Ventas Inc (VTR) Q2 2019 Earnings Call Transcript

VTR earnings call for the period ending June 30, 2019.

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Ventas Inc (NYSE:VTR)
Q2 2019 Earnings Call
Jul 26, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Ventas Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]

I would now like to turn the call over to Juan Sanabria, Head of IR. You may begin.

Juan Sanabria -- Vice President of Investor Relations

Thanks, Tiffany. Good morning, and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter ended June 30, 2019. As we start, let me express that our 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 law. The Company cautions that these forward-looking statements are subject to many risks, uncertainties, and contingencies and stockholders and other should recognize that actual results may differ from the Company's expectations whether expressed or implied. Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations.

Additional information about the factors that may affect the Company's operations and results is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and the Company's other SEC filings.

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

I'll now turn the call over to Debra A. Cafaro, Chairman and CEO of the Company.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thanks, Juan, and good morning to all of our shareholders and other participants. Welcome to the Ventas second quarter 2019 Earnings Call. I'm happy to be joined on today's call by my talented Ventas' colleagues as we discussed our enterprise momentum our productive second quarter, our increased to full year 2019 expectations and our recent addition to our outstanding Board of Directors. I'd also like to reinforce our commitment to growth in 2020 and emphasize how well positioned we are to deliver superior total return in the coming years. First of all, a sincere thanks to all of you who attended our Investor Day in June, the whole 24 hours we spent together at our R&I Knowledge Community in uCity, Philadelphia where GM packed with new information, insights, and incredible connections. I'm so glad we could spend time with you showcasing our deep and broad team, our best-in-class partners and the power of our diverse high quality portfolio.

Turning briefly to our second quarter results. I'm very pleased to report another solid quarter of normalized FFO $0.97 per share, resulting from property growth and excellence in our office business. Building on our strong momentum, we are also delighted to increase our full-year guidance to $3.80 to $3.86 per share, an increase of $0.03 at the midpoint from our prior range.

Now I'd like to address the current activity and future opportunities at Ventas. During my two decades, we followed a consistent successful strategy that endures. We strive to combine a high quality diverse portfolio, benefiting from strong demographic demand with industry leading growing partners in all our verticals and let our collaborative and experienced team get after it.

Our goal is to produce consistent growing cash flows and superior returns on a strong balance sheet for year. The enduring Ventas Advantage has enabled us to outperform and deliver 23% compound annual return for 20 years through multiple cycles. Now following a period, where we have substantially elevated our portfolio and partner mix, we are ready to pivot to growth in 2020.

We have identified four building blocks that underpin our confidence in Ventas' future growth and success. These are core portfolio performance, the powerful upside in senior housing, meaningful accretive external investments, and contribution from our exciting research and innovation business as we build open and lease up our near-term development pipeline.

Bob will address the first two building blocks in his commentary and I'd like to focus my remarks on our accretive external investments and our R&I pipeline, which combined for nearly $3.5 billion of announced investments year-to-date. Of that total $2.5 billion represents investments above and beyond our university based research and innovation announced development project. Year-to-date activity follows our long-standing successful investment framework, which blends investments in trophy assets, accretive quality assets, and well-structured high-yielding assets to produce growing cash flows and increasing value.

Let me unpack these attractive investments we've captured. First, we've acquired over $200 million in trophy assets in our office business. In addition to our recent investment in Cambridge, we've recently acquired a newly constructed Duke Health asset, which expands our investment in academic medicine. It also broadens our existing relationship with Duke University and Duke School of Medicine, which is an anchor tenant in our nearby Chesterfield R&I buildings, where Duke researchers engage in translational science to discover treatments for common health disorders.

This increasing convergence of research and academic medicine, which is also evident in the Pan uCity market we toured on Investor Day shows why Ventas is incredibly well positioned to lead in the medical office, academic medicine, R&I, and University space.

Second, we announced our exciting and accretive investment and 31 Class A apartment-like senior living communities in the desirable Quebec market with Le Groupe Maurice at an attractive valuation of $1.8 billion. These 31 large scale communities provide an active lifestyle for seniors with high-end amenities and a la carte services. As a result, they lease up quickly to a younger demographic.

The 31 communities are expecting to deliver 4% compound annual NOI growth over the next five years. We project incremental NOI growth from five in-progress LGM developments, which adds $300 million of investment activity to our announced amounts. We also have an exclusive partnership with LGM to jointly develop and own additional communities over time to meet the robust needs of the rapidly growing senior population that lives in senior housing in large percentages in Quebec.

We have already closed the first phase of our LGM partnership and look forward to completing the remaining aspects of our investments in the third quarter.

Last, we were delighted to close a $490 million investment in the secured $1.5 billion Colony Capital refinancing in Q2. This high-yielding 9% investment is well structured and supported by a large, diverse pool of a 156 medical office building, senior housing, and healthcare assets.

The second building block of our forward growth plan I want to share is the $1.5 billion near-term development pipeline in our university-based R&I business. So far this year, we've announced five specific projects totaling nearly $900 million. The projects are with top-tier universities, who are leaders in scientific research and academic medicine and should be delivered in the 2021 to 2022 timeframe.

These developments established will expand powerful knowledge communities for our existing relationships with Pen, Drexel, and WashU. They also created nucleus of new knowledge communities with additive relationships with the University of Pittsburgh and Arizona State University, each of which is in the highest rank of research funding in the U.S.

We are excited about all of the new projects, but since you all know, I'm a proud Pittsburgh native, I'd like to highlight the Pitt project today. The Pitt Immune Transplant and Therapy Center will create a research academic medicine and innovation hub anchored by the University of Pittsburgh to have groundbreaking immunotherapy research in collaboration with nationally recognized healthcare leader UPMC. The Pitt Transplanted Therapy Center development is already well underway.

As we look forward to the future in our Research and Innovation business, we see incredible opportunities, we are well positioned to capture. In our immediate sites are the remaining projects approximately $600 million and our current pipeline that we expect to commence within 12 months. Beyond our near-term pipeline, we control adjacent land that supports over $3.5 billion or 6.2 million square feet of incremental development opportunity.

And finally, our university partners' own additional on-campus land that we can build on or acquire to facilitate further expansion as we exemplify by our Drexel School of Nursing and Health Professions build-to-suit projects.

In addition to growing and improving our portfolio of diverse research, senior housing, and healthcare properties, we remain equally, if not more focused on aligning with best-in-class partners. uniquely in our business, our partners are key ingredients to our success. We are proud that we have existing development partnership with best-in-class Wexford Science & Technology, who is so well regarded by top universities nationally for designing, developing, and delivering powerful knowledge communities that meet their needs and we value our longstanding partnerships with Atria Senior Living that demonstrated once again at our Investor Day, its differentiating skill and scale that make Atria, a winner in senior housing as well as our strong partnership with PMB, a leading medical office partner to develop and manages our trophy center assets in Downtown, San Francisco.

Finally, you experienced first hand the power of our ongoing collaborations with universities like Drexel and Penn, innovators like the science center and gene therapy companies like Amicus and Spark, when we were together and Philadelphia's uCity market.

Now, we're excited to join forces with Luc Maurice, a well-regarded brand developer and leader in the Canadian senior housing market. Both Ventas and LGM began their stories in 1998 and have enjoyed parallel success in building sustainable respected firms. I recently had the opportunity to visit with Luc and his leaders at their offices in Montreal, and I continue to be extremely impressed by their track record, FX, reputation, engagement, capabilities, and plans for the future.

When we close our partnership in fall, I can't wait to tell them so, hopefully in French. It is really a privilege to collaborate with these industry leaders, who we are proud to call our partners. We will continue to invest in our mutually reinforcing success.

Lastly, let's talk about our great Ventas people who are a competitive advantage for us. At Investor Day, you saw firsthand, the breadth, depth, and collegiality of our team. I'm continually amazed by their integrity, intelligence, and work ethic, and that's all the way through the organization. They are truly committed to Ventas and to each other. Luckily, I'm not the only one who recognizes the outstanding capabilities of the Ventas team, Bob Probst, our CFO, was recently named Public Company CFO of the year. Those of you in the REIT phase can certainly see that, Bob is one of the best CFOs in our business. It's fantastic that his excellence was recognized across all industries by Financial Executives International. Go, Bob.

Another vital aspect of our Ventas people is our diverse and independent Board of Directors, which has also been a key differentiator for us. The Board's individual and collective judgment experience and engagement have been crucial to our long-term success. Today, we are excited to announce the appointment of Sean Nolan, as the 10th member of our Board. Sean is a repeatedly successful life science and pharma executive. His unique and complementary insights and experiences will add to our depth and enhance our decision-making and opportunity set in our fast growing Research and Innovation business and our overall enterprise growth.

This is a terrific time to be at Ventas and to invest in Ventas. Our business model, which is broad and diverse gives us the continual opportunity to find investments that add value and drive the company forward. These opportunities are right in front of us. Our businesses are supported by powerful demographic demand, our valuation has upside. We have a strong financial condition and attractive dividend. We have identified the building blocks that will support our future growth and we know how to execute on our plans.

In closing, with two decades of perspective and outperformance through cycles, the Ventas Advantage of our high quality portfolio, our best-in-class partners, and our excellent team gives us potent confidence in our ability to deliver outstanding performance in the coming years. We remain committed to and focused on pivoting to growth in 2020.

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

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Thanks, Debbie. I'm happy to report solid second quarter results driven by growth from our high quality diversified portfolio of senior housing office in healthcare real estate. The year is playing out much as we expected across our property portfolio and as a result, we are reaffirming our full-year 2019 property-level guidance. Looking at the second quarter, our total property portfolio delivered same store cash NOI growth of 23% in the second quarter with office and Triple-Net leading the way in all of our segments performing in line with our expectations.

Let's take a deeper look starting with our shop business. Shop same store cash NOI in the second quarter was 2.9% lower versus prior year. But within the range of our full-year NOI expectations of flat to down 3%. Q2 same store occupancy was solid at 86.4% representing a 40 basis point occupancy gap versus prior year. As a reminder, the year-over-year occupancy gap averaged 80 basis points for the full year 2018. Meanwhile, Q2 RevPAR grew 60 basis points year-over-year, re-leasing spreads were impacted by price competition and trended consistent with last quarter.

We believe that RevPAR in the second half of the year should benefit from lapping price discounting that accelerated in the second half of last year. Operating expenses grew a modest 1.9% in the second quarter. Our leading operators continue to expertly manage staffing and drive efficiencies. That said, we maintain our view that full year OpEx will increase in the 2% to 3% range given a tight labor market. At a market level in the U.S., we continue to see NOI growth in sub-markets such as South Orange County in Los Angeles and Eastern Long Island in New York, mitigated by declines in markets such as Chicago and secondary markets.

That said, even in challenged MSAs, we see pockets of occupancy and NOI growth at the submarket level for example in Northeast Atlanta. Canada once again was a strong performer in Q2 with occupancy of 93.5%, NOI growth of 3.6% in the quarter and 6% in the first half. This performance underscores the health of the Canadian senior housing market and the quality of our portfolio in the north of the border. Key impetus behind our strategy to further enhance our position, we have the exciting LGM portfolio in Quebec.

We maintain our full year 2019 same store shop NOI guidance of flat to minus 3%, expect to trend towards the lower end of our range. Big picture, although we are still in the midst of elevated new openings, we believe strongly in the powerful upside in senior housing and its contribution to our five-year growth. As portrayed in Philly, we expect occupancy to inflect positively in the second half of 2020. Through our proprietary data analytics, we can look ahead and see that demand is increasing and that supply of easing.

As evidenced by our forecast that new openings, across our 194 submarkets should improve by about 15% in 2020 versus 2019, in fact reaching the best level of new deliveries since 2015. Looking further ahead, improving new construction starts, accelerating demand, and significant operating leverage underscore our conviction that over the next five years, our shop business can grow same store cash NOI at a 4% to 6% CAGR.

On the Triple-Net, where same store cash NOI increased by 1.5% for the second quarter driven by annual rent escalators. Excluding the impact of a prior year cash fee of $2.5 million arising from the 2018 Brookdale lease extension, the company's Triple-Net portfolio grew 2.9% trailing 12-month EBITDA and cash flow coverage for our overall stabilized Triple-Net lease portfolio for the first quarter of 2019. The latest available information was stable at 1.5 times.

As we foreshadowed on our last call, given current industry conditions, trailing 12-month coverage in our Triple-Net same-store seniors housing portfolio moderated to 1.1 times. Coverage in our post-acute portfolio was steady at 1.4 times and finally Ardent continues to deliver terrific results driving a 10 basis point coverage expansion to a very strong 3.1 times. We continue to estimate a $10 million impact to Ventas' 2019 NOI through transactions addressing certain smaller low coverage senior housing Triple-Net tenants with approximately $3 million crystallized year-to-date.

Potential transactions include operator and our business model transitions an example effectuated in the second quarter was a transition of 10 assets on the East Coast from a smaller Triple-Net tenant to ESL under own management contract. We see upside in the cash flows at these assets over time. We continue to estimate that our Triple-Net portfolio will grow 2019 same store cash NOI in the range of 0.5% to 1.5%.

Moving onto our highly valuable office segment, which includes our university based research and innovation and medical office businesses and represents 28% of our NOI. Our office segment delivered strong same-store cash NOI growth of 2.9% in the second quarter. Our R&I business led the way, increasing Q2 same-store cash NOI by a robust 4.6% driven by occupancy gains of 120 basis points on strong lease up at our Duke and Wake Forest assets. Together with revenue per occupied square foot increasing 3%. As an example in Q2 of the strong demand for on-campus research space, Penn Medicine took possession of 38,000 square feet of lab space at 3711 Market Street in Philly, replacing the science center which expanded to 50,000 square feet in the newly completed 3675 Market Street building. Both buildings are now over 97% leased. We affirm our full-year guidance of 3% to 4% for R&I same store NOI, trending towards the high end of the range after a strong first half of the year. Turning to our medical office business and will be same store NOI, increased by a solid 2.4% in the second quarter. As Pete Bulgarelli highlighted in Philly, the team is focused on driving NOI by executing on operational best practice initiatives. Some green shoots of these efforts include very strong tenant retention in Q2 of 92% in sequential occupancy growth to nearly 91%.

Operating expenses decreased to 1.4% year-over-year, reaping the benefits from utility savings arising from sustainability investments as well as lower repair and maintenance costs. We are enthusiastic about our MOB business, and reaffirm our full year guidance of 1% to 2% for 2019 MOB same-store NOI. On a combined basis, we reaffirm our office portfolio 2019 same store cash NOI guidance range of 1.5% to 2.5% with the expectation to trend to the higher end of the range.

Pulling back for a minute, you'll recall that core growth defined as our Triple-Net MOB and organic R&I performance is a fundamental building block of our five-year growth expectation. We are steadfast that core will be an important growth contributor. Our diversified Triple-Net portfolio will benefit from escalator driven growth while putting the office team are building momentum in MOB and going from strength to strength in the R&I operating portfolio.

Turning back to the year now. Our overall company's second quarter financial results in our increased 2019 guidance. Normalized FFO per share in the second quarter was $0.97. The FFO performance versus 2018 was primarily the result of property growth as well as $0.02 from the recognition of cash profit on Paragon warrants. Attendance in our UMB Knowledge Community and another proof point of the attractiveness of our R&I attendance.

Q2 results were also affected by the earnings drag from the LGM equity offering in early June. I would also note that year-over-year, we're lapping the Second Quarter 2018 pay off of the Ardent loans in related fees. We were active in the capital markets in the second quarter. We raised nearly a $800 million of equity in early June to fund our LGM investment and followed on in July with roughly $80 million raised on our ATM to partially fund our Colony investments. We also tapped the debt capital markets issuing $450 million of attractively priced five-year bonds at 2.65% with proceeds used to retire bonds maturing in 2020.

Thereby extending the duration of our debt portfolio to approximately seven years. As a result of these actions, our net debt to adjusted EBITDA ratio improved 30 basis points sequentially to a robust 5.2 times at quarter end. Principally as a result of the timing of equity raised in early June, the advance of the July closing of the first phase of the LGM transaction. With both those guidance, we're happy to raise our normalized FFO per share outlook for the full year 2019 to now range from $3.80 to $3.86, a $0.03 improvement at the midpoint from previous guidance of $3.75 to $3.85 per share.

As just discussed, we are also reaffirming our property portfolio and segment level same-store cash NOI growth for 2019, assumptions underpinning our FFO guidance are largely the same as last quarter with a few notable updates. First guidance now includes the impacts of announced investments, including the Le Groupe Maurice and the Colony Loan investments and associated capital markets activities. The second and final phase of the LGM transaction is expected to close in the third quarter.

Second , we now expect to generate $600 million through 2019 dispositions and received of loan repayments, up $100 million from prior guidance from expected sales of non-core senior housing operating assets at attractive pricing. approximately $360 million of disposition proceeds have been realized year-to-date. Final items to noted guidance including increased premium costs for property and casualty insurance as a result of our August renewal and a tight insurance market.

Our 2019 outlook also assumes $370 million weighted fully average fleet in the shares. No new capital market activity is included with the exception of Canadian debt funding connected with the completion of the second phase of the LGM transaction. The Ventas team is very pleased with our start to the year and is committed to execute with excellence against our initiatives in 2019 and to pivot to FFO growth in 2020.

We are confident we have the portfolio, partners, team, and perspectives necessary to deliver. With that, I'll hand it to the operator to open the line for questions.

Questions and Answers:

 

Operator

Thank you. [Operator Instructions] And our first question comes from Nick Joseph with Citi. Please proceed.

Nick Joseph -- Citi -- Analyst

Thanks. Bob, same-store SHOP NOI guidance, you mentioned in your remarks that you expect to trend towards the lower end of the range. What are you now expecting for full year 2019 because of the number?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Hi, Nick. Yeah. So, we are correct, you're correct, we are guiding towards the lower end, a reminder the range is flat to down 3. We are down, call it 2.5% in the first half. So I would describe the full year at the lower end as below the midpoint, but still within the range of that original guidance.

Nick Joseph -- Citi -- Analyst

So around 2.5 for the full year as well?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Between 1.5 and 3 down, yeah.

Nick Joseph -- Citi -- Analyst

And then when you think about your comments for 2020 SHOP performance and over the next five years, what gives you the confidence to achieve kind of the goals that you've laid out, given the challenges you had already this year in terms of results versus what guidance initially assumed?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. Great. Thanks for asking because I think it is really important to differentiate between the year and now and the guidance and the results just reported, which clearly are still in the midst of the timing mismatch between supply and demand. There is no question and very much in line with expectation again, reaffirming our full-year guidance. That is different than a five-year outlook and we did in the prepared remarks talk about the demand-supply equation going forward, specifically in '20, where we see an improvement in new deliveries of 15% year-on-year, '20 versus '19 and indeed, the lowest level we've seen since 2015, which is obviously informed by proprietary data and really no change frankly, in the last month, from what we told you then and what we see now. So our optimism remains clearly the powerful upside with operating leverage accelerating demand and visibility into supply is what gives us the confidence in that 46% can go over that five-year period. So we remain steadfast on that point.

Nick Joseph -- Citi -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Nick Yulico with Scotiabank. Please proceed.

Nick Yulico -- Scotiabank -- Analyst

Thanks. Good morning, everyone. So I know you added, you announced a lot of new R&I developments at the Investor Day, but I think you also talked about over the next 12 months you would you could be announcing another $600 million plus of projects. And I know it's only a month ago, but yeah, do you have any updated thoughts on that?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Well, we would confirm that we have announced the $900 million in five specific projects, which are outlined for you and then there are about 600 more in the near-term pipeline that composed of $1.5 billion pipeline that we are working on and believe will be commenced in the next 12 months.

Nick Yulico -- Scotiabank -- Analyst

Okay. And then just two more questions on SHOP. If we look at the FAD adjustments you gave on the capex in the SHOP segment, it was up and I think -- year-over-year and I think you also raised your capex guidance higher, can you just explain what's driving that, I mean how much of that is just routine cost going up versus you're spending more money to position the portfolio better relative to some of the new supply competition.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Sure Nick. Yeah. Thanks. So, well spotted. So we did increase on a full-year basis, our FAD capex by about $5 million at the midpoint, that is Le Groupe Maurice now incorporated into the forecast, of course that's SHOP asset. When you look in the second quarter, particularly at SHOP on FAD capex spent year-on-year. It is higher year-on-year, I would point to timing, very much on that. So our full year outlook hasn't changed in regards to the core of the base FAD capex it's really just timing within the year.

Nick Yulico -- Scotiabank -- Analyst

Okay. That's helpful and then just last question is on the -- I think the number of assets changed in the same-store for SHOP and I know you had some, yeah, I'm just trying to kind of reconcile the overall SHOP portfolio. I know you transitioned, you said some Triple-Net to ESL and then it looks like you're also, you lowered the number of assets in the same-store for SHOP and then I think you also have some higher amount of assets that are now intended for disposition versus last quarter, so if could you just kind of reconcile that that would be helpful. Thanks.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah, you bet. So and there's a lot going on, as you rightly say in fact the top expenses I would make is that the vast majority of our assets are in the same-store pool and is a helpful table that reconciles what's in and what's out, but over 90% is in the pool. Now within that, there are certainly some changes, so for example, in the guidance for dispositions, I highlighted an incremental $100 million, particularly as a result of SHOP non-core dispose that's incremental and new to the guidance. So, that's approximately 10 assets. Those have been taken out of the same-store pool and our advanced stages of negotiation, so that's an important change and as also noted transitions within Triple-Net between business model, particularly from Triple-Net to SHOP also occurred and notably with ESL. So those are all in the midst of that reconciliation and new quarter-over-quarter.

Nick Yulico -- Scotiabank -- Analyst

Okay and is there any -- is there any benefit to full year SHOP same store performance by selling those assets?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Not material.

Nick Yulico -- Scotiabank -- Analyst

Okay. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Vikram Malhotra with Morgan Stanley. Please proceed.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. So just two quick ones, just going back to SHOP, so you've narrowed the range towards the bottom. If I look out, I know the five-year is different from today, but you do have a pretty good handle on supply as you highlighted for the next three years, I'm just hoping you can give us some sort of trajectory whether it's, hey, this is the next three years and then resuming X in year four and five, given you have all the granular data on supply and demand. Could you just give us some incremental color on kind of how you see this five-year progressing in terms of trajectory?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Vikram. Hi, this is Debbie. I'm so glad that this is a topic of interest, and you were able to really appreciate all the data analytics and the detail that we provided for you at Investor Day. So, Bob will answer your question but...

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. So there was a bit of incremental news today and that we shared the 15% improvements in supply deliveries next year as our expectation. We showed at the Investor Day 35% over a two-year horizon. So as you go into 21, even more improvement on deliveries and of course at the same time, you see the increasing demand, both on the underlying population and penetration and so that together begins to accelerate in '21, '22, '23 and beyond. And so the slope of the curve will follow that in terms of our NOI. I emphasize again next year we talk about occupancy inflection in the back half of the year. Of course, we continue to have to work through the deliveries, but it's really an occupancy commentary, but again I keep coming back to the five-year confidence and we really remain very confident in that and have the insights to give us that confidence.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Would it be fair to say that since you have a pretty good view on the next three years, year four and five, you're just sort of assuming continuation of demand and maybe somewhat of an acceleration in year four and five from year one and three?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah, indeed. The slope will accelerate in the latter years of that five-year, no question.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Okay and then just on the Duke MOB deal -- I just want to clarify is it an MOB, is it sort of a mix between R&I and MOB, you did pay a sub 5 cap rate, and I believe just my talking to brokers, there was a decent amount of interest in this asset. So can you give us some more color, was there a bigger, broader rationale. Are there other growth opportunities within the asset or just broadly into the system?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Yes. Thank you. So it's a 5.5 cap. It's a new asset. Long-term lease with Duke Health and affiliated physician groups. I think importantly it is showing this convergence of academic medicine and research and innovation. We have a nearby research and innovation building that really would build four Duke researchers and Duke Health faculty, where they're conducting translational science that is used to cure and treat ailments. And so, I really like the acquisition for many reasons, certainly on its own as a good risk-adjusted return, but importantly because it both expands our relationship with Duke and it really shows this convergence that we saw in Penn and that we're seeing here between medicine and the research and innovation business.

Vikram Malhotra -- Morgan Stanley -- Analyst

Just to clarify, that's 5.5 GAAP Right? Not cash?

Debra A. Cafaro -- Chairman & Chief Executive Officer

It is because it has -- it's a 100% leased and it has a 13-year lease with 2.2% annual cash escalators. So that's why we think it's a good risk-adjusted returning investment for us.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Great. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

You're welcome.

Operator

Thank you. And our next question comes from Michael Carroll with RBC Capital Markets. Please proceed.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah. Thanks. And Bob, I wanted to see if you could talk a little bit about supply again and I know in the NIC data that came out a few weeks ago, kind of showed that deliveries were fairly consistent, in the first half of this year, but it's supposed to spike in the second half before moderating again in 2020. With your work that you guys have been doing in your portfolio, do you see something similar to that or do you think that you're going to see a much smaller uptick in the second half of this year?

Christian N. Cummings -- Senior Vice President, Asset Management (Seniors Housing)

Yeah. This is Chris Cummings, Senior Vice President of Asset Management for Senior Housing. I'll take that one. So as we look at the supply forecast, we're really looking at a combination of data sources, including NIC as well as others. And I think what we're seeing is a consistent pattern in the back half that we're seeing in the front half in terms of deliveries.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then I guess Bob or Chris, if you're looking at the -- your supplement and the data that you provide about the construction and process pipeline within your portfolio, it does seem like it increased a little bit in the second quarter versus the first quarter, I'm assuming you're describing the NIC data there, I mean I guess with the work that you guys have done is that increased, similar to what you're seeing or is that a little bit different?

Christian N. Cummings -- Senior Vice President, Asset Management (Seniors Housing)

Yeah. This is Chris again. I'll take that one. So what you're seeing is really a factor of the pool change that we talked about. If you look at the same pool, first quarter to second quarter, you would have seen a similar decline in 30 to 40 basis points as you saw in the NIC reported data.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah. I was referring to the construction in process pipeline within your supplement, your supply sheet showed that there is 6.5% of developments are in process right now versus the 1Q 2019 supplement, which showed 5.9%. So within that dataset that you provided, assumed that supply or construction activity increased a little bit.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. And we're referring to the same, Mike. So the phenomenon here is that as the pool changes, you take assets out of certain markets, the denominator changes. So the percentage change. It's really bad, I would step back and say, though the NIC data, as you know, it gets revised as we look at our data, it really hasn't changed in terms of the outlook on supply, as I mentioned from where we are 30 days ago, very, very consistent. So nothing new to report on supply from our perspective.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. Perfect. And then, I guess last question, can you talk a little bit about the flu season. I know it was a little bit longer this year compared to the past several years. I mean, did that impact your results at all?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Now in the the second quarter, is a little bit of a storm in a teacup I'd say because it started out pretty aggressively as a fat tail as we've described it, but then I went away pretty quickly. So a non-event in the quarter.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. Great. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from John Kim with BMO Capital Markets. Please proceed.

John Kim -- BMO Capital Markets -- Analyst

Thank you. Can I ask a couple questions on guidance, so you maintained your same-store NOI guidance, offices trending higher SHOP trending lower, why not change the components if you think that's going to be the case. Is that just a policy issue and also are those two items going to potentially offset each other, or is the total same-store NOI trending above or below the midpoint?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. So whether it's a policy you might be a -- I call it a framework, a guardrail and so far as just quarter-to-quarter guidance, I don't think should change on the segment level, barring something unique material, so qualitatively giving you a sense for where we're headed and/or changing the range in the light of a material changes is our framework for sure from here. We think that's good for the investors as well. And as you say, some within segment higher end or lower end, but again, on average, and in total, sticking to the range we gave in February .

John Kim -- BMO Capital Markets -- Analyst

Okay. And then, can I ask what you're expecting as far as SHOP occupancy for the second half of the year. And then separately, but within guidance still, what is your assumption on the base rate of the Colony Loan just given labor has been trending down?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

I'll do the first one. So guidance, if you go down the P&L for what we said in February, we are still holding true. And on the occupancy line, that was flat to down 50 basis points year-over-year and we are still holding to that number down through the P&L. So as I mentioned, whether it's cost, rate, occupancy, it's really shaping up through the P&L very much in line with the range we gave initially .

Debra A. Cafaro -- Chairman & Chief Executive Officer

And then, regarding Colony, we're just picketed about 9% .

John Kim -- BMO Capital Markets -- Analyst

Great. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Chad Vanacore with Stifel. Please proceed.

Unidentified Participant -- -- Analyst

Thank you. Good morning. This is [Indecipherable] for Chad. My first question is regarding the $9 million warrant income from Paragon, could you remind us of that particular transaction and how it was structured?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Yes. We basically had an investment in the equity of Paragon, which is one of our tenants in our UMB Knowledge Community and that is a high quality tenant who is recently acquired for a $1 billion to $2 billion and the valuation on the warrants was obviously at a lower level and when the transaction closes, we were able to gain the difference between the strike price in the valuation. And so we were very happy to receive those cash proceeds, and it really does show the quality of our R&I business once again.

Unidentified Participant -- -- Analyst

Would you say that's like a equity for rent-type arrangement and do you have other similar equity investment in your I&R portfolio that potentially could add to earnings down the road?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thank you. Yes. I mean basically it's just like an option and we have maybe a handful of these little things kicking around in the office business and they may or may not come to provision over time, but it does really point out the good tenancy that we have and the opportunity that we have in office business.

Unidentified Participant -- -- Analyst

Okay. That's helpful. So my second question is regarding the Triple-Net senior living assets. So it looks like you sold fixed assets in the second quarter on these Brookdale assets?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yes. That is correct. They were Brookdale assets we have approximately a $100 million of Brookdale dispositions in our guidance and that was about $25 million of the 100.

Unidentified Participant -- -- Analyst

Okay. So we still have maybe like two-thirds of those that has yet to be sold?

Debra A. Cafaro -- Chairman & Chief Executive Officer

There are a few more assets remaining in our agreement with them that are being marketed for sale.

Unidentified Participant -- -- Analyst

Okay. So it looks like the Triple-Net coverage dip a little bit in the second quarter. Could you tell us what the holiday coverage is like and what is ESL prior to the transition?

Debra A. Cafaro -- Chairman & Chief Executive Officer

As we mentioned at Investor Day holiday in so 1.15 fixed charge coverage and regarding the Triple-Net coverage, it's as we expected when we reported last quarter.

Unidentified Participant -- -- Analyst

Okay. In your press release, you said that you're not looking to modify holiday in these would you like to attach the timeframe for that, is this the strategy to kind of way for the upturn of the market?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Okay. And we're going to have to move on, just so we are courteous to the other callers, but we are in a good spot there and have lots of options at good portfolio and a good lease. So we're going to have to move on, but thank you for your questions.

Operator

And our next question comes from Daniel Bernstein with Capital One. Please proceed.

Daniel Bernstein -- Capital One -- Analyst

Hi, good morning. Just a follow up on some of the lease coverage. Do you expect lease coverage in the Triple-Net Seniors Housing portfolio to tick back up, once you complete asset sales?

Debra A. Cafaro -- Chairman & Chief Executive Officer

Hi, Dan. This is Debbie. I think what we can say about the Triple-Net portfolio, remember it's a lagging indicator. It's a trailing 12-month indicator that is reported one month in arrears. So as we go through this protracted housing cycle. And then when we get in the powerful upside, you should see that coverage again trend down as it has been. And then over time trend up again, but basically it will be behind the way you report your P&L and your SHOP assets, which is immediate and so that will take, I think that cycle is a line dated cycle that will take years really to play out and it will pick up again over time as the senior housing business benefits from demand and we achieved this powerful upside, which affects both the SHOP operators as well as the Triple-Net operators.

Daniel Bernstein -- Capital One -- Analyst

Are you looking at that? Does that -- your comments just now apply both to independent living and assisted living if you look at some of the NIC data and maybe the data you have on your particular portfolio is a little different. But independent living construction seems a little bit more elevated now than assisted living, and the Triple-Net portfolio, you correct me if I'm wrong, is a little bit more tilted toward independent living and AL, so do the comments apply both the AL and IL or do you have some tilt in those comments towards assisted living.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Yes. With our proprietary data analytics and our experience, you're sophisticated enough to see that within senior housing those two sub-segments may have also their own separate timing cycles. But I'm talking now about the whole and we do look at those individually, but we're talking now about the whole of senior living. And I think the main point is that you may see operating improvement in asset before you see coverage start to cycle back up and that's our expectation.

Daniel Bernstein -- Capital One -- Analyst

Okay. That's all I had. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thank you.

Operator

And our next question comes from Jordan Sadler with KeyBanc Capital Markets. Please proceed.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thanks. Good morning. So I just wanted to follow up on the -- How are you? -- I wanted to just follow up on the cash same-store NOI, trending a little bit lower. Bob, I think, so you're expecting -- you are expecting some improvement, I think you were talking about sort of easy comps on a RevPAR basis. Can you just sort of help me understand what else is going on from sort of an occupancy and expense perspective sequentially as we head into the second half of the year that gives you the confidence that we'll kind of the sort of deterioration that we saw sequentially year-over-year deterioration will sort of moderate?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. So let me talk about sequential first sequentially, If you look at SHOP senior housing, there is always a seasonal dollar sequential decline first half to second half and that's more days, more PTO over time, high utilities So seasonally, we expect first half to second half dollars to be lower as it is every year, nothing new to report there. Year-over-year is really where the discussion is because that takes that out and looking at the P&L again occupancy within that 0 to 50 basis points range, I mentioned RevPAR strengthening as a result of lapping prior year, at the same time OpEx, two to three is still a good number for the year basically implying that we're going to see some of that labor wage pressure coming through in the back half of the year, all of which nets out to the lower end of the range for the full year and a pretty consistent performance NOI as the first half.

Jordan Sadler -- KeyBanc -- Analyst

Okay.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Hopefully that answers your question.

Jordan Sadler -- KeyBanc -- Analyst

Yeah. That's helpful. And then looking at the, just the Triple-Net portfolio, overall Triple-Net revenue declining sequentially. I assume the BKD sales may have been a portion, have to look at the timing there. And then there were some transitions you talked about in the quarter, I guess the ESL, how much of the $10 million bucket of restructurings that you've sort of laid out was used up in the quarter, if any? And then is it just those BKD sales and the transitions that were driving that decline in Triple-Net revenue?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. So let me talk about the $10 million for the year $3 million crystallized year-to-date principally second quarter and phasing of the balance of the $10 million, call it $3.5 million each quarter Q2 and Q3. So that's how the $10 million plays out and certainly the transition to ESL is a part of that in the second quarter when that was consummated. In terms of dollars, sequentially, you're pointing to the right items if it's kind of total revenue, those are definitely drivers.

Jordan Sadler -- KeyBanc -- Analyst

No other one times to point to then?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

No.

Jordan Sadler -- KeyBanc -- Analyst

Okay. And then lastly -- can I give you one quick one for you, Deb on investment. I know you guys are convicted on the same-store growth in the five-year outlook, which is obviously pretty impressive numbers and would be, I think the best in your portfolio over that period. So should we expect as you are sort of focusing on investment that you would ramp your investment in U.S. SHOP opportunities in the near term.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Well, again, one of the benefits of our enterprise and we have invested about $3 billion a year since 2010 or 2009. One of the benefits of our enterprise is that it's broad, it's diverse. We can play in different parts of the capital stack and so we are constantly evaluating opportunities across our verticals and with up and down the capital stack to make good risk-adjusted returns and so I think you'll see that across the board as you have this quarter with development in our NII with the Le Groupe Maurice investment and with our interesting trophy office assets. So you'll see us invest across the board.

Jordan Sadler -- KeyBanc -- Analyst

Okay. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

We have a great business to be able to do that. Thank you.

Operator

Thank you. And our next question comes from Derek Johnston with Deutsche Bank. Please proceed.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, good morning everybody. Thank you. Actually, all my questions were answered. I thought I queued out my apologies. But thank you and have a great day.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Thank you for your courtesy.

Operator

Thank you. And our next question comes from Michael Mueller with JPMorgan. Please proceed.

Michael Mueller -- JPMorgan -- Analyst

Yeah. Hi. Just a quick numbers question, was the $0.02 of warrant income in prior FFO guidance and is anything similar baked into the implied 2H guidance?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

No. This is Bob. No, that was not baked in to guidance. I would say now is that $0.02 and we don't have anything new, like the warrants in our guidance.

Michael Mueller -- JPMorgan -- Analyst

Got it. That was it. Thank you.

Debra A. Cafaro -- Chairman & Chief Executive Officer

All right, thanks.

Operator

Thank you. And we have a follow-up from Nick Joseph with Citi. Please proceed.

Unidentified Participant -- -- Analyst

Yeah, it's Michael Bilerman. Just two questions, the first Bob, if you can just maybe unpack all the positives and negatives on a per share basis to the guidance change and you clearly had the investments that you made for the Colony Loan, Le Groupe Maurice, Duke asset the earlier timing on the equity to fund that to some dilution as that equity stayed on your balance sheet, you're talking about weaker core in the shop, better office, you just mentioned the $0.02 addition on the Paragon, lower cap rate on the sales. If you can just sort of tally up here in the sense that are positive and here the sense that are negative net equal the positive 3 that would be helpful. And then I'll follow up after that.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Good one [Indecipherable] Micheal, but we'll streamline it for everyone.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

I'll try to simplify it down. So Colony clearly, not in the original guidance now in. We talked about that being $0.05 for a full year leverage neutral. So this is half year, call it $0.025 good guy, Paragon not in, now in $0.02 good guy. The partial offsets include the equity drag because we funded early on LGM and property insurance premiums, which I noted in the prepared remarks, we have a renewal in this very tight market and each of those were about a penny that gets resent to the midpoint.

Unidentified Participant -- -- Analyst

And then you're saying the SHOP and the office get each other from a per share perspective.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Also in the same range.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Yeah. The company's same-store property is consistent.

Unidentified Participant -- -- Analyst

Right. And then just trying to see if you go back to SHOP and you had your Investor Day mid-June, I guess, at what point, did the SHOP start to under perform your full-year expectations, was it a 2Q issue or is it as you re-forecast post Investor Day that the second half, either from a rate occupancy expense perspective was different from what you forecasted in February? It just feels as though things have moved faster to the negative in a short period of time from a forecasting perspective, which then calls into question the confidence and I understand the supplies coming down to '20 and '21 , but if you can't get the numbers accurate in the short period of time, what sort of confidence can we and investors have about the go forward?

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. Well, Michael, if you were sitting in around the table here over the last six months, there is really no news in terms of SHOP in our expectation. And so we haven't seen a change everything right through the P&L is pretty much in line with guidance in February and there is a range of course and we're within that range. So there is absolutely nothing that's changed in our view since Investor Day. There is nothing that's changed for our outlook. If there were, we would have said something when we set up in front of you a month ago. So our conviction remains the same.

Unidentified Participant -- -- Analyst

But you are trending towards the low end of the range you provided in February and sort of showcased late last year. Right. I mean, there is a change there.

Debra A. Cafaro -- Chairman & Chief Executive Officer

[Indecipherable] higher on others and the most important point is that as a company, everything is in line kind of with our company range and within the ranges by segment. So, very consistent with our February outlook and in the SHOP case as Bob says, really even on the line items and that should and does continue to give us confidence, not only in our full-year forecast, but also in the multi-year framework that we laid out at Investor Day. So as I said, I think it's really a great time to be at Ventas. It's a great time to invest in Ventas, we have a lot of opportunity . We're excited and we are in line with what we expected for 2019 or even better $0.03 at the midpoint. So we're feeling good about that and I hope that...

Unidentified Participant -- -- Analyst

I get all that. Right. Yeah. No. I get that and Ventas as an organization and you have all the levers to be able to pull the growth. And so I'm just focusing on the SHOP piece, because it was a big part of Investor Day and being at the lower end of the range, I don't know, it seems like a change, at least on that piece and I'm just trying to understand if it was something particular in the second quarter that would have caused it or something that you saw in the back half of the year that would allow you to trend lower, at least on the SHOP end. All of the other things that you guys are doing from an enterprise perspective, you're not just a SHOP company. I get that, investors get that, but I'm just trying to understand the change when it happened and why it happened.

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Yeah. There is no change in our view, again, we were down year-over-year in the first quarter call 2.2%, 2.9% in the second quarter, the profile of the P&L is very similar and everything within the original expectation. So again, I can only say it's very much as we expected.

Debra A. Cafaro -- Chairman & Chief Executive Officer

All right.

Unidentified Participant -- -- Analyst

Okay.

Debra A. Cafaro -- Chairman & Chief Executive Officer

Does that -- so I think, Michael, that you are our last but not least questioner. And I really want to thank everyone for their time and interest in Ventas. I hope everybody has a great rest of the summer and we will look forward to seeing you soon. Thank you.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Juan Sanabria -- Vice President of Investor Relations

Debra A. Cafaro -- Chairman & Chief Executive Officer

Robert F. Probst -- Executive Vice President & Chief Financial Offcier

Nick Joseph -- Citi -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Christian N. Cummings -- Senior Vice President, Asset Management (Seniors Housing)

John Kim -- BMO Capital Markets -- Analyst

Unidentified Participant -- -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Jordan Sadler -- KeyBanc -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Michael Mueller -- JPMorgan -- Analyst

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