Ventas, Inc. (VTR) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2917 Ventas Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the conference over to Ryan Shannon, Investor Relations. You may begin.

Thanks, Liane. 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 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 its 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 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 residence and patients safe during natural disasters, introduce some exciting opportunities we are pursuing and conclude with the 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 patterns 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 games and 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 and property NOI growth expectations enables 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 to take a moment to focus on the recent natural disasters and the tremendous efforts of our operating partners who is employees and executives kept residence and patients safe. Thanks to the excellent preparation and actions taken by care providers including Atria, Kindred and Brookdale, all residence, patients and personnel remain secure through evacuations, flooding, hurricanes and wild fires. Emergency preparedness and evacuation for seniors and an acutely ill patients is logistically complex, complicated further by dangers and impediments based by on the ground caregivers and their family. In the face of extreme conditions, the level of heroics and personnel sacrifice by employees of our business markets was overwhelming and humbling. Successful disaster preparation, effect evacuations and secure sheltering in place, our examples of why we play such a high emphasis on doing business with financially strong, capable and caring business partners. I am 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 line who kept residence and patients safe. The natural disasters also highlight the value proposition and health 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 hardened by other positive trends. In the third quarter, construction starts in senior housing fell to about half their level from two years ago at the cyclical peak. In fact this was the third consecutive quarter where starts improve significant from the same period two years ago. So as we work through the timing mismatch in certain market between deliveries and operator execution, we know there is a powerful upside in senior housing when the growth rate of the senior populations accelerate. Turning to strategic decisions, we want to give you early insight into two exciting opportunities we are actively working on. Our proposed venture with institutional investor and the creating of a new relationship with an experience and highly regarded senior housing management team. First, we intent to form a new joint venture with an institutional partner on a senior living portfolio we currently own continue 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 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 Kai Hsiao and his long time colleagues 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 see 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 get pay down or reinvestment, expansion of our relationships with X1 operators and the ability to capture this powerful upside from the portfolio overtime. Turning to our attractive office portfolio of university base 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 MOBs and I'll highlight the momentum and 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 a third and our pipeline of attractive opportunities continues to grow. University based life science and innovation centers remained a number one capital allocation priority. Here is 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 a 100%. It is really awesome to see buildings that began as tobacco factories and power plants experience world-class renovations that repurposed them for cutting hedge health, innovation and research uses. We are further building out our institutional life science business through development and acquisition with existing university relationships and newly created ones. Recently we committed $60 million to develop a research and innovation center. It is 80% preleased to Brown University, Johnson & Johnson 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, speared 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 a Gates Foundation grant to support its ground breaking work. This property is 82% occupied and we expect occupancy and NOI to further increase. As I discussed in our last few calls, healthcare and senior housing assets are highly covered 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 is strong bid across the board for assets in our verticals making them more valuable than they have ever been. The low cap rates paid in several recent MOB transactions is a strong 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-sevens. 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 allocation 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 developments and redevelopment projects at attractive risk adjusted returns. I'm also delighted to report on the significant stride we have made on environmental, social and governments matters where Ventas' leadership was recently recognized by two permanent organizations. We're included for the first time in the Dow Jones Sustainability Index ranking in the upper quartile of all North American real estate company across a broad spectrum of ESG metrics. And Ventas ranks first among three listed healthcare re-participants in the 2017 GRESB real estate ESG assessment. Turning to public policy, as I stated last quarter, Washington 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 pasture rates in the treatment of reaching their shareholders, potential limits on interest expense deductibility, state and local tax treatment, 1031 exchanges and reform or repeal. We are highly engaged in the policy debate and closely monitoring the tax legislation as it evolve. I believe that tax reform are simply tax cuts have a higher chance of passage than major healthcare reform did or does. While this 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 to my final point. Ventas has successfully managed through different capital markets, healthcare, political and economic cycle successfully for nearly 20 years. That's because of our aligned skilled teams, whether with macro forces like the financial crisis, industry trends like changes reimbursement, investment opportunities in immerging 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. And questionably our strong culture and excellent experience people create a winning competitive hedge and underpin our long term growth, reliability and performance. With that I am happy to turn the call over to our CFO, Bob Probst.

Thanks Debby. Our high quality portfolio showed continued momentum in the third quarter with all segments contributing to a 2.1% overall growth rate versus prior year. With solid year-to-date performance, we are updating and improving our same-store growth outlooks 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, believe its available information, health study at 1.6 times sequentially. In our triple-net seniors housing portfolio, trailing 12 months, same-store EBIT arm coverage was steady at 1.3 times. With the majority of our NOI, clustered around the portfolio coverage average. We view seniors housing triple-net coverage of 1.2 to 1.4 times to be within normal market ranges through cycles. Our strong lease protections and diversification also provide additional security. As Debbie mentioned earlier, given our intention to enter into a joint venture for over 70 senior housing assets currently lease 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 1.6 times, 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 our Kindred SNFs, skilled nursing will soon represent just 1% of Vantas' NOI. SNF industry volume and mix headwinds continue to lower coverage in the segments. 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 three times in Q2. Ardent integration of the LHP Hospital 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 a 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 and the high barrier-to-entry markets continue to trend southerly above our 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 where health just 1.7% despite continued wage pressures. In addition to flexing labor with occupancy, our operators held non-labor costs essentially flat. Reduced performance incentives also benefited the quarter. At a market level, we continue 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 grow from strength to strength, growing NOI approximately 10% in the quarter, the second consecutive quarter of double-digit gains. Partially offsetting the 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 Nick 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 were very pleased to once again see greater than 3% absorption gains in the third quarter, suggesting a continue trend of increased penetration rates for senior housing. The security of our residence during the hurricanes is yet another example of the value proposition of senior housing and the potential to raise the penetration rate among seniors above the current 11% level. For the full year 2017, we're updating and narrowing our SHOP portfolio same-store NOI guidance to now grow between a 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 view is our highly valuable office reporting segment, representing 25% of Ventas' NOI and comprised 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 tentative versification 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 for companies with a 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 five health systems representing less than 20% of our MOB base rents. And our tenant's credit profiles attractive with 75% of NOI affiliated with a health system that is rated single A or better. These attributes help 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 a same-store medical office assets in 2017. Before diving into our company's overall financial results, I 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 of 2017. These expenses reduced our income from continuing operations and NAREIT FFO in the quarter, but have been executed from the company's reported NOI and normalized FFO. So 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 investment and improved property performance versus prior year, partially offset by the impact of dispositions in 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 accelerates 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 to renew an innovative $400 million revolving structure 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 5.7 times, lower total indebtedness to gross asset value of 39% and steady fixed charge coverage at an exceptional 4.6 times. 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 $63 to $74 and NAREIT FFO to range from $4.07 to $4.12 per fully-diluted share. Both modestly lower than previous guidance to principally to the $0.03 per share 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 Kindreds SNFs 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're 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. And one 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 one of 23 CEOs named to the Harvard Business Review list before consecutive years and one of only two women on this year's list. Ventas's financial performance rank 32nd out of nearly 900 companies globally for over 18 years, that is truly excellent to stand. 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. Your line is open.

Hi, good morning and thanks for the time. I was just hoping you could talk to on the idea side, the sustainability of the lower expense growth year-over-year and maybe if you could detail the software costs that you kind of added back and what that was for?

Sure Juan. Bob here. We're really pleased to see the expense growth the 1.7%. We have given guidance early in the year and that's helps me true of about 4% I call it constant volume wage pressure and we continue to see that. So what obviously therefore happening is the operators doing a great job of managing down the other costs not labor costs together with flexing labor with occupancy and that's what's driving the benefits in the quarter. I believe a lot of those costs savings remain sustainable and particularly flexing labor with volume is to go back in time and look at historical occupancy levels, we still have plenty of cushion relative to where we were at lower. So there is still opportunity there and for those with scale which our operators have to continue to drive that to reduce and hold non-labor cost, so still room to run there. In terms of your second question on software implementation costs, that's a onetime cost with Sunrise and putting in the software for care and so we've adjusted that out as non-recurring.

And what kind of software, it's like managing software, or if you could just talk about?

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 the level of care and related pricing for that care.

Right, so onetime software upgrade basically.

Okay. And then just switching gears to the across joint venture, could you just give us a sense of kind of how that portfolio is tracking in terms of rent coverage kind of current occupancy levels and kind of the potential valuation on that portfolio what it was generating and in NOI basis here how you thinking about the value from capital or price basis?

Yeah, so I'll be happy to take that. Good morning. So this is a good portfolio of over 70 private pay communities. It was in the heat map and is no longer in the one-one to one-two 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 asset and then there's a portion that we think can drive some significant upside as I talked about this powerful upside potential and senior housing and we want to enjoy the benefits of that with for Ventas and also for with the joint venture partner.

Do you think this vehicle could grow and maybe acquire some of the assets that may come loose from whatever is 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 of their diversified capital source should we wish to add asset. But we're focused right now on completing the first step of that process.

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

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

Thank you very much.

Thank you.

Your next question is from Smedes Rose with Citi. Your line is open.

Hi, thanks. I just want to ask you on just the Elmcroft mechanics a little bit, say the natural lease was expiring and you're basically just allowed to say to them they are pulling this contract completely from you, they don't have any recourse to maintain management if they wanted to or if it's something that you work out?

We have a good relationship with Elmcroft. They have been good partners, we've known them for a long time. They originally where at Vencore many, many years ago and spun off as part of the original atria. So the relationships we have with them go a 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 triple-net portfolio for a moment, you're - I think in the past you said that the Brookdale facilities are kind of in line with the overall the coverage, is that still the case or they improving more or underperforming relative to the group as a whole?

Yeah, on a triple-net senior housing side, I say there's a lot of consistency there Bob mentioned and a lot of clustering including Brookdale around the segment average. So very consistent.

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 we always ask you this, is it anything on the financing side from banks for lending to senior housing and also just anything you're hearing from the operators on the labor cost into 2018 if that's kind of a building at all?

Sure. Well, anecdotally we continue to hear it's more difficult to find difficult to find operators to get financing, to find good locations in terms of supply, Debbie quoted some of the steps in terms of starts relative to two 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 emphasis how pleased we are on the rate side with 4% we saw me a year and again we're seeing that across the portfolio and that's really encouraging.

I mean one thing on the construction side too with the hurricanes, there is 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.

Okay. All right. Thank you. Appreciate it.

Thank you, Smedes.

Your next question is from Tayo Okusanya with Jefferies. Your line is open.

Yeah, yes, good morning everyone.

Good morning.

Good morning. Quick question under 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 seems to NOI, but occupancy was down year-over-year in the quarter, coverage is still flattish, I mean its coverage expected to kind of go down going forward, I'm just trying, this seem to all the parties moving in different directions and I'm just really trying to understand how it all comes together?

Okay. Bob do you want to start with that?

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

Okay. That helps a bit. Debbie, could you talk a little bit about how you're thinking about hospitals at this point in the cycle given all the healthcare reform, what you're bringing trying to kind of see from some of the public hospital systems?

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

Got it. Okay. And then lastly you talk a little bit of I just thought your international markets and how they're generally doing?

Yes, I mean we have a beachhead investment in certainly in Canada, obviously that's doing exceptionally well and that was our first real international investment that we started back in 2007 and we cut that trend early and we have some investments in the U.K. that are performing very well also. We continued to look in the continental 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.

Okay. Thank you.

Thank you.

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

Hey, everyone, question for you on SHOP. On the U.S. versus Canada just curious a couple things, is a degree of divergence surprise you at all this year and then would you expect that huge Canadian outperformance to continue in 2018?

We've been really pleased Michael with Canada of course two consecutive quarters now of double-digit growth. And when you look within the occupancy nearly 95%, what 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 it will be top 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 beginning of the year and the framework on guidance we laid out there that's where the year is really kind of very consistently so we really know the surprises so far.

Okay. And then just to follow-up again on Brookdale and their disclosure last quarter they showed a triple-net lease coverage of one point zero two times on EBITDA and then we know H-City and Wall Tower [ph] 1.5 to 1.2, it sound like if we were to take your EBITDA I mean adjust downward EBITDA, 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 EBIT arm and again this is a subject on which we have tremendous experience with Kindred and others. When you look - we look at EBIT arm because when you look at operators and how they make decisions and what their incremental cost management is and or stated another way how much overhead they're truly able to get rid of if they shed asset. 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 EBIT arm is really a good place to look. And so it's pretty clear depending on how you look at management, see what the math is, but we are in that consistent kind of stable coverage area.

Thank you.

Thank you.

Your next question is from Nick Ullico with UBS. Your line is open.

Hi, good morning. This is [indiscernible] here on with Nick and thanks for taking our questions. On supply you…

Good morning.

Good morning. On supply, you touched on this in your prepared remarks in 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 you during the quarter in your major markets because this is where you're seeing the best rate growth, how much of a threat is the new supply to for results if you're looking to drive results through that great growth.

Sure. Well, two 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 start is what drove the ratio up. And therefore again a step back, I think there's clearly a carry over to 2018. The underlying trends for the industry in terms of starts, we believe will part of our portfolio equally. Within that from a market point of view, one also had to look at demand of that supply growth and for our engine room markets as I described them, we consider this a very, very strong performance and that's LAs, Boston and the New York as I've highlighted. So though in certain areas there have been some new access coming online, again the engine room is strong and the rate is particularly strong in that. So we are feeling good about it.

Okay. Thank you very much. Appreciate that. I'll 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 is demonstrates the value of your portfolio?

As I mentioned in the call, we are going to have to move on, we have a few many other colors that we have to take. But as I mentioned there is a strong bid across our asset type 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 sematic I would say that people are very interested in asset types because they are resilient, because they is demographic demand, because of the cash flows, and so valuations are strong as I said. Q - Thanks for color.

Okay, thanks. Let's go to the next caller.

Your next question is from Richard Anderson with Mizuho Securities. Your line is open.

Thanks, good morning. So Bob you mentioned negative SHOP for the fourth quarter in terms of the same-store growth, does that presume 9% plus growth in Canada again?

Continued strength…

Hi Rich.

Yes, hi Rich.

Good morning to you.

Thank you. Trying to talk first.

I'll try to. The applied fourth quarter is really U.S. dynamic and really again it's down to the views of deliveries in pacing of new supply. I mean that midpoint really assumes. We have something more compression on the occupancy line. So we'll see but that's what driving that assumption.

Okay. And back to Brookdale, not to deliver, but I guess 2019 you start to, the expirations start to or happening, do you anticipate attacking that situation early, could we see a transaction in sort of addressing the expirations and maybe even next year or two put a trust?

Well, you are right, we're more than two years away from that. And as you know we've gone to 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. Okay. That's good enough. And then last on the relationship with Kai, is it really him will maybe taking on many of the Elmcroft you know kind of people thereby reducing the disruption that might come from this type of transition?

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

Okay, thank you very much.

Thanks Rich.

You next question is from Michael Carroll with RBC Capital Markets. Your line is open.

Yeah, thanks. Good morning. Debby, 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 are tracking outside of life science and what asset classes are more attractive right now?

And I think - This is John Cobb. We have seen robust pipeline in all poor verticals, we see it in the life science, the hospital sector, the senior housing sector and the medical officer. You know quarter-in quarter-out, we are seeing you know a good pipeline.

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

I think - as you seen over the last three or four years, you seen us do smaller deals and the medium deals and we also see at big deals, so we look at them all.

Okay, thank you.

Thanks Mike.

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

Thank you and congratulations on the continued recognition.

Thank you, John.

You discussed the breath in the investor market for healthcare 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 are trying to do as investors have ask us to do is in some cases where we can give them some early insights into our activities and strategies and where we are doing that in this case provide some early transparency. Certainly happy to disclose more as the pieces come together.

Okay and then given this portfolio, the Elmcroft portfolio has a low EBIT arm coverage, is it fair to assume that a cap rate would be higher than what you have been selling it recently and the rent maybe reduced?

Well, again this is about portfolio existing performance in NOI and about potential performance. And as I mentioned there is a biggest part of this portfolio is nice stable growing cash flows and there is outsized performance portion of the two. 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 you revenue enhancing CapEx was either this quarter or year-to-date?

And we'll look at that in respond and let's move on to the next caller and we'll get to that.

Your next question is from Karin Ford with MUFG Securities. Your line is open.

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

Yeah, well, you know currently we're expecting you know maybe another including the Kindred 100 or 150 in the near term.

And are you thinking about being active on the self-side as you looking to 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 quality and mix of our portfolio with this SNF spin and dispositions. And we've also found attractive opportunities to grow as I talked about this year will a 1.4 billion and 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.

Thanks. And just one quick clarification on the Elmcroft portfolio is, is that going to be converted from a triple-net lease to a sharp deal?

Yes, as we 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.

Thank you.

Thank you.

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

Thanks for squeezing me in.

Okay, good morning.

Good morning. Go ahead.

Bob is going to quickly answer the prior question.

Go ahead,

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

Okay. Jordan, now to you.

Thanks Debby. So on Elmcroft, I think you had on the books $1 billion, what portion of that would you look to monetize, would it be a majority of that or minority?

Yeah, I think your number we may need to talk to offline, they are little high. But the - we would expect to stay in for you know a significant piece for the reason 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 are tracking for the rest of the year, Bob?

Sure. And I think the number is still pretty good, pretty good having, that's going to here there about the same.

Okay, so well in the year down probably a little bit more from year based on what's baked into the last quarters worth the guidance?

The range is either on the high end, assuming we'll have a bit of timing year-over-year and on the low end that we may gap out a little bit but I think that's going to be from where we were in the third quarter.

Okay, thanks for the time.

The range kind of straddles that. Yep.

Thank you.

Thank you, Jordan.

Your next question is from Chad Vanacore with Stifel. Your line is open.

Hi, good morning.

Good morning.

Just about the - good morning. Thinking about the $10 million add back related in natural disasters, it seems relatively high especially in respect to Brookdale, which took a $9 million hit, they are the largest senior housing operator out there, so why such a relatively large impact you are SHOP, and how many properties were impacted and is the $10 million all on the expense side?

Yeah, so 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 the other half associated with things like evacuation, meals, lodging et cetera. We have not to emphasis assumed any - yet any insurance proceeds reimbursements. We have insurance obviously to covers those types of events. We have recognized you got the 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 it's still continuing including in but excluding from NOI and normalized FFO.

The other thing I would mention to is that I am sure how Brookdale did it but to the extent that there are manager for others I would guess that there is any expenses incurred there would be to the property owners then not Brookdale.

Alright, thanks. And then just one more, could you layout the strategic rationale behind moving in JV agreements in comparative right there or say triple-net?

Could you rephrase the question?

Yeah, so you are going to starting in few JV agreements, why the JV agreements versus where you would normally do either triple-net?

I am 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 you know a diversification strategy. And what we try to do all the time is to customize a structure with the appropriate you know asset type and where is it 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 sourcing, having another tool for growth, aligning with a new really high quality manager. And we are excited about all that.

Okay. I'll follow-on with you on offline, thanks.

Okay, thank you.

Thank you.

Your next question is from Jonathan Hughes of Raymond James. Your line is open.

Hey, good morning. Just one from me.

Hi.

Hi, good morning. Just kind of an extension of next question earlier but looking at the SHOP portfolio and on a construction within the trade area, that's about 7% of inventory your top 20 markets, what is the number look like when you include non-stabilized inventory?

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

Okay, fair enough, I'll follow-up offline. Thanks for the time.

Alright, we look forward for it. Thank you. Okay, we got a couple more.

Your next question is from Daniel Bernstein with Capital One. Your line is open.

Good morning.

Hi Dan.

Hi. One quick question on SHOP, and the secondary market is really what's in 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 fundamental there and what you see coming in the next say 12 months in 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 flow into that secondary market segmentation. And it is - when we looked our portfolio and segmented it to say where do we have equilibrium versus a surplus. Many of those markets where we have surplus are in the secondary markets, so that's where we are seeing the impact and you can see quite clearly in the quarter.

Okay. And do you see fundamentals there might be improving at all or is that stable?

I think the supply dynamics I mentioned in terms of new deliveries will carry into 2018 no double in some of these same markets.

And then starts as they reduce obviously effect 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 uncrossed assets are mainly in secondary markets?

The uncrossed assets are very good real estate and interestingly have very, very limited new supply in the market.

Okay, that's good to know. I'll hope off, I know it's been a long call.

Yep, it is. So thank you, welcome back. Okay, let's finish it on.

Last question is from Sheila McGrath with Evercore. Your line is open.

Good morning. Bob you mentioned that even in the supply challenge markets that rent with growth, I am just wondering it's 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 expire rents of recently vacated units?

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

Okay, thank you.

Thank you. Are there any other 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 even a high quality diverse and resilient portfolio that generate strong cash flow. 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 security of 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.