芬塔 (VTR) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2016 Ventas earnings conference call. My name is Whitley and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to your host for today, Ryan Shannon, Investor Relations. Please proceed.

Thanks, Whitley. Good morning and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter ended March 31, 2016. 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.

The projections, predictions and statements are based on management's current beliefs as well as on a number of assumptions concerning future events. These 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, 2015, 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 being 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 referenced on this conference call 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.

Thanks, Ryan, and good morning to all of our shareholders and other participants. Welcome to the Ventas first-quarter 2016 earnings call.

We are delighted to be here with our colleagues to discuss large trends fueling our business and report on our strong first-quarter results from our diverse, high-quality portfolio. Following my remarks Bob Probst will review our segment performance and financial results before we welcome your questions.

On the heels of a protective and value creating 2015 we started our year off strong. Building off our advantaged properties, platforms and people, we extended our long track record of excellence this quarter. We generated normalized FFO per share of $1.04, representing comparable growth of 7% versus the fourth quarter 2015.

And we are right on track to deliver our full-year expectation of 3% to 5% comparable normalized FFO per share growth despite projected net asset sales and resultant modest deleveraging in the back half of the year.

We are well positioned over the short and long-term to capture opportunities and continue to grow cash flow and value for our investors. Our strong positioning is based on the decisions we made and actions we took in 2015, particularly the CCP spinoff and our acquisition of Ardent, large macro trends that favor our business, our financial strength and flexibility and our well covered dividend with room to grow. Let me address some of these factors.

We are excited to do business at the intersection of two large and dynamic industries with powerful fundamentals and growth prospects. Both healthcare and real estate represent nearly 20% of our nation's GDP.

Our $1 trillion healthcare real estate market is fragmented and continues to be ripe for consolidation. We are still in the early stages of asset migration from private to public [PMs] given that only 15% of healthcare and senior housing real estate assets is owned by REITs.

Over time Ventas' excellent diversified platform should be a magnet for asset flow. Our long-term growth prospects are also supported by the increasing demand for healthcare and senior living products and services created by a large and growing aging population. Longer life expectancies increase the need for health and senior care and seniors have immense spending power and wealth. Our assets and operators will be the beneficiary of this wave of oncoming demand.

Turning to the upcoming change to the global industry classification standard, making REITs a standalone GIC, we anticipate that this change should attract more capital to our industry over time.

At Ventas we believe our size, leading position in healthcare and senior housing, track record of disciplined capital allocation and excellent team make us attractive to generalist investors.

Honestly if I were a generalist investor looking at GDP growth of 0.5% in the first quarter, corporate profits declining for three consecutive quarters and global weakness, Ventas looks incredibly attractive.

We have a 4.7% dividend yield with room to grow, significant liquidity, a BBB+ balance sheet, diversified business model, high-quality assets, an impeccable track record of consistent growth in income over cycles, opportunities to grow externally and powerful increasing demand from consumers for our real estate. To my mind that is a compelling value proposition. So whether there is a new GIC or not why wouldn't you want to own Ventas?

That said, we are obviously focused on our core REIT investors who are crucial to our continued success. And we will continue driving to deliver outstanding results for all of our stakeholders.

As we look at our Company, we also like our positioning with a diversified, balanced and high-quality portfolio generating 83% of our NOI from private pay sources. Our outstanding SHOP assets are located in highly attractive markets with strong home values, median income and seniors population growth.

In our MOB portfolio, 88% of our NOI is affiliated with investment-grade hospitals and HCA. And 96% of our NOI is on campus or affiliated with leading healthcare systems and hospitals. Finally, Ventas' entire portfolio is advantaged with only 4% of our NOI derived from SNFs, who are adapting to evolving payment models and upcoming RAC audits.

Ventas enjoys a strong presence across five verticals, in each case doing business with the nation's leading providers. This exposure and expertise enables us to invest capital across cycles to create value for investors and customers and fund operator consolidation.

Although the vast majority of our NOI is from private pay sources, I do want to note that the Centers for Medicare and Medicaid Services, or CMS, recently announced its proposal for fiscal year 2017 Medicare reimbursement rates.

In general Medicare rates for different government reimbursed asset classes are slated to increase by varying percentages subject to previously announced initiatives or other offsets. We view the proposals as in line with our expectation.

On that note, we recently reached positive agreements with Kindred on our long-term acute care, or LTAC, portfolio to better position it for success. Our agreements contemplate disposition of seven LTACs and retaining full rent under our master leases with Kindred.

This is just one more example of our long-standing collaborative relationship with Kindred where the companies have repeatedly found innovative ways to create value for both sets of stakeholders.

So, with our portfolio performing well, our liquidity and balance sheet strong, our customers leading their industries and our team aligned and efficient we are continually looking for ways to create additional value through investment activity that delivers good risk-adjusted returns.

As we have for the past several quarters, we are being highly selective in picking our spot as we consider investment opportunities. Our focus continues to be on committing capital to high-quality hospitals, funding our selective development and redevelopment projects and helping our customers grow.

We also have found some intriguing investment opportunities in superior real estate at different layers in the capital stack, such as our recent investment in a secured junior loan tranche of Blackstone's core life science assets, principally in Cambridge, San Diego and San Francisco.

In the acquisitions arena we see a very deep and active financing investment market for MOBs with interest from a variety of investor categories. In senior housing too we see aggressive activity from private equity and pension funds among others, even when communities are in areas with significant construction starts. However, the deal size in senior housing has been trending toward the smaller end of the spectrum.

In hospitals our efforts continue to gain traction as more providers and their constituents are interested in the benefits that our capital can bring to their organization. Our conversations with hospitals and health systems have been accelerating and broadening.

So, I have complete confidence in our role as the leading capital provider in our five asset classes and our team's ability to capture opportunities and grow cash flows and value for our investors. However, as you know, the timing and volume of our future investment activities are not subject to precise predictions.

In closing, for almost two decades we have used the Ventas advantage of superior properties, people and platforms to translate the powerful forces of consolidation, demographic demand and dynamism in the large healthcare and senior housing real estate market into consistent growth, income and value creation for our investors. And today, as we stand at the corner of healthcare and real estate, we are well positioned to continue doing so.

Now, to talk about our positive quarter, I am happy to turn the call over to our CFO, Bob Probst.

Thanks, Debbie. I am pleased report a strong first quarter for Ventas which included solid same-store growth, 7% comparable normalized FFO per share growth and an even stronger balance sheet. I am equally pleased to reaffirm our full-year guidance for 2016 of 3% to 5% comparable normalized FFO per share growth.

On that note let me first discuss the performance of our highly productive portfolio of nearly 1,300 diversified healthcare and senior housing properties. Same-store cash NOI growth for the Company's total portfolio for the first quarter was 2.9% excluding certain items in the respective 2016 and 2015 periods, and 1.7% on a reported basis.

Turning to our first-quarter 2016 segment level performance starting with SHOP. Our SHOP business performed well in Q1. Our reported same-store SHOP portfolio increased 2.9% for the first quarter of 2016 over 2015, which is at the high end of our 1% to 3% full-year guidance.

This reported performance was delivered despite incurring unanticipated real estate tax expenses of $1.2 million in the current quarter relating to prior years. Without these expenses same-store SHOP NOI growth would have been 3.8%.

Our intentional rate driven strategy, as well as the quality of our portfolio, was visible in the quarter with same-store REVPOR growth of 4.7% in Q1 2016 versus prior year. The aggressive rate increases had an impact on occupancy but resulted in overall strong revenue growth of nearly 4% in the quarter. Adjusting for the aforementioned property tax charge, operating expenses grew in line with revenue and margins held steady.

Consistent with our full-year guidance, our Q1 performance was led by the engines of growth in our high barrier to entry coastal infill locations. Our core markets represent more than 70% of our SHOP portfolio NOI. NOI in these markets increased at a mid-single-digit rate in the first quarter.

Within these key markets New York, Los Angeles and Boston posted particularly strong results to start the year. We did see the performance impact in Q1 of new units coming online within our relevant trade areas in select markets.

As expected, NOI from communities in these markets declined low-single-digits in the quarter in aggregate driven by occupancy pressures. Encouragingly, based on the latest NIC data, new construction as a percentage of inventory across our SHOP portfolio declined 10 basis points sequentially to 4.4% in Q1 2016.

Our framework by which we evaluate and quantify the NOI impact of new construction in 2016 shared on our last earnings call in February has held up very well this year. We affirm our full-year guidance for SHOP 2016 reported same-store cash NOI to grow in the range of 1% to 3%.

From a phasing point of view the second quarter 2015 generated our strongest NOI delivery last year and hence is our most challenging comparison period in 2016. For the full year we project continued strong rate growth on lower occupancy levels versus prior year with growth fueled by the continued momentum in our core market.

Next I'll cover our triple net lease assets which account for 44% of our NOI. Triple net reported same-store cash NOI was roughly flat in Q1 versus prior year. The first-quarter 2016 results did not contain $5 million in fee income we received in the comparable 2015 period. Adjusting for this item triple net same-store cash NOI grew 2.9% reflecting customary rent escalation.

Cash flow coverage in our overall stabilized triple net lease portfolio for the fourth quarter of 2015, the latest available quarterly information, was stable at 1.6 times. Coverage in our triple net same-store senior housing portfolio remained strong at 1.3 times with solid low-single-digit trailing 12-month EBITDARM growth at the asset.

Our deliberately constructed post-acute portfolio, partnered with industry leader Kindred, now represents only 12% of Ventas' NOI post the CCP spinoff. Our same-store post-acute cash flow coverage remained a strong 2.0 times in Q4 2015.

Finally, our Ardent triple net coverage held steady at 3.0 times with solid performance across nearly all key performance indicators continuing into 2016. We are pleased to raise our triple net full-year reported same-store guidance by 50 basis points to 2.5% to 3.5% growth.

Our Q2 and full-year cash NOI will benefit by $3.5 million in lease modification fees without loss of rent from the recently announced Kindred LTAC deal Debbie mentioned earlier.

Let me close the segment review with our MOB business which represents 20% of Ventas' overall NOI. MOB cash NOI in the 270 property same-store pool grew 4.2%. First-quarter 2016 results benefited from an early lease termination fee with net value of $2.3 million. Adjusted for this item MOB growth in Q1 was 1%.

Q1 revenue grew as a result of a modest rate increase on in place rents partially offset by lower recovery income and occupancy declines driven by the aforementioned early lease termination. NOI benefited from cost productivity in the first quarter on the heels of a mild winter.

We continue to forecast the MOB segment will grow reported full-year same-store cash NOI in the range of 1% to 2% in 2016. We expect a softer second-quarter then to trend higher in the back half of the year as we fill budgeted vacancy. We remain confident in our valuable MOB business and the Lillibridge platform.

Turning to Ventas' overall financial results. I will refer to our results on a comparable basis which adjusts all prior periods for the effects of the spinoff.

First-quarter 2016 normalized FFO totaled $1.04 per fully diluted share representing 7% growth on a comparable basis over the first quarter 2015. This strong year-over-year growth was driven by the carryover impact of 2015 investments, including Ardent, together with new investments in the first quarter and same-store NOI growth.

Ventas made approximately $150 million in new investments in the first quarter 2016. In addition, the Company funded nearly $40 million of development and redevelopment projects during the quarter.

To fully equity fund these new investments, since our yearend 2015 earnings release in February, Ventas opportunistically issued a total of 1.6 million shares of common stock under our ATM for gross proceeds of approximately $100 million at an average price of $62.30. Year to date Ventas has issued 3.3 million shares of common stock for gross proceeds of approximately $190 million.

Ventas also continued its asset disposition program selling seven properties thus far in 2016 for an aggregate sales price approaching $70 million. As a result of these deliberate steps the Company's net debt to EBITDA ratio improved sequentially to 6.0 times, now within our 5 to 6 times targeted range. Further, fixed charge coverage is exceptionally strong at 4.6 times while debt to total capitalization approximated 34%.

Finally, we are pleased to affirm our guidance to deliver 2016 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. We also affirm guidance for total company same-store 2016 cash NOI to grow in the range of 1.5% to 3%.

Our guidance continues to assume 2016 asset dispositions of approximately $500 million, inclusive of dispositions closed year to date. We intend to use the net proceeds to reinvest in approximately $200 million of incremental acquisitions and also to reduce debt. Our guidance therefore assumes further modest reduction in leverage below the 6.0 times net debt EBITDA observed at the end of Q1.

With a strong 7% increase in normalized FFO to start 2016 we expect that further leverage reduction, asset sales and refinancing activity over the balance of the year will bring the full-year FFO per share growth to our 3% to 5% guidance range. We have assumed no additional material acquisitions, dispositions or capital activity in our guidance.

In summary, the entire Ventas team is proud of our strong start to 2016 and confident in our prospects for the remainder of the year. With that I will ask the operator to please open the call for questions.

(Operator Instructions). Michael Carroll, RBC Capital Markets.

Hey, Bob, can you talk a little bit about the 30% of senior housing assets in the SHOP that is going to be impacted by supply? And has that competition already come online or is that weighted in the back half of this year?

Good morning, Mike.

Thanks for the question. The framework you referred to, just as a reminder, is the one we laid out in February which attempted to quantify the impact of supply where we talked about 70% of our portfolio, which is in equilibrium or better in terms of supply/demand, and 30% which potentially has a supply surplus.

To answer your question, the first quarter really we think proved out that framework very much -- very much in line. As I mentioned, the 70% engine grew mid-single-digits, very much in line with our expectation.

The 30% did have an impact, it declined at a low-single-digit rate, again very much in line with guidance provided in February, so performing very much as expected. And that is with units coming online.

So we are seeing units coming online. That began about Q3 of last year. And will continue basically through the year as per the NIC data. So very much consistent with what we told you.

Okay. And then does that unit coming online, is that going to ramp up throughout the year? Is it going to remain consistent kind of just stable pressure?

Well, based on the NIC data our observation is things to get pushed out as you look at the openings. It looks to be fairly steady over the balance of the year, but also continuing into the first two quarters of 2017 based on that data. But no big -- go ahead.

Okay, great. And then Debbie can you talk a little bit about the life science investments? I know that this is property type that you've wanted to get into for a little while now. Is this just a single opportunity or do you see other opportunities in the future?

Yes, thanks for asking. We think our life science investment is a great investment on a standalone basis, a great sponsor in Blackstone and this was the core kind of best of the biomed real estate, this tranche of the financing.

So regarding life science, I think we have been very consistent for five years in our thoughts, which are that it is a good asset class, it is only 5% of the pie.

And so, under the right circumstances like we found here, if there is an opportunity to make a really good investment we will do so. But it is not a must-have like we articulated about the MOBs back in 2008-2009 which is almost 40% of the $1 trillion pie.

Great, thank you, guys.

Juan Sanabria, Bank of America.

Just wanted to ask around the same-store guidance. So you bumped to triple net and I think you said that is about 40% of the portfolio. Is there any message there with expectations for the rest of the portfolio maybe skewed to the lower end of the guidance or should we not read into that anything?

Yes, Juan, I wouldn't read anything into that. We called out the key driver of that triple net increase was really the Kindred LTAC deal that Debbie referred to, which, for the triple net segment, has an impact to raise, but overall doesn't materially raise the range. So the guidance stays as is therefore.

Okay, great.

There is no (multiple speakers). Go ahead.

And then the second question just -- you kind of hit on in in your prepared remarks, Debbie. What do you think the impacts will be for the history of the RAC audits? I know there is a history in the hospital business where you are now more involved in. Kind of what are your expectations how this could evolve and impact coverage levels and/or the operators.

Okay, so the RAC audits were recently announced; they are called recovery audit contractors who come in and sort of look at the billings under Medicare. And as you mentioned, that process has occurred over time with hospitals who are well through that including inpatient rehab. But it is new to post-acute.

And I think that you may see some impact either from operators perhaps more conservatively coding and you may see some impact as you saw in [ERF] some years ago where there are some objections to billings either past or present. And that can have some impact on cash flows or EBITDAR.

From our standpoint we believe that Kindred, who is our principal post-acute partner, is very well-positioned. The services that Kindred provides are clinically mandated and approved and it has a really good infrastructure to -- that is ready -- because obviously it has been in the ERF business as well that is ready to deal with the RAC audit. So we feel good about that.

Great, thank you.

Smedes Rose, Citi.

It is Michael Bilerman. Good morning. Debbie, I was wondering if you could just spend a little bit more time on the biomed investment in terms of did you do that by just buying it directly from the banks? Were you sort of involved with Blackstone in taking a slice or making that investment at a 10% yield?

And then I had some (inaudible). I just want to understand the -- where you came in, at what level and where your sort of partners are at effectively.

Yes. Well, we have a great relationship with Blackstone who we admire greatly. And we also have a good relationship with your firm that was involved in the financing. And so, this was really an opportunity that was presented to us that we think is a great risk-adjusted return in a pool of assets that were very, very prime as a segment of the biomed business and about which we had a lot of knowledge and information to begin with.

And so, where are you within the capital stack? The 10% is a little bit higher, so I don't know if you bought the bonds at a discount or if you are just at a higher tranche in the cap stack.

We are at a, I would call it a lower tranche, we are in the high [70s] kind of loan to cost, so very attractive there. But at the lower end it was bought at par.

And then have you had any discussions with Blackstone at all? And clearly you mentioned you had a lot of information. I can't remember if you're company A, B or C. But at some point has there been any discussion about is this a potential entry to buy assets, buy a portfolio and maybe a swop and do a larger transaction at some point?

Wow, you have an overactive imagination. But I like it. I would say that this is a good standalone investment that we made with a lot of expertise that my partner John Cobb has in the debt market and with our friends at both those firms. So you should just think of it as a great standalone investment.

Okay. And then just one last one just on SHOP same-store, it was up 3% in the first quarter. You really didn't change the outlook for the year. And so, I don't know if you just expect decelerating or is it just more conservatism or is there something that we should think about within the SHOP portfolio going forward that would impact those numbers?

Well, Bob will answer, but again, the guidance is on a reported basis. And so -- Bob?

Right. And on that basis we delivered 2.9% in the quarter, Michael, therefore at the high end of the range. We are holding the range at 1% to 3%, so certainly you can see consistent growth across the quarters to achieve that high end.

The range is really dictated by the impact of supply, which we talk a lot about. And should those trends continue as we saw in the first quarter, we would be pushing toward that higher end. But the range is there for a reason.

Thank you.

Nick Yulico, UBS.

You talked about private equity institutional investors having strong demand for seniors housing. What are your thoughts about potentially selling some of your non-primary senior housing assets which seem to be underperforming? And would you be interested in that? What type of pricing you think you might be able to get on that?

Well, first of all, we do believe in having a high-quality portfolio and having diversification and balance in that portfolio. And that includes markets, asset types, etc.

So as we look at our normal capital recycling in terms of dispositions, I think senior housing is one of the areas that we would consider having in that pool and we have said that. And we are constantly checking the market and constantly reviewing our portfolio for the best candidates for capital recycling.

Okay. And then just one other question I had was on Holiday Retirement. When you made that investment back in -- what was it, 2013 -- there were some I think pretty big initial escalations in the rents I think close to sort of 4% or 5% for several years. Can you talk about your comfort in being able to still get those escalations?

I recognize it is not a gigantic time for you, about 3% of NOI. But still there has been some management turnover at Holiday, there has been declines in coverage as reported by one of your competitors out there who has a portfolio with them. And so what I'm wondering is if we should be confident that you can continue to get that extra straight-line rent benefit in your FFO there?

So yes, we did buy a Holiday portfolio, it is a high-quality one. It was one of the earlier more curated portfolios that Fortress put out there. We did structure it well and in a way to get 4.5% escalators in the early years, the last one of those is in 2016.

And we would expect over time that portfolio to, A, on the rent side go back to more normalized level and over time to grow into normalized coverage. So the new CEO I think has some great ideas, I think the portfolio in general in the Company at Holiday had a good start to the year. And so, we feel fine about our rent and feel good about it.

Okay, thanks.

Chad Vanacore, Stifel.

Just think about your MOB portfolio and the $2.3 million lease termination fee. What percent of NOI was the tenant that terminated their contract? And has that tenant be replaced or you're going to have to work back through it sounds like.

What percent of total MOB NOI was that tenant?

Yes.

It was about 1% roughly of the total. I think it is a little bit of a complex story just from a timing point of view. In the quarter we had the lease termination fee benefit, which drove the 4.2%.

But obviously that tenant left and we need to therefore replace that tenant to see the timing issue of having to replace that tenant. And the occupancy decline you saw sequentially was really described by that tenant in total.

Just like office.

Yes, just like an office. So you will see that and we highlighted that second-quarter impact of that. And then as we fill that back up you will see the benefit in the back half.

Okay. And does that lease termination fee cover what you would have gotten until the end of the year and that is why you haven't [necessarily] changed your MOB same-store growth profile?

We quoted the net benefit net of the rent we would have received in the period. I think the lease would have expired prior to the end of this year.

And it was in our budget when we came into the year so therefore in our guidance.

All right. And then how should we think about changes in your portfolio pro forma for the changes in the Kindred leases? Like what is going to happen to Kindred rent coverage post the transaction?

Okay, good. So thanks for asking about that because we were trying to count here how many good deals that we and Kindred have done together over the last however many years and I think it was eight or nine. And this most recent one is a good example of how both the companies have elevated and improved their portfolios through -- over time as we have engaged in these transactions.

So what we have said is we have strong coverage now at 2 times in our post-acute portfolio. When you look forward we kept all the rent, we would expect to exit seven of those LTACs. And of course we have changes in reimbursement in the LTAC sector starting to come into play in 2016 in September for Kindred.

And so, when you look at all that net-net-net, we would expect a temporary 10 to 20 basis point impact on coverage as we work through and then normalizing as we come out of LTAC patient criteria. So that (multiple speakers) of the whole series of things, but this single transaction I think is a great way for both of us to position that LTAC portfolio to succeed.

And, Deb, what percentage of NOI do LTACs represent for you? And how does that change pro forma?

It is about 6. And so, since the rent is -- we are keeping all the rent plus we are getting $6.5 million, it stays 6%.

All right. And then just one last question on the SHOP portfolio. It looked like occupancy was down quite a bit, 100 basis points sequentially or so. Is that from the new pressure that you are seeing or what is driving that?

Yes, there is an element of seasonality, but year-over-year we highlighted that it is really driven by the rate increase. So very intentional desire to drive rate, this is a wonderful business, needs driven and we believe a real opportunity to continue to drive rate recognizing the value proposition of senior housing.

So we have very intentionally been putting our foot to the accelerator on that knowing there would be an occupancy impact. But net-net-net we highlighted a 4% revenue growth in the quarter and a strong underlying profit as a consequence. So we think a good move.

But again, sequentially you would typically see this pattern separate and --.

Seasonality.

Yes.

When you look sequentially.

All right, that is it for me. Thanks.

Vincent Chao, Deutsche Bank.

Just sticking with the SHOP commentary here. Understanding there is typical seasonality here in the first quarter and it did drive rate, but I guess I would have thought there would have been some benefit from the milder flu season this year. And also just curious, the decision to push right so hard this quarter, what was driving that ahead of pending supply and that kind of thing?

Yes, we think we pushed rate appropriately, that's again very intentional. And I always talk about the value proposition whereby if you tried to replicate the services at home of senior housing it would be twice as expensive as on average it is within the senior housing community.

So, there is clearly opportunity to drive pricing and the operators have seen that and embraced that in our SHOP portfolio. So, that is strategic in my mind. What was the other part of the question?

Oh, just I guess I would have expected a little bit of a tailwind year-over-year just given the milder flu season this year. And I was just wondering if that showed up or if there was some other offset.

Right, we said ceteris paribus, all else equal, that would be a benefit is certainly true. But the world is never ceteris paribus. There is lots of things that were going on. So it was helpful but it wasn't something that would drive outsize performance. And net-net when you step back from the adjustment for tax we grew nearly 4%. So clearly a strong quarter.

Yes.

Got it. Okay. And then just maybe a follow-up on the guidance just for disposition proceeds. I think it was 350 last quarter, 200 this quarter; I think that is just maybe because you have already spent some of that money.

But also it seems like the wording did change a little bit, and I'm probably parsing this too much, but specifically calling out debt repayment this time as opposed to sort of redevelopment and development spend. Anything to read into that?

No. I think it is -- I am glad you asked the question because what has not changed if we look full-year is $500 million of dispositions and $350 million of acquisitions, that is the same from our last guidance.

We expressed the acquisitions in the press release as $200 million incremental, which is from here as we did $150 million in the first quarter. And so, that $350 million is just kind of a timing issue of when that money is being spent.

The balance is fungible in that we can talk about either redevelopment or we can talk about debt reduction. It is simple to understand that we have approximately $300 million of gross debt reduction inherent in that forecast if we have $500 million of dispose, $200 million of incremental acquisition the balance will be debt reduction. So that is the math, but redevelopment hasn't changed either.

Yes, and the key point is that we also generate cash flow which is fungible as a source as well, and so --.

Right. Which is a partner to that.

You should feel we are very consistent with what we said before.

Absolutely.

Okay, thanks for that clarification. And I think that is it, thanks.

Kevin Tyler, Green Street Advisors.

On SHOP on the expense side does your NOI guidance forecast 4% plus or minus increases over the balance of the year? And I was just curious how much of the 4% that was saw, or the 4.5% this quarter was related to minimum wage versus executive director retention?

Right. Well, first of all it is important to highlight that that real estate tax charge, which I identified, is in the reported results through the expense line in the quarter. And therefore you need to adjust that out if you are looking at a more underlying performance. And that is in line with revenue and roughly in that 4% range as you highlight.

Within that clearly there have been wage pressures, whether of minimum wage or as we have shortages of nurses or whatever else. But that comes right back to the need to drive our rate in part and parcel.

Yes, and it is consistent with the guidance that we gave at the beginning of the year.

Very consistent with the guidance. And so holding margins through rate, covering that expense pressure and at the same time driving cost productivity importantly as part of that through operational excellence is inherent in holding that margin for the full year.

Okay, thanks. And then on the development side, you have got a quite a bit going on in the senior housing front in desirable and somewhat dense markets, Foster City, Fort Lauderdale. But the densest urban cores, are they currently attractive for you just as we have seen some of your competitors move in?

In Manhattan, for example, if you could get land what reservations might you have about developing in a more dense setting like a Manhattan, Chicago, San Francisco for example?

Well, it is nice that we were able to acquire the Atria portfolio when we did which had as its largest component the New York MSA, which has been a great market for us. And as you point out, we do have two high-quality developments ongoing, both will be operated by Atria, one in Foster City in the San Francisco MSA and one in Palm Beach County, obviously both attractive areas.

And we continue to look at development and redevelopment opportunities with Atria and others in all of these markets. And would feel positive, frankly, about if we found a good site in any of these dense markets to do a development that we had confidence in.

Our bar on ground up development, however, is very high. And so, we want to make sure that we are really underwriting it carefully and have confidence in the outcome. And that is why we have just kind of the MOB in downtown San Francisco with Sutter and these two senior housing developments in these great areas with Atria ongoing right now.

Okay, thanks. And then, Debbie, just talking a little bit about your deal making track record in the past, certainly has been one that is very -- looked fondly upon, has been fantastic. And as you look to turn around tough situations you have done so effectively many times in the past and in the skilled nursing space.

But today with some dislocation in the markets and then maybe sporadically throughout healthcare is too strong. But there has been a little bit more dislocation than in the past. What gets you excited or where do you see opportunities to apply your turnaround expertise?

Well, thank you for the compliment. It didn't always feel like it at the time, but hopefully in retrospect it is a very good track record of disciplined capital allocation by our team.

Look, I mean what gets us excited at Ventas is making money for our stakeholders. And that has come and will come in many different forms, but that is what gets us excited. And that is what we are going to continue to drive towards.

Okay, thank you.

Rich Anderson, Mizuho Securities.

So, just when I think about the three buckets -- triple net, you have RIDEA and you have post-acute -- those by which we kind of debate the good and the bad. In RIDEA we can get into the whole bundling and how that is going to work itself out from a REIT perspective and same with post-acute.

But the one thing I want to point out and kind of isolate is the senior housing triple net, which we have for a long time been willing to sit on relatively thin rent coverage. I know you have 1.3 in an EBITDARM basis, but on EBITDAR it might be closer to 1.1.

And then when you factor in the capital expenditures which are borne on the operator, do you get below 1 on average? And if so, what is your comment about that from a long-term perspective as from your -- from a REIT standpoint?

Well, we think we have a high-quality diverse portfolio with leading operators in our industry, the Brookdales, the Holidays and so on. And the portfolios are well underwritten with credit support and the assets, as Bob said, are growing EBITDARM. And so, we feel we are at good level of coverage that is market-based or above market base. And with a reasonable CapEx imputed we are above a 1.0.

Okay.

Probably closer to a 1.1. And so we feel good about it.

But, and you are not -- I am not directing this at you because everyone is kind of in the same boat senior housing triple net. I mean do you think that there is a day where we will have to kind of do a refocus on rent escalators and think more in terms of what -- making sure those escalators aren't in excess of the EBITDAR growth of the underlying organization?

Yes, yes. I think that is a really good comment because over the years there has been I think a lot of misperception amongst investors that one type of investment, call it SHOP, has risk and one, call it triple net, doesn't have risk and so on and so forth.

When we do underwriting of any asset that we are acquiring, at the end of the day those assets have to produce cash flow. And so that is what we are focused on always first and foremost. And then along with it in all these areas, is it a leading operator, what is the asset and the management team's position in the marketplace?

Can we provide additional structural support in the case of triple net and like guarantees and security deposits and so on? But at the end of the day we are looking for good assets that are going to perform through good operating partners and that is true regardless of structure. So you make a good point. And I think we have done that successfully.

Great, thanks very much.

John Kim, BMO Capital Markets.

Debbie, can we get your updated views on the impact of bundled payments implementation and how significant this changes the landscape for demand across the spectrum? Specifically there has been some early evidence of home health potentially gaining market share and I was just wondering if you could just address that as well.

Yes, good question. Look, I think bundled payments are going to help hospitals, let's start there. And that was of course one underpinning of our hospital thesis and investment as hospitals control more of these dollars and patients.

In so far, again, these just started in the 67 markets on hips and knees in April of this year. Kindred has said that as far as this project goes it is going to have minimal impact they believe.

And in part I think they are using this new project to prove out that they are the best positioned post-acute provider in the country who can deliver really good post-acute care, limit readmissions and do so for a reasonable cost. And that is of course the providers in post-acute who are going to thrive in the future.

So -- but there is -- there can be as part of these trends some evidence that some patients will go directly from the hospital either to senior living frankly or to home health. And that is a trend that has been going on for some time and will continue.

But again, the skilled nursing guys have a role to play in the post-acute delivery of care and there are plenty of these patients, believe me. Plenty of people are having hips and knees replaced. And so, hopefully there are enough patients for everyone.

So hospitals are managing the process, but they are not necessarily the lowest cost setting. So how concerned are you about this and will there be some losers and winners in the hospital world?

Yes. I mean I think there will be winners and thrivers and consolidators like Ardent and others like HCA. But again, they are sort of getting the payment in the bundled payment and they are paying the post-acute providers.

And so, we believe that the hospitals will do well and the post-acute providers who can deliver quality and do so at a low cost and limit readmissions are going to get more market share.

Okay. And a question for Bob on your cash flow statement. Free cash flow from operations historically has mirrored normalized FFO, but this quarter it fell a little short of that. From what I can see this is largely (multiple speakers).

I am so -- thank you for asking that because that is something we talked about and we are happy to answer.

Which I am assuming is why is it lower. And it is really timing if you look at it. We had a number of things, particularly in the accounts payable line that in prior years -- if you compare to prior year we had the Kindred fee and other fees we have referred to in the first quarter which benefited cash flow in the first quarter of roughly $40 million.

Of last year.

Of last year. To bring it back, typically Q1 is an outflow just seasonally from a timing point of view on the payable line. So, last year it was really more of an anomaly as far as that goes.

And the other one is really timing around interest payments on bonds that are flowing to interest payables. So they are really timing issues, John, but it is a good catch, absolutely. So you should see that turn around to the balance of the year.

We always pay attention to cash flow.

Great, thank you.

Jordan Sadler, KeyBanc Capital Markets.

I guess I might be accused here of having an active imagination possibly. But maybe you can help me understand what is going on with the SHOP portfolio.

I guess same-store occupancy is down 90 basis points, right, despite a mild flu season. But last year it was up 60 basis points in what seemed to be a more difficult flu season. So I am just -- what seems to be going on here?

Yes, I don't think you should be so focused on flu solely because there is a number of factors. Clearly that, as we have said, all else equal is a tailwind. You have a number of factors that are impacting occupancy this quarter. We talked a lot about rate. Certainly the rate is intentional and is driving the majority of that.

There is also an impact of the new units coming online and affecting occupancy, as I said in my prepared remarks. So that is coming through that line as well. And again, in line with our expectation. So it is really a combination of factors where it is really hard to pull out any one.

Okay. And then in terms of free rent just in the senior housing world, are you or any of your triple net tenants currently offering free rent upfront as an inducement? Is that changing at all?

Well, I would say that obviously when we look at rents we are looking at it on an effective rent basis. There are targeted markets, for example, Brookdale has talked about it where they are providing concessions in some cases that they used after the Emeritus merger. And a lot of those Brookdale has said are -- they expect to burn off and not be replaced during 2016. So that would be one example.

Okay. And are you guys using concessions as well or you are not seeing the same thing per se?

No, we are driving rates.

No, quite the contrary, we are going the other way. As I said, we are driving rate, not discounting. And the NIC data would suggest in terms of rate growth that similarly across the industry there is good great growth. So hopefully others are seeing the same which is a great value proposition in senior housing.

Okay, great, thank you.

Todd Stender, Wells Fargo.

Just a quick one for me. Bob, you highlighted the drop in new senior housing construction earlier. I just wanted to get a sense of your -- what you are hearing from your operating partners, maybe your updated thoughts on the trajectory of new starts at least over the near-term.

Right, I would describe it as a modest sequential decline. We talked about 10 basis points in terms of units under construction -- so we are certainly not doing the touchdown dance yet on that.

I think where is it headed from here is a good question. We don't have a lot more information than you do. I think everybody is starting to understand what is out there, there has been a lot of talk about supply clearly.

And so, lenders and developers and everybody else taking note we hope is what is going to happen but only time will tell. We have no evidence to suggest that is true.

Okay, thank you, Bob.

Tayo Okusanya, Jefferies.

A couple from my end. First of all skilled nursing; you have a very small portfolio but it is heavily focused on the national operators. And I am just curious what you are seeing on that end just given when we look at your rent coverage, it has been coming down about 10 bps for the past two or three quarters.

Okay, so, most of the change in coverage is due to the fact that rent went up significantly in the fourth quarter of last year. So we think that is a good thing. You want to have good coverage but you don't want to have excess good coverage. You want to hit that optimal point.

And yes, most of our 4% of skilled nursing is with Kindred, we have some with Genesis as well. And look, I think what you are going to see, as we have talked about over time, is we have very strong coverage at 2 times. You are going to see I think some continued pressures on the SNFs business.

And we are in a great spot with our partners who have credit and who are leading operators to work through those changes. And we deliberately retained this portfolio because we believe in it.

Great, okay, that is helpful. Then the second thing, medical office buildings, I know we have kind of go through the tenant vacating and the impact on numbers for the quarter. But when I take a look at rent growth for the quarter it still seemed like it wasn't much.

And again, I guess one thing I always struggle with on the MOB side is same-store NOI growth tends to be 2%-3% consistently, but yet everyone is kind of paying these very low cap rate for these assets. So I'm just trying to understand why it continues to make sense to pay these very low cap rates kind of industry wide.

Yes, good observation. And again, happy that we acquired our MOB portfolio, which is very high-quality, again, in that 2010-2011 time period.

I think what drives people to really like MOB is that they are a low-cost setting, you see the demographics and the utilization statistics with the baby boomers and again the 10,000 turning 65 every day. You see the Affordable Care Act which is improving the insured population in many states.

And then what you are getting as an investor is you are really getting above -- even at relatively low cap rates you are getting above core returns with core like characteristics. Very reliable, consistent, steady, financial assets.

And in this global thirst for yield where we talked about why people like US real estate assets, that is a very attractive value proposition and I think that is why you are seeing all these new entrants and a lot of interest in this asset class.

Okay, that is helpful. And then lastly, again, I appreciate you indulging me. Can you just talk a little bit about what you are seeing at this point in the UK?

Four Seasons put out some pretty weak results a few days ago, but again, I know their portfolio is very heavily focused on getting funding from the local authorities. But overall what you are kind of seeing whether on that and or on the private pay end would be helpful.

Well, in the UK I think what -- we have a small senior living portfolio and then a very nice public partner in Spire who is in the hospital business (technical difficulty) triple net lease. And we have triple net leases frankly on both segments in the UK.

I think what we are seeing there in the private pay as well as the more long-term care business is that there are changes in rules and regulations that affect staffing. And that is in fact putting some pressures on the operators there.

Our portfolio has been doing well, it is a small portfolio that we have grown and we like. But I think on a larger scale basis for both the government reimbursed and the private pay there are some trends there that are compressing margins.

Okay, great. Thank you very much and overall I thought the quarter was pretty good. So well done.

Yes, well thank you very much. I will thank all my colleagues at Ventas for contributing to delivering great results. And I thank all of you for your interest in our Company and your support of our Company which we appreciate greatly and we look forward to seeing everybody at NAREIT in June. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. Have a great day.