Ventas, Inc. (VTR) Earnings

Management highlights

- **Core Strategic Direction** * Ventas' top capital allocation priority is growth in U.S. senior housing, via both organic operational improvements and accretive external acquisitions, to capture unprecedented multi-year demographic demand. * The company pursues acquisitions that meet strict return criteria: double-digit to mid-teens levered IRRs and significant discounts to replacement cost, supported by a compelling private-to-public arbitrage opportunity in senior housing. * Non-strategic, non-shop assets will be disposed of to recycle capital into SHOP and improve overall enterprise growth rates. - **Operational Execution Highlights** * The Ventas OI active asset management platform, paired with data analytics and operator collaboration, drives occupancy outperformance across the SHOP portfolio. Key initiatives include dynamic pricing, sales culture improvements, capital reinvestments, and benchmarking programs. * The core occupancy thesis holds that sustainable senior housing stabilization can reach far higher levels than historical assumptions: 10% of SHOP communities are currently at or near 100% occupancy (two-thirds in the U.S.), and half of U.S. same-store SHOP communities are 90%+ occupied. This 90%+ occupied cohort delivered 25% YoY NOI growth and 6% REV4 growth, while 100% occupied communities delivered ~7% REV4 growth and 20% U.S. NOI growth, demonstrating strong operating leverage and margin expansion at higher occupancy levels. * Overall SHOP portfolio occupancy is 87%, with non-same-store SHOP (25% of SHOP NOI) at 83% occupied by design, leaving a long runway for further occupancy and NOI growth. * The May-September key selling season for senior housing is on track to meet management's full-year occupancy growth expectations, with solid sales activity and occupancy gains recorded so far in 2026. - **Investment Execution Highlights** * Year-to-date 2026, Ventas has completed over $3 billion in senior housing acquisitions across 27 transactions, adding more than 23,000 units across 174 communities to the SHOP portfolio since 2024. Total investments since early 2024 exceed $8 billion. * All 2026 year-to-date SHOP investments were underwritten to double-digit to mid-teens unlevered IRRs, with an average expected year-one yield of 6.6% and an average purchase price of $358,000 per unit, all at significant discounts to replacement cost. * Over 90% of 2026 year-to-date investments are relationship-driven (off-market or from repeat sellers/existing operating partners), giving Ventas competitive advantages including faster closing (average ~2 months from start to finish, among the fastest in the industry) and deal preemption opportunities.

Guidance

- Full-year 2026 normalized FFO per share guidance was raised to $3.85 to $3.90 (8% to 10% YoY growth), with a new midpoint of $3.88, a $0.02 improvement from the prior guidance midpoint. The upgrade was driven by a $0.03 per share contribution from higher accretive SHOP investment activity and increased capital recycling, partially offset by a $0.01 per share headwind from higher interest rates and a higher share price. Full-year 2026 net income per share is expected to range from $0.58 to $0.63. - Full-year 2026 total SHOP investment guidance was raised sharply from $3 billion to $4.5 billion, reflecting strong closed activity and a robust contracted pipeline of attractive senior housing acquisitions. - Same-store SHOP full-year 2026 NOI growth guidance is reaffirmed at 16% at the midpoint, matching the first half 2026 performance result. Full-year SHOP occupancy growth guidance was previously raised from 270 basis points to 300 basis points YoY, which remains in place with the key selling season on track. - 2026 non-strategic asset disposition guidance was increased to $700 million, focused entirely on non-SHOP assets, with the majority of proceeds to be recycled into SHOP investments. - Net debt to EBITDA improved to 4.7x at end-Q2 2026 (the lowest leverage in over a decade), a 30 basis point sequential improvement and 90 basis point YoY improvement. Liquidity stood at $4.9 billion at quarter-end, providing ample flexibility for investments and refinancing.

Segment performance

Ventas delivered 10% year-over-year total company same-property NOI growth in Q2 2026. Normalized FFO per share was $0.97, representing 9% YoY growth, while net income attributable to common stockholders was $0.14 per share. 1. **Senior Housing Operating Portfolio (SHOP)**: Generated 16% YoY same-store cash NOI growth, accounting for the majority of overall enterprise growth. U.S. SHOP delivered 18% YoY NOI growth and 360 basis points YoY occupancy growth, outperforming industry averages by ~150 basis points in NIC top 99 markets. Same-store average occupancy rose 300 basis points YoY overall. REV4 increased 5% YoY, driving 9% same-store revenue growth, while same-store operating expenses grew 5% YoY, leading to a 210 basis point YoY expansion of NOI margins to 31% with 55% incremental margin flow-through. SHOP currently makes up ~55% of Ventas' $60 billion enterprise value, and is on track to reach 60% by end-2026. 2. **Outpatient Medical and Research (OMAR)**: Delivered 5% YoY same-store cash NOI growth overall; adjusted for cash-free income, outpatient medical delivered 3% YoY same-store cash NOI growth, supported by a 50 basis point YoY occupancy improvement and 88% strong tenant retention. Research portfolio occupancy saw expected non-recurring declines from non-renewed tenants, with a $900,000 YoY impact in line with management expectations. 3. **Triple Net Portfolio**: Generated 3% YoY same-store cash NOI growth in Q2 2026, with management expecting the YoY growth rate to increase in H2 2026.

Risks & headwinds

- Final full-year 2026 SHOP occupancy and NOI growth depends on the trajectory and pace of the ongoing May-September key selling season, which still has a large portion of execution remaining. - Current construction costs, labor availability, and capital costs mean new development does not pencil for most projects, limiting near-term supply growth but also creating a long-term supply shortage if rents do not rise enough to incentivize new construction. - Increasing competition for senior housing acquisitions could potentially compress yields or reduce the number of attractive deals meeting Ventas' return hurdles. - Higher interest rates and persistent macroeconomic volatility create ongoing headwinds to earnings growth, partially offsetting gains from SHOP investment and operational growth. - Persistently low new housing supply creates a multi-year growth opportunity for existing owners like Ventas, but it also carries the risk of eventual supply-demand imbalance if large development waves eventually materialize.

Analyst Q&A

• Q: Given strong investor interest in senior housing and peers selling out of outpatient medical to recycle capital into senior housing, what is Ventas' approach to selling OMAR assets, and how do OMAR cap rates compare to current market levels? /

  A: Ventas continues to evaluate its entire portfolio for opportunities to create long-term shareholder value, consistent with past actions including its SNF disposition and spinoff. The company's core strategy is focused on expanding SHOP's footprint, and all strategic opportunities that align with this goal will be strongly considered. The firm continues to execute on this plan by actively pursuing non-shop dispositions to recycle capital into senior housing.

• Q: Is the incremental 55% margin flow-through achieved this quarter driven by operational changes, and can flow-through continue to improve as occupancy rises? /

  A: The senior housing business model has natural operating leverage: as occupancy increases, expenses become more fixed relative to revenue. The higher flow-through seen this quarter is a direct result of the portfolio running at a higher overall occupancy level than in prior years. All else equal, incremental margin flow-through can be expected to improve even further as portfolio occupancy rises over time, consistent with the natural leverage of the model.

• Q: With increased acquisition guidance and rising competition in senior housing, how has the deal closing funnel changed, and how is pricing trending? /

  A: More senior housing assets are coming to market now, and Ventas' existing relationship-driven pipeline continues to deliver a robust set of opportunities. Ventas has consistently maintained disciplined underwriting standards: it continues to target mid-six percent year-one yields and low double-digit to mid-teens levered IRRs, a standard that holds for the $1 billion of acquisitions currently under contract. The firm continues to win more than its fair share of attractive deals due to its competitive advantages including strong existing relationships, efficient closing processes, and experienced execution teams.

• Q: How far are current development yields from the threshold needed for new development to pencil, and what is Ventas' approach to development? /

  A: The standard required development yield spread is 150 to 200 basis points over existing stabilized acquisition yields, which works out to an 8% required development yield. At current rent levels, development yields remain well below this 8% threshold: management estimates current trended rents need to be at least 25% higher for most development projects to meet required return hurdles. The only exceptions are luxury high-end products entering new price points in strong markets. Ventas' primary focus remains acquiring existing stabilized and value-add communities, not ground-up development, for the foreseeable future. Large waves of new development are not expected in the near-to-intermediate term.