芬塔 (VTR) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ventas, third quarter, 2007 conference call. My name is Jahida, and I will be your operator for today. (OPERATOR INSTRUCTIONS)

And now I would like to introduce, Mr. T. Richard Riney, Executive Vice President and General Counsel. Please proceed.

Thank you. Good morning everyone. Welcome to the Ventas conference call to review the company's announcement, yesterday, regarding our results for quarter ended, September 30th, 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 belief as well as on a number of assumptions concerning future events.

The forward looking statements are subject to many risks and certainties 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 31st, 2006. And the company's other reports filed on 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 and revisions to any forward looking statements to reflect any changes in expectations. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation in it's 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.ventas.com. I would now like to turn the call over to Miss Debra A. Cafaro, Chairman, President and CEO of the company.

Thanks, Rick. Good morning everyone. Thanks for joining. On behalf of our growing Ventas team, I want to welcome to the Ventas, third quarter 2007, earnings call. Our third quarter was excellent, with all parts of the company performing well. We're delivering on our long-standing commitment to you to build a diversified healthcare real estate platform with reliable growing cash flows, diminishing risks, and superior, consistent value creations. Year to date we have acquired about $2.2 billion in desirable assets. And our enterprise value now approximates $9 billion . This was the first full quarter following the Sunrise reacquisition which is producing very positive results. Our other acquisition activities continue apace, particularly in the medical office area where we have made over $150 million in new investments this year. And, our triple net lease healthcare portfolio continues to provide a reliable base of growing cash flows for the company. Our diverse productive portfolio of healthcare and senior housing assets and our access to capital, position us well to succeed, even in a volatile capital market environment. The healthcare sector continues to demonstrate strong fundamentals and increasing demand. We have long-term leases with contractual growth in place for a significant portion of our portfolio. And our Sunrise Communities and development opportunities should provide additional above average growth in the future. Today I want to discuss our excellent earnings, our portfolio performance, acquisitions year-to-date and our outlook. Following my comments, Rick Schweinhart, our CFO will report in detail on our financial results, and then we'll be happy to take your questions.

First, a quick note on earnings. Normalized FFO. per share was $.66 this quarter, and $2.03 year-to-date. In each case, excluding the net benefit of various merger-related and other items. Normalized SFAS for the quarter was $.62 per share, increasing 5% over the prior-year period. As our 2007 earnings have become more visible, we are also pleased to say that we expect our 2007 full year financial results to be at the high end of our previously announced FFO guidance range of $2.60 to $2.67 per share. If achieved, our 2007 normalized FFO per share will be 8 to 10% above full-year 2006 normalized FFO per share. Over the past several years, our goal has been to create value for our investors by delivering consistent, superior cash flow growth while simultaneously reducing enterprise risk. If you look at our capital allocation decision and our excellent healthcare and senior housing portfolio, you can see how we are achieving these twin objectives.

Looking at the Ventas portfolio from the top down, you will see that it consists of two major parts that together make them have a better company. First, 56% of our revenues come from highly structured, downsize protected, long-term triple net master leases. Second, 44% of our revenues and 21% of our NOI flow from our operating assets such as the 78 Sunrise Senior Living communities and our medical office building assets. Here is how we think about our portfolio construction. First, let's look at the triple net portfolio. These hell or high water leases provide good, steady contractual cash flow growth to Ventas paid by many high quality healthcare and senior housing operators, such as Kindred, Brookdale and Capital Senior Living. Our tenants typically have substantial credit support for these lease payments. Remember that we expect to receive our rental cash flow streams from our triple net lease assets while occupancies and (inaudible) to our tenant operators may ebb and flow over time. This is the beauty of the triple net lease structure. So the triple net lease portion of our business provides a solid base for our company and our investors. It is also defensive in two principle ways. First, healthcare is need driven and therefore has steadier and growing demands less susceptible to economic cycles and second long-term leases with credit support tend to provide steady growth without volatility in landlord cash flow.

The second operating asset portion of our business generates granular highly diversified revenue streams paid directly by almost 7,000 senior residents and by physician or hospital tenants in the MOBs Our Sunrise communities in particular, which are apartment like in their diversification, should both reduce overall risk in the portfolio and deliver higher annual growth due to the fast increase in the over 85 population, the strong market where these assets are located, Sunrise's recognizable brand, the outstanding Sunrise Mansion style building and the proprietary development pipeline we got with the acquisition of Sunrise REIT. So big picture on the portfolio, we have created a platform that has a core diversified triple net lease portfolio with growing cash flow, credit support and a structured protected downside improved by higher growth from the Sunrise operating asset. Both the triple net lease part of our business, and the operating part of our business in and of themselves have significant positives. It is the combination of these two business segments that demonstrates our strategy and capital allocation decision. We believe that this combination has made us a stronger and better company with higher expected growth and lower enterprise risk.

Now I want to drill down to the excellent performance of our 78 Sunrise communities in the third quarter. During the quarter, the Ventas team effectively completed the integration of our acquisition of Sunrise REIT. We are also very lucky that Lisa Brush, the former COO of Sunrise REIT, has joined Ventas on a permanent basis to oversea our Sunrise operations and development. Lisa is a Canadian national and brings great experience and continuity to our efforts to optimize the Sunrise portfolio, work with Sunrise to drive NOI and take advantage of the exclusive development pipeline that came with our Sunrise REIT acquisition. In the third quarter, which was our first full quarter of reporting operating results with the Sunrise communities included, our partnership's share of NOI at the Sunrise portfolio exceeded $29 million after management fees. Total NOI after management fees at the portfolio was $34 million for the quarter.

Ventas' share of annualized third quarter NOI was over $113 million, which is above the underwritten projections we provided when we acquired the portfolio. Importantly, for the 72 stabilized Sunrise communities, Q3 NOI grew 3% sequentially compared to May and June results. And average occupancy rose 100 basis points. For these 72 stabilized Sunrise communities, average third quarter occupancy was 93.3% versus 92.3% in May and June. Margins are stable to improving, net move-ins continue to trend positively, average daily rate is improving sequentially and expense growth in the quarter was in line with revenue growth. The 11 Canadian assets in the Sunrise portfolio continue to deliver very strong results. In Canada, the market has fully embraced the Sunrise product and model, and Sunrise faces limited competition for its desirable physical plan, great locations and high acutely services. We believe we have significant opportunities for future growth in this large market.

Operating results for our 61 stabilized U.S. assets are also good and are trending positively. Quarter over quarter, average occupancies in the U.S. communities increased due to Sunrise marketing efforts that were initiated mid-year. Those efforts showed particularly positive results in the Northeast, California and Colorado. The six newly constructed Sunrise Mansion communities we currently have in lease sub, are on plan and we look forward to achieving unlevered yields on our investment of approximately 9 to 9.5%. Moving to our triple net leased assets for which we have reported coverage and occupancies through Q2, 2007, all of the underlying results for our tenant operators are solid and in line with our expectations. Kindred, which now accounts for less than 28% of our revenues on an annualized basis, recently reported excellent third quarter results and remains a valued partner. In senior housing, occupancies and rent coverages remain stable versus prior period results. Hospital census, mostly the Kindred (inaudible) tends to vary more widely from period to period but also is well within the expected range.

Finally, MOV occupancies net of minimal vacancy remains strong and our cash yields on previously acquired assets exceeds 8.5%. The positive results we see across our portfolio underscore that fundamentals in our business remain very good, particularly in the need-driven rental market and healthcare segments, driven by powerful demographics, controlled supply and good visibility on Medicare for the government reimbursed segment of our portfolio.

Turning now to other acquisitions. This year we've made significant progress on our commitment to grow in the medical office space. Already this year we have acquired eight MOB assets investing over $150 million which brings our portfolio to over 1 million square feet. Our MOB investments are virtually all on campus. We expect our MOB acquisitions to yield approximately 7% cash returns filling in and to provide nice, steady growth. Our recent transactions show that our strategy of aligning with regional MOB partners who have strong hospital relationships and local presence is producing good yield flow. We and our partners are also well positioned to compete effectively for other opportunities on the hospital campuses we are targeting. The long-term trends and medical office remain very positive and we intend to continue building out this segment of our portfolio. Looking forward, we have an active pipeline of potential opportunities, including a couple of Sunrise Mansion developments north of the border and other accretive acquisition possibilities across the spectrum of healthcare real estate. Some of these transactions would be strategic, and play well to our deal and debt structuring experience. We will look forward to updating you, if and when these opportunities come to fruition.

Finally as we previously told you, we expect to acquire shortly an 80% interest in Sunrise at Fields, a fabulous new independent living community in the greater Toronto area. Fields is a private pay, full service, high-rise community with 229 units and a Four Seasons feel. Seniors started moving into Fields in September and it is already home to 45 residents. The property is expected to produce an unlevered yield on stabilization of between 8 and 8.5% and should be NOI positive in 2008. As previously stated, the penny of dilution from the steeled lease up in the fourth quarter 2007 is already embedded in our 2007 guidance.

To wrap up, we are delivering on our commitment of building a stronger, more reliable company with substantially lower enterprise risk. As a large diversified company with excellent human capital, a track record of doing what we say, good liquidity and capital access and a singular focus on creating value for our shareholders, we are well positioned to be a long-term winner and leader in the healthcare real estate state. Thank you for your attention. After Rick's review of our results, the Ventas team will be happy to take your

Thank you, Debbie. Third quarter 2007 normalized FFO per diluted share, grew to $.66 from $.64 last year. Third quarter FAD per diluted share grew 5% and $.62 cents versus $.59 cents last year. Increases are primarily due to our strategic diversification program in our internal growth related to escalations on our triple net lease portfolio.

Normalized FFO totaled $89 million compared to $67 million for the third quarter last year. Normalized FFO and earnings are reported after deducting minority interest for the Sunrise assets. Normalized FFO excludes the net impact of $10 million of non-cash income tax benefits offset by $1.5 million of merger costs. Normalized FFO increased $2 million from last year's third quarter. Increase is due to a $50 million increase in our triple net lease revenues, plus NOI from our operating assets, offset by five items totaling $28 million. The $20 million increase in interest expense, a $2 million reduction due to discontinued operations, a $2 million decrease in mortgage interest income, a $2.5 million minority interest and a $2.7 million increase in general and administrative expenses, professional fees and previously disclosed non-cash, stock-based compensation.

Revenues increased $119 million, $17 million from the triple net leases and MOBs and $104 million from Sunrise REIT properties offset by a $2 million decrease in interest income from loan and receivables that was due to the Senior Care bridge loan we made in last year's third quarter. The $17 million increase was due to the Senior Care asset acquisition which was effective November 7, 2006 and added $12 million. The Kindred 2007-- May 2007 escalator which added $3 million. The medial office building portfolio accounted for $1.2 million mostly due to acquisitions. And, other escalators which made up the balance. Triple net rental revenue for the third quarter was $118 million versus $102 million in last year's third quarter.

Sunrise managed NOI for the quarter was $34 million versus zero last year. Medical office building NOI was $1.5 million versus a million last year. Interest expense increased $20 million from the third quarter 2006 due primarily to acquisition borrowing, including the borrowings, the fund, the Senior Care acquisitions and interest expense on debt assumed on Sunrise REIT properties. Our third quarter effective interest rate of 6.7% improved from 7.3% in the third quarter of 2006 due to the issuance of convertible senior notes at 3.78% and the low rate assumed on Sunrise REIT property debt. General administrative and professional fees including stock-based compensation for the third quarter of 2007 total $9 million, which grew from $6.5 million last year. But improved to 4.1% of revenues from 6.1% of revenues last year. Weighted average diluted shares grew to 132.5 million in the third quarter up from 105 million in the third quarter last year and up from 118 million shares in the second quarter this year. Increase in shares reflect the weighted issuance of May 23rd of 26.9 million for the Sunrise REIT transaction.

In the fourth quarter 2006, 1.7 million shares in the Senior Care transaction. Sequentially, third quarter 2007 versus second quarter 2007, normalized FFO per diluted share, decreased to $.66 from $.70. The $,66 third quarter reflects the impact of the increase in weighted average shares outstanding, a full quarter of the sunrise REIT acquisition, and the fact that we collected the $3.5 million lease termination fee from Kindred in the second quarter. Items of note on the balance sheet September 30 compared to June 30 balance sheet are real estate investments increased, reflecting our third quarter acquisitions and the conversion rate increase on our Canadian assets. Debt decreased slightly to $3.3 million at September 30 from June 30 due to strong cash flow from operations, offset by an increase in debt value from the conversion rate increase on our Canadian dollar denominated debt.

Activity included the assumption of mortgage debt on two Senior housing properties, borrowings on a new Canadian revolver with the proceeds reducing our U.S. base revolver. A $5 million Senior note repurchase, and normal maturities. Our debt to total capitalization at quarter end was 37%. Pro forma, the company's net debt to EBITDA is 5.3 times and fixed charge coverage is 2.4 times. The U.S. and Canadian revolver balance decreased to $193 million at September 30th, from $213 million at June 30th. Unused revolver capacity at September 30th was $492 million, plus an additional $150 million per (inaudible) capacity. So our liquidity, credit stats and access to capital are excellent. In total, our results for the quarter and our expectations for the balance of the year are positive and at the high end of where we projected them to be. Operator, we'll now take questions.

(OPERATOR INSTRUCTIONS) In your first question comes from the line of Jonathan Litt with Citi. Please proceed.

Hi. It's Craig Melcher here with Jon.

Hi, Craig.

Question on the guidance range and the necessary appropo for the fourth quarter. To hit the high end of normalized guidance do we have to do $.64 of normalized (inaudible) . Like $.02

Yes.

Do you know would be a penny of that. Would the remainder-- is that just seasonality of Sunrise or are there any other items in there?

Yes. You got it.

Seasonality?

Yes. Seasonality and -- ( inaudible)

The seasonality on sunrise,is that on the revenue side coming down or higher expenses?

Typically -- this is Ray, Craig. Typically, in the fourth quarter, you don't see quite the level of move-ins that you'd see in the other quarters because of the holidays.

Okay. Just turning to the MOV segment, what's your expectation there longer term in terms of potentially bringing in management of those assets in house, versus partnering with the regional players and having them manage the assets?

Craig, this is Ray again. We said consistently there are long-term goals to be a full service provider of medical office services with the ability to own, manage, lease and develop. We've been building our platform by partnering with local and regional medical office companies like you mentioned. This has led to a portfolio of a million square feet. We continue to talk with these various partners about ways that we could accomplish our mutual strategic objectives and as and when we find the right partnership opportunity that could, become the platform in which we'll become that integrated service provider.

You don't think you need to double the size of the portfolio before you were supposed to do that?

We don't look at it that way. I think what we're looking at is finding the right strategic relationship. for the time being, I think what we're doing is working quite well.

Thank you.

Thank you, Craig.

Your next question comes from the line of John Stewart with Credit Suisse. Please proceed.

Thank you. Sticking with MOB theme for the moment. Sounded like-- I guess you've got 7% yields going in on the acquisitions that you've done this year, can you talk about pricing for a moment, both the trend throughout 2007 and what you expect going forward?

Yeah. We haven't really seen any material change in cap rates in the marketplace, in the transactions that have cleared the market. Obviously, it's something that we're watching pretty closely. But, I think that, generally cap rates remain stable in and around the 7% range. Primarily because of the strong underlying fundamentals in the space, and I think a lot of investors are attracted to that, given the fact that healthcare is also looked as sort of a recession resistant hedge.. We're really not seeing any changes at the moment.

Okay. Debbie from your comments, it sounds like your looking at opportunities really across the spectrum of property types, but is it fair to say that the emphasis remains on medical office for the time being?

That's where we would see-- that we would expect to see the greatest percentage growth in our portfolio. It's an area we've targeted as a nice area we want to build out where we're under represented. It's a very, very large asset type. And, the markets large. There--- it's very fragmented. There are lots of, we think, monetization opportunities that are being driven by hospitals' need for capital as well as the regulatory environment. So we would see the biggest growth in that part of our portfolio, but we also would expect to see significant transactions across the spectrum continued in seniors' housing, hospitals, and potentially skilled nursing as well. And potentially some opportunistic debt transactions perhaps.

Okay. That's helpful. Then, I just wanted to touch on Canada for a minute, specifically your comments about the growth opportunities there. I guess I wanted to get your sense, before the opportunities set, and just-- also given your comments about the limited competition. I presume you're talking primarily about development. I just wanted to get a sense of what sort of investment volume you could be talking about?

Well, as I mentioned, right now we're looking at a couple of interesting development opportunities in Canada with Sunrise. We do have the exclusive pipeline with Sunrise for the next 20, 25 years. And the market is very good. The economy there is very strong. This is a product that is not well represented and has been strongly embraced, So we would expect to see some steady development opportunities there in good in-field locations. With Lisa here and with our presence in Canada, we may see some acquisition opportunities as well.

Any idea in terms of what the ongoing investment volume looks like?

It's very difficult to predict. In Canada, maybe we'll see, two to five mansions a year, something like that.

Okay. Thank you.

You're welcome.

And your next question comes from the line of Jerry Doctrow with Stifel Nicholaus Please proceed.

Good morning. I had a couple little things and a couple bigger things. On little things, if you could actually just add another decimal place to some of your occupancy numbers in the supplement because what we found with others is when you round to the whole percentage like 93, it just causes problems quarter to quarter in our projections so we get it to 93 point whatever, or 92 point whatever, it would be helpful. Maybe just e-mail that around. I wanted to ask about-- do you have the Kindred rent increase. 'Cause when the kindred thing got reset there was some that were contingent and some that were fixed. Did you know what had actually moved up on this most recent reset?

The Kindred leases, the vast majority of the leases were at 2.7% increase which took us back may 1. Then the escalation on one of the master leases was about 2.5. And you need a dollar number?

I mean, just the blended was just sort of somewhere between that.

Exactly. Yeah. It was closer--- It was just shy of 2.7%.

Okay.

Then what happens in '08 is basically, we'll look at the CPI, I think February over February and on that one master lease it'll be set at PPI for May 1 in '08.

Okay. And then one or two broader things. Was there -- also, was there any currency impact in the quarter? Is that anything you're thinking about for 4Q in terms of your guidance?

It is a great question. We've actually made quite a bit of money on the Canadians, the strength of the Canadian dollar having invested when we did, but we don't actually look at it that way. We have done, I think, a very thoughtful job with Brian Wood, our tax expert, and Rick Schweinhart in effectively hedging the FX exposure through borrowing in Canadian dollars. So any currency impact is gonna be very minimal so you'll see in the relief period that we not only have mortgage borrowings in Canada in the Canadian dollars--- Canadian dollars nominated borrowings, but we also put in place a $90 million Canadian credit facility. That effectively, substantially minimizes our FX exposure, and also minimizes any tax impact on repatriated dollars.

Okay. Great. Then just the one broader thing. I mean, I think that your Sunrise assets did well in the quarter. But the couple things in some of the other numbers that are out there, Sunrise's own numbers that still sort of point to, perhaps a little softness in the market. Overall they saw declines in occupancy. You touched on efforts to sort of step up marketing in California. I was wondering if you could step back a little bit and give us some senses, your color on how you see that market and things we should be thinking about going forward?

We really, really like where we're sitting with the portfolio as a whole. That's what I tried to give you a sense for at the beginning of my remark. The triple net lease portfolio is gonna continue to perform very well. You have to think about, sort of , what you're buying when you buy Ventas. You're gonna get those steady growing cash flows, credit support. Good, nice growth. That's not gonna be volatile. Then you're gonna have this high-quality Sunrise portfolio which is maybe 20, 25% of our NOI. It has the prospects for higher growth and we think that that higher growth will materialize over periods of time. It may-- it may not be as bullish as some of the operators want it to be, but it is performing very well and, as I mentioned, above our underwritten expectations. It's such a high-quality portfolio in such great locations that we're really optimistic that it is gonna continue to deliver very positive results over a sustained period of

All right. Last thing I have, and I'll jump off. On modeling the lease up, I think you gave just general guidance that it would be casual positives sort of early '08 IS there a right way for us to just think about those in terms of how long that ramp up is till achieve your 9.5 to any more color there.

On the mansion -- Ray will address that.

Jerry, typically, you should think about it is sort of a 20, 25% prelease and then, maybe a 12 to 18-month lease up period on the balance. Larger facilities like Fields will take longer, perhaps even up to 30 months to lease up because of it's an independent living facility in a much bigger property.

Is there sort of an occupancy target as to when you think about break even as to when you sort of get there.

It's gonna differ by property type, but in general for your average mansion, it's gonna be around 65%. We will start to break even on operation.

That's helpful. Thanks.

You're welcome. Thanks. Any other questions?

Your next question comes from the line of Karin Ford with Key Banc Capital Market. Please proceed.

Good morning. I think you said on Sunrise, the NOI growth--- the sequential NOI growth of 3% broke down where revenues and expenses came out roughly evenly. Were all three line items 3% sequentially, revenue expenses and NOI?

No. I was just trying to communicate that expense growth was sort of in line. So the 3% NOI sort of quarter-over-quarter is really good ADR, good occupancy and sort of reasonable expense growth.

Okay. Are you willing to break out those numbers for us?

Well, we've got supplemental information that you can take a look at that really shows revenue and expenses on the stabilized portfolio, and the only issue in the quarter-over-quarter comparison is that we only owned the portfolio and so the supplemental only talks about May and June on the second quarter. Yeah, you can look in there and see that.

Okay, fair enough. You said it's coming out right now above your underwriting expectations. Do you have what you think ultimately the initial yield is gonna come out, to.

Well, we had said when we acquired the portfolio, it was about a five and three-quarter cap rate, and so we're slightly ahead of our underwritten.. That was on '07. Our share of '07 NOI, and so we're at or slightly ahead of where we thought we would be. So I would expect us to be in that sort of -- as we said, which is about 5.75, maybe the cap rate's a little lit higher than that.

Okay. You addressed MOB cap rates. Can you talk about what your seeing in the market on senior housing cap rates. And, are you seeing any impact on slowing in the single family housing market in your portfolio?

Yeah. Let me touch the cap rate point first. Consistent with the medical office building space, we haven't seen the transactions that have cleared the market a significant change in cap rates. I would say that the market has -- the range has been widened a little bit, in that . there's still a lot of competition for high-quality assets and large portfolios and so in independent and assisted living, you might see those trade in the 6 to 7% range. Individual one-off properties and properties, perhaps, in the secondary markets and locations you could see trade closer to 8% in the marketplace.

So you're starting to see a little bit of a bifurcation in the market but, high quality assets still remain very competitive.. As far as impact of the housing market, on our portfolio, we really haven't seen much of an impact. I mean, the demand for rental senior housing, particularly the need-driven assisted living in Alzheimer's hasn't been noticeably affected.

Remember that assisted living in Alzheimer's's care is highly need driven. As such, prospective residents can't really wait for improvements in the housing market to move into the facility. The only area where we've seen broadly in the marketplace, and we're not invested in this space, but we've seen impact in the market, has been in the entrance fee CCRC

Right.

Where new residents typically roll the equity of their home into the acquisition of their life interest in the unit. And those have, I think, seen some impact on the housing market, but otherwise, we really haven't seen a material impact.

Do you expect to see an impact on the independent living side?

You know, Karin, it's interesting. We would say-- we've talked about this theme for a couple of quarters. The way we think about it, and it is yet to be sort of proven out is no space is immune from macro economic trends. But in terms of real estate sectors as a whole, we think our space is in a very preferred defensive position.

And as you think about how the housing market might affect our business, you could imagine it as Ray said most affecting C.C. entrance CCRCs and then because down payment-- the CCRC fee is paid typically from proceeds from sale, then you might expect to see it in rental IL, where we have all triple net leases, and the reason we think that is when people move into I.L., it's more of a discretionary decision. They may be as old as someone who would move into an assisted living asset, but they are healthier generally.

Maybe that's a little bit of a discretionary decision and maybe they-- the leasing velocity there slows down for a time. And that discretionary decision may be deferred. Then you would sort of -- then it would sort of continue down the chain with, of course, need-driven assets, both government reimbursed and private pay, being the least affected by that sort of economic cycle. So, the bottom line is I really like where we're sitting. I like the way we've constructed the portfolio and think it's gonna perform quite defensively and quite well in a decelerating economy.

Okay, thank. Last question. How much dry powder do you think the company has on the balance sheet today to do future acquisitions? Do you guys have any dispositions on the fleet?

We've got about 450 or so untapped capacity on the revolver plus 150 accordion feature that we can use. Good access to the capital market. Some potential smaller dispositions on the drawing board, and so I think -- and our credit stats are good, so I think we have some good borrowing capacity if we see something that really makes a lot of sense for us to do.

Thank you.

Thank you. I'm sorry, operator. Go ahead.

Your next question comes from the line of Dustin Pizzo with Banc of America. Please proceed.

Thanks. Good morning, guys. Most of my stuff's been answered. But, on MOB acquisition, you did this quarter, the ownership structure,that still 90%, 10%?

It's typically--- we own more than that, Dustin. It's typically the partner will have a nominal ownership interest in the facility which really enables them to tell the healthcare system that the facility is on the campus and that they are an owner the building.

Okay.

It's typically not a -- typically not a large stake on our partner.

Okay, and then Rick, as I (inaudible) at that maturity schedule, do you have handy what the average cost of the debt maturing in 2008 is?

The debt that's maturing sooner is the higher coupon debt. For example, we've got in 2000-- early 2009, we've got 175 million of 8.75 coupons. Then in 2012, we've got some 9% coupons.

Probably on the mortgage side, they're probably 7.5.

Okay. As you look at what's been going on, in the capital markets recently. I'm sure you're in touch with the Banks on a daily basis. What is the spreads for-- , if you guys were to come to market? Have you had any recent quotes or seen any trends there? Or is it similar to what we've been seeing

We are staying very tightly connected, as we suggest, to the capital markets. Because, we've been very focused in driving down our costs in capital, and our focus right now is really to continue moving up the credit curve.

Yep.

So that with some hope that we will achieve a second investment grade rating soon and that, of course, would give us opportunities to price long-term debt very attractively even in this market. Also, obviously treasuries are at 4.2, 4.3%. So I think we have some good opportunities to continue to drive down our cost of debt. Particularly if we get that second investment grade rating this year.

Okay. So net-net when you look at the move in treasuries and the move in spreads, would you say that the cost of debt now is, similar, 20 basis points higher than where it was earlier in the year.

We think our marginal cost of debt, if we achieve a second investment grade rating will decrease our current 6.7% weighted cost of debt.

Okay. Perfect. Thanks.

Your next question comes from the line of Chris Pike with Merrill Lynch.

Good morning, everybody.

Hi, Chris.

Back to the housing, Deb, just wondering, do you think housing is gonna impact development at all especially with falling home values. I recently read an article, I think it was in the Ocean County Observer, regarding potential Sunrise Mission Vajaho project. It was facing mounting pressure from local community residents. I'm not sure if this was an asset, that's related to VTR, but how prevalent is NIMBY-ism in these days. How's VTR and the Sunrise folks working to overcome this trend. Do you see more or less push back north of the border in Canada versus, say what you're seeing here?

Chris, there's a lot of questions in there. I'll do my best to answer them. I think in regards to NIMBY-ism, I think that's one of the things for the benefit of the rest of the people on the call, the objections of the neighbors to developments nearby.

Not in my backyard.

Not in my backyard is what NIMBY stands for. With regards to that, that's one of the things Sunrise does an excellent job of in their development. They pick high (inaudible) to entry in-field locations, purposely because they know that it's going to be difficult to develop in. They have a pipe--- a rolling pipeline of five years or so of development that's going on and they know that it's gonna take them five years to get in. That's their competitive advantage and that's what enables them to get premium rent and, you know, lease up quickly. So, I think they're extremely well prepared to handle what is a difficult development process in the markets that they target.

One of the things that seniors housing has going for it, versus other types of real estate is that it's always on the local planning committee's needs. So seniors housing is always an under addressed area within any local community. So it's always something that is going to be attractive to the local planning commissions. So, I think Sunrise does a good job of picking their spots, working through the process and keeping a pipeline of opportunities, rolling through that will take a long lead time to develop but feed the growth. of the company in our portfolio overtime. They're doing the same thing north of the border as they're doing here. In terms of whether there's more or less resistance. In Canada, I wouldn't characterize it as being any different.

And I guess with the addition of Lisa, was thee working with you folks -- was she working with you folks as a consultant over the last several months before coming on full time?

Yes, and she still joined us. [ Laughter ]

Okay, and I guess, you know, when you guys initially cast to set out to buy Sunrise, did you always envision a person with her acumen and experience overseeing that division?

Yes. Yes, and Lisa also worked at Sunrise Inc. prior to being the COO. of Sunrise REIT. She has a very extensive property management background, and that is-- is very familiar with the Sunrise model and these assets. That's what-- it's the property management side that we wanted to build out. And that's what Lisa brings. And, there are several asset managers who have similar expertise who are on her team as well.

We've heard some very good things, so good job. We really appreciate it. Thanks a lot.

Thank you. Just a quick note back to Karin Ford. Karin, I think if you look at the supplemental, you'll see that quarter-over-quarter sequentially that revenues grew a little bit more than 3%, expenses grew in the Sunrise portfolio a little bit, less than 3%. What we did when we quoted the 3% is we took out the extra day in the third quarter. Because the actual NOI growth was more than 3% but on a sort of per diem basis, you'll get to about 3%. Are there any other questions, operator?

Yes, your next question comes from the line of Rob Mains, with Morgan Keegan. Please proceed.

Thanks. Good morning.

Hi, Rob.

Couple questions on the numbers, Rick. One, in your FAD breakout where you list capital expenses, are those CapEx that are just the operating properties?

That's correct. Just the capital expenditures. We call it maintenance CapEx..

So that wouldn't include like TIs on the MOB properties?

It could very well. But, that's little or nothing.

Okay. Then one question about MOB acquisition that you did last month. The big one in Florida. That;s in lease sub. Is that generating positive or negative NOI?

It's generating positive NOI.

Okay, fair enough. And then, one other numbers question, Rick. I know this comes out in the wash, but depreciation was up a whole lot sequentially.

It's an extra month. In other words, we have two months in the second quarter and three months in the third. So if you look at sequentially you're going to pick up that extra month.

Seems like the increase was about as much as it was last quarter. But this is not to discuss here. Then the last question I had, as far as, Ray, your comments about fourth quarter, I guess what you're saying is that we're gonna see normal assisted living type seasonality on your NOI line at least for the Sunrise assets going forward?

I think that's right.

Fair enough. Thank you very much.

Thanks, Rob.

And your next question comes from the line of Rich Anderson with B.M.O. capital market. Please proceed.

Good morning, everybody.

Hi, Rich.

Just a couple quick ones. I thought I was getting black balled there actually for a minute. [ Laughter ]

Well, we he hadn't considered it, but maybe we will next time.

You say 68% of your portfolio's private pay, but in truth, it's not really fair to lump MOBs into that number, right, because don't they count on 30 or 40% of Medicare in their whole business plan-- the doctors?

Well, the private pay is basically that the doctors pay rent that's not government reimbursed.

Okay. Count on Medicare to-- for a big part of their business?

Some do, some don't.

I just want to make sure that wasn't adjusted for that.

Those aren't look throughs because for example it could go the other way significantly because when we look at our nursing home there's a huge portion of the revenue that can (inaudible) and that are private pay and similarly on the long term acute care hospitals, but we don't count that as private pay because most people think of those assets as government reimbursed. The staff actually look substantially better on the private pay side if we looked through the asset type to the underlying source of payment.

Got it. Understood. Couple times in the press release, HTA was brought up. I was wondering if that's sort of a budding relationship you're building with them and if you could talk about that relationship?

Well, we certainly have a very good relationship with the senior management at HTA or at least we think we do. Rick used to work there. One of our MOB. partners has a long standing development relationship with HTA. so, those are all positives, and one reason that a lot of our new MOBs are on HTA. campuses.

For the Kindred exposure, 15% of assets but 28% of revenues, wouldn't you have rather see those numbers be flipped?

Well, we don't control how our assets are reflected on our balance sheet because, you know, GAAP accounting is an historical basis. Those assets were never written up when they were acquired even by (inaudible) way back when. So they have a low basis.

I see.

If we continue to acquire and diversify and grow the portfolio that in a period of time kindred's revenues actually will be around 15%.

Okay. Because it seems to me you're getting more revenue per asset capita, or something like that, from Kindred.

It's just a GAAP thing.

Understood. Last question, the slit between operating assets and triple net assets 56-- well, 44 to 56, but do you have a target in mind?

Well, we want to have a balanced portfolio, and I think that's what we've tried to create, so I think that over time that's gonna ebb and flow but, 60-40, 50-50, I think you'll see it in there.

They are in that range now and it is sort of plus or minus 5% from here on out.

I would say for the near term you request expect that. Thank you.

At this time, there are no more questions in the queue. Now I would like to turn the call back over to management for closing remarks.

Thank you. Well, we really appreciate everyone joining us this morning. I know it's been a long earnings season and you're probably delighted to have it end. We really appreciate your interest in Ventas, and we hope to see a lot of you at NAREIT next week. Thanks again and see you soon. Bye.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Good day.