Ventas, Inc. (VTR) Q3 2021 Earnings Call Transcript

Ventas, Inc. (NYSE: VTR) Q3 2021 earnings call dated Nov. 05, 2021

Corporate Participants:

Sarah Whitford — Investor Relations

Debra A. Cafaro — Chairman and Chief Executive Officer

J. Justin Hutchens — Executive Vice President, Senior Housing

Robert F. Probst — Executive Vice President and Chief Financial Officer

Analysts:

Michael Carroll — RBC Capital Markets — Analyst

Nicholas Joseph — Citigroup — Analyst

Rich Anderson — SMBC Nikko Securities America, Inc. — Analyst

Nick Yulico — Scotiabank — Analyst

Richard Hill — Morgan Stanley — Analyst

Derek Johnston — Deutsche Bank Securities — Analyst

Juan Sanabria — BMO Capital Markets — Analyst

Eric Glynn — Barclays Capital, Inc. — Analyst

Jordan Sadler — KeyBanc Capital Markets, Inc. — Analyst

Mike Mueller — J.P. Morgan — Analyst

Joshua Dennerlein — Bank of America Merrill Lynch — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to the Ventas Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your host today, Sarah Whitford. Please go ahead.

Sarah Whitford — Investor Relations

Thank you, Elisa. Good morning and welcome to the Ventas third quarter financial results conference call. Earlier this morning, we issued our third 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 in 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.

Debra A. Cafaro — Chairman and Chief Executive Officer

Thanks, Sarah, and good morning to all of our shareholders and other participants and welcome to the Ventas third quarter 2021 earnings call. I’m so happy to be hosting this call in person with my trusted colleagues for the first time since early 2020. Ventas delivered positive results in the third quarter, saw outstanding sequential SHOP average occupancy growth, benefited from its large medical office, life science and healthcare triple-net businesses, and executed on its investment priorities. Delivering $0.73 of normalized FFO per share, which is in the upper half of our guidance range. Our same-store SHOP portfolio increased rate and grew occupancy at record levels in Q3 despite the high incidents of COVID-19 in the broader environment.

Occupancy in this portfolio has now increased for eight consecutive months through October. Demonstrating powerful demand, our U.S. same-store SHOP portfolio has increased occupancy 750 basis points since mid March 2021, lifting the entire same-store SHOP portfolio nearly 600 basis points during the same period. I’m also encouraged that our year-over-year SHOP occupancy turned positive for the first time since the onset of the pandemic, so a robust senior housing recovery is well underway. But as we stated, it may not progress in a straight line.

Consistent with macro trends and as we anticipated in our last call with you, the pandemic has created a tight labor market, resulting in labor cost pressures that accelerated in September. Looking ahead, we expect to see meaningful revenue increases in the first quarter of 2022 and improving pricing power. At a macro level, many economists forecast that labor force participation will expand from its current low rate for a variety of reasons. These factors should cause current conditions to ease considerably over time. Even more importantly, Dr. Scott Gottlieb, who has been consistently the most accurate expert throughout the pandemic stated today that the COVID-19 pandemic is effectively behind us in the U.S., given all the tools we now have to combat it, including Pfizer’s new treatment.

If Scott continues to be right, it is a momentous day for all of us. We continue to be delighted that one-third of our business consists of medical office outpatient and life science research and innovation. Our operational initiatives in medical office and aggressive capital deployment in life science are providing reliable growth and value creation for our enterprise and stakeholders. Turning to capital allocation, we have been highly active with $3.7 billion of investments announced or closed year-to-date. Our current capital allocation focus remains senior living, selective private medical office building opportunities and life science R&I.

Let me highlight a few new investments we’ve made. We’ve completed $2.5 billion in independent living investments, including our accretive acquisition of New Senior’s hundred plus independent living communities at an attractive valuation well below replacement costs and a six community Canadian Senior Living portfolio with one of the New Senior operators, Hawthorne. In medical office we’ve completed or announced $300 million of investments. First, establishing a new relationship with industry leader Eating Recovery Center, we acquired a Class A asset under a long-term lease in this rapidly growing sector.

Second, by acquiring our partner PMB’s interest in this Sutter Van Ness Trophy MOB in downtown San Francisco, we now own a 100% of this asset at a 6% yield. With 92% of the MOB already leased, we intend to capture additional NOI growth and value. Finally, we intend to expand our relationship with Ardent Healthcare by acquiring 18 of their 100% leased medical office buildings for $200 million by year-end. On our third capital allocation priority, we are delighted to announce that we have commenced development of a 1 million square foot life science project anchored by Premier Research University, UC Davis with our exclusive partner Wexford.

Purpose-built for clinical research, this project will be 60% pre-leased to UC Davis, and total project cost are expected to be $0.5 billion. Turning to our robust investment pipeline, our team remains busy evaluating attractive opportunities. In fact, we’ve now reviewed more deal volume this year than we saw in all of 2019, over $40 billion and we continue to pursue those that meet our multi-factor investment framework. Capital continues to flow into our sectors as global institutional investors agree with our thesis on the favorable trend benefiting all of our asset classes.

These strong capital flows are also supporting our intention to recycle $1 billion of capital this year to enhance both our balance sheet and our portfolio. Our diversified business model continues to provide significant benefit. Our early and aggressive investments into medical office and life science are creating significant value. We are also proud to be associated with so many leading care providers, operators and developers in all our business lines and to be establishing new platforms for growth through both our investment and our portfolio actions.

In closing, the U.S. is in the midst of an impressive economic recovery that together with demographic demand for our asset classes gives us confidence and optimism in our future. We believe that the more widespread administration of vaccines and new efficacious treatments for COVID-19 will benefit both the broader economic recovery and our company. Our aligned and experienced team continues to be focused on capturing the double upside in senior housing from both pandemic recovery and the projected growth in the senior population and also to continuing our long track record of external growth. Justin?

J. Justin Hutchens — Executive Vice President, Senior Housing

Thank you, Debbie. I’ll start by saying it is a very exciting to see the strong supply-demand fundamentals supporting occupancy growth in the senior housing sector. We have been busy taking actions through acquisitions, dispositions and transitions to ensure we are strongly positioned during this period of sector recovery. Our industry-leading operators are successfully driving revenue growth in the early stages of the recovery and taking actions to address elevated labor costs, driven by the macro backdrop. Moving on to third quarter performance; in SHOP, leading indicators continue to trend favorably during the quarter as leads and move-ins each surpassed a 100% of 2019 levels while move-outs remain steady.

Strong sales activity has now driven eight consecutive months of occupancy growth inclusive of October. In the third quarter, average occupancy grew by 230 basis points over the second quarter, led by the U.S. with growth of 290 basis points and a 110 basis points in Canada, which is over 93% occupied. October leading indicators remain solid as leads and move-ins continue to perform above pre-pandemic levels and move-outs remained relatively stable. Turning to SHOP operating results, same-store revenue in the third quarter increased sequentially by $13.6 million or 3.1% driven by strong occupancy growth and slight rate growth.

Regarding rate growth, our operators have proposed rent increases to the residents of 8% in the U.S. and 4% in Canada, which on a blended basis is approximately 200 basis points higher than the historical levels. We also continue to see improvement in our releasing spreads, which are trending close to pre-pandemic levels. Operating expenses increased sequentially by $16.7 million or 5.4% of which approximately half is due to overtime and agency costs. Although we largely anticipated the additional labor costs September spike represented approximately half of the sequential agency expense increase.

We carried the elevated September cost forward in our Q4 guidance, which Bob will cover shortly. Despite the higher agency and overtime costs, our operators are now witnessing net positive hiring and are actively addressing labor challenges through a number of initiatives. These include centralized recruitment of line staff, implementation of applicant tracking systems, delivering on the increased demand by employees for flexible schedules and other workplace improvements to become more competitive. For the sequential same-store pool SHOP generated $106.7 million of NOI in the third quarter, which represents a sequential decrease of $3.7 million or 3.4%.

Moving on to portfolio actions; our New Senior acquisition closed on September 21. The portfolio consists of 103 independent living communities located in attractive markets with favorable demand characteristics. Integration efforts have gone extremely smoothly and we are on track to realize our expected synergies. We are pleased with the performance and operating trends of the portfolio. Its third quarter spot occupancy grew 110 basis points sequentially. The same-store pool, which excludes the 33 communities that transitioned to new operators this year, grew 180 basis points in the third quarter and then another 10 basis points in October, marking occupancy growth in six out of the past seven months.

We have also recently closed on an acquisition in Canada, which includes five independent living and one assisted living communities. These acquisitions expand our independent living exposure to 59% of NOI on a stabilized basis. We believe the structural benefits of the independent living model present attractive opportunities to further strengthen our senior housing NOI margin through less intensive staffing requirements, longer resident length of stays and accessible price points, all underpinned by exposure to a large and growing middle market.

This is in combination with our existing portfolio positions us well to capture demographic demand with the 80-plus population expected to grow over 17% over the next five years, while facing less new supply versus historical levels. I’d also like to note our previously announced transition of 90 assisted living and Memory Care communities is off to a solid start as 65 communities have already transitioned and the rest are planned by year-end. We believe the enhanced oversight provided by the experienced mid-market, mid-size assisted living operators will improve the execution of local market strategy and with increased accountability. I have long-standing relationships and familiarity with the incoming CEOs and I can say they are really fired up about the new portfolios.

They are actively engaged with personal site visits to the communities and transition planning. Ventas has 37 operator relationships including seven of the top 10 largest operators in the sector and 8 new relationships added this year. We look forward to the opportunity to grow our relationships with these companies over time. In summary, the senior housing sector is benefitting from a strong macro supply-demand backdrop. We are actively positioning ourselves for success through portfolio actions and our operators are driving revenue and managing the elevated labor situation. We look forward to forging ahead during a very exciting time of sector recovery. Bob?

Robert F. Probst — Executive Vice President and Chief Financial Officer

Thanks, Justin. I’ll close out our prepared remarks by quickly touching on our third quarter office and enterprise results, discussing our recent balance sheet and capital activities and laying out our fourth quarter expectations. Our life science and MOB businesses led by Pete Bulgarelli and which represent nearly one-third of our company’s NOI once again delivered robust and reliable growth in the third quarter. These businesses taken together increased same-store NOI by 4.2% year-over-year and increased 1.2% sequentially on an adjusted basis.

MOB NOI grew 3.2% year-over-year and R&I increased 7.1%. Some stats of interest that underpin this strong performance. MOB occupancy is up 130 basis points year-to-date. Same-store MOB occupancy of 91.3% is at its highest point since the first quarter of 2018. MOB tenant retention was 91% in the third quarter and MOB new leasing increased 43% versus prior year. R&I occupancy remains outstanding at 94.4% and improved 50 basis points sequentially due to exciting demand for lab space. MOB expenses increased less than 1% year-on-year as a result of completed energy conservation projects and sourcing initiatives.

And for the second year in a row, we ranked in the top quartile of our peer group for tenant satisfaction as measured by Kingsley Associates. 2021 rankings for each major key performance indicator increased when compared to 2020. At the enterprise level, we delivered $0.73 of FFO per share in the third quarter. This result is at the higher end of our $0.70 to $0.74 guidance range and benefited from the stable performance of our diversified portfolio as well as a $0.04 Ardent bond prepayment fee that was included in our guidance.

We were also very active in the third quarter managing our balance sheet and capital structure. Consistent with our prior $1 billion disposition guidance, we now have $875 million of disposition proceeds in the bank with $170 million of senior housing and MOB portfolios under contract and expected to close in the fourth quarter. These dispositions have enhanced and reshaped our portfolio and we view these proceeds to reduce $1.1 billion of near-term debt so far this year. We also issued $1.4 billion of equity in the third quarter including $800 million for New Senior and $600 million in ATM issuance at $58 a share.

As a result, our net-debt-to-EBITDA ratio, excluding New Senior improved sequentially to 6.9 times, while including New Senior Q3 leverage was better than forecast at 7.2 times. As an administrative side note, we plan to enter into a new ATM program replacing our 2018 program, which is nearly complete. Turning to Q4 guidance, we expect fourth quarter net income will range from a $0.01 to $0.05 per fully diluted share. Q4 normalized FFO is expected to range from $0.67 to $0.71 per share. The Q4 FFO midpoint of $0.69 can be bridged from Q3 of $0.73 by $0.01 net impact of tenant fees, the impact of capital recycling for debt reduction and pre-funding of new investments is $0.02 and various items round up to explain the last $0.01

Our SHOP portfolio NOI is estimated to be flat sequentially. Key fourth quarter assumptions underlying our guidance are as follows. Starting with our SHOP same-store expectations, SHOP Q4 average occupancy is forecast to increase between 80 basis points and 120 basis points versus the Q3 average growing ahead of pre-pandemic levels while following seasonal trends. At the guidance midpoint spot occupancy, September 30 to December the 31 is expected to be approximately flat. The resulting sequential SHOP revenue growth is expected to be offset by increased operating expenses due to continued elevated labor costs.

No HHS grants are assumed to be received in the fourth quarter though our license assisted living communities have applied for qualified grants under Phase 4 of the Provider Relief Fund for COVID losses incurred at the communities. Outside of SHOP continued stable performance is expected in the office and triple-net segments. We expect to receive an M&A fee in Q4 of $0.03 for the announced Kindred sale, which Kindred communicated is expected to be completed in the fourth quarter subject to customary closing conditions.

We continue to expect a $1 billion in asset sales and loan repayments for the full year 2021 at a blended yield in the high fives. And our fully diluted share count is now 403 million shares reflecting the equity raised today. I’d like to underscore that we are still in a highly uncertain environment and the pandemic’s impact on our business remains very difficult to predict. To close, my colleagues and I are excited for the future of Ventas given expected robust recovery in senior housing and the external growth opportunities both under our belt and that lie ahead. That concludes our prepared remarks.

With that, I will turn the call back to the operator at this time.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Michael Carroll, RBC Capital Market.

Michael Carroll — RBC Capital Markets — Analyst

Yeah, thanks. Debbie, I want to talk a little bit about the investment market. I guess with the Delta wave and the labor pressures, have you seen an uptick in the number of investment opportunities, particularly in senior housing? And should we continue to see that activity from your end persist over the next several months and quarters?

Debra A. Cafaro — Chairman and Chief Executive Officer

Good morning, Mike. I mean, as I mentioned, we have just seen tremendous volume across the board all year long more than we’ve ever seen. And we do expect that to continue.

Operator

Your next question comes from the line of Nicholas Joseph of Citi.

Nicholas Joseph — Citigroup — Analyst

Thanks. Appreciate all the comments on expenses and rate and occupancy. But just as you step back and think about kind of margin once we get through some of these transitory issues, how do you think margin long-term for senior housing will compare versus pre-COVID levels?

Debra A. Cafaro — Chairman and Chief Executive Officer

Thank you. Justin?

J. Justin Hutchens — Executive Vice President, Senior Housing

Sure. Hi, Nick. So, just stepping back and thinking about the ultimate drivers of margin, you probably heard us describe a train before. The front of the train really is — leads, leads come first. That drives move-ins. Net move-in activity drives occupancy. Pricing certainly supports revenue growth as well. And then there is expense management. And over time, we certainly expect that there’ll be margin expansion for two reasons. One is that the supply-demand characteristics that we’re facing do support occupancy growth and should present opportunity for pricing power. Clearly, in the near-term there is expense pressure due to labor that we mentioned. But the macro backdrop does seem to be improving. And as I mentioned, our operators are taking significant actions to address the issue

Operator

Your next question comes from the line of Rich Anderson of SMBC.

Rich Anderson — SMBC Nikko Securities America, Inc. — Analyst

Hey, good morning. I have a kind of a question about vaccine mandates and — at the property level and how that’s being managed? And I’m curious — I don’t know if I remember what that number is for Ventas and if you could share that I’m sure at some place, I’m just not remembering it right now. But who makes the call on that? I assume in the SHOP’s execution that Ventas has at least a say in that, maybe I’m wrong. And I’m just curious what your thesis is — your ideas are around vaccine mandates at the property level now and perhaps taking into account the Pfizer news and what you’re thinking about it going forward? Thanks.

Debra A. Cafaro — Chairman and Chief Executive Officer

Hi, Rich. I’ll start and then turn it to Justin. Our operators have by and large been early adopters of vaccine mandates within the communities to keep the residents safe and we’re at very, very high levels now, nearly 100% of both residents and staff. We’ve been way ahead of the federal requirements for vaccines, because we are carrying for vulnerable seniors and also had access early on from the vaccine rollout, both employees and residents. And so that has been both a moral and a business imperative. It’s worked really well. Our operators have led on it and they have made the decision but with our financial support and encouragement

Operator

Your next question comes from the line of Nick Yulico of Scotiabank.

Nick Yulico — Scotiabank — Analyst

Thanks, good morning. So I was hoping you could just — I don’t think you break out labor expenses and the change there. If you could just give us a feel for how much they did increase quarter-over-quarter? And year-over-year and just how we should think about the trend of labor expenses next year because I know there’s some optimism that you think that it’s going to get a little bit better, but I’m still just not entirely clear why use of contract labor and other items would go down in this type of job market?

Debra A. Cafaro — Chairman and Chief Executive Officer

Bob’s going to address the quantitative part of your question. I think from a high level, again, the timing is unknown, the extent is unknown, but there are multiple factors at a macro level that will support increased labor and workforce participation. And those include children back in school, children vaccinated. The expiration of [Indecipherable] policy such as the federal stipend on unemployment and also just people’s savings running out as a result of that and schools being open and the like. And so all of those factors really play into the macro thinking around easing of current labor conditions. I think again, if you just step back what’s great about this recovery is that demand has sprung back, not just in our business, but broadly speaking, it has surged and the supply chain and the labor force are still adapting and adjusting and haven’t caught up yet. And over time, those things will get more imbalanced. And that’s kind of what the economists forecast and that’s why those are the factors that you would expect to improve the workforce participation. So Bob, do you want to talk about the specifics?

Robert F. Probst — Executive Vice President and Chief Financial Officer

Sure. And in page 12 of the business update that we issued this morning could be helpful because it lays out the operating expense increase we saw sequentially between the second and third quarter, which is roughly $17 million. And within that labor representing, call it half of that increase. And if you further double-click on the labor piece, call it, two-thirds of that would be contract labor. I reinforce the fact in our guidance for the fourth. We saw this acceleration in contract labor in September. We effectively assume that to continue through the fourth quarter in light of the backdrop. Important to note that contract labor is at least two times as expensive as in-house labor and so these initiatives that Justin laid out to increased staffing, reduce that contract labor would have a positive mix benefit. But quantitatively that hopefully helps you.

Operator

Your next question comes from the line of Rich Hill of Morgan Stanley.

Richard Hill — Morgan Stanley — Analyst

Hey, good morning, guys and thanks for having me on the call. It’s good to be a first time caller, long-term listener. I did want to talk through and maybe hear a little bit more about your operator contracts. One of your peers have talked about maybe half of them renewing in 1Q and the other half ratably throughout the year. I’m wondering if you see something similar and maybe you could unpack that for us.

Debra A. Cafaro — Chairman and Chief Executive Officer

Good and welcome. Yes, this is addressed also in our business update. Justin, do you want to take that?

J. Justin Hutchens — Executive Vice President, Senior Housing

Sure. Yeah. If you look at page 14 in the business update you’ll see this. And first of all, the headline is that we — our operators have proposed to our residents, an 8% increase in rent in the U.S. and 4% in Canada. If you look to the left, you’ll see how this breaks down, and that is that 55% of our residents are eligible for increases in the first quarter. 35% get an anniversary rent increase, so those will happen throughout the rest of the year. And then those that moved in the late in ’21 obviously wouldn’t be eligible for an increase yet. So there is a huge opportunity to grow revenue. This is a consistent process.

It’s tried and true. It’s just that we’re going to pass along more rent increases this year. And I’ll just add that our operators are very careful about — in taking local market considerations into their planning so that they’re in line with market and can successfully execute. And then there’s also level of care, which is really acuity driven and that can increase throughout the year as well, both in terms of how much we charge, but also the acuity level of the resident would drive additional charges and that’s just standard as part of our, the revenue package that operators offer.

Operator

Your next question comes from the line of Derek Johnston with Deutsche Bank.

Derek Johnston — Deutsche Bank Securities — Analyst

Hi, everyone. Good morning. Can we go into some detail on the SHOP transitions to the more experienced local operators in various markets? Really specifically how that may have impacted these transitions, the 4Q guide, but at the same time how the transitions could benefit first Q in 2022? Thanks.

Debra A. Cafaro — Chairman and Chief Executive Officer

Thank you. Yes, I’m going to turn that to Bob and Justin to talk about the transitions, which as Justin said are well underway.

J. Justin Hutchens — Executive Vice President, Senior Housing

Okay, thank you. And I’ll start with really just some of the rationale for why we did it and why we think this is going to be helpful to performance. And you’ll notice on page 13, on the right hand side that we highlight this. We selected operators that have experience, they have experience within these markets and they have experience running regional markets. And one thing I’ve been very encouraged about is that the CEOs of these companies have been actively engaged in the transitions. We have a cooperative transition with the former manager.

So we’ve actually been able to get on the ground into the communities, start assessing, get to know people and be ready to try to get off to a strong start when the transition begins. And you have the advantage when you have a mid-sized company with a regional presence is that you have senior management that is very close to the community. So we do expect the oversight to be very strong. And then these companies are excited to grow and there is just an energy to it that’s really positive, and it’s well assessed and we look forward to positive results. Having said that, we would expect to have some transition noise in the early going. That was factored into the fourth quarter. And I’ll hand over to Bob.

Robert F. Probst — Executive Vice President and Chief Financial Officer

Yeah, that’s really again back to the labor theme frankly — this normal noise is a function of turnover at the communities, new staff, etc, etc. So that’s the context obviously then with this tight labor market. We’ve assumed increases in the labor costs in the fourth, for this portfolio. So that’s embedded in the guidance for overall shopping flat.

Operator

[Operator Instructions] Your next question comes from the line of Juan Sanabria, BMO Capital Markets.

Juan Sanabria — BMO Capital Markets — Analyst

Hi, good morning. Just a question for Justin on asset management. You seem to be making the transition to more smaller regional operators, which makes sense. But just curious on a couple of fronts, on the data analytics front, what you guys are doing and maybe some hires you’ve made there and the efforts that are being put forth. And then secondly, just as we look forward, should we expect more dispositions heading into ’22 given some of the stuff that was on the market didn’t transact and you haven’t necessarily sold a ton of assets and the leverage is still a bit high. So just curious on going forward, dispositions kind of thinking about ’22 and the clean that you guys want to do for the portfolio kind of as we exit COVID.

J. Justin Hutchens — Executive Vice President, Senior Housing

Hi Juan, it’s Justin. I’ll start and then I’ll — and then Bob will jump in as well. Let me start with the data analytics. We have made new hires. We become much deeper on was already a strength in terms of market analytics. We certainly study supply and demand in great detail and have really good familiarity with local markets and which has helped to inform some of the decisions we’ve made. But also helped to inform growth decisions we make moving forward. Great team. We’ve also enhanced our operational analysis through hiring people that have experience in operating companies and have high analytical, strategic experience as well. So that’s given us insights into the business that are extremely valuable and inform our decisions, but also help to inform the decisions that the operators make in their planning as well.

Robert F. Probst — Executive Vice President and Chief Financial Officer

I’ll take the disposition question Juan. The short answer is, no, we don’t — as we think about ’22 expect significant dispositions in senior housing. We do have $170 million yet to go under contract this year. And a good chunk of that is senior housing. But beyond that, no significant plans.

Operator

Your next question comes from the line of Steven Valiquette of Barclays.

Eric Glynn — Barclays Capital, Inc. — Analyst

Hi, this is Eric Glynn on for Steve. I guess as the labor pressure eventually starts to subside, how do you think this affects long term productivity? I know one of your peers had mentioned that it would take several quarters to reach the same level historical productivity due to time — due to the time that it takes to ramp new staff up to speed and deal with on-boarding. I was just curious if this is affecting you at all or is the actual staff turnover not really high enough to have an impact here? Thanks.

Debra A. Cafaro — Chairman and Chief Executive Officer

Yeah, I would say simply that that is a part of the labor pressure and the timing of when we would expect conditions to ease. Certainly the industry has experienced that on boarding new workers and that — it’s an industry where there is consistent shifting of on onsite workers. And so that is the strength of the industry, but it will take some time for these conditions to abate again for a variety of factors, including kind of getting up to speed and training. So, that is correct. It’s just a multi-factor analysis

Operator

Your next question comes from the line of Jordan Sadler, KeyBanc Capital Markets.

Jordan Sadler — KeyBanc Capital Markets, Inc. — Analyst

Hi, there. Hi, there. I just wanted to circle back on the ESL transition assets and maybe I think in the press release last month, you talked about no contribution of NOI in the second quarter. I’m curious what the progression was sequentially? I know we haven’t same-store numbers, but I’m curious what the ESL portfolio did sequentially? And then I’m curious what the outlook would be because I would think that an operators transitions historically have caused some disruption. So it’s was what sort of the outlook would be in terms of looking at the curve of a recovery in the cash flow to go for that portfolio when we should expect that to start to, at least bottom and then start to recover. Thank you.

Robert F. Probst — Executive Vice President and Chief Financial Officer

Yeah, Jordan. I’ll take that. I wish I could draw this picture in front of you. Because I do think you’ll see some — as we saw our second quarter into third quarter, some erosion in NOI in this portfolio. And as I mentioned, we’re expecting that to continue into the fourth, given the labor cost pressures, and just the normal noise associated with the transitions. The strategy which Justin was speaking to though, is once these are in the hands of these, these new operators, they will employ their skill to really drive that performance of that portfolio in 2022 and beyond. So that’s the goal. And we’re right in the middle of that right now.

Operator

Your next question comes from the line of Mike Mueller with J.P. Morgan.

Mike Mueller — J.P. Morgan — Analyst

Hi. I’m wondering, how much of the higher labor expense pace do you think is attributable to recent rate pressures for existing staff that maybe be a little bit more sticky versus the idea of just having to utilize more higher-cost contract labor?

Debra A. Cafaro — Chairman and Chief Executive Officer

Yeah. Good question. Justin, do you want to comment on that?

J. Justin Hutchens — Executive Vice President, Senior Housing

Sure. It’s really more around just the availability of staff. The availability to staff fully with your existing people. One thing, there’s a series of steps that operators take. The first thing they do is they try to make sure that they’re utilizing all the full-time hours available for their existing staff. Most operators don’t schedule the 40-hour week, since there’s always room to expand a little bit, so they’ll do that first. Next step is they’ll use over time, obviously of your continuity of your existing staff to deliver care and services, and then the last resort is really to add agency.

And one interesting tidbit around this is that there’s not really a certain MSA where we are seeing agency use. It’s clearly a macro backdrop issue. But within MSAs, there’s certain communities that really have an out-sized amount of agency that’s being utilized, which points to the opportunity for an operational solution. So we have plenty of evidence that this can be managed, and as I said in prepared remarks, we’re already starting to see hiring, picking up across the operators.

Operator

Your next question comes from the line of Josh Dennerlein of Bank of America.

Debra A. Cafaro — Chairman and Chief Executive Officer

Josh?

Operator

Josh, your line is open.

Joshua Dennerlein — Bank of America Merrill Lynch — Analyst

Sorry guys. I was on mute there. I was looking at the rep for growth for the same-store pool, just kind of curious if you have any kind of expectations as we go forward when it might turn to positive growth on a year-over-year basis?

Debra A. Cafaro — Chairman and Chief Executive Officer

I mean, it’s — the trends have been encouraging and Justin, do you want to comment specifically?

J. Justin Hutchens — Executive Vice President, Senior Housing

Sure. Yeah. There’s a few moving parts in RevPOR; one is mix, which is really just the contribution of RevPOR from certain product types. And we are benefiting this year. I’ve mentioned this before that we would benefit from the U.S. recovery because we’ll see our higher price point product, particularly in Sunrise for instance, that’s a driver of RevPOR overall. So we’re getting some mix shift benefit. Probably more importantly, though, is we are getting the benefit of better re-leasing spreads. And that’s been consistent.

We saw the underlying trends in the second quarter we saw it through the third quarter. And when we get into next year, obviously we have the in-house rent increases that we mentioned, but the pricing power should continue to improve because what starts to happen is you’re covering movements that occurred in 2020. They came in at a relatively low rate and as the momentum picks up in the sector, our operators are able to charge more. And so we’re looking forward to a period of really improved pricing in RevPAR moving ahead.

Operator

Your next question comes from the line of Michael Carroll, RBC Capital Markets.

Michael Carroll — RBC Capital Markets — Analyst

Yeah. And I know that existing Senior’s Housing residents generally don’t like to move away from the communities that they are in. There has been a small percentage that didn’t like to do that [Indecipherable]. Has that trend come back post – COVID, or residents still hesitate to move in because of the pandemic, or move out, sorry?

Debra A. Cafaro — Chairman and Chief Executive Officer

Could you repeat that Mike? And welcome back. You got a short question the first time, so can you repeat that last part?

Operator

Michael, please press star one again. Please proceed. Please proceed with your question.

Michael Carroll — RBC Capital Markets — Analyst

Yes. I know residents generally don’t like to move out from their facilities on the seniors housing residence, but there was a small percentage pre -COVID that was willing to do that. Has that trend come back at all or are residents still hesitant to move out because of the pandemic?

J. Justin Hutchens — Executive Vice President, Senior Housing

Hi, it’s Justin. So there was actually — since we’ve been in this period of recovery, there was one month, I want to say it was April, we did see a little bit more move-out activity, and we did really correlate that to people being able to make a move where they weren’t moving during the pandemic, and they had an opportunity to move around in the month of April, but you also know there was that move in activity was picking up and so I think there was — you’re just trading seats with other operators, and so there was a lot of movement then. But since then it’s been very stable, very consistent in terms of move-out activity.

Debra A. Cafaro — Chairman and Chief Executive Officer

Operator, did you have — questions?

Operator

At this time, there are no further questions. Do you have any closing remarks?

Debra A. Cafaro — Chairman and Chief Executive Officer

I do. As I said, we have a lot of optimism and confidence. It just happens to be a momentous day with the advent of additional COVID treatments and a real line-of-sight to this pandemic possibly being over. Our business is doing really well. It is diversified and benefiting from the internal and external growth. Avenues that we have. We have a great set of partners and a great team here at Ventas. We’re very appreciative as always of your interest and your support in our Company. And we look forward to seeing you soon Thank you.

Operator

[Operator Closing Remarks]