芬塔 (VTR) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2015 Ventas earnings conference call. (Operator Instructions) I would now like to turn the call over to Ryan Shannon, investor relations.

Thanks, Lauren. Good morning and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the year and quarter ended December 31, 2015.

As we start, let me express that all projections and predictions and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the federal securities laws. These projections, predictions, and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events.

The forward-looking statements are subject to many risks, uncertainties, and contingencies, and stockholders and others should recognize that actual results may differ materially from the Company's expectations, whether expressed or implied. We refer you to the Company's reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2014, and the Company's other reports filed periodically with the SEC, for a discussion of these forward-looking statements and other factors that could affect these forward looking statements. Many of these factors are beyond the control of the Company and its management.

The information provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure, as well as the Company's supplemental disclosure schedule, are available in the investor relations section of our website at www.ventasreit.com.

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

Thank you, Ryan. Good morning to all of our shareholders and other participants and welcome to the Ventas year-end 2015 earnings call. I am delighted to be joined this morning by my Ventas colleagues to discuss our exciting and productive year, highlight the innovative and strategic transactions of 2015, and discuss our outlook for 2016.

The Ventas advantage of superior properties, people, and platforms has enabled us to consistently deliver outstanding results through multiple cycles for almost two decades. That is what distinguishes us. Over the years, we have demonstrated excellence through clear commitment to our shareholders, dedication to our customers and partners, and engagement of our skilled interdisciplinary team.

Ventas has a long track record of delivering superior FFO and dividend growth. We continued our outperformance in 2015, with 9% comparable normalized FFO per share growth and a 10% dividend increase, inclusive of CCP. Our excellent and diversified portfolio generated industry-leading same-store growth during the year, and we ended 2015 with a strong balance sheet and $2.2 billion of liquidity.

During my 17 years at Ventas, we have seen a lot of changes in our market and we have become the leading provider of capital to high-quality healthcare and senior housing companies. We have navigated successfully through multiple economic, capital markets, and reimbursement cycles, and have continued to grow with strength and integrity. We haven't gotten everything right, to be sure, but we have been consistently early and opportunistic relative to the five asset classes where we do business.

In 2015, we were once again at the forefront. Our experienced team really stepped up to complete several important and complex transactions that significantly improved Ventas and showed our continued ability to stay ahead of the curve in healthcare real estate, which we strongly believe is an attractive place to be for investors.

Key accomplishments of the year included our strategic disposition of nearly $5 billion in assets, including over $4 billion of skilled nursing facilities through our innovative, tax efficient spinoff of Care Capital Properties, and completion of over $5 billion in accretive acquisitions, including our successful beachhead investment in the large, attractive hospital space with Ardent, a top 10 provider of care. These successful transactions have reshaped our enterprise, provided additional channels for growth, improved the quality of our portfolio, and enhanced the reliability of our cash flows.

The site specifics. Our balanced and diversified portfolio generates industry-leading 83% of our NOI from private-pay sources, principally medical office buildings and senior housing communities. Our partners are the best in the business.

Post-spin, over 80% of our NOI comes from top operators in each sector who have scale, a sound capital structure, and operational excellence. We have a nice balance in our portfolio among operating businesses and triple-net leases. And none of our tenants represents more than 10% of our NOI.

Importantly, Ventas now generates only 4% of our NOI from our 53 owned skilled nursing assets. Most of our post-acute facility rent comes from Kindred, our largest tenant. All of our post-acute facilities produce excellent 2 times property-level cash flow to rent coverage and our rents are guaranteed. Kindred has become the nation's leader in post-acute care, with a well-developed strategy, strong balance sheet, and diversified business model.

Our entry into the hospital space in 2015 was also a significant example of our ability to capitalize early on trends in healthcare and create high-quality platforms for future growth. We invested $1.3 billion in Ardent's extensive network of real estate sites in three key markets. As we demonstrated during our investor day, we think it's smart business to align with leading hospital providers, who have always been at the top of the food chain in healthcare services and are increasingly influential in the delivery of care and the distribution of dollars in our rapidly-evolving healthcare system.

Ardent provides both inpatient and outpatient care throughout its multiple access points and its markets, and it just completed a strong year where same-store revenues, adjusted admissions, and ER visits showed solid growth. Our investment in Ardent was expertly executed and structured with outstanding property EBITDARM-to-rent coverage and low leverage at the operating company.

It was also very timely. We are seeing significant deal flow and actively working with our partners at EGI and Ardent to consolidate and grow. While the spinoff of CCP and our Ardent investment have rightly received a lot of attention, I also want to highlight our senior housing portfolio and our commitment to that important sector.

Atria had another outstanding year and we thank John Moore and his team for their significant contribution to Ventas's success. I am really glad you had a chance to see Atria's excellence during our investor day.

Senior living is an incredible space whose potential is only beginning to be realized. Despite the ebbs and flows of supply cycles, we own an outstanding portfolio of SHOP communities and advantage markets and high-quality triple-net lease assets.

We believe deeply in the value proposition of senior housing. As an industry, we have tremendous opportunity to advocate the benefits of communal living to our residents and their families. Growth in the senior population will provide undeniable tailwinds and increasing demand for our communities. And a mere 1 percentage point increase in the seniors who choose to live in senior housing communities would create powerful new incremental demand, enough to fill all the currently vacant senior housing units in the nation.

We continued to invest in our properties during 2015 to fuel future growth through increased capital allocation to selective, high-quality, ground-up developments and redevelopments. We committed over $200 million to ground-up development projects, including the trophy medical office building in downtown San Francisco connected to Sutter Health's newly-constructed flagship $2 billion hospital, as well as two luxury senior housing communities in Palm Beach County and San Francisco.

On the redevelopment front, in 2015 we committed to approximately $150 million in SHOP and triple-net redevelopment projects. These investments should provide attractive risk-adjusted returns, improve the quality of our properties, and help our customers maintain and expand their market share.

We also allocated a portion of our strong cash flow to our shareholders through our cash dividend, which has always been, and will continue to be, an important component of the value proposition we offer our shareholders. Ventas has one of the best dividend growth records in the REIT industry, and with a projected 70% FFO dividend payout ratio, we are well-positioned to continue growing our dividends into the future.

That is a good segue to our 2016 outlook. Our expectations for the macroeconomic environment are tempered. We believe the US economy will remain in a low growth, low interest rate, and low inflation mode. Our segments should once again prove resilient because of the inelasticity of demand, the rapid aging of our population, and the need-based nature of healthcare services.

In that context, we are happy to provide 2016 normalized FFO guidance representing 3% to 5% growth per share on a comparable basis, which assumes the CCP spinoff occurred at 1/1/14.

In 2016 we intend again to drive excellent, consistent results by focusing on operational excellence and continued portfolio optimization in our senior housing operating and medical office building businesses; building on our advantage platforms including hospitals and Atria; recycling capital through value-creating dispositions; making attractive, accretive new investments, including improving our properties through development and redevelopment; providing innovative capital solutions to leading healthcare and senior housing providers in a dynamic market; and harnessing the potential and power of our outstanding and cohesive team at Ventas.

That Ventas team has delivered superior, consistent results for investors and customers for almost two decades. We have the properties, the people, and the platforms to continue leading our sector. I want to thank our investors for having continued faith and trust in us. You are in safe and sure hands.

Now I'm happy to turn the call over to Bob Probst, who is hosting his second year-end call as the CFO of Ventas. Bob?

Thank you, Debbie. I am pleased to report an outstanding year of growth for our portfolio of nearly 1,300 diversified senior housing, medical office, post-acute, and general acute care hospital properties.

Our overall same-store cash NOI for the portfolio grew an impressive 3.8% for the year, right in line with our 3.5% to 4% full-company same-store guidance range. Our triple-net business led all segments by growing same-store 5.8% in 2015 with SHOP full-year results in line with our 2% to 3% guidance and MOBs up 2% year over year. For 2016, we expect our same-store cash NOI to grow in the range of 1.5% to 3% for the overall portfolio.

Let me detail our 2015 performance and our 2016 outlook at a segment level, starting with SHOP. Our same-store SHOP portfolio increased 2.3% for the full year 2015 over 2014. For the fourth quarter of 2015, SHOP same-store cash NOI increased 1.1%. These results were in line with our expectations for the fourth quarter.

As expected, same-store occupancy in Q4 trended modestly higher and strong rate growth held, together driving 3% revenue growth. Adjusting for approximately $1.7 million of non-recurring items in the fourth quarter of 2014, same-store NOI for the fourth quarter 2015 grew 2.4% versus prior year.

As seen throughout 2015, our NOI performance in the fourth quarter was led by continued strong growth across many of our high barrier-to-entry infill locations. Key markets such as New York, Los Angeles, and Boston grew organic NOI more than 6% in the quarter. Double-digit NOI growth in tertiary markets also continued in the quarter as a result of productive development and redevelopment activity.

SHOP performance in Canada in the fourth quarter, the first quarter in which the 29 assets acquired from Holiday in 2014 are included in same-store, showed an expected modest decline. During the year, Atria accelerated the transition of these assets to its operating model in order to position them for future growth.

Q4 performance was affected by new supply coming online within our relevant trade area in a number of markets. Notably, Houston, Chicago, and Sacramento saw NOI declines in the quarter, driven principally by occupancy pressure. As a reminder, last quarter we introduced a more refined supply methodology which identifies new buildings under construction within the relevant seven-mile and three-mile trade areas around our assets based on population density. On that basis, and using the fourth-quarter [NIC] data, more than 70% of our SHOP portfolio NOI comes from markets that are in supply equilibrium or better.

The 30% of the SHOP portfolio NOI that is exposed to a potential new supply surplus represents less than 10% of Ventas total NOI. Remember that our methodology assumes 3% absorption and is arguably conservative as it assumes that all new supply within the relevant trade area is competitive, regardless of care model, price point, etc. Using this methodology, construction as a percentage of inventory across our SHOP portfolio stands at 4.5% in Q4, a 40 basis point increase from Q3, principally driven by markets such as Atlanta, Sacramento, and Denver.

Against this backdrop, Ventas and our focused leading SHOP operators are working to drive operational excellence to gain share and grow, even in the context of new supply. Our largest operator, Atria, continued to drive strong results in Q4 and for 2015 overall. These results are a testament to the operational excellence demonstrated at our investor day in November at Atria's headquarters.

Now let's turn to our guidance and key assumptions for our SHOP business. In 2016 we project SHOP same-store NOI to grow in the range of 1% to 3%. This outlook assumes that our core engines of growth, namely the 70% of our SHOP portfolio insulated from supply, will continue to grow NOI at a mid single-digit rate in 2016. This growth will be partially offset by assets in the markets where we anticipate increased supply challenges.

As we begin the year, we are pleased with the mid single-digit annual rental rate increases that took effect January 1, 2016. These increases appear to be holding up well, thus demonstrating the value proposition of our communities and our operators. In fact, our SHOP operators have some exciting plans in place in 2016 to compete and thrive in the market, to retain their great teams, and to deliver value to seniors and their families.

Next I will cover our triple-net lease portfolio, which accounts for 44% of our NOI. The 507 same-store properties within this portfolio comprised of senior housing and post-acute assets delivered accelerated growth, increasing 5.8% in 2015 versus 2014. As we mentioned in previous calls, triple-net's 2015 performance benefited from the $15 million rent increase for the Kindred assets, where we increased rent to market levels in October 2014, as well as other income items.

Even after adjusting for these items, full-year same-store NOI in the triple-net portfolio grew 3.2%, above historical trends in confirmation of the positive growth impact of the CCP spin. In the fourth quarter, triple-net same-store cash NOI grew 2.9%, reflecting customary rent escalations as well as the cycling of the Kindred increase in Q4 of 2014.

Trailing 12-month cash flow coverage in our same-store triple-net lease portfolio for the third quarter of 2015, the latest available information, was solid at 1.5 times. As Debbie mentioned, our post-acute coverage is a strong 2 times, although we had a 10 basis point compression due to the combination of the aforementioned Kindred rent increase and lower third-quarter performance.

Coverage in our triple-net senior housing portfolio remained solid at 1.3 times. Occupancy is up 50 basis points sequentially and operator EBITDARM and rates are higher year over year.

For 2016, we expect our triple-net portfolio to grow in the range of 2% to 3%. Consistent with our practice, we have not included in our 2016 triple-net projections speculative fees, which has the effect of lowering the growth rate in our 2016 outlook.

Let me close out the segment review with our leading MOB business, which represents 20% of Ventas's overall NOI. Our Lillibridge business posted full-year NOI in the total consolidated portfolio of 364 properties, up $381 million in 2015, an increase of 33% over 2014. Performance was driven by the addition of 83 properties from the HCT acquisition in January.

Occupancy in the total portfolio in 2015 was up 40 basis points to 92.3% and margins increased by an exceptional 330 basis points, reflecting the quality of the properties we acquired as well as the cost synergy arising from leveraging the Lillibridge platform. In the 268 properties in the same-store portfolio, full-year 2015 cash NOI grew a solid 2%.

Occupancy declined modestly in 2015 versus 2014. Revenue grew slightly as a result of a roughly 2% increase in rental rate and NOI margins improved 40 basis points on the heels of cost productivity initiatives.

In the fourth quarter, MOB same-store cash NOI was stable versus 2014. Rate growth in the quarter remained solid at 2% versus prior year, while expense growth outpaced revenue growth due to unexpected R&M cost increases.

We forecast our MOB same-store segment to continue to provide steady growth in the 1% to 2% range in 2016. This guidance assumes modest occupancy and rate growth and continued cost productivity. In 2016 our MOB team is actively working on driving occupancy gains, enhancing our portfolio quality further through asset disposition, and commencing on significant potential redevelopment opportunities stemming from our well-located portfolio.

Turning now to our financial results for Ventas. As a quick note, I will frequently refer to our results on a comparable basis, which adjusts all current and prior periods for the effects of the spinoff as if the spinoff was completed January 1, 2014. This is best practice for spin situations and is intended to give investors a true like-for-like reflection of our performance.

Please note that adjusting for the spinoff, comparable normalized FFO per share was $3.95 in 2015 and $3.64 in 2014. Details of both our reported and comparable FFO per share are set forth on page 25 of our Q4 supplemental.

Turning to Ventas's outstanding financial results overall for the full year 2015. Full-year 2015 normalized FFO on a reported basis totaled $4.47 per fully-diluted share, topping our most recent full-year FFO guidance range of $4.43 to $4.46 per share. On a comparable basis, full-year 2015 normalized FFO per share of $3.95 represents 9% growth over 2014.

This strong year-over-year growth was driven by outstanding same-store NOI growth of 3.8%, together with over $5 billion in new investments in the year, including our beachhead investment in the US acute-care space with Ardent. We also invested $232 million in CapEx during 2015, inclusive of high-return redevelopment and development investments.

To fund these investments, we recycled capital and enhanced our portfolio via over $700 million of asset sales and loan repayments ahead of our original guidance of $600 million. We also issued and sold $7.2 million of shares of common stock for approximately $500 million under the ATM. Nearly 80% of this ATM issuance was pre-spin at a gross price of $72.94, while the remaining 20% was issued post-spin at an average gross price of $54.87.

In 2015, we continued our track record of strong cash flow generation, delivering a record $1.4 billion in operating cash flow for the year. With our strong cash flow, we paid attractive cash dividends to shareholders totaling $3.04 per share, including a 10% increase when combined with CCP.

The Company's liquidity profile was solid at year-end, including exceptional fixed-charge coverage of 4.5 times, net debt to adjusted pro forma EBITDA of 6.1 times, a weighted average maturity approximating seven years, and debt to total capitalization of 37%.

In the fourth quarter Ventas delivered normalized FFO of $346 million, or $1.03 per fully diluted share. On a comparable basis, normalized FFO per share grew 7% in Q4 2015 over prior year. In the fourth quarter, the Company acquired $93 million in high-quality MOBs. Ventas also committed to funding approximately $240 million in new development and redevelopment activity.

To fund investments we raised $157 million under our ATM program during and after the fourth quarter, issuing 3 million shares at an average price of $55.42 per share before underwriter discount. We also continued to recycle capital via asset dispositions in senior housing and MOB assets, generating proceeds of $105 million in Q4 2015 and $61 million thus far in Q1 2016.

Before we take questions, I want to share a summary of our outlook for 2016. Our expectation as we begin the year is to deliver normalized FFO per share in the range of $4.07 to $4.15. This range represents a comparable normalized FFO per share growth rate of 3% to 5% over 2015. As highlighted earlier, we project total company same-store 2016 cash NOI growth to range from 1.5% to 3%.

During 2016 we intend to continue to improve the Company through intelligent value-creating dispositions and deliberate balance sheet strengthening. Our guidance assumes 2016 asset dispositions of approximately $500 million using a midyear estimate of completion. We intend to use the net proceeds to reinvest in about $350 million of new acquisitions generating immediate cash returns, and to fund our accelerating development/redevelopment program, which will generate growth in returns in future years.

We have assumed no additional material acquisitions, dispositions, or capital activity in our guidance. Through application of operating cash flow and asset sale proceeds to both new investments and debt reduction, we project a reduction in leverage in 2016 to below 6 times net debt to EBITDA.

So in summary, the entire Ventas team is proud of the excellent results we delivered in 2015 and we are excited to sustain that excellence in 2016. With that, I will ask the operator to please open the line for questions.

(Operator Instructions) Juan Sanabria, Bank of America.

Good morning, thanks for the time. On the post-acute business, can you give us a sense of the facility level EBITDAR between your Kindred, SNFs, and LTAC/IRF businesses, those two separate? And if you have any sense of how those are trending in the fourth quarter?

Good. Juan, we have about equivalent strong coverage of 2 times EBITDAR at the SNFs and the LTACs and obviously combined in the whole post-acute portfolio.

Any sense of how that's trending in the fourth quarter, given some of the news that has come out?

I would tell you this: most of that post-acute rent is from Kindred, as I mentioned, and Kindred's guidance is for a better fourth quarter than its third. So we believe the really good operators are good in part because they provide quality care and also because they manage through constant changes in reimbursement. And so, as we showed during our investor day, we feel very good about that.

We think Kindred will be managing through the reimbursement changes in the fourth and throughout 2016 relatively well.

Okay. What do you guys assume for management fees again?

This is what typically the industry standard is: either 4% to 5% on skilled and 2% to 3% of revenue on hospital assets.

Okay, great.

So that would be about, in total on our Kindred portfolio, about 30 basis points to get from EBITDARM, which is 2 times to EBITDAR.

Okay, great. Thank you. And then on the RIDEA, I think Bob mentioned a one-time expense in 2014 that kind of maybe messed up the year-over-year comps on the expense side I believe. Correct me if I'm wrong.

But if you could give us a sense of what that would have been on a normalized basis, and as a whole, what you guys are expecting for occupancy rate and expense growth for 2016. And if you have any sense of how the first quarter is trending to date.

Sure, Juan. I think there are a few questions in there. Let me start with the fourth quarter and characterize the non-recurring expenses where they hit. They are about $1.7 million.

That takes -- when you adjust for those, the NOI growth, from 1.1% to about 2.4% same-store for the quarter, so pretty much in line quarter and year, if you look at it that way. And these non-recurring tend to normalize over the course of the year, so I think that's a reasonable way to view the year overall.

The margin and expense versus revenue profile in the fourth quarter to note reflects that one-time-type benefit in 2014, so when you align for those the margins are really in line. Expense grew in line with revenue. So that's the fourth quarter.

As we think about 2016 and how we model 2016, overall on a blended basis I highlighted a 1% to 3% outlook for SHOP overall. Really has two building blocks to that and really important to highlight those.

The first is we call it the 70% in general of growth: the markets like New York, Los Angeles, the coastal markets in which we have a stronghold. We think those markets are going to grow mid single digits, and that is a continuation of the momentum we've seen in those markets in 2015.

That will be partially offset by, call it, the 30%. That is the list of markets which may be affected by supply challenges. And really if you think about what those challenges might be, it's hard to model exactly because it could be a function of occupancy; it could be a function of rate, even a potential expense impact.

But, overall, we think that, on a blended basis, that performance for that 30% will bring down the overall average, so partially offset the strength and momentum we see in the 70%. Therefore, overall, coming back to your 1% to 3% growth overall, showing the benefit of a great portfolio, which we think we have. So within that, I can give more assumptions, but that's sort of the overall flavor for 2016.

So that 30% is going to have a mid-single-digit negative type number to offset that 70%, most of the growth in that 70%? Is that a fair characterization?

We think it will be a range. Indeed, we went back to try to really understand this and modeled, where we have assets, where there has been new supply coming online, what happens. And we have had pretty good experience of, call it, 40 properties where we've seen that. And there tends to be a wide dispersion of outcomes there, as there will be in any portfolio, but overall our guidance range reflects what we think sort of the central median is of that.

You can do the math as you did to reflect the overall for that, but again that is a partial offset to the 70%.

And just lastly, any sense on how the first quarter is trending with a mild flu season to date? How are you guys feeling?

Sure, thank you; I should've mentioned that. So I highlighted, first of all, strong rental increases effective January 1. Mid single-digit, which is really great news; we are really pleased to see that. We are really pursuing a rate-driven strategy. We think that's a wonderful way to drive profitability. And seeing those rate letters go out and that performance thus far holding is very encouraging.

That together with the fact, as you note, that we have the flu season challenge in the prior year that we are lapping would suggest, just from the phasing point of view, the first quarter would be a better comparable for us overall for the year. So we're pleased with the start obviously. The occupancy that we begin the year with is below last year, but again that's reflective of that rate strategy I highlighted, so very intentional as we think about our first-quarter performance.

We feel good about the way the year is starting in SHOP and, Juan, we're going to move on to our next questioner. Thank you.

Smedes Rose, Citigroup.

Thank you. Just on -- I wanted to ask you too, now that you've had a little more time to see some of the new supply coming into your markets for the -- on the SHOP side of the business, are you seeing, I think as you've indicated before, that maybe the competitors are a little more aggressive in pricing? And is that still how it's playing out as they come along?

Are they typically targeting the same price point customer that you guys are or is it something below? Maybe just some color around how the competitors are behaving.

Sure. I think it's important to highlight the points you make, which is we've assumed in our methodology that all new supply will compete. We think that's a conservative point of view because, as you say, price point model AL versus IL, location, operator all matter. We've taken a very conservative position, we think, to assume that there will be some level of competition, irrespective of those items. So that's a conservative point of view.

Indeed what we do see, though, is differing ways that folks compete within the market. As I said, it could be occupancy; could be rate. The key for us is really to drive the operational excellence -- I will come back to that theme -- to really win and grow in those markets.

So when you have a great team, you have great processes, you can differentiate yourselves. You have a great track record to compete against the shiny new penny, as I describe it, and win. And that is where we are really focused.

Okay, thanks. I wanted to ask you just sort of bigger picture I guess, too, the overall acquisition activity has slowed in the second half of 2015 in general across REITs. What sort of changes are you seeing, if any, on pricing? Is there a repricing underway so sellers can start moving product more quickly, or are they holding fast or --? What are you seeing in general?

Smedes, this is Debbie. I would say that, as we've talked about the last couple of quarters, we have been very selective in terms of our investment activity, very focused in terms of our capital allocation, and there definitely has been a period of price discovery ongoing. And volatility certainly creates a wider bid/ask spread.

And so, until we get through that time period, I think you will see again very selective investment activity on our part, but we are sort of midway through that process I would say. There are deals that we want to do and that we can do and those again will be development/redevelopment. It will be hospital. It will be supporting our customers with the right kind of assets to help them build market share.

And we still think there are opportunities for us to play, but very selectively.

All right, thank you very much.

Andrew Rosivach, Goldman Sachs.

Good morning, everybody. Debbie, it sounds like you're fighting a cold.

Little bit, yes I am.

I'm sorry to hear that. I did want to just hit the SHOP guidance. As you probably know, last year you started at 3 to 5 and you ended up at 2, 3. If you look at the 1 to 3 now, what's the narrative? Is it we know what happened last year and we've gotten better at this; we know it won't happen again?

I'm a real estate guy; retail they will throw in a cushion for bankruptcy. Or do you think it's fear or is this like, look, SHOP is short duration; it's low margin; it's just difficult to forecast?

Well, this is Bob's second year, so I'm going to let him answer that question.

I think we learned something last year, no doubt. As the year progressed there was a lot we talked about, whether it was flu season or challenges year on year within any one quarter. But certainly the reality of increasing supply as the year unfolded presented itself and we saw that impact, particularly in the fourth quarter, as I highlighted.

So as we think about 2016, we think we've played it down the middle, Andrew. We have looked at the momentum in the current markets and, as I say, we expect that to continue. It's really a question then of modeling. What is the supply impact going to be?

And only time will tell, but we tried to be as factual as we could be, as I said, looking at experience. Therefore, we think we've played it right down the middle, but we will see.

Just to make sure, off of Juan's question, there's no backend hockey stick here? If anything, you think in the first quarter you can be ahead of where you are for the full-year guidance?

There's no hockey stick. A good start to the year; first quarter would be the easier comp from a flu season perspective, but we shouldn't expect wild fluctuations quarter to quarter.

Great. Thanks a lot, team.

Kevin Tyler, Green Street Advisers.

Good morning, guys. Thanks. Can you talk a bit about Ardent? I think you talked about the managing shift or managing the shift to Medicare Advantage, the new Medicare payment regime.

But specifically, when you talk about the revenue mix, I noticed you put in numbers for the supplement-- thanks for that on revenue mix -- saying 100% was from Medicare or Medicare and private sources. I was just curious about that, that there was no Medicaid at all in Ardent. Maybe you can explain.

Hang on; I will -- okay, let me answer that for you. I have to look at the supplemental to which you refer. There's certainly some Medicaid in the Ardent portfolio.

So Ardent is a very high-quality operator. It had a great year. I would tell you that we like both the shift in our overall portfolio to 83% private-pay NOI as well as the new channel for growth that we have in Ardent.

And as you saw in our investor day, we have really focused our portfolio on working with healthcare providers who are excellent and experienced at managing through changes in the healthcare services environment. We certainly are in a dynamic policy environment now and we think Ardent has the right characteristics to be able to manage through that.

Okay, thanks.

By the way, I was very pleased to see that you have embraced our framework on post-acute services in your recent report. We agreed with everything until you got to the stock recommendation.

I appreciate that and thanks for the color on Ardent. I do think -- so just to make sure I heard you correctly, there is some Medicaid in that portfolio, correct?

Yes, all healthcare services have, as you know, a quality mix. We particularly like states where there's Medicaid expansion and Ardent certainly has a good quality mix that includes some Medicaid patients.

Okay, got it. Then last thing for me, following up on Smedes's question earlier regarding transaction activity. Not Ventas-specific, but in the markets as you are working with players looking to sell, what are you seeing specifically on the cap rate side? Have you seen a move up in cap rates in senior housing, and MOBs specifically?

MOBs are a hot asset class.

This is John. We are seeing -- we are still seeing both Class A and Class B medical office trade in the 6% to 6.5%, sometimes below 6% on the senior housing side. We haven't really seen any -- a lot of Class A senior housing properties come to market, but we've also seen a fair amount of the Class Bs move up 50 basis points in spreads.

One interesting data point that we have is Bob mentioned that we did sell some assets in the first quarter. We sold a senior housing asset in Salt Lake City for a 6% cap and generated a very significant gain on that, so that's one data point that would suggest that cap rates for quality senior housing remain pretty strong. Certainly for good quality assets like we own.

Okay, thank you.

Chad Vanacore, Stifel.

Good morning, all. So, Bob, in your prepared remarks you mentioned that MOB costs crept up in the fourth quarter. Can you unpack that a little bit and tell us what was driving that?

Sure. Again, I think quarter-to-quarter volatility is a fact of life; not only in SHOP, but in MOB, particularly in the case of the fourth quarter. I highlighted we had some unexpected R&M cost increases. There tends to be some variability and volatility in those, and we got hit particularly in the fourth quarter. And late in the fourth quarter, for that matter.

So I'd really come back to the full-year performance of 2% that's very much in line with the expectation for 2016. Steady and stable as she goes would be the way I would highlight that, so kind of a unique quarter just in the fourth.

All right. Then just thinking about your overall assumptions on your same-store NOI for SHOP portfolio in that 1% to 3% range, can you guys give us a little more detail on how you are thinking about rate versus occupancy in that number?

Sure. On a blended basis -- so for the total portfolio I would say flattish on occupancy. Again, I come back to we are very much pursuing a rate-driven strategy. When you look at NOI sensitivities, rate very much trumps occupancy and, therefore, we think a good profit approach.

Therefore, as we look at it, the NOI is driven by rate and again very much encouraged by the start to the year. Those rate letters are important, so that mid single-digit rate increase starting January 1 really is central to that full-year performance.

Okay. And on the January 1 rate increases, what percent of your portfolio get those bumps on January 1?

The majority. There is some staggered timing on it, not everybody starts on January 1. There will be some different time periods, but the majority.

All right. Then just thinking about your markets and the 70% of markets that are not facing pressure, would you say most of those are high-barrier markets in terms of rent or any other local functions?

They are absolutely the high-barrier markets. At the investor day we talked about the fact 60% of our SHOP portfolio was in coastal markets, and when you look at those, that is where we really see the strength. We see high rate, high REVPOR; we see high margin and we see very limited supply.

And New York, our largest market, is the case study of that. I've highlighted the last two quarters the strong performance in NOI. That strong momentum really reflects that great position, great market scale. This idea of cluster markets and very limited supply.

And so those together drive that engine of growth, I would call it, that we've seen in 2015 and expect in 2016.

All right, thanks. I'll hop back in the queue.

Ross Nussbaum, UBS.

Good morning, everybody. Debbie, can you talk about underlying your commentary that 70%-plus of your markets are at equilibrium or better status on the senior housing side?

You had said that that assumes 3% absorption. Why do you believe that in 2016 3% absorption is the right number? Or is that longer term aging of the baby boomer long-term trend assumption?

Ross, it's Bob. We've modeled it every which way, I would tell you. That 3% assumption really looks at 75-plus population and its growth rate in 2016 and the CAGR over the next five years.

If you looked at it 80-plus within our trade rings, you kind of come back to the same sort of number. That central tendency, I would say, of 30% of the portfolio being exposed really comes back no matter which methodology. The 3%, therefore, is the combination of population growth and then some level of obsolescence, which is relatively small.

Overall, averaging assumption it will differ by market, but we think -- as we have pressure tested it, we think it holds up very well.

Couldn't have said it better myself, Ross.

That's helpful. The second question -- I'm looking at page 20 of your supplemental -- in October of last year you guys had a disposition of some triple-net senior housing assets for $78.448 million and then you also had a debt investment of $78.448 million. Did you swap an equity stake for a debt investment? Were those the same asset?

They are the same asset and if you look at Brookdale's disclosure, you will see something similar. Brookdale had some purchase options on NHP assets and basically we have helped Brookdale exercise those purchase options as they have basically purchased the assets. And we have provided purchase money financing that is secured and guaranteed with those assets over a five-year time period.

It looks like the same yield as what you had when you actually owned the property.

Exactly, exactly. So it's a good collaborative deal for both companies.

Appreciate it, thank you.

Rich Anderson, Mizuho Securities.

Thank you. So when you look at Ardent and you think of the same-store growth profile of that organization under your flag now, I understand you don't have a same-store outlook because you don't have the right amount of time with it, but what do you think about that as an internal growth engine? Is it in the low single digits like everything else or is it something different?

I think, in general, the healthcare services business over long periods of time will generate low single-digit same-store EBITDARM growth. We have always structured our leases and our investments in those businesses with a margin of safety through property cash flows, coverages, credit in structure. And so you will see ebbs and flows that are predictable and contemplated in those cash flows but over time they are, as you say, in the low single digits and, if properly structured, will provide good, risk-adjusted, reliable rents and rent growth.

Okay. The reason why I slipped and said Forest Park is because I was wondering if Ardent would have any interest in some of those assets in Texas that are under review right now for sale.

As I mentioned, without commenting at all expressly or implied on any particular asset, I would tell you that we are actively working with Ardent and EGI on acquisition and investment activity. If you go back to our investor day, what you would see is what our criteria for investments in the hospital space are. It's very high quality, market share, and numerous other characteristics that we laid out there.

So that's what you should focus on as you are looking at where we would be likely to invest with Ardent.

Fair enough. Then the last question, Debbie, you mentioned a 30 basis point impact from EBITDARM to EBITDAR on the 2 times skilled nursing coverage. What is the --? Are you talking about -- that goes from 2% to 1.7%. Are you talking about a 30 basis point reduction to 2%? I want to make sure I understand the --.

Yes, and that's on our post-acute business, which is almost all Kindred. So you would -- we quote EBITDARM because again there are different management fees that different people apply. And so it would be about 30 basis points to get to EBITDAR coverage, which is very good, very strong, and we feel very good about our portfolio.

So you mean 1.7%, right?

Yes. At the assets, which again is further enhanced by corporate and other guarantees and structures such as pooled multi-facility master leases. So (multiple speakers).

Fully understand.

We, I think, have really distilled our portfolio into just a great one. (multiple speakers)

Is the same 30 basis points applied to the 1.3 times EBITDARM coverage on the senior housing triple-net coverage?

No, no. The senior housing is really, call it, 15 basis points. The margins are different. That's why it's different, because it's a percent of revenue. And so our senior housing has been at about 1.3 times EBITDARM for a good while, very stable again.

Okay, perfect. Thank you.

John Kim, BMO Capital Markets.

Thanks, good morning. In your analysis of new supply pressures on senior housing, what is the rationale of using a three- and seven-mile radius as a metric?

Another good question, because there has been a lot of debate around that. It really comes back to looking at where the source of business is and how far folks are typically willing to travel, which for each of the properties our operators understand that as they do their marketing.

It intuitively makes sense for the highest density areas; you are not going to go very far. You are going to walk; you are going to drive a short distance, whereas the more rural or suburban areas you are going to drive. And so it's really a function of that, John.

You can look at it and cut it different ways. Your denominator changes depending on how broad the ring you draw is, so it doesn't necessarily change the numbers overall, but we think it ties back to where the business is coming from.

We all know in New York three miles is far and in some other areas seven miles would be the equivalent. So that's really how to think about it.

Do you have data as far as the catchment areas of the typical senior housing facility? I'm just wondering (multiple speakers).

Trade areas?

Yes, the trade area.

By asset, our operators will have that information. As I say, it's really for marketing purposes, to understand where is your source of business. Where is it coming from?

Again, the three miles for us is the top 10 most dense markets, so it would be the Manhattans of the world that you would expect to see. And that's what we have done.

So they have empirical data that for their tenants, X% comes from a seven-mile radius or a three-mile radius? They have specific data on that kind of information?

There is data to support that, yes.

Then also, moving on to medical office building. You expect a lower growth rate in 2016, but higher occupancy and rate growth, so I'm just trying to tie those two statements together.

Yes, we have some modest occupancy growth and some modest rate growth. I would highlight that rate growth is not as significant as we saw in 2015 and, to some degree, CPI linked. So lower inflation, lower increases so that really your revenue and, therefore, profit mix isn't as rich. And that is really the most fundamental driver of that.

The lower CPI, I imagine, impacts all of your triple-net leases?

Yes, the triple-net leases, right. But ladder right back to the fact very stable and a great business.

Yes, so on the triple-net, some are CPI-based and others are contractual-based. And in MOBs, there is a significant CPI component.

All right. Then finally on Kindred. Now that it's settled with the Department of Justice, can you maybe describe what its relationship is with Medicare?

Okay, yes. I would say the following: Kindred is the leader in post-acute care in the United States. As was announced, Kindred settled in a very proactive way with the Department of Justice relative to a claim the Department of Justice made for a company that Kindred acquired for activities that occurred before the acquisition.

Kindred had a reserve of about $125 million for that and has settled that for approximately the amount of the reserve. And is in good standing with all programs and has an excellent compliance function, which is one of the many reasons that we like to do business with them and our other providers.

Actually, you touched on another question that I had because Kindred's press release seemed to suggest that the claims were mostly regarding rehab care prior to its acquisition.

Correct.

But since acquisition Kindred has been charging ultrahigh rate compared to its history. So are they fully settled now with Department of Justice or can this be an ongoing issue with them?

They are fully settled with the Department of Justice. Again, the claims are pre-acquisition of a company called RehabCare and Kindred has a very appropriate mix and a high-quality mix between the specialty hospitals and the skilled nursing. And we believe consistently has good compliance and codes appropriately. So I think you may be misunderstanding some data, I'm not -- but --.

Okay, I will follow-up separately. Thank you.

Steve Sakwa, Evercore.

Thanks, good morning. I guess first question is for Bob. You've got about $550 million of debt maturing this year at 1.6%. What are the plans and what's incorporated into guidance? Any thoughts at also taking a look at the 2017 debt maturities?

Yes, thanks, Steve. We indeed have $500 million of dispositions factored into the guidance, as I highlighted, and $350 million of new acquisitions. So that together with cash flow is driving debt reduction.

As part of that we have a rollover, as you highlighted, of some very low-cost debt. End of the year, clearly, as we look at interest rates here at record lows, we are actively considering different ways to optimize. But, ultimately, the key being that we are looking to delever and have highlighted that this guidance brings us below 6 times by year-end.

So I guess I'm not really clear what -- are you going to do a bond offering or it's up in the air at this point?

Well, we will see how things go, but all else equal, we would do a bond to refinance it at the fourth quarter of the year. But if interest rates make it attractive, we may think about doing that earlier. We will see.

Got it, okay. I guess, Debbie, you talked a little bit about the redevelopments and the developments and that would seem like a better use of capital than maybe straight-up acquisitions. But I'm just curious how you are maybe retooling or reunderwriting developments today just in light of where the economy is and maybe what changes are you making internally as you assess these projects.

I would say -- thank you for raising that. We do think that some acquisitions, as we said, and some redevelopments and developments are good capital allocations.

On the ground-up development, we are exceedingly selective and I would point you to the fact that the one medical office building ground-up development that we are doing is expected to be 75% preleased with a AA-rated hospital system, downtown San Francisco, connected to brand-new hospitals. That meets my hurdle for ground-up development.

In terms of senior housing developments, ground-up we've got only two projects underway: very good market areas in Palm Beach County and San Francisco. And there, where you are looking at different cycles and economies and so on, we are a partial owner and have brought in third-party pension fund capital as a partner to kind of spread the risk and narrow that.

We think those projects will be very successful. Atria is going to manage them; they have good developers, but again they're the typical Ventas go with opportunities but also make sure you are managing risk. So those are our three ground-up developments and I think you will see us continue to be highly selective in those.

On redevelopment, we think there are good opportunities. We have been allocating more capital and those, as we've said, provide good risk-adjusted return.

Okay. And then last question, I know the skilled nursing is only about 4%. Can you just remind me why that was retained by Ventas when you did the spin? Are there any plans longer term to take that portfolio to zero as a percentage of your overall?

I would love to ask you to repeat the question, so let's hear it again. Ventas NOI is 4% skilled nursing and why did we keep that?

So our strategy is really to A) maintain a balanced and diversified portfolio. That has always been our strategy. And we also believe that post-acute care is an important component of healthcare delivery in the US.

We also believe that you are seeing increasing interconnectivity amongst the different segments within healthcare. And so we are seeing, as we showed in our investor day, hospitals working with post-acute, post-acute like Kindred and their home healthcare division, providing solutions to our senior housing operators, etc. These are powerful trends that are underway.

We have distilled the portfolio in each of those segments, particularly post-acute, and with our addition of hospitals to be doing business with the leading providers of care in each of those segments so that we will win with the winners. That is our strategy and that is how we've reshaped the portfolio through the spin and the Ardent acquisition. We have a great company and are in a great spot.

Could you ask that question again? (laughter)

That's it for me. Thanks, Debbie.

Okay, thank you.

Vincent Chao, Deutsche Bank.

Good morning, everyone. Most of my questions have been answered; most have been answered here already, but just going back to the debt conversation here, leverage coming down below 6. I was just curious how much of that is just a function of the math.

You looked at the acquisition opportunities and the disposition opportunities and the math just works out that way versus a more targeted approach to say, hey, let's look to take our leverage down here. Things maybe feel a little bit worse.

Just curious how that played out. Macro-wise, when I say worse.

I actually highlighted an important word in the prepared remarks saying that we are deliberately reducing leverage and have said that for the last couple of quarters. We have the benefit of being able to be patient and have been patient.

We issued some ATM over the last quarter or so. We are continuing to dispose of assets, $700 million last year and now projecting $500 million in 2016. And we have record cash flow. Those things are going to get us under that 6 times target.

So it's not math. It's very deliberate and strategic.

Okay, I guess --.

As I mentioned, we have and have always had a very strong balance sheet. Got $2.2 billion of liquidity, so we're in a great spot. These are all self-imposed decisions on us to be consistent with our strategy and our principles.

Okay, thanks for that. I think I was just trying to get at the -- timing wise if there was any change because of some of the things or headlines that are out there that are making you a little bit more concerned nearer term, but --.

We are very consistent.

Okay, appreciate that. Then maybe just a cleanup question here. We talked a lot about the SHOP outlook on the revenue side. Just curious; it sounds like you think inflation is going to be pretty low here this here, but just wondering how you're thinking about expense growth in SHOPs.

Sure. We have incorporated in the guidance some assumption around some wage pressure. Again, there has been a lot of talk around that. There are really two forms of that that can be supply-driven or can be tied to minimum wage.

It is inherent in our assumptions and I come back to sort of the rate-driven strategy. You need to maintain and cover your margins and you need to drive labor cost productivity. You need to be efficient and the outlook we have given supports that.

Can you share what the expense growth assumption is?

I would call it 3% to 4%.

3% to 4%. Okay, thank you.

Tayo Okusanya, Jefferies.

Good morning, everyone. Debbie, I hope you feel better soon.

Hi, Tayo. I feel fine.

Okay, good to hear. I just wanted to dig in on acquisitions and dispositions a little bit more. Specifically, on the disposition side and the $500 million of asset guidance. Could you talk a little bit about areas you are looking at and specifically if part of the senior housing operating platform, especially that 30% that may generate negative same-store NOI growth, whether some of that is kind of up for potential sales?

Yes, I think our portfolio optimization efforts that began last year will continue this year as we look to dispose of non-strategic assets, maybe certain markets. We have a lot of very attractive assets that we think would be desirable in the marketplace as we continue to refine and distill our portfolio.

Okay. But then, specifically, could you see some sales of some of the SHOP stuff?

I think you saw in the first quarter that we did sell the Salt Lake City asset that was a high-quality SHOP asset. Again, fixed cap rate, $20 million gain on sale, that sort of thing; certainly within the sandbox of possibilities.

Got it, okay. That's helpful. Then the $350 million of net new investments in 2016; given that the development and the redevelopment pipeline you still have about $220 million of spend to go there, is that firmly built for that $350 million and then the balance is acquisitions?

To be clear, Tayo -- it's Bob -- the $350 million is acquisitions.

It's purely acquisition?

It is acquisition, yes.

Okay. And then whatever you need to spend on the development side is a totally different number?

Correct.

That's helpful, thank you.

Thanks for the clarification, Tayo.

Michael Carroll, RBC Capital Markets.

Thanks. Can you guys give us some color on the senior housing triple-net portfolio? Have you done a similar analysis on the SHOP tracking; how this portfolio will be impacted by senior housing supply?

Mike, I think you are batting cleanup today, so -- we have a good triple-net senior housing portfolio. It is characterized by good coverage, good operators. Brookdale is about 40% of it and it has been growing year over year.

We look at that portfolio differently from SHOP in general, because of the significant pooling, credit support, etc., and coverage that we have. And so we do not believe that it is -- we believe that it has acceptable levels of new supply, but we have reliable cash flows there, principally because of the cash flow coverage and the triple-net leases that we have that are in pooled bundles that are diversified.

We focus mostly on our high-quality SHOP portfolio as we look at construction and development trends.

Okay. Within the supp I guess there's four leases that have represented 4.5% of ABR with coverage between 1 and 1.09. That is, I guess, in the senior housing triple-net portfolio. How have those coverages trended? Is that something that we should continue to watch for?

Those coverages, I think, are a tiny little bit of our NOI, frankly. I think they don't even -- and in general we feel comfortable with those. They are small leases and kind of move up and down over time.

Okay, great. Thank you.

If there are no further questions, I want to once again thank everybody for your attention and your support of Ventas. We know that every environment gives us a chance to distinguish ourselves and create value. This time is no exception and I think you can count on us to do so.

We look forward to seeing you again soon. Thank you.