all of us at Ventas, I'd like to thank those in the executive offices and on the front lines who kept residents and patients safe.

The natural disasters also highlight the value proposition and health and wellness advantage of senior housing. That message seems to be resonating, as demand and penetration rates nationally continue to rise and more individuals are choosing to live in community-based senior housing.

We are also heartened by other positive trends. In the third quarter, construction starts in senior housing fell to about half their level from 2 years ago at the cyclical peak. In fact, this was the third consecutive quarter where starts improved significantly from the same period 2 years ago. So as we work through the timing mismatch in certain markets between deliveries and demand, we know there is a powerful upside in senior housing when the growth rate of the senior population accelerates.

Turning to strategic decisions. We want to give you early insight into 2 exciting opportunities we are actively working on: A proposed joint venture with an institutional investor and the creation of a new relationship with an experienced and highly regarded senior housing management team.

First, we intend to form a new joint venture with an institutional partner on a senior living portfolio we currently own containing over 70 communities. The portfolio is currently operated by Elmcroft Senior Living under a master lease with the company. We are in detailed preliminary discussions and look forward to partnering with a leading global capital source on a successful joint venture. The joint venture will continue diversifying our capital sources and could expand to provide a competitive advantage as the company continues to grow.

Second, we formed a strategic relationship with Kai Hsiao and his long-time colleague on the creation of a new senior housing operator. With over 50 years of combined experience across senior housing, this management team has a demonstrated track record of success and value creation. To seed the new company, we intend to transition operations of the Elmcroft portfolio to Kai and his team, whose company will be a valuable addition to our existing operator relationships.

While we still have a lot of work to do to finalize these attractive potential transactions, we are well down the path and expect to complete them in early 2018. We believe the benefits to Ventas will include further diversification of capital sources, capital recycling for either debt paydown or reinvestment, expansion of our relationships with excellent operators and the ability to capture this powerful upside from the portfolio over time.

Turning to our attractive office portfolio of university-based life sciences and medical office buildings, which now comprises 25% of our NOI. It is a fantastic example of Ventas value creation and our continued investment opportunities. Bob will discuss the good performance and outstanding metrics of our MOB and I'll highlight the momentum in our exciting institutional life sciences vertical.

Since our initial investment of $1.5 billion in September 2016, we have already expanded this business by over 1/3 and our pipeline of attractive opportunities continues to grow. University-based life science and innovation centers remain our #1 capital allocation priority.

Here are some key updates. Recently, we welcomed anchor tenants and top-tier research universities, Duke and Brown, to our Class A Chesterfield and South Street Landing buildings. The Chesterfield is already 85% leased and South Street Landing is 100% leased. It is really awesome to see buildings that began as tobacco factories and power plants experience world-class renovations that repurpose them for cutting-edge health, innovation and research uses.

We are further building out our institutional life science business through development and acquisition with the existing university relationships and newly created ones. Recently, we committed $60 million to develop a research and innovation center that is 80% pre leased to Brown University, Johnson & Johnson and the Cambridge Innovation Center. The project recently broke ground on the development site we own near South Street Landing. We expect this market to continue gaining traction as a medical, research and innovation hub, spurred by increasing interest from universities, academic medical centers, entrepreneurs and major companies.

In addition to growth with our existing university base, we are also expanding to other university campuses in our life science business. We expect to acquire another cash-flowing Class A life science and Innovation Center affiliated with a AA-rated university that is a top recipient of NIH funding and a recent awardee of the Gates Foundation grant to support its groundbreaking work. This property is 82% occupied, and we expect occupancy and NOI to further increase.

As I discussed in our last few calls, health care and senior housing assets are highly coveted by investors of all types, including REITs, pension funds, private equity firms, sovereign wealth funds and other institutional capital. Global demand for cash-flowing real estate with strong forward demographic demand continues unabated. As a result, there's a strong bid across the board for assets in our verticals, making them more valuable than they've ever been. The low cap rates paid in several recent MOB transactions is a strong case in point.

Within that environment, we are happy to note that we've already invested $1.4 billion this year at unlevered going-in cash yields in the mid-7s. And our investment pipeline is robust, not only in life science, but across other asset classes. Consistent with our recent approach, we are carefully picking our spot and allocating capital where we have a strategic objective, a competitive advantage or a customer relationship. We also continue to invest in our future growth by funding selective ground-up development and redevelopment projects at attractive risk-adjusted returns.

I'm also delighted to report on the significant strides we have made on environmental, social and governance matters, where Ventas' leadership was recently recognized by 2 prominent organizations. We were included, for the first time, in the Dow Jones Sustainability Index, ranking in the upper quartile of all North American real estate companies across a broad spectrum of ESG metrics. And Ventas ranked first among 3 listed health care REIT participants in the 2017 GRESB Real Estate ESG Assessment.

Turning to public policy. As I stated last quarter, Washington's focus has moved squarely and almost exclusively to tax reform which could have significant consequences for public and private real estate companies. As an industry associated with 20% of the country's GDP, real estate has an important role to play in furthering sustainable economic growth, capital formation and job creation.

At Ventas, we are focusing principally on pass-through rates in the treatment of REITs and their shareholders, potential limits on interest expense deductibility, state and local tax treatment, 1031 exchanges and FIRPTA reform or repeal. We are highly engaged in the policy debate and closely monitoring the tax legislation as it evolves. I believe that tax reform, or simply tax cuts, have a higher chance of passage than major health care reform did or does. While the specific outcomes of tax reform are too early to call, we are ready to optimize our opportunities as soon as the final framework emerges.

And that brings me to my final point. Ventas has successfully managed through different capital markets, health care, political and economic cycles successfully for nearly 20 years, that's because of our aligned, skilled team. Whether it was macro forces like the financial crisis; industry trends like changes in SNF reimbursement; investment opportunities in emerging areas, like medical office, Canadian senior housing or university life science; or specific cases, like our Kindred 2013 and 2015 lease maturities, the Ventas team has consistently stayed ahead of the curve and driven superior outcomes for shareholders.

Unquestionably, our strong culture and excellent experienced people create our winning competitive edge and underpin our long-term growth, reliability and performance.

With that, I'm happy to turn the call over to our CFO, Bob Probst.

Thank you, Debbie. Our high-quality portfolio showed continued momentum in the third quarter, with all segments contributing to our 2.1% overall growth rate versus prior year. With solid year-to-date performance, we are updating and improving our same-store growth outlook for the year by 25 basis points at the midpoint.

Let me unpack these results for the quarter, starting with our triple-net business, which represents 38% of our NOI. The triple-net portfolio grew same-store cash NOI by an attractive 3.8% for the third quarter of 2017, driven primarily by in-place lease escalations. Cash flow coverage in our overall stabilized triple-net lease portfolio for the second quarter of 2017, the latest available information, held steady at 1.6x sequentially.

In our triple-net seniors housing portfolio, trailing 12 month same-store EBITDARM coverage was steady at 1.3x, with the majority of our NOI tightly clustered around the portfolio coverage average. We view senior's housing triple-net coverage of 1.2 to 1.4x to be within normal market ranges through cycles. Our strong lease protections and diversification also provide additional security.

As Debbie mentioned earlier, given our intentions to enter into a joint venture for over 70 senior housing assets currently leased to Elmcroft, we are now excluding these assets from our triple-net coverage and same-store supplemental reporting in current and prior periods.

In our post-acute business, IRF and LTAC coverage declined in the quarter by 10 basis points sequentially to 1.6x, driven by rent increases, the continued impact of the LTAC reimbursement change and labor wage pressures. We expect to realize the benefits of patient criteria mitigation in our coverage ratio starting in the first half of 2018.

Having now received the majority of the proceeds from the sales of our Kindred SNFs, skilled nursing will soon represent just 1% of Ventas' NOI. SNF industry volume and mix headwinds continue to lower coverage the in this segment. However, our remaining SNF portfolio has very healthy lease protections that provide additional security and rent reliability.

Finally, Ardent delivered terrific performance in the first half of 2017, with volume, revenue and EBITDA improvements ranking among the top performers in the industry. At the asset level for the Ventas properties, rent coverage remained stable at 3x in Q2. Ardent's integration of the LHP hospitals is right on track and budgeted synergies are being realized.

With encouraging year-to-date triple-net results, we are raising our full year 2017 triple-net same-store NOI guidance by 25 basis points at the midpoint to now grow between 3% and 3.5%.

Moving on to our senior housing operating portfolio. We are pleased with our SHOP results in the third quarter, growing same-store cash NOI by 0.6% versus prior year. Continued profit growth in the context of industry-wide challenges underscores the quality and resilience of our portfolio and the strength of our operators.

Looking at the SHOP P&L, occupancy increased sequentially by 40 basis points to 88.7% in the third quarter. As expected, the Q3 year-over-year occupancy gap widened to 230 basis points versus the 200 basis point gap we saw in the second quarter, driven by the impact of continued new competition in select markets.

Encouragingly, rate growth was solid in the quarter at nearly 4%, which was ahead of our expectations. Rate increases in the high barrier to entry markets continue to trend solidly above our REVPOR portfolio average, while rate in markets with new supply is also growing overall despite price competition.

Our operators also did an excellent job of cost containment in the third quarter. Overall expense increases were held to just 1.7% despite continued wage pressures. In addition to flexing labor with occupancy, our operators held nonlabor cost essentially flat. Reduced performance incentives also benefited the quarter.

At a market level, we continued to see momentum in high barrier to entry locations, such as Los Angeles, Boston and Toronto, which drove very strong top and bottom line results. Performance in Canada continues to go from strength to strength, growing NOI approximately 10% in the quarter, the second consecutive quarter of double-digit gains.

Partially offsetting this strength was performance in geographies affected by new competition, most notably within secondary markets. While still at elevated levels, new openings in the third quarter were delayed relative to NIK projections. At the same time, new construction starts in our trade areas were flat in the third versus the second quarter. As a result of both of these factors, new construction as a percentage of inventory in our trade areas picked up by 20 basis points in the third quarter, underscoring that the impact of new deliveries will carry forward into 2018.

From a demand perspective, we are very pleased to once again see greater than 3% absorption gains in the third quarter, suggesting a continued trend of increased penetration rates for senior housing. The security of our residents during the hurricanes is yet another example of the value proposition of senior housing and the potential to raise the penetration rate amongst seniors above the current 11% level.

For the full year 2017, we are updating and narrowing our SHOP portfolio same-store NOI guidance to now grow between 0.5% and 1.5% versus the previous range of 0% to 2%. The new guidance midpoint implies a modest year-over-year NOI decline in the fourth quarter. That said, our SHOP operators are sharply focused and incentivized to positively close out the year.

Rounding out the portfolio review is our highly valuable office reporting segment, representing 25% of Ventas' NOI and compressed of our university-based life science portfolio and our high-quality medical office business. To help bring the quality of our office portfolio to life for investors, we have expanded our disclosures on tenant diversification and credit strengths in this quarter's supplemental reporting.

Our life science operating portfolio continued to perform very well through the third quarter. Sequentially, total occupancy remained excellent at 97.5%. We have been really pleased with the reliability of our life science cash flows. In fact, 75% of our rent is derived from investment-grade credits or companies with a $1 billion-plus in equity market capitalization.

In our medical office business, same-store cash NOI in the third quarter increased by 1.5%. We delivered 91.8% occupancy through new leasing and tenant retention that exceeds 80% year-to-date. This retention rate underlines the strength of our diversified MOB portfolio. A few other quantitative examples include: Over 95% of our NOI is affiliated with leading health systems; our portfolio is well diversified, with our top 5 health systems representing less than 20% of our MOB base rent; and our tenants' credit profile is attractive, with 75% of our NOI affiliated with a health system that is rated single A or better. These attributes helped drive third quarter revenue up over 2%.

Expenses outpaced revenue growth in the quarter, principally from lapping a real estate tax credit in the prior year third quarter. Adjusting for this item, expenses grew modestly below revenues. With solid year-to-date results on a valuable platform, we have raised the midpoint of our guidance by 25 basis points to a range of 1.5% to 2% for our same-store medical office assets in 2017.

Before diving into our company's overall financial results, a note on the financial impact of Hurricanes Harvey and Irma in the quarter. Total direct cost for Ventas resulting from the hurricanes, including property damage and other costs, approximated $10 million or $0.03 per share in the third quarter 2017. These expenses reduced our income from continuing operations and NAREIT FFO in the quarter, but have been excluded from the company's reported NOI and normalized FFO. Though we have appropriate coverage, we have not recognized any insurance proceeds in the quarter or in our guidance because the timing and amount are still uncertain.

With that, let's review our overall Q3 financial results. We are pleased to report another quarter of earnings growth together with even more robust financial health. Third quarter 2017 income from continuing operations per share grew 5% to $0.44 compared to the third quarter of 2016. Normalized FFO per share in the third quarter grew 1% to $1.04 compared to the third quarter of 2016. Third quarter results were driven principally by accretive investments, improved property performance versus prior year, partially offset by the impact of dispositions and loan repayments.

Ventas funded investments of over $80 million during and immediately after the quarter, notably including life science development spend for projects currently underway.

We are excited to have received $570 million of the $700 million of value-creating Kindred SNF sales at a 7% cash and 8% GAAP yield, thereby reducing our SNF NOI exposure to nearly 1%. We have recognized gains exceeding $500 million on these sales. The accelerated SNF disposition timing represents a $0.04 reduction from the high end of our prior normalized 2017 FFO guidance range and a $0.07 incremental reduction to FFO in 2018 relative to 2017 due to the sales and use of proceeds for debt reduction.

We also increased our liquidity and flexibility through a new and innovative $400 million revolving [construction] facility to fund our exciting development pipeline, anchored by our life science business. The result of this cumulative activity is a robust financial position at quarter end, including improvement in net debt to EBITDA to 5.7x, lower total indebtedness to gross asset value of 39% and steady fixed charge coverage at an exceptional 4.6x.

Let me close out our prepared remarks with our updated 2017 guidance for the company. Specifically, total portfolio same-store cash NOI is anticipated to grow 2% to 2.5%, an increase of 25 basis points at the midpoint. We expect income from continuing operations to range from $1.63 to $1.74 and NAREIT FFO to range from $4.07 to $4.12 per fully diluted share, both modestly lower than previous guidance due principally to the $0.03 per share of hurricane-related expenses.

Our normalized FFO per share is forecast to range from $4.13 to $4.16. The midpoint of our narrowed normalized FFO per share range remains unchanged from previous guidance because improved property performance offsets the accelerated completion of the Kindred SNF sales.

Consistent with previous practice, we have not included any further material investments, dispositions, loan repayments or capital activity in our outlook. We assume approximately 359 million weighted average shares for the full year 2017.

To close, we are pleased with the excellence we have delivered thus far in 2017. However, this track record of Ventas excellence extends over decades, not just years, and the team that has delivered it remains tight, collaborative and cohesive.

At the helm, of course, is Debbie. We are particularly proud that Debbie was once again recognized by the Harvard Business Review as one of the best-performing CEOs in the world. She is 1 of 23 CEOs named to the Harvard Business Review List for 4 consecutive years and 1 of only 2 women on this year's list. Ventas' financial performance ranked 32nd out of nearly 900 companies globally for over 18 years. That is truly excellence sustained.

With that, I will ask the operator to please open the call for questions.

(Operator Instructions) Your first question is from Juan Sanabria with Bank of America.

I was just hoping you could talk to, on the RIDEA side, the sustainability of the low expense growth year-over-year. And maybe if you could detail the software cost that you kind of added back and what that was for.

Sure. Juan. It's Bob here. We were really pleased to see the expense growth of 1.7%. We have given guidance earlier in the year, and that's held to be true, of about 4%, I call it, constant volume wage pressure. And we continue to see that. So what obviously is therefore happening is the operators' doing a great job of managing down the other costs, non-labor cost, together with flexing labor with occupancy. And that's what's driving the benefit in the quarter. I believe a lot of those costs savings remain sustainable, and particularly flexing labor with volume, if you go back in time and look at historical occupancy levels, we still have plenty of cushion relative to where we were at lows. So still opportunity there, and for those with scale, which our operators have, to continue to drive that to reduce and hold nonlabor costs. So still room to run there. In terms of your second question on software implementation cost, that's a onetime cost with Sunrise, been putting in a new software for care. And so we've adjusted that out as just nonrecurring.

And what kind of software? Is it sort of like a revenue management software? Or if you could just talk to that a little.

It's for care compliance, Juan. Really, to be able to -- when care is provided to a resident, to be able to monitor and track that and ultimately bill for it. So.

And do it more efficiently and more accurately in terms of levels of care and related pricing for that care.

Right, so onetime software upgrade, basically.

Okay. And then just switching gears to the Elmcroft joint venture. Could you just give us a sense of kind of how that portfolio is tracking in terms of the rent coverage, kind of current occupancy levels and kind of the potential valuation on that portfolio. Maybe what it was generating on an NOI basis here. How you're thinking about the value from either cap rate or price per bed basis?

Yes. So I'll be happy to take that. So this is a good portfolio of over 70 private pay communities. It's within the heat map and is no longer in the 1.1 to 1.2 bucket. We think that it is a great portfolio and well positioned. A large -- the largest part of it, of course, is stable, kind of reliable growing assets. And then there's a portion that we think can drive some significant upside, as I talked about this powerful upside potential in senior housing. And we want to enjoy the benefits of that with -- for Ventas and also for -- with a joint venture partner.

Do you think this vehicle could grow and maybe acquire some of the Brookdale assets that may come loose from whatever's transpiring there?

The joint venture?

Yes.

Well, I do think the joint venture, obviously, will be initially focused on this portfolio. But it is a competitive advantage, as I pointed out. If there were assets to acquire, that, that would be another source of capital should we wish to grow in that joint venture. And if we thought the assets were appropriate, to go in there. It's one other diversified capital source, should we wish to add assets. But we're focused right now on completing the first step of that process.

Okay. And do you own a stake in that new -- the management team, in the management operations?

Well, we've been known to do that before. We have established a really significant strategic relationship with the new management company, and we're excited about being in business with them. And it would be possible that we would have an ownership stake going forward, yes.

Your next question is from Smedes Rose with Citi.

I just wanted to ask you on just on the Elmcroft mechanics a little bit. So the master lease was expiring and you're basically just allowed to say to them that, "We're pulling this contract completely from you." They don't have any recourse to maintain management if they wanted to? Or is this something that you work out?

We have a good relationship with Elmcroft. They've been good partners. We've known them for a long time. They originally were at Vencor many, many years ago and spun off as part of the original Atria. So the relationships we have with them go way back. And we are working with them collaboratively to transition the portfolio. And so that's how we are making it happen.

Okay. And then just sticking with your -- the triple-net portfolio for a moment. I think in the past, you said that the Brookdale facilities are kind of in line with the overall coverage. Is that still the case? Are they're improving more or underperforming relative to the group as a whole?

Yes. On the triple-net senior housing side, I'd say there's a lot of consistency there, as Bob mentioned. And a lot of clustering, including Brookdale, around the segment average. So very consistent.

Okay, okay, okay. And then, Bob, just -- you mentioned that some construction, I guess, will continue into 2018 because of delays this year on the operating portfolio side. What are some of the other, I guess, puts and takes that you're hearing? I mean, I always ask you this. But anything on the financing side, from banks for lending to senior housing? And also just anything you're hearing from the operators on the -- on labor cost into '18, if that's kind of abating at all?

Sure. Well anecdotally, we continue to hear it's more difficult to find operators, to get financing, to find good locations in terms of supply. Debbie quoted some of the stats in terms of starts relative to 2 years ago, which are down nearly 50%. So both the anecdotes and the facts would suggest there's a positive trend there, which we're pleased with. As we think about labor going into 2018, obviously, a bit early to give guidance. I do think wage pressures will continue, labor pressures will continue into 2018 there. Therefore, we're going to turn to price again. I'd emphasize how pleased we are on the rate side with the REVPOR of 4% we saw in the year. And again, we're seeing that across the portfolio, and that's really encouraging.

I mean, one thing on the construction side, too, is with the hurricanes, there's going to be tremendous demand on construction, labor and materials and so on for the rebuilding that's going to be necessary in Texas and Florida. And that's an additional constraint on new development.

Your next question is from Tayo Okusanya from Jefferies.

Quick question on the triple-net portfolio. I'm just trying to understand some of the moving parts because you do have a guidance increase for the same-store NOI, the cash same-store NOI, but occupancy was down year-over-year in the quarter. Coverage is still flattish. I mean, is coverage expected to kind of go down going -- I'm just trying to -- there seems to be -- all the parts seem to be moving in different directions. And I'm really trying to understand how it all comes together.

Okay. Bob, do you want to start with that?

Sure. Let me differentiate between the underlying asset performance and the -- our triple-net same-store. Our triple-net same-store has performed very well year-to-date. And the rate, the 3% to 3.5% really reflects the fact that we've banked 3 quarters of the year and really see stability in that portfolio as we think about the rental income. So that's the guidance for us. In terms of trends in the underlying portfolio, I think the same-store senior housing triple-net portfolio is seeing the same headwinds as the industry. And so we probably will see some pressure on that 1.3x as we go forward here. But again, we think that's within underlying norms within the industry.

Okay, that helps a bit. Debbie, could just talk a little bit just about how you're thinking about hospitals at this point in the cycle, given all the health care reform noise? Or what your operating trends you're kind of seeing from some of the public hospital systems?

Absolutely. I mean, here's how we're thinking about it. First of all, we love a diversified portfolio and we think that, that is the path to success, value preservation and value creation. And we've followed that, as you know, for a very long time. Within that, we've made some great investments in the hospital space. We've been extremely selective. Ardent is performing very well, and that carries through to the third quarter on our property performance at Ardent. And we will continue to look at selective opportunities, both with them and in the market generally. So it's the same as always. We think it's a big potential opportunity, but one where we are going to be very selective. And we've been very successful so far and we want to continue that track record.

Got you, okay. And then lastly for me, could you talk a little bit about just your international markets and how they're generally doing?

Yes. I mean, we have beachhead investments certainly in Canada, obviously, that's doing exceptionally well. And that was our first real international investment that we started back in '07. And we caught that trend early. And we have some investments in the U.K. that are performing very well also. We continue to look in the continent and in the U.K. and have done a lot of good work there. And those markets can be attractive, but we will be very selective there as well.

Your next question is from Michael Knott with Green Street Advisors.

A question for you on SHOP. On the U.S. versus Canada, just curious, a couple of things. Does the degree of divergence surprised you at all this year? And then would you expect that huge Canadian outperformance to continue in '18?

Well, we've been really pleased, Michael, with Canada. Of course, 2 consecutive quarters now of double-digit growth. And when you look within that, occupancy nearly 95%. What, of course, we have is a supply/demand equilibrium in Canada. We have great assets in Canada, very well operated. And in light of the high occupancy, we've been pushing price again. I think that's a big driver of this performance. So I hope that will continue. It will be a tough lap, obviously, next year, but the fundamentals are there. On the U.S. side, it's very much as we've portrayed. I think if you go back to the beginning of the year and the framework on guidance we laid out there, thus far, the year has really panned out very consistently. So really not any surprises so far.

Okay, and then just to follow up again on Brookdale. So in their disclosure last quarter, they showed a triple-net lease coverage of 1.02x on EBITDAR. And then we know HCP and Welltower are 1.15 to 1.2. It sounds like if we were to take your EBITDARM and adjust downward to EBITDAR, you would suggest you're somewhere in the 1.1 range. Is that about right?

Well again, we look at this -- if you look -- if you think it's relatively consistent with the rest of our senior housing triple-net, as we talked about, which has been stable at 1.3, we would say that the reason we look at EBITDARM, and again, this is a subject on which we have tremendous experience with Kindred and others. When you look -- we look at EBITDARM because when you look at operators and how they make decisions and what their incremental cost of management is and -- or stated another way, how much overhead they're truly able to get rid of if they shed assets, that number tends to be much closer to kind of 1%, 2%, 3%, depending on the operator and the asset type. And so we think that EBITDARM is really a good place to look. And so it's pretty clear, depending on how you look at management fee, what the math is. But we are in that consistent kind of stable coverage area.

Your next question is from Nick Yulico from UBS.

This is Trent Trujillo on with Nick. On supply, you touched on this in your prepared remarks and a little bit after, but it looks like new supply in your top 20 markets rose to roughly 7% of stock. So could you give a little more color on what changed for you during the quarter in your major markets? Because if this is where you're seeing the best-rate growth, how much of a threat is the new supply to forward results if you're looking to drive results through that rate growth?

Sure. Well, 2 things as we think about construction that are important, which is deliveries and new starts. And in the quarter, this quarter, we did see delays in deliveries. And that, together with flattish new starts is what drove the ratio up. And therefore, again, I step back, I think there's clearly a carryover into 2018. But the underlying trends for the industry in terms of starts, we believe, will apply to our portfolio equally. Within that, from a market point of view, one also has to look at demand in the context of that supply growth. And for our engine room markets, as I describe them, we continue to see very, very strong performance. And that's the LAs and Bostons and the New Yorks, as I've highlighted. So -- though in certain areas, there have been some new assets coming online. Again, the engine room is strong and the rate is particularly strong in that. So we're feeling good about it.

I appreciate that. A follow-up, if I may. You talked about the recently announced JV. I know you just announced it today, so it's fresh. Could you possibly talk about how the JV is being valued and how this demonstrates the value of your portfolio?

As I mentioned in the call, we're going to have to move on. We have a few -- many other callers that we have to take. But as I mentioned, there's a strong bid across our asset types from all types of capital. And so as we move forward with this transaction, we'll be happy to provide additional valuation metrics. But again, to repeat the thematic, I would say that people are very interested in our asset types because they are resilient, because there's demographic demand, because of the cash flows and so valuations are strong, as I said.

Your next question is from Rick Anderson with Mizuho Securities.

So Bob, you mentioned negative SHOP for the fourth quarter in terms of the same-store growth. Does that presume 9-plus-percent growth in Canada again?

Continued strength. The implied fourth quarter is really U.S. dynamic. And really, again, it's down to the views of deliveries and pacing of new supply. And that midpoint really assumes we have some more compression on the occupancy line. So we'll see, but that's what's driving that assumption.

Okay. And back to Brookdale, not to belabor, but I guess 2019, you start to -- the expirations start to -- or are happening. Do you anticipate attacking that situation early? Could we see a transaction in a sort of addressing the expirations, and maybe even next year, to put it to rest?

Well, you're right. We're more than 2 years away from that. And as you know, we've gone through lease maturities time and time again here at Ventas. And I think that we are always open and active about working with all of our relationships to find positive outcomes for both sides.

Okay, last question. That's good enough. And then last, on the relationship with Kai. Is it really him -- will he be taking on many of the Elmcroft kind of people, thereby reducing the disruption that might come from this type of transition?

Well, Elmcroft is a good company and they have a lot of good, good people there. And the expectation is that, as is almost always the case in these transitions, that virtually all the property people will be carried on uninterrupted.

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

Debbie, you mentioned in your prepared remarks that the investment pipeline is robust in life science and other asset classes. Can you give us some color on the deals you're tracking outside of life science? And what asset classes are more attractive right now?

Yes. I mean, I think -- this is John Cobb. We have seen robust pipeline in all 4 verticals. We see it in the life science, the hospital sector, the senior housing sector and the medical office. Quarter in, quarter out, we're seeing a good pipeline.

Okay. Are these mostly comprised of any larger portfolios or smaller transactions? Or how should we think about the deal size?

I think we're -- as you've seen over the last 3 or 4 years, you've seen us do smaller deals and the medium deals, and you also see us look into big deals. So we look at them all.

Your next question is from John Kim with BMO Capital Markets.

Debbie, congratulations on the continued recognition.

Thank you, John.

You discussed the breadth in the investor market for health care real estate in general. But can you discuss the nature of the investor on the joint venture?

That, more to follow. I think that, that's -- what we're trying to do, as investors have asked us to do, is in some cases where we can, give them some early insights into our activities and strategies. And we are doing that in this case to provide some early transparency. Certainly happy to disclose more as the pieces come together.

Okay. And then given this portfolio, the Elmcroft portfolio had a low EBITDARM coverage. Is it fair to assume that the cap rate would be higher than what you've been selling it recently, and the rent may be reduced?

Well, again, this is about portfolio, existing performance and NOI, and about potential performance. And as I mentioned, there's the biggest part of this portfolio is nice stable growing cash flows and there is a outsized performance portion of it, too. So that obviously is attractive both to us, who wants to stay in the portfolio and get the benefit of that, and also to a potential partner.

Okay. And then finally, can you disclose what your revenue-enhancing CapEx was either this quarter or year-to-date?

We'll look at that and respond. And let's move on to our next caller, and we'll get to that.

Your next question is from Karin Ford with MUFG Securities.

With the Kindred sales winding down, what is the disposition pipeline looking like from here?

Well, currently, we're expecting maybe another -- including the Kindred, $100 million or $150 million in the near term.

And are you thinking about being active on the sales side as you look into 2018?

Well, we continue to evaluate things. I think what's been really good about Ventas is we've had a balanced position over the last couple of years as we have both sort of elevated the quality and mix of our portfolio with the SNF spin and the dispositions, and we've also found attractive opportunities to grow, as I talked about this year, with the $1.4 billion in attractive risk-adjusted return investment. So we like to, again, deliver strong cash flows and to take opportunities both to divest as well as to invest. And that's, I think, where we are right now, Karin.

And just one quick clarification on the Elmcroft portfolio. Is that going to be converted from a triple-net lease to a SHOP deal?

Yes. As we've stated, it's going to be managed by the new company. And importantly, the reason for that is we want to enjoy the benefit of the potential outperformance in the future with our ultimate joint venture partner.

Your next question is from Jordan Sadler with KeyBanc Capital Markets.

Bob's is going to quickly answer the prior question.

The question was what's the profit-adding capital spend? And it's $200 million year-to-date. And it's really split between life science and SHOP.

Okay. Jordan, now to you.

So on Elmcroft, I think you had it on the books at $1 billion. What portion of that would you look to monetize? Would it be a majority of that? Or minority?

Yes, I think your numbers, we may need to talk to you off-line, they're a little high. But we would expect to stay in for a significant piece of -- for the reasons stated.

Okay. And then lastly, on SHOP. The occupancy guide for the year was down 200 basis points, I believe, on average for the full year. Can you give us a little bit of insight in terms of how we're tracking for the rest of the year, Bob?

Sure. And I think that 200 number is still pretty good, Jordan. Feeling pretty good having put that out there in the beginning of the year. And that's going to be here or thereabouts, I think.

Okay. So we'll end the year down probably a little bit more from here based on what's baked into the last quarter's worth of guidance.

Yes, the range is either, on the high end, assuming we'll have a bit of tightening year-over-year; and on the low end, that we may [gap] out a little bit, but not significantly from where we were in the third quarter.

The range kind of straddles that, yes.

Your next question is from Chad Vanacore with Stifel.

Just thinking about the $10 million add back related to natural disasters. It seems relatively high, especially in respect to Brookdale, which took a $9 million hit. They're the largest senior housing operator out there. So why such a relatively large impact to your SHOP? And then how many properties were impacted? And is the $10 million all on the expense side?

Yes. Well, let me break that down a little bit for you. The $10 million is really split, call it 50-50, between property damage and other direct costs as the other half, associated with things like evacuation, meals, lodging, et cetera. We have not emphasized, assumed any yet, any insurance proceeds, reimbursements. We have insurance, obviously, to cover those types of events. We just haven't recognized it yet in light of the uncertainty of timing and amount. So that's a gross number. It is flowing through the other expense line of the P&L, so it's below NOI; and as I highlighted in the prepared remarks, therefore through continuing ops, included in NAREIT, but excluded from NOI and normalized FFO.

The other thing I would mention, too, is that I'm not sure how Brookdale did it, but to the extent that they're a manager for others, I would guess that any expenses incurred there would be to the property owners and not to Brookdale.

All right. And then just one more. Could you lay out the -- your strategic rationale behind moving to a JV agreements and then compared to RIDEA or just straight triple-net?

Could you rephrase the question?

Yes. So you're going -- you're starting to do JV agreements. Why the JV agreements versus what would you normally do, either triple net or RIDEA structures?

I don't -- I'm not sure I understand the question. What I will tell you is that we own assets 100%. We own them in joint ventures now. We have assets that are leased, assets that are managed. That's part of a diversification strategy. And what we try to do all the time is to customize a structure with the appropriate asset type and where it is in the life cycle and so on and so forth. So we think the benefits of what we are intending to do really are diversification of capital sources, having another tool for growth, aligning with a new, really high quality manager. And we're excited about all that.

Your next question is from Jonathan Hughes with Raymond James.

Just one for me. Just kind of an extension of Nick's question earlier. But looking at the SHOP portfolio and units under construction within the trade area, that's about 7% of inventory in your top 20 markets. What does this number look like when you include non-stabilized inventory?

We don't differentiate in that analysis of stabilized versus non-stabilized, nor do we in same-store. It all flows in. I think the thing that's important to continue to look at when you look at the construction page is the demand side of the equation and then harken back to our framework where we have, on average, 3% demand as our equilibrium point. And so many of these markets where there's new construction coming online, there's high demand as well.

Your next question is from Daniel Bernstein with Capital One.

One quick question on SHOP. The secondary market's really what's been hurting your NOI growth there, it seems like. Looks like construction supply came down in the secondary markets. Can you talk a little bit about the fundamentals there and what you see coming in the next maybe 12 months for secondary markets?

Sure. The secondary markets is where we did see the blunt of new competition. And I'd highlight markets like -- Salt Lake City, for example, Louisville, that flow into that secondary market segmentation and it is -- when we looked at our portfolio and segmented it to say, "Where do we have equilibrium versus a surplus?" many of those markets where we had a surplus are in the secondary market. So that's where we're seeing the impact. And you can see it quite clearly in the quarter.

Okay. And do you see any sign that the fundamentals there might be improving at all? Or does that stick?

I think the supply dynamics, as I mentioned, in terms of new deliveries, will carry into 2018, no doubt, and affect some of these same markets.

And then starts, as they reduce, obviously affects the forward environment. So that's where you talk about this powerful upside when you have -- you are where you are in the occupancy cycle, you have starts ticking down, then you have the acceleration of the seniors growth in population. And that's where you get this powerful upside I discussed.

Okay. And your Elmcroft assets are mainly in secondary markets?

The Elmcroft assets are a very good real estate, and interestingly, have very, very limited new supply in their market.

Your last question is from Sheila McGrath with Evercore.

Bob, you mentioned that even in the supply-challenged markets, that rent was growing. I was just wondering, is most of the positive rental growth, you think, driven by the higher rent upon renewal? And any insight you might have on how new lease rents compared to expired rents of a recently vacated unit.

That's a great question and it's shame it's the last one of the day. It's really, really interesting. And we are seeing the rent growth, the REVPOR growth, as I mentioned, in some of those markets that have new supply. And that is a combination of what I call the re-leasing spread, but also, it's just base rent increases. And what is very important, and our operators do a very good job, is understanding how that re-leasing spread is trending over time. And I think in our portfolio, generally, we feel pretty good about that re-leasing spread being within norms that are acceptable. So the rate side of the equation has really held up for us this year.

Ryan, are there any further questions? Okay.

Well, I want to thank everyone sincerely for your attention today and for your interest in Ventas. I continue to believe we're in a great industry that has tremendous potential. We own a high-quality, diverse and resilient portfolio that generates strong cash flows. We continue to see attractive investment opportunities and have access to diversified sources of capital to fund them. And we are super lucky to have a cohesive team at Ventas who can capitalize on all those things to deliver long-term superior performance for you. So thank you again, look forward to seeing everyone soon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone, have a great day.