Ventas, Inc. (NYSE: VTR) Q2 2021 earnings call dated Aug. 06, 2021
Corporate Participants:
Sarah Whitford — Director of Investor Relations
Debra A. Cafaro — Chairman and Chief Executive Officer
J. Justin Hutchens — Executive Vice President, Senior Housing
Peter J. Bulgarelli — Executive Vice President, Office, President and Chief Executive Officer, Lillibridge Healthcare Services
Robert F. Probst — Executive Vice President and Chief Financial Officer
Analysts:
Jonathan Hughes — Raymond James — Analyst
Nick Joseph — Citi — Analyst
Joshua Dennerlein — Bank of America — Analyst
Michael Carroll — RBC Capital Markets — Analyst
Steven Valiquette — Barclays — Analyst
Juan Sanabria — BMO Capital — Analyst
Lukas Hartwich — Green Street — Analyst
Jordan Sadler — KeyBanc Capital Markets — Analyst
Daniel Bernstein — Capital One — Analyst
Amanda Sweitzer — Baird — Analyst
Nick Yulico — Scotiabank — Analyst
Vikram Malhotra — Morgan Stanley — Analyst
Rich Anderson — SMBC — Analyst
Presentation:
Operator
Good day, and thank you for standing by. Welcome to the Ventas Second Quarter 2021 Earnings Conference Call. [Operator Instructions] After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Sarah Whitford, Director of Investor Relations. Please go ahead.
Sarah Whitford — Director of Investor Relations
Thanks, Tammy. Good morning, and welcome to the Ventas second quarter financial results conference call.
Earlier this morning, we issued our second quarter earnings release supplemental and Investor presentation. These materials are available on the Ventas website at ir.ventasreit.com.
As a reminder, remarks made today may include forward-looking statements, including certain expectations related to COVID-19 and other matters. Forward-looking statements are subject to risks and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by 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. For a reconciliation of these measures to the most closely comparable GAAP measures, please refer to our supplemental posted on the Investor Relations section of our website.
This earnings call does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities, also with depletion of any vote or approval in connection with the proposed acquisition of New Senior Ventas filed with the SEC a registration statement on Form S-4 that includes a preliminary prospectus for the Ventas common stock that will be issued in the proposed acquisition and that also constitutes the preliminary proxy statement for a special meeting of New Senior stockholders to approve the proposed acquisition. The proxy statement prospectus and other documents filed by Ventas and New Senior with the SEC may be obtained free of charge at Ventas’ Investor Relations website at ir.ventasreit.com or in New Senior’s Investor Relations website at ir.newseniorinv.com as applicable or at SEC’s website at www.sec.gov.
You should review such material filed with the SEC carefully because they contain or will contain important information about the proposed transaction, including information about Ventas and New Senior and the respective Directors, executive officers and other employees who may be deemed to be participants in the solicitation of proxies in respect of their proposed acquisition and a description of their direct and indirect interests by security holdings or otherwise.
I will now turn the call over to Debra A. Cafaro, Ventas Chairman and CEO.
Debra A. Cafaro — Chairman and Chief Executive Officer
Sarah, well done, your first public company merger. Congratulations. Well, good morning everyone. I want to welcome our shareholders and other participants to the Ventas second quarter 2021 earnings call.
Ventas has delivered an outstanding second quarter and we have strong momentum across the board, in health and safety, capital deployment and access, realization of the benefits of prior successful investments, financial strength and most importantly in portfolio growth led by our high quality SHOP business with significant contributions from office and stability in our triple-net lease business.
We see a clear path to growth in our demographically driven diversified enterprise, capturing the embedded upside in our senior housing business, the benefit of external investments, reliable cash flow from our office and triple-net businesses and delivery and stabilization of ongoing developments, primarily in the life sciences research and innovation and Canadian senior housing areas. Our experienced team is committed to winning the recovery for all of our stakeholders.
Let me first turn to our second quarter results. We posted $0.73 of normalized FFO per share, which is above the high end of our previously provided guidance. I’m delighted that our same-store property portfolio grew 3.6%, sequentially. Our outperformance was driven by SHOP, which produced a $111 million in quarterly NOI, a recovery of $50 million of annualized NOI, representing industry-leading growth in same-store cash NOI and occupancy. July continued these positive SHOP trends for the fifth consecutive month of occupancy growth.
Importantly, by the end of July, lease reached their highest levels since the pandemic began. Justin will unpack these trends, more fully in his remarks. As a result, we’ve never been more confident that the senior living business is supported by powerful demand that is growing and resilient, while supply remains constrained. If the last 18 months have taught us anything, it is that as soon as our communities and care providers are ready to welcome residents and their families, we experienced a surge of leads and move-ins almost immediately, which then build sustainably and rapidly. That said, given the macro uncertainty in the COVID-19 environment, particularly the national and regional rise in cases and the measures that have been taken or may be taken to contain COVID spread, the path to full recovery may not be a straight line, but we believe that will point inexorably upward.
In our third quarter outlook, we have assumed the increase in COVID cases throughout the US may have some impact on the velocity of leasing and expenses. Rounding out our portfolio performance, office grew nicely in the quarter and our triple-net portfolio continued to stability. Pete’s efforts to increase leasing, keep high retention rates, improved customer relationships and grow NOI are showing results. Our on-campus and affiliated MLP strategy with leading health system continues to shine.
Turning to health systems, our investment in Ardent also continues to deliver benefit. In addition to strong cash flow coverage on our $1.3 billion leasehold position, our 10% equity stake in the Ardent enterprise is benefitting from excellent Ardent results and our prior purchase of $200 million of Ardent senior notes recently paid off with a $15 million prepayment fees, providing us with a 13% unlevered return on our investment in the Ardent notes. With all is said and done I believe and hope that our Ardent investment in real estate, equity and debt will prove to be one of our best risk adjusted return investments.
Turning to other capital allocation priorities. We certainly are on our front foot regarding external investments. In total, in 2021, we have over $3.5 billion in investments completed, pending or underway with another $1 billion life science research and innovation pipeline with our exclusive development partner Wexford, right behind that. Our team is also busy evaluating attractive deals across our asset classes. This year-to-date, we have already reviewed about as many investment opportunities as we saw in all of 2019. We will pursue those that meet our multi-factor investment philosophy, which is focused on growing reliable cash flow and favorable risk adjusted returns, taking into account factors such as cost per square footer unit, downside protection and ultimate potential for cash flow growth and asset appreciation.
Our $2.3 billion pending investment in New Senior, announced in the second quarter is a great example. In this deal, we are acquiring over a 100 high-quality independent living communities that are well invested and located in advantaged market, at compelling pricing. The per unit cost is estimated to be 20% to 30% below replacement cost. The 5% cash going in cap rate is expected to grow to a 6% cap rate on expected 2022 NOI with upside as the senior housing recovery continues, and the FFO multiple of less than 12 times post synergize 2022 estimated FFO are all attractive valuation metrics.
I commend Susan Givens and her team for doing a tremendous job creating and realizing value for their stakeholders. We are also confident that Ventas shareholders will receive immediate and long-term accretion and upside from the deal as senior housing recovers and the large middle market demographic expands significantly in the near term. As Justin will describe, the new senior portfolio also fits in with our senior housing strategy and framework. New senior also performed well in Q2 and into July, with occupancy increasing in the same-store portfolio for five straight.
A unique strategic advantage of the New Senior transaction is a longstanding relationship we have with the principal managers of the portfolio, Atria and Holiday, two leading operators who recently combined to form the second largest senior housing manager. As a one-third owner of Atria, we are excited about the opportunities the combination creates, we will directly benefit from growth in Atria’s management platform and we welcome the combination of Atria and Holiday’s talent in Atria’s advanced enterprise. Congratulations to Atria for pulling together this industry changing transaction.
Switching to our attractive life science research and innovation business, it continues to provide us with value-creating opportunities to invest capital. The Ventas life science portfolio now exceeds 9 million square feet. It’s located in three of the top five cluster market, includes three ongoing development projects and is affiliated with over 16 of the nation’s top research universities. We also have an incremental $1 billion in potential projects we are working on with Wexford. The first and largest new life science project in the pipeline totaling about $0.5 billion in costs is gaining steam. Expected to be 60% pre-leased to a major public research university that rank in the top 5% of NIH funding, this project will be located on the West Coast and should break ground in the first half of 2022.
Wexford with this exceptional reputation among universities is also exploring significant additional life science potential projects beyond those in our existing pipeline. North of the border, we continue to invest capital in high-end large scale independent living communities with our partner, Le Groupe Maurice in Quebec. We have always tried to create value through both internal and external growth, and we’re pleased that we’ve returned to being a net acquirer in 2021. Our team is active and engaged beyond our announced deals and our pipeline of potential investments across asset classes. To fund new investments, we have access to significant liquidity and a wide array of capital sources, including the asset dispositions and receipt of loan repayments, as Bob will describe in greater detail.
The demand for senior housing has been robust and sustainable, proving out the value proposition of communities and care providers offered to seniors in their families. The sharp recovery has begun and we’ve started capturing the significant upside embedded in our existing senior housing portfolio from both pandemic recovery and the 17.5% growth in the senior population projected over the next few years.
Our diversified business model continues to provide uplift and stability to our enterprise. We are investing nearly $4 billion and announced deals and development projects and our access to and pricing up capital are positive. In closing, the US is in the midst of an impressive economic recovery that together with demographic demand for all our asset classes will benefit our business. We embrace the opportunity to take on any near-term challenges that are temporarily caused by the strength and speed of this recovery, especially because now unlike last year and the beginning of 2021, our employees, residents, tenants and caregivers are largely safe and healthy.
As a team at Ventas, we’re incredibly pleased about the results we’ve delivered and the strength and momentum we’ve demonstrated. Justin, over to you.
J. Justin Hutchens — Executive Vice President, Senior Housing
Thank you, Debbie. We remain excited about delivering industry-leading occupancy and NOI growth, and we are encouraged about recent trends in the senior housing portfolio. Although we are still in the early stages of the recovery, we are off to a very strong start. Ventas is well positioned to benefit from significant senior housing tailwinds, including the sector recovery upside, supportive demand fundamentals and continued improvement in leading indicators.
I’ll review three topics today. First, our second quarter performance. Second, our perspective on the senior housing operating environment. And third, our continued execution of our senior housing strategy. I’ll start by covering our second quarter performance.
In SHOP, leading indicators continue to trend favorably and accelerated during the quarter, as leads and move-ins each surpassed 100% of 2019 levels, while move-outs remain steady. June marked the best month for leads and move-ins since the start of the pandemic and July has sustained a strong momentum. Strong sales activity has now driven five consecutive months of occupancy growth, inclusive of July. In the second quarter approximate spot occupancy from March 31 to June 30 increased 229 basis points, led by the US with growth of 313 basis points and accelerating leads and move-ins. In Canada, the transfer more muted due to a slower vaccine rollout, for the approximate spot occupancy still increased during the second quarter, driven by 33 basis points of growth in June.
Leading indicators remain strong in our portfolio as the digital footprint of our operators has significantly expanded over the past year, casting a wider net as traditional high converting lead sources such as personal referrals, respite and professional referrals continue recovery.
Turning to SHOP operating results. Same-store revenue in the second quarter increased sequentially by $3.5 million as strong occupancy growth was partially offset by the impact of a new resident move-in incentives on pricing, specifically at Atria. I will touch on that more in a minute. Operating expenses declined sequentially by $9.2 million or 2.3% excluding the impact of HHS grants received in the first quarter, driven by a better than expected reduction of COVID-19 operating costs, partially offset by a modest increase in routine operating expenses.
For the sequential same-store pool, SHOP generated approximately $111 million of NOI received in the first quarter, which represents a sequential increase of $12.4 million or 12.6% when excluding the impact of HHS grants. This marks the first quarter of sequential underlying NOI growth since the onset of COVID-19 and approximates a nearly $15 million NOI improvement on an annualized basis. During the quarter, we saw solid contribution to sequential NOI growth in both revenue and operating expenses as average occupancy increased 110 basis points and COVID-19 costs declined substantially and ahead of expectations.
Turning to triple-net. Sequential same-store cash NOI was largely stable in the second quarter and 98% of all contractual triple net rent was received from the Company’s tenants. Our trailing 12 month cash flow coverage for senior housing, which is reported one quarter in arrears is 1.2 times and down versus the prior quarter, reflecting the timing associated with coverage reporting which now includes effectively four full quarters of operations impacted by COVID.
Moving onto the current operating environment, which is full of green shoots. Our market leading operators continue to demonstrate their strong market position through broad occupancy gains. Sunrise led the way with 627 basis points of spot occupancy growth in the low point in mid-March to the end of July, benefiting from a rejuvenated management team, significantly well invested communities and a balanced approach demonstrating very strong occupancy gains and pricing power. We would like to congratulate Sunrise’s CEO, Jack Callison for adding experience and depth to his management team with this recently announced hires.
Atria which benefits from a higher absolute occupancy of 81.8% at July end continues to deliver solid volume growth. Spot occupancy in July increased 529 basis points since the low point in mid-March, resulting from the combination of their industry-leading vaccine mandate and strategic price incentives to capture movements. Atria anticipates tightening incentives moving forward as pricing power recovers and occupancy stabilizes. Supporting all of this is Atria’s industry leading vaccination rates, which are impressively high at nearly a 100% of both residents and employees.
Looking ahead, as Debbie mentioned, the third quarter is off to a strong start with July spot occupancy increasing 74 basis points versus June and lease continuing to stand strong at 105% of pre-pandemic levels. Our operators have been prioritizing resident safety and weathering several near term headwinds, including the Delta variant and transitory wage pressures from staffing shortages in select markets.
Underpinning our leading operating partner relationships and recent sales momentum is our attractive market footprint, which positions us to benefit from the compelling supply and demand outlook in the senior housing sector. Our communities in the US are poised for improving performance over time due to our strong presence in submarkets that outpaced the US national average in aging population growth and wealth demographics, but with significantly lower exposure to new construction starts and construction as a percentage of inventory.
Approximately 30% of our SHOP portfolio on a stabilized basis is located in Canada. The senior housing sector in Canada has performed exceptionally well, with occupancy exceeding 90% every year from 2010 to 2020 and demand outpacing new supply in eight of that last 11 years. As a foundation to these attractive fundamentals, the 75-plus population in Canada is projected to grow more than 20% over the next five years about twice the pace of the US.
The Ventas team has been busy executing our senior housing strategy, driven by our experiential operating expertise and underpinned by our analytical capabilities to further strengthen our senior housing business. The underlying goal of our strategy is simply to execute portfolio actions that ensure we are located in the right markets, with the right operator, with assets, with strong local market positioning.
A notable example of our strategy execution is the New Senior transaction. New Senior has a track record of strong operating performance, benefits from a geographically diverse footprint with favorable exposure to compelling market fundamentals and demographics, and represents a well invested high quality portfolio catering to an attractive market segment. The acquisition also represents an excellent opportunity to further expand our relationships with two long-standing operators in Holiday Retirement and Atria Senior Living and with new relationships such as Hawthorne Senior Living.
New Senior will strengthen our existing senior housing business from several strategic perspectives. Operationally, New Senior will enhance Ventas’ cash flow generation profile. Its margin has remained resilient in the 35% plus range during the COVID-19 and occupancy has weathered the pandemic, headwinds of approximately 80 basis points better than the NIC industry average. Most recently, New Senior has seen strong sales trends as we progress through the early stages of the senior housing recovery with powerful upside as the portfolio occupancy grew 100 basis points in June.
Geographically, New Senior has a diverse presence across 36 states, which includes exposure to markets with high home values and high household income levels, ideal proximity to premium retail in high visibility locations and favorable supply outlooks versus industry averages. This transaction is a reflection of our focus on adding high-quality assets to our senior housing platform and maintaining balance across independent living and assisted living product types. We see New Senior’s independent living assets is complementary to our existing high end major market portfolio as it provides a lower average resident age and longer length of stay at an accessible price point, with RevPOR of approximately $2700.
The purpose-built nature of these communities, which include consistent layout with 120 units per building also will strengthen our ability to effectively and efficiently redevelopment — redevelop and invest in these assets over time. Moving on to new developments. We continue to drive value from our development pipeline through our relationship with Le Groupe Maurice, where we have opened three communities, with more than 1,000 units over the past year. Two of the three developments were delivered in the fourth quarter of 2020. Both projects had substantial pre-leasing activity and have already stabilized at approximately 95% occupancy.
The third project, a 287 unit expansion of an existing Le Groupe Maurice community in Montreal, was delivered in June of this year. Initial leasing activity has been strong with more than half of the new units occupied as of the end of July. Our plans across our broader SHOP portfolio includes significant deployment of refresh and redevelopment capital, strengthening our market leading position, where we expect to realize occupancy growth and pricing upside over the next few years. We continue to actively manage our portfolio with the disposition of non-strategic assets, and the transition of operators in select markets to position our senior housing business for long-term success.
In summary, our recovery is off to a strong start. We are well positioned in markets that benefit from outsized aging and wealth demographic, with rapid use of [Technical Issues] we are executing our senior housing strategy to help ensure success in the near and long term. I will now hand over to Pete.
Peter J. Bulgarelli — Executive Vice President, Office, President and Chief Executive Officer, Lillibridge Healthcare Serv
Thanks, Justin. I’ll cover the office and healthcare triple-net segments. Together these segments represent over 50% of Ventas’ NOI. We continue to produce positive and reliable results. Within these segments, we’re seeing a changing business climate. Health system and university business confidence is rising, leading to longer-term commitments and strategic growth investments.
During the pandemic, we kept our business confidence. We remain focused on growth and we continue to invest in incremental leasing resources and in creating a leasing center of excellence, led by an industry veteran. She is now two years in. We’ve built a technical engineering team to assist our local property teams and running our buildings more efficiently. Also led by an industry veteran. He is now 18 months in. We doubled our capital invested in our MOBs to ensure their competitiveness, including major redevelopments in Phoenix, Atlanta and Austin, Texas.
We expanded our tenant satisfaction programs under the leadership of our new property management leader. He is also 18 months in. Because of this focus, I’m proud to say that our MOBs now rank in the top quartile of tenant overall satisfaction as surveyed by Kingsley, the national real estate survey leader, happy tenants equals higher occupancy. Our focus on the fundamentals and growth is showing results, let me describe them now.
Office, which includes our medical office and research and innovation segments performed well, delivering 10.5% sequential same-store growth. Office quarterly same-store growth was 12.6% year-on-year. The R&I portfolio benefited from a $12 million termination fee from a large tenant in the Winston-Salem innovation center anchored by Wake Forest. Adjusted for the termination fee, office sequential same-store growth was 90 basis points and 2.8% per year-on-year same-store quarterly growth, a strong quarter.
Medical office same-store sequential growth was 80 basis points and year-on-year quarterly same store growth was 2.4%. For the quarter, we executed 230,000 square feet in Office new leasing and 460,000 square feet year-to-date, a 78% improvement from prior year. Medical office had strong same-store retention of 94% for the quarter and 85% for the trailing 12 months. The result is the total MOB occupancy increased 20 basis points sequentially. Total office leasing was 750,000 square feet for the quarter and 1.8 million square feet year-to-date. We are also pleased that our annual escalators for the new MOB leases, averaged 2.9% for the quarter, which caused MOB same-store portfolio, annual rent escalators to increase from 2.4% to 2.6%.
Our R&I business continues to excel as it strives to provide effective facilities to support the record level of investment into life sciences research. Same-store sequential growth was 38.9%. Adjusted for the termination fee, same store sequential growth was 1.1%. Year-on-year quarterly same-store growth was 42.6%. Adjusted for the termination fee, year-on-year quarterly same store growth was a strong 3.9%. Quarterly same-store occupancy was now standing 94% with sequential occupancy increasing by 10 basis points.
Looking forward, we have three R&I buildings comprising of 1.2 million square feet of space under construction. Collectively, they are 78% leased or committed. Of the two buildings in our uCity complex, Philadelphia, the Drexel building is 100% leased, while one uCity Square is over 55% leased or committed. We are oversubscribed for the remaining space with 11 above pro forma proposals currently outstanding. In Pittsburgh, our new building is 70% pre-leased, University of Pittsburgh and UPMC was significant activity on the remaining space. At our recently opened project with Arizona State University in Phoenix, we are 86% leased or committed and expect to be 100% leased shortly. These performance numbers reflect the quality of our well located R&I assets.
Now let’s turn to healthcare triple-net. During the second quarter, our healthcare triple net assets showed continued strength and reliability with 100% rent collections. Second quarter same store cash NOI growth was 2.5% year-on-year. Trailing 12 month EBITDARM cash flow coverage through June 30 was strong across the portfolio. Health systems trailing 12 month coverage was an excellent 3.6 times in the first quarter, a 10 basis point sequential improvement. As Debbie mentioned, Ardent continues to perform extremely well in this dynamic market.
IRF and LTAC coverage improved 20 basis points to 1.9 times in the first quarter, buoyed by strong business results. Although skilled nursing declined 10 basis points to 1.8 times as the pandemic continued to impact centers, total post-acute coverage increased sequentially by 20 basis points to 1.9 times in the first quarter of ’21. Finally, several of our partners have an approach for M&A opportunities. Kindred is expected to merge with LifePoint, and Spire recently entertained multiple offers by Ramsay. It is a testament to the underlying value of our health care operators and the associated real estate.
With that, I’ll turn the call over to Bob.
Robert F. Probst — Executive Vice President and Chief Financial Officer
Thanks, Pete. In my remarks today, I’ll cover our second quarter results, our recent liquidity balance sheet and capital activities and finally, our expectations for the third quarter of ’21.
Starting with our results in the second quarter. Ventas recorded strong second quarter net income of $0.23 per share, normalized funds from operations of $0.73 per share. Normalized FFO per share with $0.02 pennies above the high end of our initial guidance range of $0.67 to $0.71 for the quarter and is consistent with our June update to be at the high end or better than that original range.
The Q2 outperformance was driven by growth in Office, continued stable performance from triple-net, strong results from Ardent and better than expected NOI in our SHOP portfolio. Turning to capital, we’ve been busy proactively managing our capital structure, duration of debt and liquidity since our last earnings call. First, following the announcement of the New Senior agreement, we raised $300 million of equity at an average gross price of approximately $58.60 per share under our ATM program. The $300 million equity raise together with the $100 million of new equity to be issued New Senior shareholders for the fixed exchange ratio, and $1.2 billion of New Senior debt to be assumed or refinance constitutes the overall $2.3 billion funding of the New Senior transaction.
Second, through August 5th, we received $450 million of disposition proceeds through receipt of loan receivable. Included in the $450 million received today, this repayment of two well structured loans in July, part of the investment of $200 million of 9.75% Senior Notes due 2026 and Holiday’s repayment of $66 million or 9.4% notes due in 2025. Medical office fully sold in the second quarter also resulted in proceeds to approximately $107 million. Using proceeds from this division, in the third quarter, Ventas will improve its near-term debt maturity profile further by fully repaying as little as $664 million and 3.25% Senior Notes due August 2022, and 3.13% notes due June of 2023.
As a result of recovery senior housing NOI capital structure actions we’re seeing strengthening credit metrics. Reported Q2 net EBITDA was better than expectations improving 10 basis points sequentially to 7 times. Within SMB point improvement underlying SHOP annualized EBITDA improved nearly $50 million or 25 basis point beneficial impact of the ratio in just one quarter. This organic improvement was offset by the elimination of SHOP we did experience, we did experienced in Q2. This provides a proof point of the anticipated material improving leverage resulting from the underlying recovery in senior housing over time.
Pro forma for announced ATM issuance of capital activities since of Q2 net debt to EBITDA on lower from 7 times to 6.8 times. I would highlight that the New Senior transaction is expected to be 30 basis point level, are projected here 2020 NOI supported by the forecasted growth in cash flows from the New Senior portfolio. Since assets liquidity totaling $3.3 billion as of our finished the Company at $2.7 billion of undrawn revolver capacity $600 million cash and no commercial paper outstanding.
Let’s finish with our future guidance. Third quarter net income was estimate range from flat to $0.05 per fully diluted share. Our guidance range for normalized FFO for Q3 is $0.70 to $0.74 per share. Q3 FFO $0.72 can be bridged from Q2 of $0.73 by $0.02 benefit from the loan prepayment fee in Q3. [indecipherable] in Q2, offset by $0.02 from lost interest income on the loan repayments and the July equity raise. NOI reductions from intensive the business dispositions describe the [indecipherable]
Third quarter assumptions underlying our guidance as follows. SHOP Q3 spot occupancy from June 30 to September 30 is forecast to increase between 150 to 250 basis points with the midpoint roughly continuation of occupancy growth trends there in July. Third quarter is expected to be roughly flat sequentially. And move in incentives are expected to narrow in the quarter. SHOP strong revenue growth is expected to be offset by increase in operating costs. Additional day in the quarter. Higher occupancy, labor and retain seasonal items including repair deficiency utility costs.
Now we can test for interesting to you’re seeing in the third quarter sales performance is expected in the office and triple-net segments we continue to expect $1 billion in asset sales and move-in payments for the full year 2021 with line of sight for the remaining balance in the second half of this year. Fully diluted share count is now 383 million shares reflecting in anticipation of New Senior. Guidance does not include any other announced capital markets activity. Our Q3 guidance excludes any impact from the pending acquisition of New Senior.
New Senior transaction is expected to close in the second half of 2021 and the close is forecast to be between $0.09 to $0.11 accretive to normalized FFO per share in 2022. I’d like to underscore that we’re still in a highly uncertain environment, growth trends in SHOP are positive the pandemic impact on our business very difficult to predict. As I’m excited about our business in the future and we believe we have the well-diversified portfolio, best in class operators and experienced team to win the recovery that is now underway.
That concludes our prepared remarks. Before we start with Q&A, we are limiting each caller to two questions to be respectful to everyone on the line. With that I will turn the call back to the operator.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Jonathan Hughes.
Jonathan Hughes — Raymond James — Analyst
Hey, good morning. Justin, can you share some more details on your seniors housing occupancy versus rate philosophy and why — when I look at the rate, it seems that there is a little bit more discounting here than some other portfolios as you RevPOR was down, but you year over year some others were up low-single digits. I guess you just seems given demand is rebounding in length of stay is only a few years and affordability is attractive now, it’s been perhaps ever and why was it RevPOR growth maybe at least flat if not positive?
J. Justin Hutchens — Executive Vice President, Senior Housing
Hi, nice to talk to you. Let me start with the year-over-year kind of comment you made. So if you were to look at our year-over-year RevPOR and you exclude Atria, which as I mentioned prepared remarks discounting. I’ll come back to that and exclude LGM which performed really well in this past year but they operate at a lower price point in an active living product in Canada. So it’s a mix shift impact from LGM. So if you were to take those two out, our RevPOR would have increased 1.8%.
So since LGM side and we’ll get back to Atria, you might remember that Atria starting back during the pandemic and position themselves to go for volume, the few different ways, very early on they were the first to execute testing broadly as they moved throughout the pandemic they saw an opportunity for volume ahead of the worst part of the pandemic, which was emerging in the fall and into the winter. So they offered price incentives and if you were to look at Atria’s occupancy growth if you go move further back from the low point and start back for instance December 31, based on 372 basis points versus the rest of our SHOP with — our SHOP in total to be like 227 basis points.
And so they are an absolute bonafide leader in driving occupancy volume. They chose to stay with the discounting in recent months, we’ve noticed in trends that they’re starting to tightening. We also have a higher absolute occupancy than the rest of our portfolio and a lot of operators, etc. So we believe that they are well positioned to start to push pricing in the markets where they’re seeing stabilization, that’s the intent, they started to do it. We’ll continue to do it and we have a long track record of driving both occupancy and price and we’re in the very early stages of this recovery. So we’re comfortable and confident that then over time they will deliver.
One other point, and that is that we have senior living our portfolio. Sunrise is a 9,000 RevPOR, they’re sitting at 70% occupied. They’ve been driving a lot of occupancy growth as well and the mix shift that I mentioned that with the other way with LGM outperforming will shift the other way to Sunrise starts to grow. So I think our RevPOR outlook will be fine in long-term.
Jonathan Hughes — Raymond James — Analyst
Okay. Yeah. That’s helpful. It’s just tough for us to see the mix shift on our side, but the color is really helpful. I appreciate you sharing that. And then just one more for me on the life science and the R&I pipeline, are you still planning to utilize some JV partners on some of those future potential developments to help spread out risk and lower the earnings dilution or given the strength of that business is there maybe a desire now to keep those wholly owned and let that value creation benefit drop to shareholders?
Debra A. Cafaro — Chairman and Chief Executive Officer
Good morning. That’s a great question. We’re excited about this business that is going to — continue to grow and Wexford has a lot of opportunities, but I would say is we, some of it will. The answer will be some and some, there are some pre-identified projects that are in the pipeline that would do in joint ventures and they are carefully selected to make sure we have a coherent strategy around the joint venture. And there are others that Wexford is working on that may go on balance sheet depending on, again the risk-reward profile.
So I think we’ll have a lot of benefits from this business initiative going forward both on balance sheet and with our joint venture strategy.
Jonathan Hughes — Raymond James — Analyst
Okay. I’ll jump off. Thanks for the time.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Nick Joseph with Citi.
Nick Joseph — Citi — Analyst
Thanks, good morning. I was hoping to get more color on the underlying assumptions for the SHOP occupancy growth in third quarter. Obviously, you’ve already had July at about 75 basis points and recognize the recovery won’t be straight line as you said, but you know, how do you think about the near-term risks to the Delta variant, the impact on at least near term senior housing occupancy.
Peter J. Bulgarelli — Executive Vice President, Office, President and Chief Executive Officer, Lillibridge Healthcare Serv
Sure. I’ll start on that, on that. So this in terms of the numbers, the outlook is 150 to 250 spot occupancy gains, you’re right to say four in the first month. So the time that is above the midpoint and you’re right to say it’s not a straight line. I mean clearly the pandemic backdrop is something we’re thinking about, no doubt about it as you think about occupancy and it’s never month to month if you look at it take one month times 3. That said, the strength in July is worth noting, as well. I’d like to, that is what translates into move-ins in the future.
So we are still seeing very positive trend now five consecutive months of occupancy and strong leads. But with the backdrop of caution and doing about it.
Nick Joseph — Citi — Analyst
Thanks. And then you talked about the supply outlook on senior housing kind of in positive your medium-term given the recovery that’s underway, when would you expect that supply to start picking up in terms of new starts?
J. Justin Hutchens — Executive Vice President, Senior Housing
Yeah, so it’s Justin. There is a little bit of catch up in terms of supply from last year that we’re experiencing in the short term, it’s a bump in the road by starts and deliveries are very low, and so there is a window that we can make out we think a few years of runway to really have strong absorption in the sector. Certainly capital will follow the fundamental. We expect to see development chase the sector, but when they do, they’ll be faced with the strongest you think demographic that the sectors ever face. So we’re certainly bullish and confident on the demand for senior housing.
Nick Joseph — Citi — Analyst
Thank you.
Operator
Your next question comes from the line of Joshua Dennerlein with Bank of America.
Joshua Dennerlein — Bank of America — Analyst
Yeah. Hey everyone, hope everyone is doing well. Curious on Ardent, since you got the loan repayment. Just, just curious maybe if you have any interest to kind of expand further into the hospital sector. It sounds like. Yeah, just kind of curious there.
Debra A. Cafaro — Chairman and Chief Executive Officer
Well, good morning, thanks for the question. Ardent has been a great investment in many different ways. Great risk adjusted return, great performance and I think even better days ahead. I would say that if we were able to find additional assets in the health system space that have the characteristics that we like about Ardent we certainly would commit additional capital there and those characteristics really are around, growing market position in local markets being one of the leaders having pricing power with commercial payers in those types of characteristics obviously population growth and so on. And good strong experienced care providers.
So we continue to explore opportunities in this space and if we can find anything even close to us that is our, and I think we’d be happy to commit additional capital there.
Joshua Dennerlein — Bank of America — Analyst
Okay. And then on the disposition guidance, the $1 billion did that originally include the Ardent repayment and is that additional or kind of takes the place of maybe some other sales that you were going to do.
Robert F. Probst — Executive Vice President and Chief Financial Officer
Yeah, Josh. So, was in the initial billion that the $200 million loan or payment that was in our guidance originally so no surprises there on the balance being property real estate dispositions continues to be the assumption both senior housing and MOBs, but that was in our first guidance.
Joshua Dennerlein — Bank of America — Analyst
Okay. Just one real quick follow-up. If Colony was to — I think Colony could repay back their loan that’s not included or is that…
Debra A. Cafaro — Chairman and Chief Executive Officer
Correct. That is correct.
Robert F. Probst — Executive Vice President and Chief Financial Officer
Correct. That is not in $1 billion that is not assumed.
Joshua Dennerlein — Bank of America — Analyst
Okay. Got it.
Debra A. Cafaro — Chairman and Chief Executive Officer
You got it. Thank you.
Operator
Your next question comes from the line of Michael Carroll with RBC Capital Markets.
Michael Carroll — RBC Capital Markets — Analyst
Thanks. I wanted to stay on the RevPOR outlook real quick. And can you talk about how operators are setting rates today, are they able to be more aggressive pushing rates. I guess in August versus February beginning of this year. And then, if not, at what point will they be able to be more aggressive mean does occupancy have to hit back into the mid 80% range.
J. Justin Hutchens — Executive Vice President, Senior Housing
Yeah, hi it’s Justin. So even throughout the second quarter, we could see underlying tightening particularly in asking rents, operators tend to use short term incentives first and foremost. And we think those will be — those will persist as asking rents tighten. Clearly, the demand is really strong for independent. It’s just a living if that continues, I would expect pricing power to return and particularly as communities and markets reach pre-pandemic occupancy. So we think there is plenty of potential ahead to drive pricing.
Of course as Debbie mentioned there’s — there may not be a straight line as we face this next phase of the recovery.
Debra A. Cafaro — Chairman and Chief Executive Officer
And different operators will clearly pursue different strategies and then we support and work with them on their strategies and we should see the benefit from that going forward.
Michael Carroll — RBC Capital Markets — Analyst
Okay. And then the back-end in 2014 or 15 when the SHOP portfolio had occupancy of 90% plus. I mean, at that point, how aggressive are your operator is able to push rate. I mean, could we expect RevPOR maybe not expect to I mean could we see RevPOR get back into the mid-single digits if something like that occurs.
J. Justin Hutchens — Executive Vice President, Senior Housing
Yeah. So it’s completely different market moving forward. Then it was then that would have been really the beginning the facing new supply and there was still some pricing power persisted during that time with the outlook moving ahead given the demographic backdrop. And the new supply backdrop that we’re facing. It certainly supports yeah occupancy growth and pricing power.
Debra A. Cafaro — Chairman and Chief Executive Officer
Yes, I mean, Michael you are reminding me of the very good times and thank you for doing that where occupancy were in the low to mid 90s and RevPOR was growing considerably. And so as Justin said with the demographic growth and we have this window where the supply is baked over a multiyear period and that can be baked at low levels, that is a very constructive backdrop for getting back to very positive outcomes, RevPOR growth, occupancy growth etc.
Michael Carroll — RBC Capital Markets — Analyst
Okay, great. Thank you.
Operator
Our next question comes from the —
Debra A. Cafaro — Chairman and Chief Executive Officer
We went ahead for sure.
Operator
Your next question comes from the line of Steven Valiquette with Barclays.
Steven Valiquette — Barclays — Analyst
Great, thanks. Good morning, everybody. So with the new senior transaction focused mainly on the independent living market. Just I’m curious to hear just any updated thoughts you have around strategy and senior housing by property type you just thinking about it on memory care versus AL versus IL we’ve seen some operators and the large operators talk about some of the biggest gains and occupancy in memory care. I’m just curious on your thoughts by property subtype in light of the transaction. How you think about those three areas on the pace of recovery. Thanks.
Debra A. Cafaro — Chairman and Chief Executive Officer
Great. And Justin will answer that. Thank you. I mean with the new senior pro forma, I think we’re going to be over 50%, including Canada in the IL products which we really like and it’s less labor intensive model for example but we do like the diversification in our enterprise and we also like it within our senior housing portfolio. So I’ll ask Justin really to describe this strategy and framework that we’re thinking about as we build the portfolio with Justin’s kind of imprint upon it.
J. Justin Hutchens — Executive Vice President, Senior Housing
Thanks. So first and foremost, we just wanted to make sure as I mentioned in our prepared remarks on our definitive a lot that we’re in the right markets with the right asset and the right operator managing that asset. So that might be memory care, assisted living or independent living, they really all the product sites have good characteristics. It’s just living and memory care are more need-driven. If you have higher price points. They also do run at tighter cost. And so depending on the RevPOR associated with the product that in the margins can vary, but it’s a product that does tend to recover quickly it did have substantial prices doing really well after the pandemic so far.
So it’s great that exposure is here in the right markets with the right operator to that product. Independent living has a longer length of stay. It also has less new competition facing it in the case New Senior there is extreme affordability relative to [indecipherable] product, it’s about at least prices good in terms of, if you’re a resident making a choice, within your local market for a New Senior independent living versus for AL. So it reaches a broader audience. It also has pricing upside through investments and faces the same strong demographic wave that are subscribing earlier.
One other thing about independent living because it faces less new competition, it does have a higher ceiling, pre-pandemic it was outpacing AL, memory care by about 400 basis points. We don’t see any reason why coming out the other side that it doesn’t also have higher moving forward.
Steven Valiquette — Barclays — Analyst
Okay, great, that’s helpful. Just one other follow-up on the New Senior transactions you have a bullet point above Ventas’s expecting to make revenue generating capital investments for additional value opportunities just curious hear more about that and how critical that is as part of the overall transaction.
J. Justin Hutchens — Executive Vice President, Senior Housing
Yeah, so this is Justin again. This is a product type that I mentioned that has great characteristics. There are 120 units large units if you vendor to a holiday communities kind of been all of them because they are exactly the same big open floor plan we walk in and open dining there is three stories and so it lends itself well to redevelopment of refresh investment. So, and we are happy to be situated in several markets that are great locations or high traffic locations they are located close to premium retail they are strong in commonwealth and aging demographics so a lot of cases, we think we’re pushing on open the door to make additional investment and the goal on a targeted basis make investment support the occupancy growth but also pushed pricing. So we’re in the process of evaluating those opportunities and we’ll integrate that into our plans over the next couple of few years.
Steven Valiquette — Barclays — Analyst
Got it. Okay, thanks.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line Juan Sanabria with BMO Capital.
Juan Sanabria — BMO Capital — Analyst
Hi, good morning. I was just hoping to talk. Good morning. I was just hoping to talk a little bit about the big picture strategy just trying to gauge how much appetite you have to truly meaningfully grow the seniors housing exposure at this point in the cycle given this nice window you have over the next three years versus kind of the long-term stated desire to be diversified across asset types and different products. And so just curious how you’re thinking about it given the opportunity set in seniors housing that went down for the next couple of years.
Debra A. Cafaro — Chairman and Chief Executive Officer
Yeah, well, we’ve definitely put our money where mouth is in terms of the New Senior investment of $2.3 billion and well invested well located senior living. We’re excited about that that will increase our percentage NOI coming from the senior living area and will enable us not only to capture embedded upside in the Ventas portfolio in senior housing but also New Senior. So that’s great and we will continue to invest, where we think there is good risk adjusted return and upside in the senior living business, we do believe as you know, in a diversified model and we will continue to invest in other areas of our business that has performed exceedingly well for us and have really proven their value over the last year, because the benefit of diversification really is that, you never know really what the external and market and environment are going to throw at you and these different asset classes are unified by demographic demand that they perform differently in different environments.
And we’ve gotten the benefit of that so much so in the medical office area, the life science area, the hospital area over the last year that we remain of the belief that that is the best, the best profile to deliver the kind of value proposition we want to deliver to our shareholders.
Juan Sanabria — BMO Capital — Analyst
Thank you. Super helpful and then just on right I guess for Justin, just curious on the latest thoughts on the flow-through of incremental revenue to the NOI line. And if I could be sneaky just any thoughts on our latest data points on the Delta variant, if there is any implications on operators visitation policies as a result of the uncertainty in Canada, a very fluid landscape.
J. Justin Hutchens — Executive Vice President, Senior Housing
Sure. So I’ll start with the flow through. And maybe just kind of refer to it as margin. One thing I think you’re saying you can kind of supplemental is your catch this that our operating margin even on a much lower occupancy right now is only like a 100 this year, 200 basis points off of the margin from a year ago at a much higher occupancy and so margins kind of hanging in there, we think if you fast forward and get the portfolio back to pre-pandemic occupancy, we think you very, very close potentially to within 100, 200 basis points of the pre-pandemic margin plus, there should be some pricing power plus there should be some more occupancy upside that we were seeing at that time.
So we feel good about the flow through and it’s, it’s going to be we’re in this period where Atria has one of our best performing operators as I mentioned in terms of occupancy, but they have another 700 basis points to go and get back to where they were pre-pandemic. And during this kind of next wave of occupancy fill that we expect to see the flow-through really increase and margin grow as well. And then the second part of your question in view of the Delta.
Debra A. Cafaro — Chairman and Chief Executive Officer
Right. I mean, right now it’s kind of business as usual but as I mentioned in my remarks and you clearly understand there is fluidity in the environment is very dynamic. And so we want to be prudent in our thought process about the third quarter, but right now the communities are all open for new move-ins and visitation and we hope that that continues because the communities are so highly vaccinated and protected. And that is, you know the comfort and the happiness frankly that we had sitting here today that we feel really good about.
Juan Sanabria — BMO Capital — Analyst
Fingers crossed. Good luck everybody.
Debra A. Cafaro — Chairman and Chief Executive Officer
Exactly. Thank you.
Operator
Your next question comes from the line of Lukas Hartwich with Green Street.
Lukas Hartwich — Green Street — Analyst
Thanks, good morning. Can you provide any color on the in-process senior housing disposition just maybe level of ventures and is there a sense of how pricing compares to pre-COVID normal.
Debra A. Cafaro — Chairman and Chief Executive Officer
Well, we’re making good progress. We have a line of sight to as Bob said, to the balance of the investments, which are composed of medical office and senior housing and because the outlook for senior housing is very favorable, there is significant interest in the asset class. And we think pricing will be in line with our expectations.
Lukas Hartwich — Green Street — Analyst
Great. And then during the quarter, it looked like a tenant exercised a purchase option. Can you provide a sense of how pervasive the types of options are in the portfolio.
Debra A. Cafaro — Chairman and Chief Executive Officer
They are absolutely de minimis because this is a historical one frankly that we got from NHP then going back to PMB. So this is a long-standing one, we did recognize a very significant gain on the sale which was $30 million or $40 million. I can’t remember on $100 million deal. So that was good but we have very, very limited purchase options for tenants.
Lukas Hartwich — Green Street — Analyst
Great, thank you.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thanks, Lukas.
Operator
Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.
Jordan Sadler — KeyBanc Capital Markets — Analyst
Thanks, good morning. I wondered just quick follow-up on the Colony loan investment, any update there surrounding your expectations were the fact that you excluded it from the sales guide in the Q still don’t expect it to be repaid.
Debra A. Cafaro — Chairman and Chief Executive Officer
I think the latter. You know, and as you know from the Colony call and let’s move debt portfolio to intended for disposition of the real estate portfolio that is encumbered by our loan and the loan continues to perform well. And my guess would be that and it’s only a guess but that buyer of the real estate portfolio would likely assume the existing capital stack.
Jordan Sadler — KeyBanc Capital Markets — Analyst
Okay. Although I guess if it goes to somebody I mean who looks to parcel off the portfolio or it does been able to own or hold the entire portfolio there is a possibility that they might have to repay that loan, right? For their entire portfolio.
Debra A. Cafaro — Chairman and Chief Executive Officer
Yeah, I mean we — it is supported by the pool portfolio definitely. And you know it’s a very well structured loan and we always feel good when our loans get repaid even though we have to recycle the capital but it proves the merits of the investment, if you will. So we are open-minded I think either way, it could be, could be favorable for Ventas.
Jordan Sadler — KeyBanc Capital Markets — Analyst
Okay. And then just as a follow-up relative to where Pete comments as his closing to his comments you mentioned some of the partners being approached and pursued the Kindred deal, the Spire portfolio any anticipated actions you guys might see within your portfolio is a result of those transactions.
Debra A. Cafaro — Chairman and Chief Executive Officer
Yes, I mean we never there is activity there can be opportunity and we look forward to exploring those kinds of things. We’ve had a good relationship with Kindred for 22 years and we’ve done lots of really constructive things together and I would hope that that will continue.
Jordan Sadler — KeyBanc Capital Markets — Analyst
Okay, thank you.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Daniel Bernstein with Capital One.
Daniel Bernstein — Capital One — Analyst
All right. Good morning. Congrats on a good quarter with SHOP. So kind of a broad question here on seniors housing, I mean there is some real success from the larger operators like Brookdale, Sunrise obviously the merger at HR Holiday. You know, is kind of I want to get your perspective on maybe the importance of scale in seniors housing going forward. Historically, scale is not worked out too well versus regional operators in terms of performance, but maybe that’s changing. And just wanted to try to get your perspective on that and maybe how the Ventas as a REIT can participate in that.
Debra A. Cafaro — Chairman and Chief Executive Officer
Well, that’s a great question. It’s clearly from someone who has been around the industry for a long time. You know, as we said, as a third owner of Atria we do like the combination of the talent the IL and the AL capabilities coming together on, you know, a very advanced platform that Atria has to become the second largest operator. So that can really yield some benefits I would say with the data analytics and technology capabilities and the talent all coming together. So it’s more about that than it is about the scale I would say.
There also can be benefits from smaller operators, Justin mentioned, we’re going to have some, a new relationship with Hawthorne and those were, as you know, the original holiday guys, if you will. And I think there are some strong benefits that those local operators can provide as well, so, and we look forward to having those relationships and building them out as appropriate.
Daniel Bernstein — Capital One — Analyst
Okay. And then I guess the other question I just wanted to go back to labor. I mean you’ve heard from some other operators that may be a lack of labor could slow down occupancy gains at the and more maybe skilled nurses — skilled nursing seems challenging, but kind of wanted to get your thoughts whether there is any limits in terms of near-term occupancy momentum that could occur because of the shortage of labor.
Debra A. Cafaro — Chairman and Chief Executive Officer
Right. Well, I mean again I think we as a country and we Ventas with our strong second quarter, have a really of what I would call my mother would call really a high-class problem and that is that you know our economy is recovering and demand is recovering in such a speedy and robust way that both the labor market and the supply chain are having trouble kind of keeping up with it and that is an environment that we’re, we feel very comfortable kind of managing through to the other side, because when you step back, it’s really all about that demand, the demographics, building that occupancy and pricing power and capturing that embedded upside in both Ventas senior housing as well as now New Senior.
So we’d rather have this environment and many others and I think we can successfully really manage through it because of the demand that is right in front of us.
Daniel Bernstein — Capital One — Analyst
That’s a helpful perspective. Thanks.
Debra A. Cafaro — Chairman and Chief Executive Officer
Right. And to the specific question, I mean our communities are able to take residents, there hasn’t been any capacity constraint to date on our ability to accept occupancy.
Daniel Bernstein — Capital One — Analyst
All right, thank you.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Amanda Sweitzer.
Amanda Sweitzer — Baird — Analyst
Thanks, good morning. You touched on higher conversion lead sources continuing to recover in your prepared remarks. Can you just expand on where those higher conversion sources are trending today relative to pre-COVID levels and how much additional upside you think you could realize through those.
J. Justin Hutchens — Executive Vice President, Senior Housing
Yeah, sure. So really kind of two things happening. One of the digital footprint that is expanding. And then the other is the traditional leads coming back. So referral agencies and Internet based leads are way over 100%, 150%, 160% of pre-pandemic levels. And so that they’ve played a huge role in driving leads that’s maybe a silver lining that came from the pandemic where it forced operators to invest into that source of referrals and it’s a game changer, really. And so we’ve seen mostly to take up now those do convert a lower rate. So, but the more than area.
So in addition to that, there’s 300 resources is respite professional referrals and personal referrals. Personal referrals in the second quarter for us we’re at 110% of pre-pandemic levels. So those have come roaring back, professional still down around 74%-75% and just under that. So there is still ways to go yet with professional and the rest of to recover and which we think is encouraging because the lead levels have been quite strong.
Amanda Sweitzer — Baird — Analyst
That’s great and helpful. And then following up until your expense growth guidance, particularly for the third quarter just your expectation that increased SHOP expenses were largely offset the increased revenue growth and what did you see in terms of sequential expense rather than July and how for the potential COVID related expenses that you are included in guidance.
Robert F. Probst — Executive Vice President and Chief Financial Officer
I’ll have to go with for the third quarter. So you’re right to say revenue growth. Pretty much offset by expense growth. There is a number of different buckets within the expense line. I think, worth highlighting one is simply an extra day which is meaningful when you think sequentially third quarter versus the second quarter that has, that has, it’s a meaningful impact. The next is, I call it typical seasonal cost increase in the third quarter utilities is the easy one repairs, it’s early. But you see that a out every third quarter.
The third bucket is really a function of occupancy growth and activity levels increasing in the communities I mean obviously you have incremental cost associated with that which is a good thing and kind of overlaying all of that is that, is this question of short-term wage pressure in light of the labor market, which is effectively embedded in the thinking but there is a series of different buckets altogether add up to that, that third quarter expense number.
Amanda Sweitzer — Baird — Analyst
That’s helpful. Appreciate the time.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Nick Yulico with Scotiabank.
Nick Yulico — Scotiabank — Analyst
Thank you. I guess I just wanted to follow up on the expense question, maybe can you just give us a feel for how this is going to work in terms of as you get increased occupancy in the portfolio, how much of an offset going forward that’s going to be from same-store expense growth, meaning that if your occupancy instead was up 400 basis points in the third quarter and not 200 basis points would you then have same-store NOI growth sequentially or just trying to think about how as occupancy is going up as well some of your, deflexing of labor that worked on the downside now I guess going against you a bit on the expense side.
Robert F. Probst — Executive Vice President and Chief Financial Officer
Yeah. Nick, I think it’s right to say that is occupancy growth you’re going to have some level it’s not a perfect linear one for one relationship whereby you had occupancy you had ahead. It is more of a step change type function. There’s always creates a beta as to what level that is. I think, qualitatively, we would tell you we’re in that we’re growing labor as we’re growing occupancy right now. As a consequence of having come out the other side flexing labor as you say, which should reach a level where then there is some, there is some scale advantage, if you like that you can then hold off until you get to the next level of occupancy. I can’t give you a number on that, but we’re certainly in that upward trajectory right now.
Nick Yulico — Scotiabank — Analyst
Okay, I appreciate that. And I guess just following up, I think —
Debra A. Cafaro — Chairman and Chief Executive Officer
Yeah, I mean, some of it is really related to this mismatch that I discussed, in terms of shifting gears in the economy and that should be transitory.
Nick Yulico — Scotiabank — Analyst
Okay, thank you. And then just following up on the — I know, earlier, Justin, you were saying about the margin outlook you thought, there’s a good chance to get back, I think you said within the 100, 200 basis points of pre-COVID margin as you’re building the occupancy back and I guess the way is that the right way to think about is that in the meantime, over the next year, you’re still going to be about 100, 200 basis points below on margin versus where you were, because if I look at the third quarter guidance, it does feel like in margins going to be about 20% in SHOP and in the third quarter a year ago was almost 22% of that kind of fits that piece of still being down a bit, which is, I mean it is COVID expenses is also, I guess the RevPOR being down year-over-year.
J. Justin Hutchens — Executive Vice President, Senior Housing
Yeah, I would, I would kind of stretch out your timing a little further. There is, as Bob mentioned, there is going to be kind of your periods we have revenue increase and a little bit of expense catch up. Debbie mentioned that in the near term out as the transitory effect as well. So if you kind of push out the timetable ways and we don’t really have the crystal ball in terms of when we stabilize. But I was thinking more on a stabilized basis, we get there to that pre-pandemic occupancy margins should be within reach of where they were and then from there the pricing power and occupancy upside for higher margins over time. So that’s all I was saying, and I didn’t really mean to kind of pin it as kind of a near-term picture except to say that our margins in Q2 were for only like 150, 200 basis points up the year ago.
Nick Yulico — Scotiabank — Analyst
Okay, thank you everyone.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Vikram with Morgan Stanley.
Vikram Malhotra — Morgan Stanley — Analyst
Thanks so much. Good morning. Thanks so much for taking the question. So I guess Justin going back to sort of the occupancy increase near term, but also maybe over the next 12 to 18 months. So first, I guess if I look at your slide and look at the lead volumes very recently, there are over 100% of 2019 and your move-outs are trending lower, and certainly the leads are higher than the last few months or the second quarter numbers. So why won’t be, why would the occupancy uptick just be similar to what you saw in your view in the second quarter. Why wouldn’t the midpoint of your guidance be the low point because your leads are just higher than what you’ve seen in the last call four months.
Debra A. Cafaro — Chairman and Chief Executive Officer
Well, this is Debbie. You know again in July — well, first of all, we are really happy about that leads in July are the highest they’ve been since beginning of the pandemic, that is a very important and meaningful statistic and certainly portends to me, it means demand and it portends higher occupancy. So that is really good as you say. In July, as we’ve talked about we had spot to spot growth in about 75 basis points. And you know there is a lot of uncertainty in the environment. So if you just rolled out forward that’s near the midpoint of the 150 to 250 and that’s how our guidance is constructed.
Vikram Malhotra — Morgan Stanley — Analyst
Got it, okay. I would just I mean you’re right, like the July lead should translate into whatever August-September. I don’t think it’s more than that in terms of conversion time, but it just feels like the setup is one for, you were pretty easy secure mid to maybe even the high end of your, of your number of your occupancy guide. I guess just tied to that lot of smaller operators surveyed by Nick, do have a view that they could get back to pre-COVID occupancy next year. I wanted to just ask you from your perspective, like, do you think that’s too optimistic. What’s your sort of broad view on the puts and takes, I recognize the strategy that different in terms of occupancy versus rent etc., but where do you think are, A, do you think those smaller operators are maybe too bullish or what are the puts and takes?
Debra A. Cafaro — Chairman and Chief Executive Officer
Yeah, I mean that’s the pace and slope of the recovery and the clinical environment broadly in the US is really going to determine how quickly we get back to that pre-pandemic occupancy levels, we’re on a good path. I think it’s very sustainable. It has been so far and we are very encouraged by that as well as the demographic growth that’s right in front of us. I think Justin mentioned Atria had about 700 basis points of occupancy to continue to get back to pre-pandemic levels and you know, again, it’s really going to depend upon this, we were predicting the third quarter, we have visibility and I’m going to tie to that. And thereafter I think we, we want to be conscious that it continues to be a pretty dynamic environment. So we’re encouraged and I hope you’re right about many of the things that you said, Vikram.
Vikram Malhotra — Morgan Stanley — Analyst
Debbie, if I can just — sorry, go ahead.
J. Justin Hutchens — Executive Vice President, Senior Housing
Just trying to say things that support that. So right as we currently sit, we are — we only have just around or just about 20% of our communities that are at the pre-pandemic occupancy, over 60% are achieving pre-pandemic move-in levels. So, we have great activity and we’re really pleased with this early recovery, but we have a long way to go and support and so far, really good support for it, but there is still ways to go yet.
Vikram Malhotra — Morgan Stanley — Analyst
Okay, great. Debbie, if I can just squeeze one bigger picture question. I’m struck now by how the Big 3 healthcare REITs are now different from maybe several years ago, there were, there were lot more similarity you have a very strong momentum in the Life Science Research segment obviously senior housing, there’s a lot of momentum as you’ve just laid out on this call. I’m just wondering in from a strategic and maybe a differentiation of that even value perspective the MOB segment there seems to be a lot of demand on the private side, cap rates are really low, pretty good. I know maybe three years ago, you set out to maybe sell if correct me if I’m wrong, I think with $600 million, $700 million of asset. Why is this not a good time to maybe exit a fair amount of MOB and become more pure play I guess or focused on two segments, life science and senior housing.
Debra A. Cafaro — Chairman and Chief Executive Officer
Lovely question. Thank you. And we, again we do believe that we’ve created a lot of value with our MOB portfolio as you point out, we have a differentiated strategy with our Lillibridge management platform that Pete runs and that’s going really well. We have mentioned, that is part of the $1 billion of 2021 capital recycling that is please and senior housing. So you’re right on there, I do think that we’ve benefited from the stability of the cash flows at the MOBs with our strategy of being on campus and affiliated and I think you’re right that very low cap rate, but it’s also provides a really good differentiated and diversifying aspect to our overall cash flow stream. And so we like that. So we’ll trim here and there. We’ll recycle capital, we will take advantage of some of the value that we’ve created, but we really believe that owning the MOB business as we do is a benefit to our shareholders.
Vikram Malhotra — Morgan Stanley — Analyst
Okay. I’ll follow up on that offline, but thanks so much and have a great weekend.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Rich Anderson with SMBC.
Rich Anderson — SMBC — Analyst
Well, I’m sorry to keep you going. I logged in about two hours ago and found out, it didn’t take for some reason. So one question from me.
Debra A. Cafaro — Chairman and Chief Executive Officer
It might be you.
Rich Anderson — SMBC — Analyst
Yeah fat fingers or something, I don’t know.
Debra A. Cafaro — Chairman and Chief Executive Officer
Welcome.
Rich Anderson — SMBC — Analyst
The one question I have, then I’ll ask in the interest of time is concentration risk with Atria following new holiday and following their own merger and you see here I mean and their merger with Holiday gets over 20% depending on how you slice it, I’m curious how much of that is a, an issue to you and how quickly, you’d like to little that down through other investments outside of it. The idea of concentration in the past at the time sounds good and they recognize Atria is a great operator. But people have come to regret concentration risks as time has moved on. So I’m curious if that’s something that’s sort of high on your radar screen to get back down to something in the mid teens or something like that over the next couple of years. Thanks.
Debra A. Cafaro — Chairman and Chief Executive Officer
Yeah, okay. Yeah, Rich. Thank you for asking that because that has always been something that is near and dear to my heart. And there is always this tension as you mentioned between really putting your assets with the right operator, the right markets and certainly the best operators. And Atria has been that, Holiday has been a leading operator. So there is a tension between that and making sure you don’t put all your eggs in one basket and you manage your concentration wisely. And so we do think that the combination of Atria and Holiday provides the strategic benefits to us and as an owner of Atria we like that, we like the growth in Atria platform.
That having been said, I think we do have a lot of flexibility in the New Senior management contracts and our own Holiday contracts that gives us the ability through both growth and the way the management contracts are structured to move in the right direction on the diversification of manage your point.
Rich Anderson — SMBC — Analyst
Okay, great, thanks very much.
Debra A. Cafaro — Chairman and Chief Executive Officer
So we have all the tools we need to manage it in the right way.
Rich Anderson — SMBC — Analyst
What’s your like long term and this is much of I want to own of a — or have a piece of my pie, is it 10% or 15% is that the kind of the threshold for Ventas?
Debra A. Cafaro — Chairman and Chief Executive Officer
I mean, it will change over time and with specific situations, but that seems directionally you know the right kind of way to think about it.
Rich Anderson — SMBC — Analyst
Okay, great. Thank you.
Debra A. Cafaro — Chairman and Chief Executive Officer
Thank you.
Operator
And there are no other audio questions at this time.
Debra A. Cafaro — Chairman and Chief Executive Officer
Well, thank you all for sticking with us and for your interest in Ventas. We really appreciate it. We’re so delighted with a great quarter of health and safety and results, and we look forward to seeing you all in person soon. Thank you again.
Operator
[Operator Closing Remarks]