芬塔 (VTR) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 Ventas earnings conference call. I will be your operator today.

(Operator Instructions).

I will like to turn the conference over to your host for today, Mr. David Smith. Please proceed sir.

Good morning. And welcome to the Ventas conference call to review the Company's announcement today regarding it's results for the quarter ended March 31, 2010 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 under the Federal Securities laws. These projections, predictions and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the Company's expectations, whether expressed or implied.

We refer you to the Company's reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2009, 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 forward-looking statements to reflect any changes in expectations. Please note that quantitative reconciliation between each non-GAAP financial measure contained in this presentation, and its most directly comparable GAAP measure, as well as the Company's supplemental disclosure schedule are available in the investor section of our website at www.ventasreit.com. I will now turn the call over to Debra Cafaro, Chairman, President, CEO of the Company.

Thanks David. And good morning to all our shareholders and participants, and welcome to the Ventas 2010 call. My Ventas colleagues and I are pleased to be joining you today from our Chicago office. Today we'll have a brief overview of the quarter, followed by a portfolio performance review and investment outlook from Ray Lewis, and a detailed discussion of financial results from Richard Schweinhart. After our prepared remarks, we'll be happy to answer your questions.

Ventas first quarter results showed continued strong and improving financial results, including normalized FFO per share of $0.67, a sequential growth rate of 1.6% of NOI for our Sunrise unit portfolio and reliable and increasing rent in our triple net lease portfolio. Overall, our portfolio of high quality productive senior housing and healthcare assets enjoyed 4.3% same-store cash NOI growth in the quarter, compared to last year. During the quarter we were very pleased to share our growing cash flows with our stockholders, by paying a cash dividend at the annual rate of $2.14 per share. This represents a 4.4% increase from our 2009 dividend level, and demonstrates the confidence we have in our Company, our assets and our prospects.

We have also made continued significant progress on the credit rating and the liquidity front. We believe strongly and have stated consistently that reducing our cost of capital and managing risk are key measures of our ability to succeed on behalf of shareholders. Having three investment grade ratings, and a recent positive outlook revision from S&P, will help us achieve our goal of lower debt costs. They also serve as important indicators that we continue to manage the firm prudently on your behalf.

Turning to our balance sheet, our unsecured line of credit stands at a $1 billion of committed capital, maturing in 2012. We have received a total of $410 million in additional commitments, since we extended our line in March 2009, including over $200 million of additional commitments received since the beginning of this year. This liquidity position creates excellent financial flexibility, and provides a ready source of capital for growth. We are sincerely delighted to have a great lineup of quality lenders, both long time Ventas supporters, and new institutions backing our firm with their participation in our line of credit.

Finally, I want to emphasize the consistency and reliability of our cash flows in the healthcare and senior housing real estate space. Throughout the recent and severe economic downturn, Ventas delivered positive same-store NOI growth and FFO. But our ability to deliver superior returns to stakeholders is not limited to recessionary periods. In fact, healthcare REITs were the top performing sector for the past three, five and ten year periods out of all real property sectors. Our business model, relationship, great management team, and financial strength should allow us to thrive in a variety of economic capital market and reimbursement environments. With healthcare real estate representing a $700 billion growing market, Ventas is in an excellent position to capitalize on opportunities, and it continues to build shareholder value. Ray?

Thanks, Debi. Our diversified portfolio of high quality healthcare and senior housing assets exhibited another strong performance during the first quarter, driven by cash flow growth in both our triple net lease and third party managed operating portfolios. You will recall 75% of our NOI comes from our pooled multi-facility Master Leases with credit and structural support and contractual growth escalation. And another 23% comes from our high quality operating portfolio of senior housing and MOB assets. During the first quarter of 2010, same-store cash NOI on the 397 assets in our triple net lease portfolio increased by 2.8% over the first quarter of 2009. Cash NOI at our hospitals grew 2.6%, seniors housing grew 2.7% and skilled nursing delivered 3% growth versus the prior period.

Ventas's triple net leased assets continue to display stable cash flow coverage of 1.8 times through the fourth quarter of 2009, the latest date reported. It is important to remember that Ventas's cash flows or rents, from our triple net lease tenants are not affected by ebbs and flows in our operator's cash flow due to changes in their operating results or reimbursement. We are the most senior obligation in our tenant's capital structure, and our large pool guaranteed Master Leases are designed to anticipate and absorb changes in tenant EBITDAR over time. That is why our triple net lease cash flows have shown consistent and reliable growth year after year. Our triple net lease portfolio has very limited near term maturities. The weighted average remaining lease term for our triple net lease assets is approximately six and a half years. And only 1% of our triple net portfolio is up for renewal before 2013. So our triple net lease portfolio continues to perform very well, and be on track to provide same-store cash growth in 2010, exceeding 2.5%, consistent with what we have said in our February call.

Now let's turn to our operating portfolio, which consists of 79 high-quality mansion-style assisted living communities managed by Sunrise Senior Living and 26 medical office buildings. Performance in our combined operating portfolio is also very strong, with NOI growth in the first quarter of 2010 of 16.6% versus the first quarter of 2009, up from a combination of both acquisitions and improving fundamentals. First, I will discuss our portfolio of senior housing communities managed by Sunrise, from which we derived 18% of our entity level NOI. These communities delivered $33.8 million of NOI in the first quarter, an increase of $500,000 or 1.6% over the fourth quarter of 2009, despite the fact that the first quarter had two fewer days. Perhaps more encouraging is the fact that Sunrise NOI grew 11% on a year-over-year basis. In each case, NOI improvements in our Sunrise portfolio were driven by higher rates and higher margins.

During the quarter, we saw positive trends in average daily rates as many of our US communities were able to increase resident rates on the first of the year. For the first quarter, average daily rate was $178, up 2.4% over the fourth quarter. Year-over-year the ADR increased 4.8%, driven by a combination of annual rate increases, and favorable changes in the Canadian exchange rate. Margins in the portfolio also trended positively during the first quarter, increasing 50 basis points, 31.3% sequentially. Notably, margin also showed an improvement of 170 basis points over the first quarter of 2009. NOI for our 78 stable communities improved this quarter, rising to $33.1 million, an increase of 10% year-over-year and 1% sequentially.

Occupancy softened to 88.4%, down 40 basis points compared to the fourth quarter, and 60 basis points compared to last year. Our loan lease of assets had a great quarter. Steeles is a high-end independent living and assisted building in Toronto. NOI occupancy and rate at this property all improved significantly versus prior periods, as the building continues to trend toward stabilization. So to sum it up, our Sunrise portfolio has started the year well, and is in line with our previously issued NOI guidance of $128 million to $138 million.

The rest of Ventas's operating portfolio is comprised of over 1.7 million square feet of medical office buildings, which accounts for about 5% of our total NOI. This portfolio, of which over 80% is located on campuses of major hospital systems, again provided stable and growing cash flows for Ventas. Starting with our same-store stabilized pool of 18 medical office buildings, Ventas's share of NOI in the first quarter increased both sequentially by 2.1% and year-over-year by over 11% to $4.7 million. Same-store medical office building NOI of $4.9 million increased sequentially by 2.1% and year-over-year by 4.3%. Margins also improved compared to prior periods. Occupancy at our medical office building portfolio remained strong, at over 94% and rents remained stable over the prior periods.

We had one property, our 93% leased property in Aventura, Florida moved from lease up to stabilized during the first quarter, bringing our total stabilized portfolio to 22 buildings and 1.4 million square feet. Our four remaining properties in lease up continue to show positive leasing momentum, and performed in line with expectations. Leasing prospects for this portfolio remain positive, including 47,000 square feet of leases signed, but not yet in occupancy, and a solid forward pipeline of potential tenants. When tenants who have already signed leases move in, the occupancy in our four medical office building lease up assets should rise from 73% to over 87%. And we expect occupancy to increase in our lease up portfolio to over 90% in the next 12 months. So we are pleased with the Company's progress in medical office.

Our portfolio has grown to over 1.7 million square feet, accounts for 5% of our total NOI, continues to provide reliable and growing cash flows, and is currently generating an unlevered yield on investment of over 8.5%. We continue to believe that MOBs present a compelling long-term investment thesis. The sector will be fueled by the baby boomer demographic that is turning 65, and becoming Medicare eligible in 2011. Additionally, this over 65 population is also growing at three times the rate of the total population over the next ten years. We believe that over time, healthcare reform and increasing coverage for the uninsured will also increase utilization of outpatient healthcare facilities, such as medical office buildings. And finally, as healthcare providers continue to seek ways of generating capital, we expect to see a continued trend of hospital asset monetizations that will transfer ownership to more efficient holders of real estate, such as healthcare REITS. We expect that this area will continue to be a focus for us in 2010.

While we are on that topic, let's turn to the acquisition outlook for a moment. You may recall that we began to ramp up our investment level during the second half of 2009. And during the first quarter, we began to see an increase in the number of opportunities coming to market. Improvements in both the debt and equity Capital Markets should lead to an increasing number of transactions being completed in the market as the year goes on.

However, given the improving general economic environment, the amount of capital looking to invest in cash flowing real estate, and the strong underlying fundamentals of healthcare and senior housing, we expect that acquisitions -- the market for acquisitions will be increasingly competitive. We have positioned the Company well to succeed by creating an investment grade balance sheet with tremendous liquidity and access to multiple low cost sources of capital. We are currently working on a variety of investment opportunities, both large and small. With our resources, financial strength and relationships, we are committed to further growing and diversifying our business in 2010. With that, I'll turn the call over to Rick Schweinhart to discuss our financial results. Rick?

Thank you, Ray. The highlights of the first quarter are that operating income was up from last year's first quarter and increased also compared to the fourth quarter. First quarter normalized FFO was $0.67 per diluted share. Additionally, we continue to focus on maintaining a strong balance sheet, doubling liquidity, and increasing cash flow from operations. At March 31st, our cash balance was $133 million, and we had only $38 million outstanding on our revolving credit facility. Currently, we have -- excuse me -- $992 million of undrawn availability, and cash on hand is approximately $126 million. Our credit stats remained excellent with net debt to pro forma EBITDA at 4.1 times, and our fixed charge coverage ratio at 3.2 times. Our March 31, 2010 debt to enterprise value is 27%. Our cash flow from operations for the quarter ended March 31, 2010 increased to $116 million, from $114 million for the comparable quarter last year, and $99 million in the fourth quarter.

Details of the first quarter earnings are normalized FFO, was $105.2 million or $0.67 per diluted share. Normalized FFO excludes $2.2 million, consisting of merger-related expenses, deal costs, and an income tax benefit. First quarter normalized FFO increased from last year's first quarter, due to NOI increases in all three of our portfolios, triple net, Sunrise managed and medical office buildings, and lower interest expense. Triple net lease revenues grew to $117.0 million from $114.1 million, primarily due to contractual escalation. Sunrise NOI increased 11% to $33.8 million this quarter, from $30.5 million last year. Also, year-over-year, our medical office building NOI grew to $8 million from $5.4 million, primarily due to acquisitions.

Interest expense decreased to $44.3 million from $45.9 million in the first quarter last year, primarily as a result of lower debt balances in the quarter. G&A and stock-based compensation was fairly flat with last year. Weighted average shares outstanding in the quarter at 157 million increased 10% over first quarter of last year, due to our second quarter of 2009 equity issuance, and remained fairly flat versus 156.7 million in the fourth. First quarter FAD per diluted share increased to $0.65 compared to $0.64 in the first quarter last year, and $0.62 in the fourth quarter. We are reaffirming our 2010 normalized FFO per diluted share guidance at $2.69 to $2.75.

We continue to see year-over-year growth in our earnings per share, even though we have 3% more shares outstanding for the year. This positive trend is indicative of the growing and reliable cash flows that our diversified, high quality and productive portfolio of healthcare and senior housing continues to provide. Our key assumptions for our 2010 normalized FFO per share guidance haven't changed. They are, that total Sunrise NOI for our 79 assets ranges from $128 million to $138 million. G&A expenses ranges between $39 million and $41 million, and we invest our cash on hand by mid-year. But our guidance does not include other material acquisitions or divestiture activity, deal costs, capital transactions or litigation expenses or proceeds. Operator, if you would, please open the call to questions.

+++ q-and-a

Absolutely.

(Operator instructions).

Our first question comes from Michael Bilerman with Citi. Please proceed.

Good morning guys, this is David Shamas, here with Michael.

Hi David.

With respect to the margins in senior housing, and I guess medical office as well, in the past you guys mentioned that you expected them to come down. But it looks like it actually went the other way, so was it really one time items driving that? Or should we expect that going forward?

No. The margins have, with respect to the senior housing assets anyways, David, the margins have pretty consistently trended or ranged within the 30% to 33% range. I think we are pretty squarely in the middle of that range. From quarter to quarter, you may get some fluctuations in margins depending upon expense trends, seasonality, et cetera. But I wouldn't draw any particular conclusions from the margins in this quarter. I think they are within our normal tolerances.

Okay. And just turning to opportunities, can you just give a little bit of color about what you are seeing in the market right now, with respect to enterprise level or just property transactions? And what is your appetite right now for larger scale deals?

Sure. As I said in my opening remarks, the improving economic conditions are definitely going to lead to increasing transaction activity. We are seeing of our pipeline building in both large and individual property transactions, across all sectors. We are still very interested in continuing to grow and diverse identify our company. If we find good, large transactions that are a strategic fit for us, we are going to pursue them aggressively.

And you mentioned earlier that obviously it is going to get a lot more competitive with respect to the amount of potential buyers. So have your expectations for pricing shifted at all, as a result?

Yes, I think pricing is going to be competitive for transactions. I think we positioned the Company well to compete in that situation. We have low cost of capital, access to multiple capital markets, an undrawn revolver, a strong balance sheet with plenty of leverage capacity. So, I do expect that the market's going to be competitive, but I think we are very well positioned to succeed.

All right. Thank you very much.

Thanks David.

Our following question comes from the line of Craig Schmidt with Bank of America. Please proceed.

Just a little more clarity on the acquisition market. Do you feel like you are looking at as many deals as you hoped to be looking at? It is just that it is getting more competitive that might limit the amount of transactions you do? Or are private holders of healthcare real estate not really bringing their assets to sail?

Craig, I think that's, that's an important point. The pipeline is active, it's full. I think transactions are still taking a little bit longer. There is a little bit of a price discovery exercise going on right now between buyers and sellers. There is also the effect of improving markets tend to cause sellers to delay their decisions, if you wait a little bit longer, you might get a little bit better deal.

So, I think what we are seeing is the beginning of the activity. But I don't really expect it to turn into transactions happening until perhaps later in the year. But we are definitely seeing a lot of inbound inquiries, we are working on stuff. We are going through preliminary pricing exercises and things that will, I think, lead to good transaction volume down the road.

Okay. And where do you think the Sunrise portfolio might end occupancy by the end of this year?

I think what we have said, as we have provided our guidance is that occupancy will be up slightly from where it ended last year. So, again it will be up slightly. It is not going to be a big driver this year.

Right. Thanks a lot.

Thank you.

Our following question comes from Jerry Doctrow with Stifel Nicolaus, please proceed.

Thanks. Listen, a lot of news, but a couple of things. Looks like you actually increased your investments in loans in the quarter. I just wanted to get your take, confirm that that is indeed what happened, and just get your sense of what was going on there.

Jerry, we invested about $27 million, $28 million in the quarter, and probably half of that was in a loan, and half of it was in the senior housing assets.

What makes loans interesting at this point, are the yields better, or is it for property level stuff? Are you funding operating? Just a little more color?

Just small mortgage, first mortgage debt that has really great, we believe great risk adjusted return.

Okay. And a couple we have already talked about sort of investment prospects. In terms of property types, I think if you guys just sort of focused more on MOBs as kind of being your first choice. If you have a sense of priorities, what kind of property types would you focus on?

Yes, sure MOBs are a focus of ours, given the opening remarks, you know we like that sector a lot. We have an investment thesis there that is based on strong growth and demand for that real estate going forward.

We really like seniors housing as well. We think the fundamentals in the market are excellent from a supply and demand perspective. And we think that in a recovering economy, those assets are poised to do very well. We think there is going to be some good opportunities in skilled nursing, as a number of the private equity firms who have made investments in that space, over the last three to five years look to get liquid. So we think there will be transaction volume and interesting opportunities in that space. So I think MOBs is an area that we like. But skilled nursing and seniors housing are certainly attractive to us as well.

If you had your druthers, would you make the portfolio to further increase the non triple net stuff, the operating assets?

It depends on the opportunity.

Okay. Just my last thing, and I'll jump off. CapEx was a little bit lower than we expected this quarter. Do we expect that to sort of ramp up? I don't know if you provide guidance in that area or not?

Yes, what we have said with respect to our Sunrise portfolio Jerry? Or just generally?

I think generally. But Sunrise may be the bulk of it.

I think that's right. The CapEx typically builds toward the end of the year. You start the year with your budgets, and your projects get kicked off, and then you spend and complete those projects as the year goes on. So I would expect that to increase through the balance of the year.

All right. Thanks.

Thank you.

Our following question comes from Brian Sekino with Barclays Capital.

Good morning.

Hi,Brian.

I just wanted to make sure my math is right. With your current guidance for the Sunrise portfolio, 128 to 138, with the results you did in the quarter, kind of at the mid-point, the remainder of the year, your NOI could be slightly down, is that correct?

So, Brian, I think you know, we provided you with that guidance in our call on February, I think as we look at the first quarter, it's certainly squarely within the range. We are happy about that. The 128 to 138, we still feel very comfortable with that as a range. As the year plays out, we'd be happy to update that guidance as it becomes more clear what the balance of the year holds for us.

Okay. Okay. Then just shifting over to the acquisitions that you mentioned. I know someone mentioned about the RIDEA structure potentially becoming more in play. Are you seeing competition increase also for -- with buyers looking to do that kind of structure? And maybe that might be a way to keep pricing where you are willing to do it? Make acquisitions? I don't know if that makes --

Yes, I think I follow your question. The RIDEA structure is not really a new structure. It's been in the marketplace for a long time. Private equity firms have been doing managed deals for a long period of time. So, we are not really seeing any change, I think in the marketplace, in terms of either people offering more RIDEA structures, or people asking for more RIDEA structures.

I think it really goes back to whether or not the asset has more dynamic cash flows. And if it does, it may be appropriate for the REIT to employ a RIDEA structure on that asset. So if it is an expansion, or something where the cash flows are going up, you might want to do a RIDEA structure to participate in that. And if it is an asset with more static cash flows where you are more likely to attract CPI over time, then it is probably more suitable for a triple net lease structure.

Brian, for me the take away is this. We have, and I'm going to compliment my colleagues here. We really have a very, we have a lot of continuity with excellent members of our senior management team who have tremendous deal structure capabilities. That includes our head of tax, Brian Wood, and we have a lot of proprietary capital and deal structure experience that really allows us to be very competitive in all kinds of situations, because we are really able and willing to do the work to figure out a structure that works for a seller and that is a tremendous advantage in the deal market, particularly in larger transactions.

Okay, great. Thanks a lot.

Our following question comes from the line of Karin Ford with KeyBanc. Please proceed.

Hi, good morning. I wanted to re-ask that Sunrise guidance question, maybe a slightly different way. If you annualize the first quarter NOI, you get something like $135 million or so of NOI. And you mentioned I think previously, that 1Q is a seasonally low quarter, you are getting some lease up in Steeles, is it sort of, are we thinking about this right? Is it -- are you really heading toward the top end of that range?

I guess I can't really answer that any differently, Karin. I mean, again, like I said, we are a month or two into having just provided that guidance. The portfolio is performing well. We are happy with that, and as the year continues to play out, you know, we'll be happy to update the guidance.

Okay. The next question was just on lease term fees, you mentioned in the press release you are expecting some associated with the asset sales you are in the process of. How much will they be in and is that include in your FFO guidance?

It is as it always has been as we have sold assets it is a de minimis amount Karen, a couple $100,000 Okay?

Just final question is for you, Deb. How much time would you say you are spending those days on the General Growth board?

Well that is my second shift, when I grew up in Pittsburgh a lot of people worked two jobs. I am spending an appropriate amount of time on the GGP Board, in the time I'm not spending working on Ventas. The only people who seem to be complaining at the moment are my family. So --

Okay great. Thank you.

Thank you so much for joining.

Our following question comes from the line of Rich Anderson with BMO Capital Markets. Please proceed.

Thanks, good morning.

Hi, Rich.

Hello. So on the credit rating news and all that, good stuff obviously for your firm, but with that comes some lost flexibility. I was just wondering how much, you talk about liquidity, $1.1 billion or whatever, how much of that is really available to you before you have to raise equity to do something in order to keep your credit status?

I'm really glad you raised the investment grade rating. As you know we have been really committed to moving up the credit curve. And we were really happy to get recognized for that, and lower our cost of debt, which at the end of the day is really what it's all about, because we want to use that to make more money for shareholders. So I don't believe that it reduces our flexibility at all. I think we have always managed the Company to really be an investment grade quality Company. I think we've had really excellent balance sheet and risk management, which we would expect to continue.

And so I don't really see the rating agencies putting any constraints on us that are not goals that we set for ourselves, which is really to balance growing cash flows, and continually managing risks. And that's what we always do and that's what we will continue to do. So if you look at what we've said, to all constituencies is over time we would expect to manage the firm at about a five times debt to EBITDA level, we are at about four times now. And over time, that could you know vary maybe a turn plus or minus for short periods of time. So if you look at that, and at about five times, I think we have $1 billion or more of investment capacity, even just to get to the five times. And so I feel really good about where we are.

Okay. Thank you.

You are welcome.

Turning to the HCP legal discussion, and I know I won't get into any more details about the specifics of it. But every quarter and with every motion and the appeal and all that, you are whittling away at whatever you might get out of that. I mean at what point does this whole process become almost too burdensome, in that when you net all the costs up associated with it, that it becomes not so much for shareholders?

Well, we have always tried to make the best decisions that we can for shareholders. And I would say that to date, our investment has certainly produced an exceptional return, assuming that we can maintain that. And now, we are in the appeals process. And I would say the costs are de minimis. But, the bottom line is that we, if we have a verdict, a unanimous jury verdict for over $100 million in our favor that is secured by a letter of credit, and we feel an obligation to realize on that judgment. And we will expend the appropriate amount of resources to do so.

Okay. To Ray, on Sunrise, is 9.9% same-store NOI growth sustainable, in your opinion? Or is that kind of like at the very top end, or beyond the top end of what you would expect for the year?

Yes. The first quarter of last year, Rich, was probably the lowest quarter in terms of NOI since we have owned the portfolio. So you obviously get a benefit of a growing off of a low base. So, no, I wouldn't expect that to be sort of the implied growth rate going forward. But certainly, the performance at the properties has been steadily improving since the second quarter of last year and that is encouraging.

I think if you look at our 2010 guidance range, compared to the results from last year, you can see what our expectations for this growth for this year might be.

Okay. And then last question, kind of following on Karin's last question about time spent on the GGP Board, you are also Chair of NAREIT, I guess, it seems like you have time on your hands? You run out of books to read? (Laughter).

That is the funniest thing I have ever heard, because I have no time on my hands.

One thing I'm noticing from this call, and correct me if this shouldn't be taken as any more than a coincidence, is Ray is spending a lot more -- seems to be more visible on the call. Can you comment at all about succession? Or anything like that?

Yes, I think that first of all on the GGP, and NAREIT and et cetera, my parents just gave me a ridiculous work ethic, which I continue to try to enjoy. And I am. So I feel very engaged in all the activities that I'm involved in. And in terms of the team, I mean, I really do think that our shareholders should appreciate and our team should be visible. I mean, we have a great team. It's been -- our team has been here together since 2001, 2002, we have enjoyed a lot of shared success. And I think it's important for everybody to realize how many different and important contributions are made by everyone, including but not limited to Ray. So I'm glad that you are getting to see that, because it is an important strength to the Company.

No argument here. Talk to you -- thank you very much.

Thank you.

Our following question comes from the line of Omotayo Okusanya with Jefferies. Please proceed.

Yes, good morning, everyone. A couple of questions. Just in regards to 2010 guidance, I wanted to make sure I heard right, that part of your assumptions, are you will put your cash to use in the second half of 2010. Did I hear that correctly?

Yes. That is exactly what we said at the beginning of the year as well when we initiated the guidance.

Okay. Just wanted to confirm that. And then, Debi and Ray, there is a lot of kind of noise in the newspapers nowadays of again several states having budget problems. Are you seeing anything in regards to potential impact of that situation on Medicaid rates? By any chance? Have you started to see anything?

Yes, I mean there is a couple of things going on, puts and takes on Medicaid. The last couple of years, including in connection with the healthcare reform bill, the federal government has extended I think $25 billion or more in FMAC payments which are matching funds to state Medicaid programs. So that is a positive. States are obviously feeling the effects of the recession, and so there are budget deficits. So those kind of balance out, and we are seeing kind of relatively steady Medicaid rates.

And over time, what we've seen is Medicaid rates range from you know, the annual increases of zero to when I first got here, rates were increasing by like 9%. So, we typically assume Medicaid at sort of an inflationary level, and that it kind of goes up and down over time. And doesn't really affect our rents, because they are so well covered and we have credit support. At various points in time, changes in reimbursements do compress or expand margin at our operators. But again, that doesn't really affect our rents, which continue to be secure and reliable.

So at this point, you don't have like any major concern of several states cutting Medicaid rates significantly? That could impact a tenant that has major exposure to those states?

Right. We agree that we feel fine about it. And I would tell you that that's one important reason that we have geographical diversification, asset type diversification. We are not, we don't really feel the effects directly or even indirectly from single or a couple state's changes in reimbursements.

Okay. That a helpful -- that's helpful. Next question, are you feeling any better or worse in regards to the overall financial health, or financial condition of Sunrise?

Well, I think Sunrise has done some really important things on the capital side to improve its condition considerably. And its equity value has reflected that. There are a number of things that Mark Ordan has done under very challenging circumstances that have been absolutely superb in stabilizing the Company. And so, I do think, certainly, as compared to last year the results of what he has done have really put Sunrise in a more sustainable financial condition.

But Sunrise still has quite a lot of debt that is coming due this year. Do you have any general sense of how it could end up addressing that issue?

Well, I think that's really a question for them. But if they do half as well in that, as they have done on everything to date, under much worse external circumstances, I think that they will manage through that.

Okay. Last question, Deb. Just in regards to tenant diversification, you guys do have a high amount of concentration between Sunrise, Kindred and Brookdale, just kind of thinking -- as you are thinking about acquisitions going forward, if there are any plans to kind of address that and become even more diversified by tenant mix?

Absolutely. As we grow the Company almost by default, you'll see as the pie gets bigger the existing tenants, the amount of NOI we derive from those three tenants will naturally shrink. I have to tell you particularly with Kindred and Brookdale are the leaders in their industry. And they are excellent care providers and I feel very fortunate that we do have a lot of our NOI coming from them. And our friends at Sunrise continue to be really the only brand globally in senior housing. So I do feel good about the three operator and care providers that we have, but over time we absolutely want to continue to grow and diversify. I think that will happen naturally as we make additional investments.

Great. Thanks Deb.

Thanks for joining.

Our following question comes from the line of Rob Mains with Morgan Keegan. Please proceed.

Yes, thanks. A question circling back I think to the first question on the Sunrise margins. Some operators have been talking about the weather in the first quarter. Can I surmise from the strong margins you were able to put up either it wasn't that big of an issue? Or I know you have a fair amount in Canada and I assume Canada up here had a real mild winter. Was the whole utilities not that big of a problem for you or were there other offsets elsewhere?

Rob, it is important to note the single largest driver for us in expenses is labor. So that's when we see efficiencies, it is typically mostly driven by labor. I will say that sequentially, utilities, we got a little bit of a pickup in utilities, so there was some benefit there. But I wouldn't consider it a driver.

Okay. Fair enough. That is all I needed. Thanks, everything else answered.

Thanks, Rob.

Okay, I'm showing no further questions. I would now turn it back over to Debra Cafaro for any closing remarks.

Thanks, Tanina. Well thanks to all of our shareholders and other participants for joining us today. As always, we continue to be sincerely grateful for your participation, and your support of the Company. And we are really looking forward to welcoming you to Chicago in June. Look forward to seeing you. Thank you.

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