芬塔 (VTR) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 earnings release conference call. At this time, all participants are in a listen-only mode. We will conduct 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 Mr. T. Richard Riney, General Counsel and Executive Vice President. Please proceed, sir.

Good morning, everyone. Welcome to the Ventas conference call to review the Company's announcement yesterday regarding its results for the quarter ended June 30, 2007.

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 express 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, 2006 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 the quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure are available in the Investor Relations section of our website at www.ventasreit.com.

As you know, Sunrise Senior Living, Inc., the manager of our 78 Sunrise REIT assets, has announced that its Board of Directors is reviewing its strategic alternatives. It is not appropriate for us to comment directly or indirectly on that process. All of our rights and obligations relating to Sunrise, Inc., such as rights of first offer, management contracts and partnership agreements, will remain in place regardless of whether Sunrise pursues a transaction or remains in its current form. Thank you for your consideration during today's question-and-answer session regarding this topic.

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

Thanks, Rick, and good morning to everyone. On behalf of our entire team, which includes two of our new colleagues from Sunrise REIT who are with us today, I want to welcome you to our second-quarter 2007 earnings call.

We've had an eventful quarter from a transaction, integration and capital market standpoint. We are pleased to report excellent financial results for the quarter and believe we are well-positioned for long-term growth and value creation, due to our diverse, productive portfolio of healthcare and senior housing assets.

Following my comments, our CFO, Rick Schweinhart, will report in detail on our financial results, and then we will be happy to take your questions.

Earnings this quarter were excellent. Normalized FFO per share was $0.70, up 23% over the same quarter in 2006, continuing our double-digit FFO per share growth rate. It is important to note the high quality of Ventas' reported normalized FFO. In this quarter alone, normalized FFO results exclude the net benefit of over $20 million of positive earnings, as well as the gain on sale of approximately $130 million.

Our strong year-over-year growth rate is the result of our increasingly reliable portfolio, additional reset rent from Kindred, continued reduction of our borrowing rate and our successful acquisition program. As a result, we're pleased to increase our full-year 2007 normalized FFO guidance and narrow the range of our guidance. Right now, we expect 2007 normalized FFO to range between $2.60 and $2.67 per fully-diluted share.

That is an increase from our previous guidance in two ways. First, our prior normalized FFO guidance was 2.55 to $2.65 per share. So obviously, our new range is an improvement over that projection. Secondly, our new normalized FFO guidance range includes any and all FFO drag from seven development and lease-up assets. While less obvious, our inclusion of approximately $0.04 to $0.06 per share in second-half 2007 dilution from these development and lease-up assets in our new FFO guidance effectively represents an increase in our overall expectations for the portfolio. If achieved, our 2007 normalized FFO per share will be 7% to 9% above full-year 2006 normalized FFO per fully-diluted share.

As you know, we increased our dividend by 20% earlier this year to a current indicated annual dividend level of $1.90 per share. If we meet our FFO estimates for the year, our annualized dividend amount represents between 70% and 75% of our FFO per share. Thus, our dividend remains reliable and positioned for consistent, continued growth.

Now I want to highlight the active quarter we had in acquisitions, divestitures and capital markets transactions. First, as you all know, we closed our acquisition of Sunrise REIT on April 26th, and in June we acquired an 80% interest in the newly constructed Staten Island Sunrise Mansion. So now we are pleased to own 78 very high-quality, private-pay Sunrise Senior Living communities. 11 of these assets are located in the exciting and growing Canadian market, and the balance are in the US. All of the properties are well-positioned in high-barrier-to-entry locations and clustered in major metropolitan markets, exhibiting excellent demographics.

In total, we paid approximately $2 billion for these assets. We originally funded the Sunrise acquisition by the assumption of debt and an acquisition facility composed of a bridge loan and a tranche of preferred equity. Due to our desire to put in place a long-term, balanced capital structure as quickly as possible, in May we raised over $1 billion through an offering of 27 million shares of our common equity. In June, we closed on our previously announced sale of 22 underperforming assets to Kindred at a price equating to a fixed cap on rents. This planned sale and related lease termination generated about $175 million in net cash proceeds.

We used the proceeds of our equity offering and our sale of assets to repay our bridge loan in full and redeem all of the preferred equity we issued to acquire Sunrise REIT. Therefore, at June 30, the Sunrise REIT acquisition was fully paid for with long-term capital sources, and we had no bridge loan or preferred equity outstanding. As a result of our acquisitions, divestitures and capital markets transactions, our portfolio currently consists of 513 well-diversified, productive senior housing and healthcare assets located in 43 states and two Canadian provinces. Ventas now has significant depth and breadth in its asset base, its tenet operator list and its geographical reach.

Looking at the portfolio, you will see that it remains anchored by downside-protected, highly structured, long-term triple-net master leases with corporate credit. Our tenants under these leases are composed of numerous high-quality healthcare and senior housing operators such as Brookdale, Kindred, Capital Senior Living and Summerville, soon to be Emeritus.

On an annualized basis, our triple-net lease portfolio represents 58% of our revenues. As an example of the strength of our master leases and the profitability of our healthcare assets, during the second quarter Kindred renewed its leases on all of our Kindred assets whose term would have expired in 2008. This renewal gives us predictable, reliable rent streams on 57 nursing homes and hospitals through 2013.

Importantly, the remaining 42% of our annualized revenues derive from our operating assets. Our operating assets consist of 78 senior living assets and 13 medical office buildings. This part of our asset base generates granular, highly diversified revenue streams paid directly by almost 7,000 senior residents and by physician or hospital tenants in the MOBs. This combination of operating assets and long-term triple-net leases has made us a much stronger and better company, with higher expected growth and lower enterprise risk.

Fundamentals across our asset classes are stable to excellent, driven by powerful demographics, controlled supply and good visibility on Medicare for the government-reimbursed segment of our portfolio. In private-pay senior housing, the need-driven rental markets, such as our Sunrise and Alterra portfolio, should continue to show good results and solid growth. These asset types attract a frail, higher-acuity resident where the move-in decision is often event-driven and less discretionary than for other senior housing products. Therefore, we expect these Alzheimer's and assisted living assets to have a relatively low correlation to two trends in the US housing market.

In the rental market for high-quality, infill independent living assets, such as our 21 Brookdale legacy assets, we also see good occupancies of between 90% and 91% and excellent same-store NOI growth, which is approaching 10% year over year.

Skilled nursing reimbursement is scheduled to receive a 3.3% increase beginning in the fourth quarter of this year. We now derive only 22% of our annualized revenues from skilled nursing rents, down from about 70% just a few years ago. We continue to believe in the long-term care sector as the lowest cost, most clinically appropriate setting for many ill and recovering seniors, and note the high prices paid recently for similar skilled nursing assets in the recent Genesis and pending Manor Care go-private transactions.

On our long-term acute care hospital portfolio, we have good visibility on Medicare reimbursement for the upcoming year, and CMS has agreed to maintain budget neutrality for the fall reimbursement cycle. In the LTAC space, we support Kindred's plans to use excess capacity at our hospitals to develop sub-acute step-down units at our freestanding hospitals to drive cash flows while continuing to provide care to medically complex, high-acuity patients. So from a macro standpoint, our commitment to investing across the spectrum of senior housing and health-care, coupled with the recession-resistant nature of investments, should favor us even if overall economic growth decelerates.

Turning to our newly acquired Sunrise portfolio, the acquisition is performing well and in line with our expectations. Our team has worked long and hard to effectively integrate the acquisition, and the integration is proceeding on plan. For May and June, the first full months of our ownership, total NOI after management fees at the portfolio was $21 million and, more importantly, our partnership share of NOI for that two-month period was about $18 million.

Let me provide you with some additional color on the Sunrise portfolio and its performance. First, current occupancy for the total stabilized Sunrise portfolio is between 93% and 94%. The 11 Canadian assets we acquired are demonstrating incredibly strong results. The market has fully embraced the Sunrise product and model, and Sunrise faces limited competition for its desirable physical plants, great locations and high-activity services. That is why we believe we have significant opportunities for future growth in this large and developing market. You will recall that we have exclusive rights of first offer on all properties to be developed by Sunrise in Canada.

Operating results for our 61 stabilized US assets are also good, and are trending positively as we look toward the second half of the year. During May and June, revenue and average daily rate growth were strong in these communities, although expense growth was significant as well. The Sunrise management team has implemented specific plans designed to increase occupancy in selected markets and control expenses, and we expect Sunrise as our manager to deliver good, bottom-line results in the second half of the year.

The six newly constructed Sunrise Mansion communities we currently have in lease-up are doing well also. All are located in the US, in desirable, affluent markets such as Scottsdale, Arizona; Sandy, Utah; and Staten Island, New York. We expect these assets as a group to contribute about $0.5 million a month in NOI by December 2007 as they lease up. Unlevered yields on our investment in these developments should approximate 9% to 9.5%.

Later this year, we expect to acquire an 80% interest in an exciting new Sunrise prototype senior living community in the greater Toronto area. The Steeles community contains 229 units and capacity for 256 residents. It is a private-pay, full-service, high-rise independent living community designed for the affluent senior market that contains separate floors specially designed for independent living, assisted living and Alzheimer's care. The Steeles community is expected to open, and residents are expected to begin moving in during September of 2007. Pre-leasing activity at the Steeles community has been strong, and the property is expected to produce an unlevered yield at stabilization of between 8% and 8.5%.

Looking out through the balance of the year, we are well-positioned to receive a second investment-grade rating. We believe that our diversification, track record and strong credit statistics make us an investment-grade-quality company. The rating agencies have recognized these improvements, and so we are hopeful that Ventas bonds will be part of the high-grade index before year end.

On the acquisitions front, we continue our focus on our medical office building initiative, led by Vince Cozzi in Chicago. We have established strategic partnerships with several regional developer operators that are leading to additional opportunities, and we expect to close at least $50 million of medical office building investments in the second half of the year.

Our MOB acquisitions are expected to be accretive and show nice, steady growth. They also should position us and our partners to compete effectively for adjacent development opportunities on the hospital campuses we are targeting, where higher returns are the norm. The long-term trends in medical assets remain very positive, and we intend to continue building this segment of our portfolio.

We believe that we are delivering on our goal of becoming a stronger, more reliable enterprise with substantially lower enterprise risk because of our increased size and breadth, our excellent human capital, our permanent long-term capital structure with virtually no near-term needs, our expansion into the growing Canadian market, the addition of operating assets providing revenues directly from individual residents of the communities we own, the reduction of our Kindred concentration, the minimization of our exposure to government-pay assets, the continued upgrading of the quality and age of our portfolio through opportunistic sales and high-quality acquisitions and the strong structure, coverage and credit behind our skilled nursing and hospital assets.

Our focus since the early days of the Kindred restructuring has been on creating a large, diversified enterprise that would be a long-term winner and leader in the healthcare real estate space. Now that all REITs may be facing a more challenging capital markets environment, we are very happy with the broad platform we have built. I believe that Ventas' history of reliability, transparency, performance and focus at all times on the best interests of our stakeholders should serve us well in any environment. We are as confident of our ability to thrive in a capital-constrained world as we are in a highly liquid one.

Thank you for your attention. After Rick's review of our results, we will be happy to take your questions.

Thank you, Debbie. Second-quarter 2007 normalized FFO per diluted share grew 23% to $0.70 from $0.57 last year. Second-quarter FAD per diluted share grew 25% to $0.65 from $0.52 last year. The increases are primarily due to our strategic diversification program and the Kindred rent reset effective in July of 2006.

Normalized FFO totaled $82.1 million, compared to $59.5 million for the second quarter last year. Normalized FFO and earnings are reported after deducting minority interests for the Sunrise assets. Normalized FFO excludes the following -- $129.5 million of gains on the sale of assets to Kindred; $18.5 million of gains on Canadian dollar call option contracts in connection with the acquisition of the Sunrise REIT assets; $5.9 million of non-cash income tax benefits; $864,000 of gains on the sale of securities; $4.3 million of bridge loan commitment fees; and $792,000 of merger costs.

Normalized FFO increased $22.6 million from last year's second quarter. The increase is due to $97 million of revenue increases offset by $50 million increase in property-level expenses, a $1.6 million minority interest in NOI, a $20 million increase in interest expense and a $1.7 million increase in general, administrative and professional fees, mostly due to previously identified non-cash stock-based compensation. A Kindred lease termination fee of $3.5 million in effect offset a Sunrise REIT bridge preferred stock dividend of $3.5 million.

Revenues for the quarter totaled $194 million, compared to $97 million last year. Note that we report 100% of the revenues and expenses from our Sunrise assets in our earnings and separately deduct for Sunrise's net minority interest on a separate line of the income statement, all as required by GAAP. The $97 million revenue increase was due to the newly acquired Sunrise REIT properties' resident, rental and services fees for two months and five days of $71.4 million; the Kindred May 2007 escalator and rent reset effective in July of 2006, which added $10 million; the Senior Care asset acquisition, which was effective November 7, 2006, which added $12 million; and other acquisitions and escalators, which made up the balance.

Interest expense increased $20 million from the second quarter of 2006, due primarily to acquisition borrowing, including the borrowings to fund the Senior Care acquisition, the 27-day bridge loan interest to acquire Sunrise REIT and interest expense on debt assumed with Sunrise REIT. Our second-quarter effective interest rate of 6.7% improved from 7.3% in the second quarter of 2006, due to the issuance of convertible senior notes at 3.875% and the assumed Sunrise REIT property debt.

General, administrative and professional fees, including stock-based compensation for the second quarter of 2007, totaled $8 million, which grew from $6.3 million last year. It fell to 4.1% of revenues from 6.5% of revenues last year.

On June 29th, we sold 22 assets to Kindred and recorded a gain on sale of $129.5 million. We also recorded a lease termination fee of $3.5 million on the transaction.

Weighted average diluted shares grew to 118 million in the second quarter, up from 104 million shares in the second quarter last year and up from 107 million shares in the first quarter this year. The increase in shares reflects the weighted issuance on May 23rd of 26.9 million shares for the Sunrise REIT transaction and the fourth-quarter 2006 1.7 million shares issued in the Senior Care transaction. Fully-diluted shares outstanding at June 30th is 133.5 million.

Items of note on the balance sheet at June 30th, compared to the March 31, 2007 balance sheet, are real estate investments increased $2.3 billion, due to the acquisition of the assets of Sunrise REIT and the June acquisition of Sunrise of Staten Island. Note that we recorded 100% of the costs of our 60 Sunrise partnership assets with an appropriate increase to minority interest and only stepped up to fair value our 80% interest, as required by GAAP.

Debt increased $914 million to $3.3 billion at June 30th from $2.4 billion at March 31st. The increase was due to mortgage debt assumed in the acquisition of the 78 Sunrise REIT facilities. Our debt to total capitalization at quarter end was 40%. Pro forma, the Company's net debt to EBITDA is 5.4 times, and fixed charge coverage is 2.4 times.

The revolver balance increased at $213 million at June 30th from $208 million March 31st. Unused revolver capacity at June 30th was $382 million and currently stands at $445 million.

Stockholders' equity reflects the May 23rd issuance of 26.9 million shares, which resulted in net proceeds of $1.05 billion. In total, our results for the quarter and our expectations for the balance of the year are positive and ahead of where we projected them to be.

Operator, we will now take questions.

(OPERATOR INSTRUCTIONS). Jonathan Litt, Citigroup.

It's Craig Melcher here with John. I was just trying to understand the normalized FFO guidance change a bit more, in terms of the drivers of the change. Last quarter, you didn't give the assumptions of financing this transaction, so I'm curious if that's part of it and if there's any other pieces.

A lot of it is really a greater comfort level with the operating results that we expect to achieve, coupled with knowledge of the capital structure and the cost of the capital structure.

The reported FFO in the second half, the guidance relative to the normalized FFO, the guidance looks like there's about a $0.25 differential. What other one-time items that are going to be excluded from normalized FFO should we expect in the reported FFO number?

Well, for the full year, we've already had like $25 million or $23 million of gains on the hedge, the currency hedge.

So you don't expect a lot more?

No, there shouldn't be a significant amount of -- certainly not the same level that we had in the second quarter.

In terms of seasonality of the Sunrise business, what should we expect in terms of occupancy for 3Q/4Q relative to the second quarter on the stabilized portfolio?

Typically, the first quarter is a little weaker, and it ramps up through the year. So our expectations are that we will continue to see improvements in the portfolio.

The last question is just on in your supplemental, on the lease-up assets or the Sunrise assets. There's to development costs or two numbers mentioned in terms of costs -- one is total development costs, and one is the Ventas fixed purchase price?

Correct, because we will only own 80% of those assets.

Okay, so it's your share. Got it.

Exactly.

Rich Anderson, BMO Capital Markets.

I just wanted to use get back to the guidance math. I know it's much more complex than this, but you had the lease termination fee that wasn't in guidance before, right, so that was $0.04 or $0.035. But you have this now -- you are putting this development drag in the number. So, effectively, your guidance went up by about $0.05? Is that the right way to look at it?

That's a good way to look at it.

On the topic of development drag, it sounds like those assets that are leasing up today are going to be contributors to FFO later on in the year. Is that correct?

Well, they would be contributing at the NOI line about $0.5 million on the six that we currently own, let's call it by December of 2007. But of course, there are debt costs associated with that, and so we don't expect them to be accretive until 2008.

Then I think it's important for people to recognize in modeling that we expect to acquire this large development, this new prototype asset, which is very exciting, for about $50-ish million in September, and that, of course, will be just opening, and so we will have significant lease-up losses at the NOI line and then, obviously, the interest expense associated with the debt there. So you need to just take that into account when you think about the model.

On that prototype asset, as you called it, who is building that?

That's a Sunrise development.

It is a Sunrise? I missed that, okay. On the topic of lease-up, as long as we're talking about it, what is the typical piece, once completed, for a Sunrise asset to reach stabilization?

It's going to vary on the type of asset and how need-driven it is. But on average, you could expect to see three to five net a month on a conservative projection.

What was that a month?

Three to five net.

But then in terms of -- so it could be 12, 18-month lease-up period or more?

Yes, I think 12 to 18 months is a good estimate.

On the topic --

Just one other point, though, on this new community. It's much larger, and it's independent living, principally. So that's going to, obviously, take longer than 18 months to be stable.

Medical office cap rates -- can you comment on what you're seeing in terms of your $50 million that you are projecting?

Demand for medical office still remains strong. We have not seen any widening in the cap rates in those markets. So we are still looking at cap rates that are in the mid 7's for those types of assets.

That seems pretty good to me, actually. I would have thought there would be a 6 handle on that.

Larger portfolios remain pretty competitive, and you'll see 6 handles and low 6 handles for those.

Just so I have this right, the $3 million in partnership share of the Sunrise NOI boils down to $400,000 in minority interests, and that's net of tax. But that obviously also, in terms of the P&L, there's a depreciation charge there as well?

Yes, it's net of everything.

G&A run rate -- is $8 million a comfort level for you right now?

I think we are projecting probably a little bit more than that.

Jerry Doctrow, Stifel Nicolaus.

Just one thing that -- I haven't totally digested the supplement, but I think it would be very helpful just to have a schedule on the Sunrise portfolio and perhaps separately, if you're going to do these MOBs and JVs. Because what I think all of us are going to be trying to do is to project, obviously, where the stabilized stuff goes and then scheduling out the lease-up. You've given us most of the pieces, but just having something that actually lays out the income and expenses, depreciation, that stuff on that portfolio separately, I think, would be helpful.

I'm glad you raised the supplemental. Everyone should know that we really listen to our shareholders' feedback, and, as promised, we have started providing supplemental disclosure on our portfolio, so that you can get better visibility, and we've posted that on our website. That's what Jerry is referring to.

I think we can talk about this off-line, but we do provide, I think, a fair amount of the NOI breakdown for both the Sunrise portfolio and the MOB portfolio on the supplementals.

I'll go back and take a look. I didn't see a schedule that gets you through all of the pieces on the Sunrise piece, which obviously, in itself, is big enough that you just want to understand how it fits in. It's kind of broken up in different places, between the minority interest and things. So I'll come back to you off-line on that; that's fine.

I know you want to say that you're really happy that we started providing good supplemental (multiple speakers).

No, no, I'm delighted with the supplements. We're just never satisfied. I haven't looked at it totally.

Just a couple things. Are there any entrance fees or significant community fees on any of the Sunrise stuff that you've got?

Our whole portfolio, really, is rental.

CapEx per unit -- I was wondering if you could just talk about that. It was running, I think -- I don't have the exact dollar figure, but relatively -- at a fairly decent level. Again, this is being specific on the Sunrise assets and just wanted to get a sense if that run rate is continuing or it's going to change.

We're looking at about $1,000 a unit on that.

You've got some convertible senior notes. Obviously, there's this FASB thing that just came out with -- it looks like it's going to require a change in accounting for that, but not until 1-1-08. Do you have a sense of what the impact for you will be when that change comes?

I'm glad you mentioned that. We did do a 3.875% coupon convertible note a while ago, and we really like -- I think it's about $230 million of principal. We really like that product; it's a defensive product for us, and it improves our fixed-charge coverage and so on. Right now, as you say, there is a proposal to change the way these are accounted for because, right now, you just pay the coupon into interest expense.

That proposal isn't final. We've heard some implications that it may be deferred, and we don't think the impact will be substantial.

Last thing, I guess, that I have -- I think it was touched on a little bit, but a number of your competitors or colleagues have talked a little bit about the changing credit market. You talked about it, obviously, being a challenging environment because, obviously, stock prices are down and capital markets are unsettled. But that also creates opportunity on the acquisition fronts, because it reduces the availability of debt that in some ways is a competitor to healthcare REITs. I was wondering if you could just talk about that relative to your acquisition prospects.

We can. Here's how we think about it. I think we are in a position of strength right now, and this could be an environment where we can have good opportunities arising out of our relationships, our liquidity, our balance sheet. If people need capital, I think we can be there to provide it.

That said, I think you can expect us to be cautious and aware as we do so. So I hope we can be opportunistic and actually drive some really good risk-adjusted returns in a more liquidity-constrained environment.

Okay. Cautiously optimistic, I guess, is what I was (inaudible).

That's a good summary.

On the MOB stuff that you are doing, you talked about partnerships. Are those likely to be joint ventures? Is that the structure we're likely to see if you make those acquisitions?

Yes, they will be joint ventures with local and regional operating partners who will continue to operate the assets, and also, many of the transactions that we're looking at now, we're positioning ourselves to potentially get future development from those hospitals as well. So working with those local partners positions us well to get further business from those hospitals.

Just like a boilerplate structure to the JVs that you would use, you're going to be the financial partner, so you own the top 80% or something and how much you leverage and that kind of thing?

Actually, we will own probably 90% plus in those, and leverage will be on a case-by-case basis, depending on whether debt comes with it. But to the extent that there's no debt in the structure, we would just impute a market level of debt to the structure when computing how to distribute the cash out of the partnership.

Tayo Okusanya, UBS.

Good morning, everyone. Great quarter. Unfortunately, Jerry took all my questions. So I'm fine for now.

Karin Ford, KeyBanc Capital Markets.

A question on the Sunrise portfolio. Obviously, you haven't owned the assets for very long. But do you have a sense, just from looking at whatever historical numbers you have on the assets, what your same-store NOI growth was for 2Q?

We have owned the assets for two months. What we're doing is really establishing a baseline and reporting on the assets as we -- during our period of ownership. So we'll look forward to giving year-over-year comparisons once we have sort of a Ventas base. We can tell you, obviously, they are performing as we expected, they are doing well and they are trending positively.

I think you had said you were looking at 5% to 7% NOI growth on the assets, overall, for the next year. Is that still your outlook?

Yes, right. We expect over long periods of time the stabilized assets to be, say, 4% to 6% year over year and then, obviously, some incremental pickup as you get your development ramp-up going.

The second question is just the gain on securities that you had this quarter. Can you talk about what that was?

Yes. We had a gain last quarter as well, you may recall. We had acquired a small position in a REIT, and we liquidated that position.

So it's the same position as the one last quarter?

Yes.

Is anything remaining on that position?

No.

Why is the stabilized yield slightly lower on the Thorne Mills development as opposed to some of the other ones you're [bringing in this earlier]?

Great question. It's because it's mostly an independent living asset, as opposed to an assisted living asset.

Do you have any change-of-control provisions in your management contract with Sunrise Senior Living?

All of the contracts that we have with Sunrise Senior Living -- whether they are partnership agreements, management agreements, et cetera, right through first offers -- they are all going to stay in place if there's any transaction there.

(OPERATOR INSTRUCTIONS). Robert Mains, Morgan Keegan.

Got a couple questions on the supplemental. The stabilized NOI -- am I correct in assuming from your comments on the stabilizing NOI on the senior housing assets that, absent seasonality, that what you've got here is a reasonable run rate in terms of margins? There's nothing funny going on in this quarter?

There doesn't appear to be anything funny.

Or unusual?

No, I don't think so.

The joint ventures share that's included there -- can you explain to me the difference between that and the minority interest line?

Yes. The minority interest line is really an accounting interest that nets everything. NOI is not a GAAP concept, really. All we've done in the joint ventures share is to take the percentage interest that our partner, Sunrise, owns and multiply it by the NOI. It's very simple; even I can do it. So it's different from the GAAP formulated minority interest, which has a bunch of items in it.

Included in the operating expense that you've got in the senior housing assets, in the Sunrise assets, that includes the Sunrise management fee?

It does.

The only other question I had was -- it's kind of been asked before. Acquisitions -- you've talked about what's going on in the MOB space. You did do a couple of senior housing one-off deals in the current quarter, I guess. Anything that you see changing there in terms of pricing, availability, that sort of thing?

No. I think, in general, you are right; we did do two transactions, about $18.5 million, subsequent to the end of the second quarter. Those are transactions that we did through our relationship with Senior Care.

I don't think we're seeing any change in the demand for senior housing assets; I think the assets in the market continue to perform well, and people like the recession-resistant nature of the industry. So we are still seeing pretty good demand for those assets and good capital flows into the space. Obviously, we will continue to monitor that closely as the more recent events in the credit market continue to play out.

By the same token, the long-rumored increase in cap rates hasn't really materialized yet?

No, we haven't seen any evidence of it in the transactions that are getting done. But we're going to keep a close eye on it.

Before we wrap up, I just want to thank everyone for looking at our supplemental schedule. I'm here with our asset management team, and they are very pleased that you're all as interested in their work as you are. We'll continue to try to take feedback from you and to refine that schedule as we go forward.

But if there aren't any other questions, I just want to thank everyone for joining today, and we very much appreciate your interest in the company, and we hope to speak to all of you soon. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.