芬塔 (VTR) 2003 Q4 法說會逐字稿

Welcome to your quarter four 2003 Ventas earnings conference call. My name is Liz and I will be your conference facilitator for today. At this time all participants are in a listen-only mode. We will, however, be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Rick Schweinhart, CFO.

Good morning and welcome to the Ventas conference call to review the company's announcement yesterday regarding its results for full-year 2003 and the fourth-quarter 2003. 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 law. These projections, predictions, and statements are based on management's current beliefs as well as on a number of other assumptions concerning future events. The forward-looking statements are subjected 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, 2002, 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 qualitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure are available at the Investor Relations section of our Website at www.VentasREIT.COM. I will now turn the call over to Debra A. Cafaro, Chairman, President, and Chief Executive Officer. Go ahead, Debbie.

Thanks, Rick. Good morning. I want to welcome all of those who are still awake to the Ventas 2003 year-end earnings call. I'm hosting the call today from New York, and my colleagues in Louisville are joining the presentation by teleconference.

Once again Ventas had a very eventful and productive year. Highlights included the announcement of our acquisition of ElderTrust which we closed earlier this month, the dramatic improvement of our balance sheet, and the disposition of 26 underperforming assets for a premium. In midyear we repaid our settlement with the Department of Justice three years early, significantly improving our fixed charge coverage ratio. We also developed and initiated our marketing program directed at senior housing and healthcare operators, brought our sophisticated asset management system online, and opened our DRIP to retail investors.

Early in 2003 we successfully completed the 1997-98 IRS audit, and actually received a refund of $14 million as a result. Finally, consistent with our focus on sound corporate governance, we named Doug Crocker our lead director this year, added Thomas Theobald as a new independent member of our Board, and terminated our sharehold rights plans to eliminate its anti-takeover effect.

At the same time we continued to be very focused on profitability and cash flow. In 2003 the company continued to generate reliable growing FFO and significant free cash flow. For the year our FFO per diluted share increased 13 percent to $1.54 from last year's normalized level of $1.36. In the fourth quarter we delivered 40 cents per share in FFO, which represents a year-over-year growth rate of 18 percent per share.

Through these transactions, our internal initiatives, and our financial performance Ventas is focused on achieving sustained excellence. For the year ended 12/31/03 we delivered total shareholder return of 106 percent. Our compound annual total shareholder return for the three-year period ended 12/31/03 was 70 percent. In each case Ventas was the best performing REIT in the Morgan Stanley REIT index.

In 2004 our FFO should benefit from our internal growth derived from our master-lease rent escalation and our lower debt balances, as well as from our recent accretive acquisition of ElderTrust and our recently announced acquisition of 14 assisted and independent living assets to be leased to Brookdale Living Communities. As a result we currently expect to achieve FFO per share of $1.70 to $1.74 in 2004. Consistent with our prior statements this range represents steady-state guidance that does not take into account the impact of additional acquisitions, divestitures, capital events, or refinancing transactions.

Importantly, the quality of our FFO should remain high in 2004. Our real cash flow before principal payments should approximate our reported FFO results in 2004. This cash flow provides strong support for our ability to invest in additional assets from free cash flow and for our expected dividend payment.

To follow through on our promise that we will share our increasing cash flow with our shareholders the Ventas Board of Directors has increased our dividend by over 21 percent to 32.5 cents per share for the first-quarter 2004. This indicated annual dividend level of $1.30 per share represents approximately 75 percent of our expected 2004 FFO and is consistent with our prior year's payout ratio.

In reaching our dividend decision we aimed to provide our shareholders with a predictable growing dividend that follows our cash flow growth, and that also allows us to retain a significant amount of cash flow from operations to deploy in our strategic diversification plan. We believe that our conservative 75 percent payout ratio strikes the desired balance between these objectives for the time being. Please note that the declaration and payment of future dividends is subject to the discretion of the company's Board of Directors and is reviewed quarterly.

I want to share some specifics that demonstrate the continued reliability of our expected rent stream. Focusing on our core Kindred portfolio of 186 nursing homes and 41 hospitals, our property level EBITDAR to rent coverages at our master leases remained strong. The EBITDAR to rent coverages at our Kindred portfolio are 1.7 times after a full 5 percent management fee for the trailing 12 months ended 9/30/03. Our strong trailing 12 months coverage statistic, again after full management fees, reflects the full impact of four quarters of the $30 per day Medicare cut for skilled nursing facilities that took effect in October of 2002.

Our portfolio performed very well during the year of the much feared SNF cliff because of the large cash flow cushion of safety between Kindred's cash flow and our rent, the positive impact of our sale of 26 underperforming assets to Kindred in 2003, Kindred's operating improvements, and importantly the diversification we have within our Kindred master leases between the higher margin hospitals and the nursing home business.

All other things being equal, which of course they never are, we expect EBITDAR to rent coverages at our facilities to improve this year because Kindred will have the benefit of a 6.3 percent increase in Medicare rates at its SNFs that began on October 1, 2003. This additional $19 per day for Medicare patients should translate into modestly higher margins for Kindred at its SNFs and, axiomatically, higher EBITDAR to rent coverages at our portfolio.

Medicaid rates in 2003 have been up by about 4 to 5 percent at our SNFs over 2002. However, Medicaid programs remain under pressure as states continued experience budget deficits; so we may see some compression in various Medicaid rates of growth in the second half of 2004. However, the large public operators have stated that they are expecting, as are we, cost of living type increases in Medicaid rates for SNF in fiscal year 2005, which for most states begins in mid to late 2004.

If you review along historical perspective, Medicaid rates have been remarkably stable and tend to experience nearly a deceleration in growth rate during difficult economic times rather than outright cuts. So we feel comfortable on the Medicaid front for the time being, and we continue to monitor our large skilled nursing states.

On the long-term acute care hospital side, or LTACs, Kindred transitioned almost all of its LTACs to the new PPS reimbursement system on September 1, 2003. We will wait until Kindred reports in early March to assess the impact of this reimbursement system, but we believe it should provide modest positive momentum for Kindred and for our assets. So our core healthcare portfolio remains extremely productive and supports our rent with significant cash flow from our assets.

Just one final note on Medicare reimbursement. Preliminary LTAC PPS rules for 2005 have been published and they seem to provide incremental rate increases for the LTAC providers commencing July 1, 2004. The President's budget released earlier this quarter does not call for any cuts in SNF rates for fiscal year 2005, which commences October 1, 2004. While neither of these data points is yet conclusive, we do expect to see a period of relative reimbursement stability on the federal front at least through the end of fiscal year 2005.

The second major point in assessing the reliability of our future rent stream is Kindred's credit quality which improved significantly during 2003. As you know Kindred guarantees all of our pooled multifacility master leases, which represent a super senior secured obligation in Kindred's capital structure. Kindred now enjoys over $1 billion in equity market capitalization; and analysts expect that its 2004 EBITDAR will approximate $500 million, to cover about $280 million in expected fixed charge obligations. Kindred has also publicly stated its intention to delever, which should make it an even stronger tenant in the future.

Turning back to Ventas, we worked very hard this year on improving our balance sheet. We continue to believe that financial strength and flexibility are important drivers of long-term success. We also believe that a strong balance sheet will enable us to increase our future FFO by reducing our weighted average cost of debt going forward. Our net debt level of 559 million at year end is quite low. It gives us an outstanding debt to total capitalization level at year end of 27 percent.

We have indicated our intention to operate the company in a conservative 3.5 to 4 times debt to EBITDA range. Following our acquisitions of ElderTrust and the Brookdale assets, by the end of the first quarter of 2004 we expect our debt to EBITDA ratio to fall within that range on a run rate basis.

Looking ahead we have a very straightforward business plan. We want to improve the strength and reliability of the company, while systematically increasing our earnings and shareholder value. To achieve that outcome we will endeavor to reduce our Kindred concentration by making attractive acquisitions, and engaging in selective opportunistic divestitures. We intend to expand our investments in asset classes whose revenue streams are not correlated with SNF reimbursements; lower our weighted average cost of debt; maintain a strong balance sheet; and participate in industry consolidation.

Our investment team headed by Ray Lewis got our growth program off to a great start in the first quarter of 2004 with the closing of the ElderTrust merger on February 5. We also recently announced the 14 asset Brookdale acquisition. Seven of the Brookdale assets have now closed, and seven remain under contract subject to various closing conditions. We are really pleased to have publicly traded Genesis and privately held Benchmark and Brookdale as new tenants.

Assuming the completion of the ElderTrust and Brookdale transactions we will have expended 275 million in investments during the first quarter of 2004. On a full-year pro forma basis we expect those transactions to reduce the Kindred percentage of our REIT revenue to 83 percent, down from 99 percent at the beginning of 2002. Because over 80 percent of the acquired assets are private pay facilities, about 10 percent of our run rate REIT revenue in 2004 should come from private pay sources. These transactions represent a significant step forward in the (technical difficulty) of our strategic diversification plan.

On the investment side we are definitely seeing more deal activity in the market. But we are also facing increased competition for assets and a corresponding compression in cap rates due to the stability in reimbursement and the absorption at the non-government reimbursement areas of long-term care. We remain confident that we will execute on our share of attractive opportunities. Experience tells that if we keep working hard and making good decisions our acquisition team can deliver positive results.

You should note, however, that the specific timing and volume of our future investment activity is not predictable; so we have not included any acquisition activity in our FFO guidance. For now we are actively analyzing and underwriting a handful of transactions. We intend to remain disciplined and deliberate in our investment decisions, and we are in a great position to do so because of our internal growth, which is the highest in the sector, and the quality of our existing portfolio.

To review our full-year 2003 and fourth-quarter results in detail I am pleased to turn the call back over to Rick Schweinhart, our CFO.

Thank you, Debbie. First let me comment on the fourth quarter. Normalized FFO per diluted share for the fourth quarter totaled 40 cents, compared to 34 cents for the fourth quarter of the previous year. Normalized FFO for the fourth quarter totaled $32 million, compared to 24 million for the fourth quarter of the previous year. The $8 million increase is attributable to $4 million of revenue increases and $5 million decreases in interest expense, offset by a $700,000 increase in G&A and professional fees. A lease termination fee offset the net loss on our swap break.

GAAP net income for the quarter was 77 million or 95 cents per diluted share, compared to last year's 9 million or 13 cents per diluted share. In addition to the changes discussed above, this year's fourth quarter includes a $55 million gain on the sale of 10 underperforming properties to Kindred Healthcare, our primary tenant. The gain on the sale is reflected in discontinued operations along with the discontinued rent. The proceeds, including a $6 million lease termination fee, totaled $85 million and replaced in cash awaiting (ph) the ElderTrust deal that closed in February of this year. Last year's fourth quarter included a $4 million loss on extinguishment of debt.

Rental revenue and interest income for the quarter totaled $50 million compared to $46 million last year. The $4 million increase was due to the May 1st Kindred escalators, the Kindred master lease amendment effective July 1, and the remainder to the THI transaction that occurred in November 2002.

Combined debt, the United States settlement, and amount due broker decreased $148 million from $789 million at December 31, 2002, to 641 million at December 31, 2003. Interest expense declined 5 million primarily due to this decline. Reduced debt balances are due to free cash flow, the sale of Kindred stock, the sale of properties to Kindred, the receipt of $14 million from the tax refund escrow due to our favorable tax settlement in the first quarter of 2003, and cash receipts from stock option exercises.

In December 2003, we reduced our swap from a notional amount of $450 million to $330 million. The break had a net cost of $5 million. The swap was reduced to more closely track our expected variable-rate borrowings.

Weighted average diluted shares increased from 71.2 million to 81.2 million this year, reflecting our December 2002 equity offering and, to a lesser extent, stock option exercises.

Now let's focus on the year's results. For the year 2003 normalized FFO per diluted share grew 13 percent to $1.54 from $1.36 in 2002. Normalized FFO for 2003 totaled $124 million compared to $96 million for the previous year. The $28 million increase is primarily attributable to $18 million of revenue increases and a $14 million decrease in interest.

GAAP net income from the period, prior to a host of items such as discontinued operations, gains on sales, and unusual items, was $68 million in 2003 versus $43 million, an increase of $25 million. The increase is again primarily attributable to $18 million of revenue increases and an $11 million decrease in interest expense.

Rental revenue and interest income for the year totaled $196 million compared to $178 million last year. The $18 million increase was due to the May 1 Kindred escalators, to the Kindred master lease amendment effective July 1, 2003, and to the THI transaction that occurred in October 2002.

Actual shares outstanding increased 9.1 million from 78,878,000 at December 31, 2002, to 80,791,000 at December 31, 2003.

Items of note on the balance. Real estate investments reflect the profitable disposition of assets to Kindred. Cash from latest sale of properties to Kindred is being held in anticipation of the ElderTrust and Brookdale transactions. The reduction in restricted cash is due to the favorable tax settlement with the IRS in the first quarter of 2003. Debt decreased during the year to $641 million. The interest rate swap agreement valuation improved from a $48 million liability last year to $28 million this year, due to interest rate changes and the swap rate. Balance sheet equity has turned positive due to the gain on the sale of properties to Kindred.

Finally, the consolidated statement of cash flows can be recapped as follows. Net cash provided by operating activities of $137 million, together with $160 million of asset sales, plus $23 million of stock issuances combine for a total cash-in of $320 million. Debt reductions of $151 million, the cash swap rate cost of $9 million, and dividends of $80 million combine for a total cash-out of $240 million. The difference between cash sources of $320 million and the cash uses of $240 million equal $80 million, which represents the increase in cash for the year.

All in all it was a good year for the company. We were able to grow our FFO, increase our dividends, and get our balance sheet in great shape. Back to you, Debbie.

Thanks, Rick. Liz, we are now going to open the call to questions.

(OPERATOR INSTRUCTIONS) Jerry Doctrow, Legg Mason.

Two things I wanted to explore. One was just the reset with Kindred which I know is still a little ways off. But I guess I wanted to see how we should be thinking about that; and if you can remind me of the timing when you have to elect. If I'm trying to think about increasing coverages and stuff and how that might relate to any kind of handicapping we might do about what the reset might look like. If you can give me any sense of that, or how you think of it.

Happy to do that. As you know we have a reset right which allows us a one-time one-way right to increase our rents under the Kindred master leases to market in 2006. We have the right to trigger that option in early 2006; and it would be effective if at all about midyear 2006. The value of the reset right really will be determined over time depending on a variety of factors, most significantly the health of the long-term care sector and the profitability of our portfolio, Jerry.

What we do is run different sensitivities around coverage. And if our coverage for example today is at 1.7 times, with Kindred EBITDAR for the trailing 12 months being a little bit north of $300 million; and if we see deals being done at, say, 1.4, 1.5 times; what we do is solve for rend, if you will.

If we did exercise the right now, there would be a significant or meaningful increase in annual rent. But we will have to wait to 2006 really to see how much value is embedded in that right.

1.4 or 1.5 is kind of your average coverage for the portfolio; that is the way you think of that right now?

We run sensitivities really everywhere from 1.2 times to say 1.6 times on a blended basis. It really will also depend on what deals are getting done in the marketplace for, at the time when we have the appraisals commissioned.

One other thing. I was wondering if we can get any more color on just growth prospects. You touched on it a little bit. I have been getting some feedback lately that GE, some of the asset-backed lenders, are out there more aggressively. We have got some of the other REITs that have not been in the market out there. If you can just give me more color about the competitive environment, and maybe what your sense is about prospects?

I am going to ask Ray Lewis to answer that question. I will tell you that we are working hard to be able to find ways to be successful in our strategic diversification plan, and ask Ray to comment further.

I think as the fundamentals have improved in the healthcare services sector we have seen some yield in cap rate compression; we have seen alternative sources of capital and more sources of capital entering the marketplace. That has contributed to sort of a slight decrease in pricing.

We are seeing our going-in lease yields ranging between 9 and 10 percent; escalators holding steady between 1 and 3 percent. We think there will continue to be increased competition in the marketplace. But we are building our relationships, executing on our transactions, and we think we will get our fair share of the activity that occurs in the next year.

Ray, maybe just overall, you think the deal volume, not just for you but for everybody out there, you think from a REIT perspective, about the same? Going up? Going down?

Yes, I think actually as the underlying fundamentals have improved across the continuum of long-term care, I think what we have seen is with rising values many private equity firms are going to decide to monetize their investments. Hopefully sooner. When this type of cap rate compression occurs the bid ask between the seller and the buyer narrows; and it often leads to more deal velocity. So we are hopeful that this will create some opportunities for all REITs in the marketplace over the next year.

Thanks.

David Supros (ph), Merrill Lynch.

Looking back maybe on the last three or four quarters at the recently acquired assisted living properties, what has been the trend in occupancy? What type of rate increases are the tenants getting at the assisted living properties or its units?

The portfolios that we have acquired, and that is really all we can speak to, are stabilized facilities with 90-plus percent occupancies. That is what we like, obviously; a stable, in-place, sustainable cash flow. As there is more absorption in the senior housing area, because there has been virtually no construction over the last couple of years, I think you will see the fill up occur. And then you will see the operators getting some pricing power.

So the pricing power is not there yet?

I think there's still areas where the pricing power is stable or soft. But that is where the upside really is to both increase occupancies and get that pricing power in the future.

Changing gears real quick, can you give us a sense of what kind of traction you are getting on the DRIP program?

That is really for the first quarter of 2004. So we will be able to give you a better view when we speak with you next time.

Okay, thank you.

Chuck Russ (ph), Insight.

Can you talk about the coverage and results at the Trans Healthcare investment?

Sure. Those properties are performing as underwritten.

Okay. The '04 fully diluted number of shares we should be using, what did you assume in the FFO guidance?

As we always are, we are very conservative when we give guidance. We are assuming about 82.1 million shares outstanding in 2004.

Lastly, you talked a little bit about the acquisition market out there. Can you go into more detail, as you have done on other calls, what the cap rates are for the different types of assets, as you see them now?

I'm going to turn that over to Louisville.

As the fundamentals have improved in the healthcare services sector, we have seen some yield and cap rate compression, as we mentioned earlier. I think the stabilized skilled nursing facilities are trading at somewhere between 7 to 8 times operator EBITDAR. Assisted living facility cap rates are between 9.5 and 11 percent on operator NOI. And independent living is trading somewhere between 9 and 10 percent cap rate on operator NOI. Although I will say in special circumstances we have seen cap rates below 9 percent on operator NOI for independent (technical difficulty).

Great, thank you very much. Congratulations on a very good year.

Fred Weiss, Atlantic Trust.

Could you talk about what do you think your coverage ratios are on, when you go in for these deals? Incrementally, if you are looking at these type of cap rates, what sort of EBITDAR coverage ratios do you think it is reasonable to expect?

I think that right now, what the market is for skilled nursing facilities, and again it changes rapidly, or maybe 1.2 to one point times. In the nongovernment reimburse sectors such as independent and assisted living, you may see 1.1, 1.2 times coverage. We are actually attempting to do transactions that have better coverage than that. The transactions we have done have a little bit higher cash flow coverages. And we believe (technical difficulty) opportunity to improve those cash flow coverages.

Great, thank you.

Rich Andersen of Maxcor Financial.

If I can get back to the reset right, are you also doing sort of a sensitivity, where balancing the benefits of a jump-up in rents versus keeping rents where they are and being able to maintain your 3.5 percent escalator?

Yes, but just a point of explanation. If we decide to exercise the reset right in 2006, the appraiser will come back and say, okay, rent is going to go up X amount; and market escalators are fill in the blank; let's call it 2 percent instead of your current 3.5 percent.

When we decide then to make the decision, say, to take -- let's call it for illustrative purposes 20 more million dollars a year in rent currently and 2 percent escalators, versus standing pat on our existing rent with 3.5 percent escalators, we are going to look at running discounted cash flow models to try to understand which is better for our company.

And we also will keep in mind, obviously, that we want to maintain Kindred's financial health in making a decision about whether to opt-in to the reset right. So we will take a number of factors into account. The great thing is we get to have the appraiser come back with the numbers and then we get to make our choice about whether we want to stay with the great structure that we have now, or opt into something that presumably would be better if we choose to go that way.

Just looking at your master lease coverages in the fourth quarter, I see that on average it went up; but it went way up for master leases 1 and 2; but it went down for 3, 4 and 5. Can you explain some of the moving parts there?

Absolutely. Remember this is the fourth quarter of the year of the SNF cliff. So you are seeing the full impact of the $30 a day Medicare cut that took effect in 2002. And these are Kindred's results through the third quarter of 2003. So the master leases that have more skilled nursing facilities in them tend to have a lower coverage this quarter, because it is the fourth quarter in the trailing 12 months with that cut.

The third quarter overall frankly had better trends of coverage than the three quarters preceding it. And with the $20 a day or $19 a day that is coming back into the system, that began October 1, 2003, we expect coverages at all the leases to go up; but it should go up more in the leases with more skilled nursing facilities. So it will actually work to magnify the upside as we look forward in those particular master leases.

You also mentioned that you expect margins for Kindred to go up. Is that a reflection of your belief that Medicare will rise at a greater pace than maybe some of their underlying costs? Such as for professional liability costs.

Yes, we are talking modest margin increases here. I think it is a combination of the fact that (technical difficulty) going to get about 30 million in top-line growth from these Medicare increases at the SNFs. We are expecting them to do well under LTAC PPS again, modestly well; increasing margins at the hospitals. So between the combination of those two things we expect their EBITDAR to rise.

Okay. G&A run rate, do you think forward the fourth-quarter level is a good one? Or do the think it will come down a little bit since you're not doing as much -- I guess maybe you are doing a lot of M&A work still. But the G&A was higher I think because of the work you were doing with ElderTrust.

I can be very specific about that. We are modeling into our 2004 about $19 million of combined G&A and professional fees. Then there is another million and change, say million and a quarter of operating expenses on the medical office building. So net-net you can think about maybe a $20 million haircut to revenue to get to our EBITDA line for 2004.

What do you think your long-term growth rate is? I know you're double-digit this year; you are looking at double-digit next year. But what do you think the nursing home real estate business or the healthcare, long-term care real estate business can achieve over, say, a five-year period?

I can really only speak to what we have done in the past and the opportunities that we continue to have. For example to lower our cost of debt going forward and make acquisitions. But net-net between the dividend and the growth in our portfolio, that we hope to add to with acquisitions, and then of course the reset right, we think that sort of mid-teens to above total shareholder return is feasible for us going forward. We certainly will do our best to continue to have consistent superior returns.

Two other quick questions. Do you have a staggered Board?

No, not at all. We are like miss (ph) corporate governance. We never had a staggered Board. All our directors are elected annually. And we have a really excellent independent Board.

The last question is, you mentioned you are modeling equity for 82.5 million. Considering that you are at 81 and change today at the end of the fourth quarter, is that to assume then that you'll issue equity to finance future transactions?

No, let me answer it in two ways. The 82.5 number that I gave is really just sort of a fully diluted number. As we had this year, we had option exercises. We have, as our share price rises, obviously, that has an impact on the denominator, if you will. And so we have modeled in some growth in that just from those two items.

As we look forward I would expect and hope frankly that we do tap the debt and equity markets at some point in anticipation of future acquisition activity that we hope will be great for the company.

Thank you very much.

Gary Taylor, Banc of America.

I guess I will admit I wasn't at work yet at 7:45 and I saw you on TV; you did a good job.

Thanks, Gary.

Two questions. One, will the dividend decision -- is that going to remain an annual decision by the Board? Or is there any chance that it becomes reviewed more frequently than annually?

As you know we have tried to set a practice of setting the dividend in the first quarter and maintaining it for the balance of the year. The Board does review the dividend quarterly; and that policy could change. But for the time being, we expect to keep it relatively constant during the year.

And you mentioned something earlier in the call about amending, I think you said a shareholder rights plan, to eliminate an anti-takeover effect.

We actually just elected to allow our rights plan to expire this year.

And that was just to be more -- is that a corporate governance initiative?

I mean we have really tried to run the company for the benefit of the shareholders; and eliminating the pill, if you want to call it that, is one way to continue to be excellent in corporate governance matters.

Great, thanks.

(OPERATOR INSTRUCTIONS) Jerry Doctrow, Legg Mason.

You keep talking about lowering your cost debt. If you can just remind me where you stand in terms of being able to, say, refinance some of the stuff that you have got.

We basically expect to lower the cost of debt really as we continue to grow. As you know our bonds are trading in the sixes, our unsecured bonds. So obviously as we incur new debt we would expect on average to lower our weighted average cost of debt.

In addition, our revolver is up for renewal in early 2005. Rick and I are going to work this year on trying to improve that revolver spread, which is currently at 250 over, based on our improved credit profile.

But the bonds that are out are not really callable, so you cannot really reset that price.

The bonds are going to be sort of part of our capital structure, unless for some reason we get in a position where we can buy some more back. But for the time being you should assume they will be there.

Okay. On the DRIP, a couple of the REITs that were driving very large numbers through their DRIP program made some changes to restrict it, because they found that people were kind of gaming the system by just using the discount in, if you will, kind of rapid trading. Do you have some sort of guards against that? Because it really does influence how much DRIP money I think goes through these programs?

That is a good question. I mean we have the benefit of really just drafting and implementing our DRIP currently. So it had all of the bells and whistles to really make it a program for the retail investor, to permit the retail investor to have an easy way to continue to invest in Ventas. One of the bells and whistles is that it has caps per quarter, that are fairly modest, on an individual's ability to reinvest their dividends or make direct purchases. So we feel that our plan will not be subject to that type of manipulation.

Great, thank you.

Jerry Cullen (ph), William Harris Investors.

Could you give me an idea of what other transactions are being done, in terms of the coverage that would equate to a Kindred or something like a Kindred? Then can you give me some idea of where your rents are, versus where a market rate would be if you did it today?

One thing I can say is that our transactions with Kindred are very, very favorable. And as much as I keep asking our acquisitions team to find a deal that is as good as the Kindred deal, I don't really think there are any out there.

As I mentioned, our coverages with Kindred are about 1.7 times on a trailing twelve-month basis after a full 5 percent management fee. You will see new deals being done in the market at 1.1, 1.2, 1.3 times coverage; and that is sort of the differential.

What I was asking there for is using sort of that low number, let's say we use 1.3; what sort of a differential would that make in your overall income from Kindred if you raised the rent to be a more normal rate?

We are going to have to wait and see until 2006 to see really how much value that reset right gives our shareholders. At the current time we do think that there would be some increase, but-- .

Is sounds like it would be huge.

It could. If you did it at 1.4 or 1.5 times it might be $25 million a year or so currently. But you have to wait until 2006, because it could be worth nothing and it could be worth --.

I understand that. I just wanted to get some idea where we are now, because I really wasn't sure. Thank you.

You have no more questions in the audio queue.

All right. Liz, thank you for being our coordinator; and I want to thank all of our investors and the call participants. We are really happy to have given you an excellent year in 2003. And we hope we can deliver a good performance to you again in 2004.

Really speaking for the whole management team at Ventas, we very much appreciate the support that you have given us. And we are going to continue to try to make good decisions for you so that we can create long-term shareholder value and deliver some good returns in 2004 and beyond. So thanks again and we look forward to talking with all of you soon.

Ladies and gentlemen this concludes your presentation for today. We thank you for your participation. You may now disconnect.