Prepared remarks
Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Ventas Second Quarter 2026 Earnings Call. Operator provided instructions. I'd now like to turn the call over to BJ Grant, Senior Vice President, Investor Relations. BJ, you have the floor.
Thank you, Greg. Good morning, everyone, and welcome to the Ventas second quarter 2026 results conference call. Yesterday, we issued our second quarter 2026 earnings release, presentation materials and supplemental information package, which are available on the Ventas website at ir.ventasreit.com. As a reminder, remarks today may include forward-looking statements and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of topics may cause actual results to differ materially from those contemplated in such statements. For a more detailed discussion of those factors, please refer to our earnings release for this quarter and to our most recent SEC filings, all of which are available on the Ventas website. Certain non-GAAP financial measures will also be discussed on this call, and for a reconciliation of those measures to the most closely comparable GAAP measures, please refer to our supplemental information package posted on the Investor Relations website. And with that, I'll turn the call over to Debra A. Cafaro, Chairman and CEO of Ventas.
Thank you, BJ, and happy birthday. Good morning to all of our shareholders and other participants. I'm pleased to welcome you to the Ventas second quarter 2026 earnings call. Ventas delivered excellent results in the quarter, powered by strong growth in our senior housing operating portfolio and accelerating senior housing investment activity. With a decade of powerful demographic demand ahead, we intend to capture the unprecedented multiyear NOI growth and value creation opportunity by growing our SHOP footprint organically and externally and increasing our company growth rate. Since we adopted our 1-2-3 strategy in late 2023, our team has executed it with commitment and excellence to deliver outstanding returns and build our financial strength. We've made enterprise-wide investments in our innovative platform and team to drive our performance and elevate our industry. The results are clear. This quarter, we delivered 10% total company same-property NOI growth. U.S. SHOP led the way with 18% NOI and 360 basis points of occupancy growth year-over-year as we continue to outperform the industry. Our second quarter FFO per share of $0.97 represented 9% year-over-year growth. For the full year, we are again raising our normalized FFO expectations to $3.85 to $3.90 per share, equating to 8% to 10% growth, primarily because of our increased investment activity. The Ventas investment engine is firing on all cylinders. We now expect to complete $4.5 billion of 2026 investments focused on senior housing from $3 billion previously. We are executing at significant scale, and we've completed over $8 billion in investments since the beginning of 2024, adding more than 23,000 units across 174 communities to our SHOP portfolio. Our investment success has been enabled by the integration of our Ventas OI platform with our capital allocation decisions under Justin's leadership. Our number one capital allocation priority remains U.S. senior housing, particularly acquisitions that combine attractive growth, yield and risk-adjusted return potential. Our investment pipeline is active and actionable, and we're using our competitive advantages to win deals that meet our strategic and financial criteria, including double-digit to mid-teens unlevered IRRs and discounts to replacement costs. The private-to-public arbitrage opportunity for Ventas and senior housing is compelling, and we intend to use the power of our franchise to aggressively build on our investment momentum. Our investment activities and outlook, of course, are based upon the unprecedented demographic demand for senior housing. The leading edge of the nearly 70 million baby boomers has just begun turning 80 this year, ushering in a decade where the growth rate of the senior population more than doubles. Yet new starts remain at record lows. With demand expected to substantially outrun supply and the persistence of elongated construction timelines and high cost, we foresee an exceptional opportunity for outsized growth and value creation in the coming years. We also expect to make more dispositions of nonstrategic assets in the back half of this year to improve our growth rate and expand our senior housing footprint. The combination of more SHOP investments, strong SHOP internal NOI growth and increased dispositions should make SHOP 60% of our $60 billion enterprise by year-end. In closing, as you look across the investment landscape, Ventas offers investors an attractive combination of hard assets and growth from need-based secular demand, not correlated with the AI economy. With strong property and earnings growth, investment momentum, scale, financial strength and our differentiated platform, we are focused on delivering outperformance and winning together, while advancing our mission of helping people live longer, healthier, happier lives. Our whole Ventas team is in it to win it. And as Justin likes to say, the best is yet to come. Now Justin, I'm pleased to turn the call over to you.
Thank you, Debbie. I'm pleased to join you today to discuss another quarter of strong execution in SHOP and investments. Ventas has never been better positioned to capture the multiyear growth opportunity in senior housing. With a differentiated platform, strong balance sheet, outstanding operators and talented team, we remain focused on creating value for residents, operators, team members and shareholders. Our second quarter results reflect the strength of our portfolio, the effectiveness of our active asset management platform and the growing contribution of our senior housing acquisitions. Starting with SHOP. We delivered another great quarter. Same-store SHOP NOI increased 16% year-over-year, representing one of the strongest quarterly growth rates in our recent history. NOI growth in the quarter was led by the U.S. with 18%. Occupancy remains the primary driver of our performance. During the second quarter, same-store average occupancy increased 300 basis points year-over-year led by the U.S., which continues to deliver excellent growth with 360 basis points. Within the NIC Top 99 markets, Ventas same-store communities achieved approximately 150 basis points of occupancy outperformance versus industry averages, demonstrating the benefits of our focused operating execution and differentiated platform. More broadly, the key selling season is progressing well. As always, the May through September period remains the most important operating window of the year for senior housing. We started the year strong, raised the occupancy guide from 270 basis points growth to 300, and now we've entered the key selling season, which is on track so far. RevPOR increased 5% year-over-year and pricing strength was realized across both in-place rent increases and move-in rents led by our highly occupied communities. The combination of the occupancy and RevPOR growth drove nearly 9% same-store revenue growth across the portfolio. At the same time, expense growth moderated. Same-store operating expenses increased 5%, contributing to margin expansion. NOI margins expanded 210 basis points year-over-year to 31% and incremental margin flow-through reached 55%, highlighting the operating leverage embedded in the business as occupancy continues to rise. These results are the outcome of the work being done every day by our operators and the continued execution of the Ventas OI active asset management platform, which is fully deployed across our SHOP portfolio, and we are positioning our AI-ready tech stack to improve the execution of our insights. I'd like to give a special thanks to our operating partners who continue to deliver great results as they embrace our culture of winning together. Atria and Sunrise are leading the U.S. and Groupe Maurice continues to lead the way in Canada. Over the last several years, we have built a scalable operating framework that combines data analytics, benchmarking, active asset management and close collaboration with operators to drive performance at the community level. Our teams continue to focus on initiatives with our operators that can create incremental value across hundreds of communities simultaneously. Those efforts include refreshed capital investments, dynamic pricing insights, sales culture enhancements and benchmarking programs throughout our portfolio. One example is our relentless focus on driving occupancy in our portfolio, which is a long runway ahead. Our U.S. senior housing portfolio is 87% occupied of which our non-same-store is only 83% by design. We are well positioned in markets with a projected 1,200 basis points of net demand over the next few years. Our Ventas OI platform is deployed across our portfolio where we utilize real-time leading indicators to drive occupancy growth in partnership with our operators to drive price-volume optimization contributing to our occupancy outperformance in the U.S. On the other end of the spectrum is our cultural commitment to achieving zero lost revenue days in our communities. Working alongside our operators, we are implementing a playbook designed to drive occupancy in highly occupied communities by improving execution around resident retention and move-in timing. Today, approximately 10% of our SHOP communities are operating at or near 100% occupancy with two-thirds located in the U.S. This demonstrates both the demand characteristics in our markets and our ability to translate that demand into operating results. It also provides the proof point for the lack of frictional vacancy in senior housing communities. We are currently seeing outperformance in our higher occupied cohort. The community cohort currently 90% or more occupied delivered 25% NOI growth. This includes about half of our U.S. same-store communities. They have pushed price, occupancy and margin expansion. This performance demonstrates the long runway ahead of reaching stabilization, the top line growth potential and margin expansion opportunities in highly occupied communities as our portfolio continues to grow occupancy. Wrapping up SHOP, I'm pleased to reaffirm our same-store SHOP guidance of 16% NOI growth at the midpoint. As a reminder, the slope and timing of the key selling season is the main determinant to the full year results, and we are in the middle of it right now. Turning to investments. Based on the strength of our closed activity and the attractive senior housing acquisitions that we currently have under contract, we are raising our full year 2026 investment guidance again from $3 billion to $4.5 billion. Strong senior housing investment momentum is further expanding our SHOP footprint. Year-to-date, we have completed over $3 billion of investments focused on senior housing across 27 transactions, further expanding the quality, reach and earnings power of our SHOP portfolio. All of our year-to-date senior housing investments were underwritten to double-digit to mid-teens unlevered IRRs. Together, they have an average expected year one yield of 6.6% and were acquired at significant discounts to replacement costs with an average price per unit of $358,000. The senior housing transaction market remains active, and our pipeline continues to offer a broad set of compelling opportunities, while interest in the sector continues to grow among both new and existing sources of capital. Ventas is demonstrating the power of our differentiated competitive approach. Our relationships continue to be a defining advantage. More than 90% of our year-to-date investments were relationship-driven, including off-market transactions and marketed processes involving repeat sellers, existing operating partners or both. These relationships create real process advantages, including the ability to preempt opportunities and compete effectively at the finish line. Each investment is selected through our right market, right asset, right operator framework with a clear focus on enhancing portfolio quality and positioning Ventas for durable long-term growth. Our underwriting is benefiting from our substantial Ventas OI data analytics and allowing for a very efficient close process, which is approximating around two months start to finish, which is among the most efficient in the industry. Looking ahead, the senior housing investment opportunity set remains robust. We will continue to use our platform, relationships, data and execution capabilities to source and close attractive investments at scale. In closing, I'm energized by the opportunities ahead. We continue to deliver strong organic growth as we expand our portfolio through accretive investment activity. We are doing so against the backdrop of powerful demographic tailwinds and historically limited new supply, while exercising the strength of our Ventas OI platform to drive outperformance. I couldn't be more excited as we create environments where residents choose to live and enjoy the valuable benefits of senior housing.
Thank you, Justin, and good morning, everyone. I'll begin with our second quarter financial performance, then discuss our balance sheet and capital activity and conclude with our improved outlook for 2026. Starting with our enterprise results. Ventas delivered another quarter of strong performance and growth. Net income attributable to common stockholders was $0.14 per share. Meanwhile, normalized FFO per share was $0.97, representing 9% year-over-year growth, driven by strong property performance across the portfolio, accretive senior housing investment activity and the continued execution of our 1-2-3 strategy. Total company same-store cash NOI increased 10% year-over-year. Once again, SHOP is the primary driver of our performance, generating 16% same-store cash NOI growth with the balance of our portfolio all contributing to double-digit growth in our overall same-store property portfolio. Our outpatient medical and research portfolio, or OM&R, delivered 5% same-store cash NOI growth in the second quarter, led by outpatient medical. After adjusting for cash fee income, our outpatient medical same-store cash NOI increased 3% in the second quarter. This outpatient medical performance was led by a 50 basis point occupancy improvement year-over-year and was supported by strong tenant retention of 88%. Our triple-net portfolio generated 3% same-store cash NOI growth in the second quarter, and we expect the triple-net same-store year-over-year NOI growth rate to increase in the second half of the year. Moving on to the balance sheet. Our financial position strengthened again during the quarter. Net debt to EBITDA improved to 4.7x, our best leverage level in well over a decade, representing a 90 basis point year-over-year improvement and 30 basis point sequential improvement. The continued improvement in leverage demonstrates the power of our organic growth engine and the momentum in our equity-funded investments. Year-to-date, we have completed $3.4 billion of investments and have raised $4.2 billion of equity with $1.6 billion currently unsettled. As a result, liquidity of $4.9 billion at the end of the second quarter provides substantial financial flexibility for our investment and refinancing activity. Last, I'll turn to our updated earnings outlook. Given our strong first half performance and continued momentum in external growth, we're once again raising our earnings outlook for 2026. We now expect full year net income to range from $0.58 to $0.63 per share or $0.61 per share at the midpoint. We are once again increasing our full year normalized FFO per share guidance to now range from $3.85 to $3.90, which represents year-over-year growth of 8% to 10%. Our new guidance midpoint of $3.88 is a $0.02 per share improvement from our prior guidance midpoint. Bridging this improvement is a positive $0.03 contribution from higher accretive senior housing investment activity, net of increased capital recycling. This is partially offset by $0.01 from the impacts of higher interest rates and a higher share price. A detailed discussion of our guidance assumptions can be found in our Q2 supplemental and earnings presentation posted to our website. To close, we are very pleased with our second quarter results and our performance through the first half of the year. Ventas is benefiting from a unique combination of powerful demographic tailwinds, industry-leading operating execution, a highly active investment platform and a strong financial position. The entire Ventas team remains focused on executing our strategy, creating value for our shareholders and extending our track record of outperformance.
Questions and answers
Operator provided instructions. All right. Looks like our first question today comes from the line of Julien Blouin with Goldman Sachs.
So we've seen others in the sector sell either full OM&R portfolios or sell JV stakes in portfolios. Just given the strength of the interest out there, is there anything holding you back from recycling capital out of outpatient medical and into senior housing, and how do you think the cap rate on your portfolio would compare to some of the ones that are out there?
Good morning, Julien. Thanks for the question. Look, we've always taken the view that we'll strongly consider any transaction that we believe creates long-term value for shareholders, and we've proven that in the past with our SNF disposition and spin-off. We continue to evaluate our portfolio. Our strategy is very focused on expanding our SHOP footprint, and that's exactly what we're doing. And that's how we're really thinking about strategic opportunities.
Got it. And then Justin, at what level of portfolio-wide same-store SHOP occupancy do you think you could start to see same-store RevPOR accelerate towards maybe the 6% or 7% range? How far from a portfolio-wide RevPOR acceleration do you think you are currently?
Yes. So I mentioned in my prepared remarks that half of our U.S. SHOP same-store portfolio is 90% occupied or more. That grew NOI 25% year-over-year. The RevPOR is 6% in that cohort, so it's obviously bringing the average up across the portfolio in terms of NOI growth and RevPOR growth. Occupancy growth was really strong in that group as well on the better side of our average. And so I think that's really encouraging as you think about two things. One, we have a really long runway to go. We're 87% occupied across SHOP. To know that when we get to that first destination, which is to break that 90% barrier, there's a lot of growth opportunity that we're proving is yet to come. So it's a tremendously large proof point of the growth opportunity in the 90-plus occupied group.
Got it.
Our next question comes from the line of Jeff Spector with Bank of America.
I'm sorry if I missed this. Can you talk about the occupancy levels from June versus April and May? Was there an acceleration? Or did it maintain the same level of growth?
Sure. So when I said in my remarks we started the year with a 270 basis point guide, we've raised it to 300 basis points of growth year-over-year. We started the year really strong. We had 310 in the first, we had 300 in the second. So that means we need around 300 for the rest of the year. We have good visibility into the key selling season. It's on track. There's good sales activity on the ground already in the quarter, good occupancy growth already in the quarter, and that's supporting our full year guide expectation of around 300 basis points, with the knowledge that we have a long ways to go really to get through the rest of the key selling season, but so far, so good.
Okay. Great. And then sticking with occupancy, given that has been for us at least the top incoming question from investors, I assume that's just people are debating on things topping out or not. But Justin, of course you talked about the lift in occupancy. I think you said that the same-store today around 83% and roughly half the community is already above 90%. Could you provide a little bit more context around your opening remarks and occupancy over the coming years? I think you also said 10% today at full occupancy; I don't know if you've talked about where you see that reaching 25% or 50% over the coming years?
I really appreciate the question because it's a mission of ours to prove that stabilization is a much higher number than what we used to think it was traditionally. One of the proof points we talked about was the 90-plus percent occupied communities. Another one I mentioned is the 10% of our portfolio that is at or near 100% occupied. That group is also delivering very strong NOI growth and is benefiting from rate growth even higher around 7% RevPOR and has around 20% NOI growth as well in the U.S. By the way, two-thirds of those in that category are in the U.S. I think everyone knows we have a highly occupied Canada, but our U.S. is demonstrating that we can get all the way to 100% occupied in our communities. That's been a key part of our thesis as we talk about this multiyear growth opportunity. And now it's really pleasing to be able to show these proof points and demonstrate the NOI growth opportunity as we get into these higher occupancy bands. And just a reminder, we're still only 87% across our SHOP portfolio. The 83% you mentioned is our non-same-store, which is about 25% of our NOI right now; 75% is in the same-store. So the 83% has a long runway ahead, combining for 87% overall. When we get to this destination of 90% plus, there is really strong potential for NOI growth.
Justin, I think he has to prove to everyone that in this new paradigm, we can get into close to 100% occupied over the years.
Exactly.
Our next question comes from the line of David Rodgers with Raymond James.
Wanted to ask about the SHOP flow-through that's in the presentation. Obviously, you had a nice pickup in occupancy that helped drive a pretty big pickup in the flow-through from the last couple of years and even in the first quarter. You had a similar occupancy improvement, I think, from 24% to 25%, but no real pickup in flow-through. So Justin, is it just that you're getting those top 10% of the assets to full that is kind of driving the incremental component? Is there something operationally that you're doing where you continue to see that flow-through improve as we go forward? Just a little bit of color on that would be helpful.
You bet. So one of the real positive aspects of the senior housing business model is its operating leverage. What that really refers to is that as occupancies go higher, your expenses become more fixed. So the difference between this year and last year is we're running at a higher occupancy, so you have more operating leverage you're benefiting from, and then that's producing the opportunity for the better incremental margin that we're seeing. So 55% was good. And we would expect the opportunity for that to be even better as we move occupancy over time.
And then maybe a separate follow-up. With regard to investments, obviously, I'd love your opinion on where we are in the development cycle. You talked about discount to replacement costs, rents are below where they need to be to develop. I think from a new development standpoint, you haven't been particularly active. Is that something as you look out over the next couple of years that you can see that gap closing with 5% RevPOR and 300 basis point pick up in margin where you want to be ahead of that curve? So I guess, maybe talk to me about where you think we are maybe in the cycle of development for Ventas in particular?
If you don't mind, I'll speak to the big picture first. I can talk about us because we're really focused on acquiring in place and growing cash flows. I mean that's our primary focus. But development is going to be needed because Debbie made the point around demand; there's a need for supply over time. The reality is that there are not a lot of projects that would pencil at this current time. We think that current rents need to be up to 40% higher or even more in certain cases, with trended rents around 25% higher. So we're a ways off from probably any big wave in development. There's also construction costs and availability of labor as well as debt and equity cost and availability of capital. One thing on that, though: because of those dynamics, the projects that could pencil are those that are disconnected from the market in terms of rent expectations and would feel comfortable delivering and really introducing a new higher-end product to a market, which is a luxury product. We see these in our pipeline. Those are the types of projects that developer/operators are trying to bring to market. Our primary focus right now is really to continue this acquisition program; we've delivered over $8 billion and it's projected to deliver $4.5 billion this year based on what's been closed or under contract, at really attractive returns and with high-quality communities. So we're going to keep that going.
And just to top that off, what we do know is that there were a little over 1,000 starts this quarter and there's 2 million people turning 80 just in 2026 and that demographic demand wave continues for a decade. When we look ahead, the near to intermediate-term multiyear growth and value creation opportunity is really an exceptional one for us.
Our next question comes from the line of Seth Bergey with Citi.
I guess just to start off with the increased acquisition guidance and the increased competition in the marketplace: has the number of deals that you guys are looking at that funnel through to something you close changed? And are there certain parts in terms of more stabilized versus value-add deals where you're seeing more competition? Any color you can give on how pricing has also moved?
Sure. I'm going to start with the end part of your question. Pricing: we've mentioned in previous calls that cap rates have drifted down on a year-over-year basis. We've been really steady in the mid-6s in terms of our year one yield. We've consistently been low double digit to mid-teens unlevered IRRs. That continues in this next wave of $1 billion that's under contract. Two-thirds of that's a value-add product with a higher growth profile, and we're expecting similar yields and similar IRRs in that group. We also have a pipeline that's really active, so we have plenty under review and look forward to pressing our advantages moving forward in terms of external growth.
Just, is less funneling through to close in terms of the number of deals that you're looking at that?
There's a couple of factors at work. First of all, the market is bringing a lot more assets, so there is more coming to market and our relationship-driven pipeline is important because we have competitive advantages: team experience, sophistication and relationships. Most importantly, we are winning more than our fair share and expect to continue to.
Great. And then maybe just a second one on the guidance. The midpoint implies a second half of roughly $0.98 a quarter, and you just did $0.97 in 2Q. Is there a level of conservatism in there given you closed the deal in the second quarter and you see the selling season on track? Or are there any offsets we should be thinking about?
Yes, it's Bob. The increase to the guide, the bridge is driven to a $0.02 net by investments. We have $3.4 billion under our belt and roughly $1 billion to go. We also increased our dispositions and loan repayment guidance at a blended 7% yield. If you unpack it, I called it $0.03 net: it's $0.04 from investments less $0.01 for dispositions, and that's all happening in the back half of the year. The last piece is higher interest rates, stronger dollar and our stronger share price, net of $0.01. So that nets out to $0.98 on average for the back half of the year relative to our $0.97 in the second at the midpoint.
Our next question comes from the line of Vikram Malhotra with Mizuho.
Congrats on the strong print overall. On the same-store SHOP guide, given the strong quarter, what kept you from modestly increasing the SHOP guide? If you take your assumptions, it seems like you're easily hitting 16%. Is it comps, maybe Canada, or something else?
Well, first of all, we just raised it last quarter. We already took that into account based on the performance we saw playing out. We've proven that in the second quarter. Now we're in the key selling season, and we'll see how that continues to play out. But we already did raise, and now we have a lot of execution ahead of us and things are going well.
And just to underscore, the first half was 16% year-over-year NOI growth. We're holding 16% for the year. So it's pretty straightforward that 16% in the back half is our assumption.
Okay. I have high expectations. Second question: you've talked a lot about the senior housing opportunity set and the improving flow-through. Looking at the next two years, can you update thoughts on how the overall portfolio could translate this NOI growth into higher FFO and AFFO growth? Also, can you monetize Canada or medical office slow growth assets and any opportunity in life sciences or university side?
Vikram, it's Debbie. We're in our fifth year of double-digit NOI growth from our SHOP portfolio and the best is yet to come. The last couple of years have shown really good same property growth. As an enterprise, this quarter is 10%. The biggest offset in the past couple of years, including this year, is the interest rate curve and FX and macro factors. Our strategy is to continue driving same property growth led by SHOP and hope to get an assist from the macro in terms of the rate environment. We expect SHOP to be 60% of a $60 billion enterprise by the end of this year and we're focused on growing SHOP both internally and externally. In terms of Canada, our dispositions are really focused on non-SHOP assets. We are doing more, as you saw in the guide, and Canada remains a significant contributor to our enterprise growth.
Our next question comes from the line of James Kammert with Evercore ISI.
I hope I'm not beating a dead horse, but Justin, you mentioned again the cohort of the same-store pool that is 90% plus occupied. You said they are driving 25% NOI growth and that cohort had 6% RevPOR growth. I'm trying to understand how much of this is pricing versus occupancy. If you get to a steady state with mid-90s across a lot of your portfolio, what do you think pricing can look like on an annual basis as you run out of occupancy opportunity?
That's going to be a question we look forward to answering over time. I can tell you what we're seeing so far. The 90% plus group is half the U.S. same-store portfolio, a huge sample, with 6% RevPOR and occupancy better than the average across the portfolio. So it's benefiting from occupancy and rate growth working together to drive NOI growth and margin expansion. We know that if you get even higher occupied, up into the 99% plus group, you get 7% RevPOR growth and more pricing power as scarcity plays out. This is all in an environment that's not as attractive as what's coming; the best demographic cycle is just starting with baby boomers turning 80 and with starts way down, we have the window of opportunity. The value proposition in senior housing is strong and with more residents, there comes price opportunity, which we expect.
One small detailed question. On the acquisitions year-to-date, it looks like on average it's about a 9% retained interest by the seller or sellers. Is that part of financial alignment you're trying to create with those sellers or just idiosyncratic that they had tax or other motivations to retain a piece?
I want to make sure I'm understanding. You're talking about sellers retaining ownership. What you're looking at is actually our fund structure. Remember, we have our core-plus fund that's focused on core plus investments across various asset classes. We invest in 20% of what the fund invests in. So you're seeing our share reflected in the numbers. We did do one joint venture we talked about last quarter with Revel. We likely do more in the future, but mostly what you're seeing is the share between us and the fund.
Our next question comes from the line of Juan Sanabria with BMO Capital Markets.
Justin, could you talk a little bit about Canada and the RevPOR there? Should that educate us or be a lead for how the U.S. RevPOR could trend, or are there considerations like rent restrictions in Quebec that may be holding that back? I know you talked about the 99% occupancy communities in the report. How should we think about Canada relative to U.S. performance?
Canada has some structural differences. First of all, it's 97% occupied. We have a really high-quality portfolio with a few different operators; Groupe Maurice consistently stands out. There are rent restrictions in place in Quebec and there are social considerations around rent in Quebec and Ontario. We do experience pretty good RevPOR growth there. One reason it stands out is because we have an independent living product, so you don't have the same re-leasing spread drag you can experience with assisted living when higher-acuity residents move out and lower-acuity residents move in. So independent living RevPOR is more stable and rent-driven. We don't view Canada as the direct indicator for the U.S. future. For the U.S. opportunity, look to the examples around the 90% plus and 100% occupied communities, where we're already demonstrating higher RevPOR growth across a large sample size.
In the U.S., we're looking at maximizing NOI growth through calibration of rate and occupancy that Ventas OI is expert at while ensuring we offer the value proposition to seniors. That's how we've grown the portfolio and we expect that to continue as scarcity potentially develops within the U.S. market.
As a follow-up, you mentioned focusing on some noncore dispositions. Can you talk about what's in that bucket and why now? Also, was there a transaction with a Kindred entity and how does that fit into the bucket, if at all?
I'll start with the disposition assumption. We increased that to $700 million and it's really outside of SHOP. So the rest of the asset classes and sort of nonstrategic assets in those classes, including loan repayments at quite a high yield. About $100 million or so is expected from a loan repayment at around 11% yield. So that's the net $700 million and really focused outside of SHOP.
Substantially all of the $8-plus billion of investments we've completed since the beginning of 2024 have been in SHOP, consistent with the strategy. We had a small opportunity to make a well-structured recycled loan investment because of our position in the capital structure and contractual rights, and we took it.
Our next question comes from the line of Michael Goldsmith with UBS.
Can you provide some color on the subsequent investment activity for the third quarter? It looks like the yields are relatively healthy at 6.2%, but the price per unit is quite high at $554,000 per unit. Is that still at a discount to replacement, what are the occupancies at these facilities, and what's the profile of these assets?
Very good question. There are three communities reflected in that. One of those was purchased by our core-plus fund, and that community had the lowest going-in cap rate. It was a Class A asset in Colorado. We have two other really core-like assets, one in California and one in Arizona, and they are high-quality, strong performers in markets with strong net demand. They have good occupancy and also high RevPOR and high price growth opportunity moving forward. If you step back and look at our capital allocation in senior housing, most of it has gone into either high-performing communities with upside or value-add, and a portion is in markets where we have really high-quality communities that will be market leaders for years to come. We're expecting the $1 billion under contract to deliver around a 6.5% average year one yield, consistent with what we've been delivering so far this year.
Got it. And just as a follow-up, I think there was a $300 million health care loan mentioned in the press release. Can you provide a little more details around that?
Yes. It's a recycling of capital. We expect some loan repayments. As Bob talked about, we've recycled capital into a well-structured loan investment based on our position in the capital structure and contractual rights that we have.
Got it. Good luck in the back half.
Our next question comes from the line of Michael Carroll with RBC Capital Markets.
On the key selling season that you highlighted, when did the occupancy slope start to inflect this year and how does that compare versus your expectation in prior years? Did the selling season start when you expected?
The key selling season period is May through September. Every year is a little different in terms of when the bigger months occur. We happened to have a really strong start to the year ahead of the key selling season, which helped us have confidence to raise the guide from 270 to 300 basis points. In the second quarter we saw evidence that supported the 300 basis point guide, and what we're seeing so far in the third quarter is good occupancy growth and good sales activity on the ground. So far, so good relative to expectations, with a lot still to play out.
Should we expect going forward that occupancy trend will start to track more in line with typical seasonal trends, albeit probably still well above pre-COVID? In prior few years, you powered right through it. Are we back to typical seasonal trends of occupancy gains?
You make a good point. Seasonality certainly still exists, it's just been more muted outside the key selling season in recent years. The reason could be higher demand that we're facing, so perhaps we're in a new paradigm. I would expect seasonality to continue, and hopefully we'll see the muted seasons outside the key selling season continue. We like our opportunity given the demand characteristics and the strength of our platform.
Our next question comes from the line of Richard Anderson with Cantor Fitzgerald.
The bar is high and the market is speaking. Justin, you described the selling season as on track and perhaps the market was hoping for a more enthusiastic description. Is there anything underneath that comment that is not particularly exciting? Is there anything you're monitoring? When you say it's on track, are there some hiccups behind the scenes you can talk about?
We're excited about 16% growth in SHOP.
I understand what you're asking. What I would say is we're seeing broad-based contributions across the portfolio. Our same-store SHOP is same-store for a reason. For example, our non-same-store is usually in a period of some transition or redevelopments or newer acquisitions, whereas same-store is the portfolio that should be most competitive. We're experiencing positive occupancy growth across the portfolio, in independent living and assisted living across markets and operators. So no, there's nothing within the portfolio of concern. We're really encouraged by the broad-based contributions.
The 25% NOI growth for the 90-plus occupancies was a U.S. portfolio observation, I assume?
That's right, it's the U.S. observation.
You said 10% of the portfolio is 100% occupied and that's a 20% NOI growth story, again assuming the U.S. Is this informing the efficient frontier around occupancy? You have talked about pursuing 100% occupied campuses, but maybe the efficient frontier is not 100% and something in the low-to-mid 90s is optimal. Is that a reasonable observation or is this a point in time?
When I talked about our cultural commitment to zero lost revenue days, to get the performance we're talking about in this 90-plus group you really have to stretch to go full. We need as many communities as we can to get to 100% occupancy. You have the best opportunity for margin expansion in that group because of operating leverage. It's not easy to do, but we have 10% of our portfolio achieving it, and half of the U.S. same-store portfolio is in the 90-plus group and contributing a lot of growth because they're reaching for the ultimate goal of being 100% occupied. There's an opportunity in this asset class given the lack of frictional vacancy to achieve that result and we're proving it; the goal is to get as many communities as full as possible.
Our next question comes from the line of John Kilichowski with Wells Fargo.
With leverage now down to 4.7x and the balance sheet continuing to improve, as you look beyond this year's investment plan, should we assume acquisitions are still primarily equity-funded, or will the funding mix likely become more balanced going forward?
I'm very proud and pleased at 4.7x as of the second quarter. When you look at unsettled equity, which will be used to fund investments, we're in the mid-4s leverage range. That's well over a turn from where we were last year. The playbook has been equitizing investments in senior housing and that is both accretive and delevering, which has been a powerful combination. Given the market backdrop and our cost of capital, I would expect that to continue. So without putting a fixed number on it, we're going to keep running that playbook.
Great. Separate follow-up: with the Brookdale transition largely complete, what are you seeing so far in the selling season in terms of leads, move-ins and pricing? Does what you're seeing support the opportunity to roughly double NOI over time for that portfolio?
We absolutely believe in the opportunity to double the NOI in that portfolio. To put in context for those who might not remember, we have a non-same-store portfolio that's 25% of the SHOP NOI which includes acquisitions, transitions and redevelopments primarily. The former Brookdale communities are large-scale communities that we thought would benefit from an operator change and investment in the asset to better position it and executing on low occupancy in markets with strong net demand. All of those actions are underway this year. We'll expect in the future the opportunity to pursue doubling the NOI there. We also have similar opportunities across the rest of the non-same-store portfolio that we're working on, and those actions will fuel future growth.
Our next question comes from the line of Mike Mueller with JPMorgan.
In the research portfolio, there's some chunky occupancy loss in the quarter. Can you give a little color on what's happening there and what we should expect going forward?
Sure. This was as expected. There were a few tenants that didn't renew in the portfolio. It is, net-net, a $900,000 impact year-over-year, pretty much in line with our expectation. The second quarter impact in research is likely to reflect the balance of the year given those move-outs.
Got it. And then looking at the U.S. SHOP portfolio, you had the biggest year-over-year occupancy and RevPOR growth in the markets you classified as other markets. Can you give a little color on what falls into those buckets and what's happening on the ground there that's making them relatively stronger?
There are primary, secondary and other markets. Last year, secondary was outperforming; this year we have really strong growth across primary and other. Other includes a lot of our independent living product, which tends to perform well and is delivering strong occupancy and NOI growth this year, and that's been a big contributor for us.
Our next question comes from the line of Michael Stroyeck with Green Street.
Going back to development: where do you think development yields are today and where do they need to be for development to make more sense? Where do you think yields are at today relative to an 8% development yield?
The standard underwriting development yield spread is around 150 to 200 basis points over the expected stabilized yields. So if you're expecting an 8% development yield, that's usually what developers target. We underwrite sensitivities down to 7% when necessary. For our current investments, we're investing at roughly mid-6s year one yields. If you add the 150 to 200 basis points development spread, you'd be around 8% to 8.5% for development yields in our standard underwriting. Regarding where rents need to be today for development to pencil, we think trended rents would need to be at least 25% higher and in some cases up to 40% higher, so we're a ways off from a broad wave of development. Exceptions are luxury projects or unique land-bank opportunities where developers can reach target returns.
Understood. One more on dispositions: how long should we expect elevated levels of dispositions? Is this just a second half of 2026 story or could we see multiple years of pruning the portfolio?
If you go back and look at history, $500 million is not an unusual amount; $700 million is slightly above that. This is largely good portfolio hygiene and upgrading the portfolio to improve overall growth rate. So it's around what we would do during a normal cycle, just slightly elevated as we make these adjustments.
Our next question comes from the line of Ronald Kamdem with Morgan Stanley.
I'll be quick. On expenses, what's the opportunity to break the expense curve both for total same-store number and operating expense? Any color on labor costs and what may be driving moderation in expense growth?
One thing to note is the portfolio is delivering about 9% revenue growth, which is an important context.
Yes. We had 9% revenue growth and expense growth at about 5% which is volume-driven. Our OpEx inflation is around 1.5%. Because of operating leverage, as occupancy grows, expenses become more fixed, producing margin expansion. Our guide is 5.5% for the year; first quarter had some weather-related elevated expenses, and we're back in line with moderate expense growth around 5%. We left room in our guide for some expense growth in the second half which will be volume-driven but efficient because of the margin expansion.
My second question: you mentioned the recycled loan and said the financial impact was contemplated in guidance. Can you provide color on what that financial impact is? It seems like a good outcome.
It is a good outcome. The principal driver is the loan. We show the $300 million at about a 10.5% effective rate. That's the key driver and it was contemplated in previous guidance.
Our final question today comes from the line of Omotayo Okusanya with Deutsche Bank.
Going back to the idea of lost expectations, some peers have done large transformative transactions to gain more SHOP exposure to accelerate earnings growth. How are you thinking strategically about being bigger, faster in SHOP? The market seems to reward names getting bigger faster in SHOP. I'm curious about your strategic thinking.
Thanks for the question. Pressure is a privilege and we have high expectations for ourselves. We're delivering great results and we have a multiyear NOI growth and value creation opportunity ahead. We've organized the company to capitalize on that. We're building SHOP to be 60% of our portfolio by the end of this year on a $60 billion enterprise. The investment engine is firing on all cylinders, SHOP is delivering 16% NOI growth, and we feel very optimistic about our prospects and value creation for stakeholders. We're focused on executing the strategy with excellence and delivering outsized returns over a multiyear horizon.
That does conclude the Q&A session. I will now turn the call back over to Chairman and CEO Debra Cafaro for closing remarks.
Thanks so much. I want to thank all of our participants for joining us this morning. We really appreciate your interest in and support of the company. Hope you have a great rest of the summer, and we look forward to seeing you soon.
Thanks, Debbie. That does conclude today's call. Thank you all for joining, and you may now disconnect. Have a great day, everyone.