Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second quarter results exceeded expectations for normalized FFO, reflecting continued progress on 2024 operating and financial priorities.
- Consolidated GAAP and cash basis NOI increased by 12.2% and 7.1%, respectively, compared to the prior year.
- SHOP segment saw a 27% increase in same property cash basis NOI over the year-ago period, driven by increased occupancy and RevPOR.
- Issued a $120 million mortgage loan secured by 8 Medical Office and Life Science properties, enhancing liquidity and partially redeeming senior notes.
- Medical Office and Life Science segment achieved double-digit rent growth for the fourth consecutive quarter, with weighted average rents 12.1% higher than prior rents for the same space.
Negative Points
- Second quarter occupancy in the SHOP segment was essentially flat sequentially, indicating slower-than-expected growth.
- Properties marketed for sale had negative NOI of approximately $830,000 and an occupancy rate of 72%, reflecting underperformance.
- The company is still working through portfolio optimization, including divesting underperforming or non-core assets, which may indicate ongoing challenges.
- Significant capital expenditures of $41 million in the second quarter, including $27 million in the SHOP segment, may strain financial resources.
- The Life Science campus in Torrey Pines has one building fully vacant, resulting in a collective occupancy of just shy of 50%, indicating potential challenges in leasing.
Q & A Highlights
Q: On the Medical Office buildings, should we expect occupancy to move higher on a total basis and close in on the same-store basis?
A: Yes, selling low occupancy or vacant properties will push up NOI organically, likely by around 200 basis points, assuming transactions close this year. (Christopher Bilotto, President and CEO)
Q: Given the decline in interest rates, where do you think GSE agency debt might price today?
A: We estimate it to be closer to 6% to 6.5% if priced today. (Matthew Brown, CFO)
Q: Should we expect more CMBS financing, or will you rely on GSE?
A: We are focused on GSE financing and not looking at additional CMBS financing currently. (Matthew Brown, CFO)
Q: Can you provide details on the SHOP assets for sale?
A: We have 3 properties in advanced stages under signed LOI and another 5 communities ready for marketing, totaling 1,100 units valued between $80 million and $100 million. (Christopher Bilotto, President and CEO)
Q: Is selling SHOP assets at low to mid-80s per key for negative NOI properties with low occupancy a win?
A: Yes, achieving those rates and price per unit is positive and helps reveal the upside potential of better-performing communities. (Christopher Bilotto, President and CEO)
Q: Can you provide more color on the Life Science property in Torrey Pines?
A: It is a 3-building campus, with 2 fully occupied buildings and 1 vacant. We are testing the market to see investor appetite for this well-located asset. (Christopher Bilotto, President and CEO)
Q: Is the Torrey Pines property the one with significant renovation?
A: Yes, it is a freshly renovated 3-building campus, with one building vacant and the campus collectively just shy of 50% occupied. (Christopher Bilotto, President and CEO)
Q: Can you explain the mix between occupancy and rate in your SHOP portfolio?
A: While occupancy is slightly behind expectations, rates are higher, and margins are in line. We expect growth in the second half of the year. (Christopher Bilotto, President and CEO)
Q: Were you surprised by the flattish sequential occupancy gain in the SHOP segment?
A: While occupancy was muted from Q1 to Q2, we saw 27% year-over-year NOI growth and 17% sequentially. We expect more growth in the second half of the year. (Matthew Brown, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
