芬塔 (VTR) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 Ventas earnings conference call. My name is Angela, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

And now I'd like to turn the conference over to your initial host for today, David Smith, Manager, Investor Relations and Capital Markets. Please proceed, sir.

Good morning, and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the year and quarter ended December 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 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 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 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, and its most directly comparable GAAP measure, as well as the Company's supplemental disclosure schedule are available in the Investor Relations section of our website at www.ventasreit.com.

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

Thanks, David, and good morning to all of our shareholders and other participants, and welcome to Ventas' 2010 year-end earnings call. Today, I'd like to provide a brief recap of our 2010 activity and 2011 outlook, including our excellent fourth-quarter results. After that, Ray Lewis will discuss our portfolio performance and investments, and Rick Schweinhart will provide detailed financial results for the year and quarter ended. After the remarks, we'll be happy to take your questions.

Ventas had a highly successful 2010. We effectively used our cost of capital advantages to execute our strategic growth and diversification plan, and announced nearly $4 billion of acquisitions. Moreover, our diversified portfolio of over 600 assets continued its track record of strong operating performance. Here are some of the highlights for Ventas of the year -- we earned normalized FFO per share of $2.88, a year-over-year increase of 7.5% despite having 3% more shares outstanding in 2010; total NOI grew 11% in the year; we delivered excellent shareholder return of 25.4%, and our 10-year total shareholder return exceeds 1500%. Our goal is to deliver consistent, superior total returns to shareholders, derived from growth in cash flow and dividends from high-quality healthcare and senior housing assets, external growth, and superior risk management.

We announced nearly $4 billion of acquisitions during the year, including three significant and highly strategic transactions I'd like to call out. First, our $381 million acquisition of Lillibridge Healthcare Services and 96 medical office buildings, which closed mid-year, created the nation's leading, fully integrated MOB and outpatient company. Second, our $3.1 billion announced acquisition of 118 high-quality private-pay senior living communities in premier locations from Atria Senior Living will make Ventas the largest owner of seniors housing in the United States, having a $15 billion enterprise value when complete. The Atria acquisition will be our sixth consolidating entity-level purchase since 2004.

And last but not least, we completed our very attractive $186 million acquisition from Sunrise Senior Living of all of its real estate interest in our Sunrise communities in December. Ventas now owns 100% of all 79 of our best-in-class need-driven assisted-living mansions managed by Sunrise. We achieved an attractive double digit unlevered return, and at the same time provided capital to our partner, Sunrise, so it could expand its business and begin to reestablish itself as the leading global brand in seniors housing.

During the year, we also issued $600 million of unsecured debt at an average rate of 3.4%. This includes our highly successful inaugural investment-grade bond offerings totaling $400 million, priced to yield 3.23% in November, achieving the lowest five-year REIT bond coupon outstanding.

Our cash flow from operations increased 6% in 2010. Same-store property NOI from our diversified portfolio of highly productive healthcare and senior housing assets also grew 6% in 2010. We received an investment-grade rating from Moody's early in the year, and now maintain investment-grade ratings on our corporate unsecured debt from all three nationally recognized rating agencies.

We ended the year with excellent financial strength and flexibility with 26% debt-to-enterprise value, and liquidity of $1 billion. And importantly, we made positive changes and additions to our long tenured and cohesive management team, including the recent promotion of Ray Lewis to President, the addition of John Cobb as our Chief Investment Officer, and the combination with Todd Lillibridge who is now leading our medical office building business. So, as you can see, the Ventas team was active on multiple fronts during 2010, all with the continuing objective of delivering superior risk-adjusted returns for years to come.

We have also begun 2011 on a positive note, with the announcement today that our Board of Directors has approved a 7.5% increase in our dividend, to an annualized level of $2.30 per share. This significant step up in our dividend continues our long-term track record of providing above average dividend growth to our shareholders. We believe that a strong, secure cash dividend is an important part of the total value proposition we offer to shareholders, and we are pleased to continue sharing our growing cash flows with you.

Turning to our guidance for 2011, remember that we forecast earnings without the benefit of additional unannounced acquisitions. We expect our 2011 normalized FFO per share to range between $3.06 and $3.14 per share. At the midpoint, this would equal year-over-year normalized FFO per share growth of 7.5%.

We are excited and on track to complete our acquisitions of the 118 high-quality Atria assets, which should occur in the first half of 2011. The assets will continue to be managed by Atria following the closing. Atria is currently the fourth largest operator of assisted living in the United States, with an experienced and highly focused management team, a robust reporting and regulatory infrastructure, and a long record of providing premier care to over 13,000 seniors. This deal, focused in major metropolitan markets on the coasts, capitalizes on the positive trends occurring in the seniors housing industry. We believe the Atria assets will generate above average growth, and our purchase price represents an attractive entry point of $230,000 per unit. We are also looking forward to growing with Atria post closing.

When the Atria acquisition is completed, our highly productive portfolio of healthcare and senior housing assets will be diversified, with no tenant or operator accounting for more than 28% of our annualized NOI, and a terrific balance between operating senior housing communities with above average growth potential, and secure growing rents from our triple-net leased assets. We truly believe that our Sunrise and Atria communities should command a multi-family valuation because of their quality, their location and barrier to entry markets, and favorable supply/demand fundamentals in senior housing.

We are very enthusiastic about our future, and believe we are well positioned to achieve another decade of excellence. Going forward, we intend to remain at the forefront of delivering returns to shareholders through superior internal growth, outstanding and value-creating external growth, and rigorous risk management.

With that overview, I'd like to turn the call over to Ray Lewis.

Thanks, Debbie. Ventas' diversified portfolio of over 600 high quality seniors housing, medical office and post-acute properties performed exceptionally well during 2010, and delivered same-store cash flow growth to Ventas of 6% over 2009. Ventas' triple-net lease portfolio, which accounted for 67% of our annualized fourth-quarter NOI, delivered same-store cash NOI growth of 2.7% for 2010 over 2009. Cash flow coverage for the third quarter of 2010, the latest available, was stable versus second quarter at a solid 1.7 times. This portfolio of pooled multi-facility master leases of senior housing, skilled nursing facilities and hospitals, also enjoys credit and structural support. This portfolio provides Ventas with steady and reliable cash flow growth through contractual rent increases. For 2011, we expect same-store cash flow growth in our triple-net portfolio to exceed 2.5%.

Our largest tenant, Kindred, which currently accounts for 35% of Ventas' NOI, continues to solidify its position as the leading provider of post-acute care in the United States, with its announcement last week that it would acquire Rehab Care Group for $1.3 billion. Pro forma, the combined company will have a market capitalization exceeding $1 billion, and annual revenues of over $6 billion. It will also be the nation's number one operator of long-term acute-care hospitals, the number one operator of inpatient rehab facilities, the number one skilled nursing contract rehab provider, and the number four operator of skilled nursing and rehab centers. The combined entity will also have a superior quality mix of 80% deriving only 20% of its total revenues from Medicaid programs, and conservative leverage at 4.5 times projected net debt to EBITDA.

Our pooled multi-facility master leases with Kindred continue to have excellent cash flow coverage at 2 times, and provide Ventas with strong and reliable contractual cash flow growth. Kindred's announced transaction will further solidify the safety and reliability of these Kindred cash flows, as Kindred increases its scale, access to capital, and clinical expertise to thrive in an ever-changing healthcare environment.

Ventas' senior housing operating portfolio, which totaled 22% of the Company's fourth-quarter annualized NOI is comprised of 79 need-driven high-quality mansion style assisted living communities managed by Sunrise Senior Living. As you'll recall, in the third quarter this portfolio experienced 110 basis points sequential increase in occupancy, the largest sequential increase in occupancy since Ventas purchased the portfolio in 2007. These positive occupancy trends continued in the fourth quarter with stabilized occupancy up 60 basis points from 89.5% in the third quarter to 90.1% in the fourth quarter.

Ventas' Sunrise portfolio also continues to perform exceptionally well compared to industry statistics. Data from NIC showed that average seniors housing occupancy increased 10 basis points from the second quarter to the fourth quarter of 2010, while our Sunrise portfolio experienced 180 basis point increase in occupancy during the same period. We have hypothesized in the past that this high-quality portfolio located in high barrier to entry major metropolitan markets, was well positioned to outperform in an economic recovery, and it seems that 2010 has validated this thesis.

Our only Sunrise lease-up asset, a 229-unit independent living community in Toronto, known as Steeles, continued its strong momentum as well during the fourth quarter. Average resident occupancy at Steeles improved to 95.4% in the fourth quarter, an increase of 870 basis points from the third quarter. We are pleased that we will be adding this asset to the stabilized pool for the first quarter of 2011. These positive occupancy trends in the portfolio translated into exceptional NOI results for these 79 communities. 2010 NOI was $154.3 million, slightly better than the high end of our guidance range of $150 million to $154 million, and equaling year-over-year NOI growth of 18%. Excluding the positive effects of $5 million in cash payments received by Ventas in 2010 for expense overages, NOI was up 14% compared to 2009.

Sunrise also continues to make significant progress towards re-establishing the Company as the leading global brand of seniors housing, and we are pleased with their continued focus on the operations of our communities. The management team has also worked hard to put the company back on solid financial footing. I'm sure many of you saw the announcement in December of their new joint venture to purchase 29 assisted-living communities. This represents the first major investment in Sunrise assets by a new capital partner in several years, and is a major milestone in Sunrise's road to financial recovery.

Turning to 2011 NOI guidance for our Sunrise communities, we expect NOI to range between $152 million and $157 million, the midpoint of the range equals 3.5% growth over $149.3 million in core Sunrise results in 2010. This guidance assumes a rate of growth of about $4 per day in rate, an increase in average resident occupancy of approximately 140 basis points, and stable margins.

Our portfolio of 158 medical office buildings, covering 8.8 million square feet in 20 states and the District of Columbia, accounted for 9% of the Company's annualized NOI. We added to our MOB portfolio in December when we announced the acquisition of five Class A on campus MOBs affiliated with the A-rated state of care health system located in Wisconsin. Importantly, this represented our first acquisition under the combined Ventas and Lillibridge umbrella, so the powerful combination of our two firms, Ventas' strong balance sheet, access to capital and investment team, and Lillibridge's brand, experience and history with highly-rated hospitals and health systems, is resonating in the marketplace.

Focusing on the fourth-quarter performance, our stabilized consolidated portfolio of 63 MOBs achieved NOI of $12.9 million, with occupancies approaching 95%, and margins exceeding 66%. For all of 2010, we also continue to realize high tenant retention rates in the portfolio of 85%. Our Lillibridge portfolio, which we acquired at the beginning of the third quarter, delivered solid results, slightly exceeding our underwritten projections. Second half 2010 NOI represented an annualized yield on investment of more than 8.25%, and our EBITDA purchase multiple for the full business was under 14 times. In addition, we completed the integration of the Lillibridge platform during the third quarter. Todd Lillibridge and his team worked very hard to ensure a smooth transition, and they have been an excellent addition to the Ventas roster. In sum, we are quite pleased with the initial performance of this portfolio, and the value of the Lillibridge platform.

For 2011, we expect our total MOB portfolio to provide stable performance. Our highly scalable platform should continue to provide attractive acquisition and development opportunities for Ventas, and we look forward to providing you with continued positive news in the quarters ahead.

Before I turn to the acquisitions environment, I'd like to spend a moment updating you on our acquisition of Atria, which is proceeding according to plan. When we announced the transaction, we said we expected Atria NOI to range between $186 million and $196 million, and we continue to expect that performance from the portfolio. During the fourth quarter of 2010, the Atria communities continued to trend positively, with gains in both occupancy and rate consistent with our expectations.

With respect to the investment environment, 2010 was a banner year for investments by the healthcare REITs. Many factors contributed to this record performance, including capital access and liquidity advantages for public REITs over private buyers, positive investment spreads over our cost of capital, and private equity funds monetizing their healthcare assets to create liquidity for their investors. As we look forward into 2011, we see many of these trends continuing, and perhaps even accelerating, as private equity funds seek liquidity and operators continue to partner with REITs to access capital, drive consolidation, and achieve scale.

Across all of our property types, seniors housing, skilled nursing, and to a lesser extent, MOBs, there are a number of unaffiliated regional operators that will be looking to align with REIT capital, or sell to strategic buyers. Our sector-leading multiple and investment-grade balance sheet position us well to compete, and we expect to get our share of attractive investments in 2011.

With that, I'll turn the call over to Rick Schweinhart to discuss our financial results.

Thank you, Ray. The highlights of the fourth quarter are that we acquired Sunrise's non-controlling interests in 58 of our 79 senior housing communities for $41.5 million; called and repaid the remaining $72 million on our 6.625 senior notes due 2014; issued $400 million of new 3.125 five-year investment-grade senior notes; purchased five medical office buildings for approximately $37 million; sold one senior living community for $33 million with a $19.8 million gain; collected $14 million on a mortgage note; repaid over $112 million of mortgages; and consolidated operating income was up from last year's fourth quarter and also increased compared to the third.

We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. At December 31, our cash balance was $22 million, and we had $40 million outstanding on our revolving credit facility. Our credit stats remained excellent, with net debt to adjusted pro forma EBITDA at 4.2 times, and our fixed charge coverage ratio in excess of 3 times. Our December 31, 2010, debt-to-enterprise value is 26%.

Fourth-quarter 2010 normalized FFO was $0.77 per diluted share, an increase of 15% compared to the fourth quarter of 2009. Normalized FFO was $121.4 million compared to last year's fourth quarter of $104.8 million. Normalized FFO excludes merger-related expenses and deal costs totaling $7.6 million in the quarter; a gain on the sale of a senior housing community of $19.8 million; the loss on extinguishment of debt of $3.2 million; and non-cash income tax expense.

During the quarter, we modified our management agreements with respect to all 79 communities managed by Sunrise. The modifications included a reduction in the 2010 management fee to 3.5% for the period April 1 through December 31, 2010. The modification also limited certain shared costs charged to the communities. The total savings in the fourth quarter was $7.2 million, of which $5 million is attributable to prior quarters in 2010.

Fourth-quarter normalized FFO increased from last year's fourth quarter due to NOI increases in all three of our portfolios, triple-net, Sunrise managed, and medical office buildings. Triple-net lease revenues grew to $118.2 million from $115.9 million last year, primarily due to contractual escalations. Sunrise managed NOI increased 28% to $42.6 million this quarter, from $33.1 million last year. Excluding the management fee and shared-cost adjustments that pertain to previous 2010 quarters, NOI increased 13% to $37.6 million. Due to the Lillibridge acquisition on July 1 of this year, fourth-quarter medical office property group NOI grew to $18.5 million from $6.7 million last year, including $1.4 million in unconsolidated joint ventures. Sequentially, MOB NOI improved in the fourth quarter compared to $18.2 million in the third quarter.

Weighted average shares outstanding in the quarter, at 158.2 million shares, increased 1% over fourth quarter of last year, and remained fairly flat versus 157.9 million shares in the third. Since year-end, we issued 5.6 million shares of common stock at $53.93 per share, raising $300 million. Full-year 2010 normalized FFO was $2.88 per diluted share, an increase of 7.5% compared to 2009. Normalized FFO grew 11% to $453.5 million from $409 million in 2009. Triple-net lease revenues grew to $470 million from $461 million last year, primarily due to contractual escalations. Sunrise managed NOI increased 18% to $154 million this year, from $131 million last year.Excluding $5 million in cash payments from Sunrise in the second and third quarters for expense overages, Sunrise managed NOI increased 14%.

Due to the Lillibridge acquisition on July 1 of this year, medical office properties group NOI grew to $53 million, including $3 million in unconsolidated joint ventures from $23 million last year. Weighted average shares outstanding for the year at 157.7 million increased 3% over last year. We are initiating our 2011 normalized FFO per diluted share guidance at $3.06 to $3.14. This reflects our Lillibridge acquisition, the Atria acquisition, the positive trends in our Sunrise portfolio, and a 3.75% Sunrise management fee.

At the midpoint of our 2011 normalized FFO per share guidance, if achieved, would represent 7.5% growth. 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 assumption for our 2011 normalized FFO per share guidance is that total Sunrise NOI for our 79 assets ranges from $152 million to $157 million. Our guidance includes the acquisition of Atria senior living, with an assumed closing date in the first half of 2011, but does not include other material acquisitions or divestiture activity; deal costs; capital transactions; losses on extinguishment of debt; FX gains and losses; non-cash mark-to-market derivative income and expense; non-cash income tax expense or benefit; or litigation expenses or proceeds.

Operator, if you would, please open the call to questions.

Thank you, sir. (Operator Instructions) Michael Bilerman with Citi. Please proceed, sir.

Good morning, and I'm here with Quentin Velleley.

Hi, guys.

Debbie, I just want to go in terms of creating this high quality diverse productive portfolio of healthcare real estate assets. Post-Atria, the portfolio by property type is going to be about 60% senior housing, about 21% skilled nursing, just over 10% hospitals, and the remaining medical office, and about half is going to be triple-net lease and 40% will be senior housing. As you think about the potential for transaction activity this year and into the future, where do you want to take that mix, both in terms of type and business model?

Okay, so I guess you've been listening with the whole diverse high quality productive portfolios, senior housing and healthcare assets, because what we're trying to do in order to deliver total return, as you know, we want to deliver good, consistent internal growth, powerful external growth, and then manage risk.And the diversification really is part of both of those sides of the equation, so you're right with all your statistics in terms of what we look like pro forma for Atria. We're very excited that 60% of our cash flows are going to be coming from high end private-pay seniors housing, at a good point we believe in the economic recovery in the cycle.

As we look forward, I think you will continue to see us grow.And when we look at diversification, we're looking by tenant operator, by geography, by revenue and payor source, et cetera, and by operating model, ie, triple-net lease versus higher growth management kind of deals.So I think you'll see us really invest across the spectrum. I think you'll see us continue to be willing to invest selectively, very selectively in high quality post-acute assets, but I think you'll see more of our activities on the seniors housing and medical office buildings fronts, and those will be on seniors housing I think some combination of operating and triple-net lease.

Michael, this is Ray. I'd just add to Debbie's comments by saying, I think right now in the marketplace we're seeing the most activity in the seniors housing space, and to a little bit lesser extent in the skilled nursing area. I think as we look at trends in the medical office building sector and the consolidation that's really starting to ramp up on the hospital side, we could start to see that business accelerate as the year plays out.So I think our three asset classes should provide us with opportunities in sufficient quantity to be very active.

The truth is that in senior housing and in post-acute and in medical office, there's a tremendous dynamism that is going on from integration, consolidation among operators and providers, changing investment rules with REITs, and this is probably the most dynamic sector really within real estate, which is exciting for us because I think it creates opportunities to expand and to create value for stakeholders.

Can you talk a little bit about -- you mentioned Kindred a little bit on the call. As you look at the hospital portfolio and you look at the skilled part, both the occupancies have been trending down, coverage has gotten a little bit weaker, not materially but probably on the other end of where you'd like to see it.And as you think about 2013, which is the next big renewal that they have, and I know there's still a year for them to provide that notice, but how are those discussions going, and how do you think about the portfolio on that side?

Well, one thing I would say is that Kindred is really continuing to improve, and as we've predicted I think be really a winner in the post-acute space as we look forward towards healthcare reform, and just changing landscape as it always is in healthcare. So we're very happy for them, and we're happy for us as well. We have really the best structure with our pooled multi-facility master leases. The best core property-level EBITDAR coverage in the nursing home and hospital sector, with a 4% management fee, I think it's probably about 1.6 times EBITDAR coverage. We have a great quality mix with 70% of the revenue at the asset level coming from Medicare and private pay, so we really like this portfolio.

I think as rents go up, and in the past, the trailing 12 months, we've seen cost containment measures, and so that accounts for some of the modest erosion in coverages.I think you know that our coverages are always a quarter lagging because that's when we get the information, and Kindred and the other operators have had a tremendous fourth quarter buoyed by RUGs for, among other things, and so I think you'll see that really improve as we incorporate property-level fourth-quarter results when we talk to you in the first quarter.

So we feel very good about that. I think Kindred is continuing to invest a tremendous amount of CapEx in the buildings. We're in frequent communication with them on doing more things together, and so I feel good that because the assets are very profitable to Kindred, that we're in a great spot as we look forward with them.

Yes, hi, it's Quentin here. Just a question on Sunrise. If you look at the fourth-quarter annualized NOI out of Sunrise, I think it's about $155 million, which would be at the midpoint of the guidance range that you gave for 2011, and if you think about increasing rates and increasing occupancy, and then a full year of the lower management fees, I would have thought that the guidance range would be higher than that.So I'm just wondering what other drivers there are there that we might be missing?

Yes, I mean, I think one thing that you may be missing is, we're trying to point it out but it's a little bit complicated. We redid our management contract with Sunrise in December, and there was a retroactive expense reduction in the fourth quarter, and Rick talked about it a little bit. The fourth quarter benefited from about $5 million of reduction in expenses that really is in 2010, but for the previous periods.And so what I would do if I were you, in terms of looking at annualizing the fourth, I would take that out of, I think it's, I'd take that out and then annualize.

Okay.

And as we've said, if you take also, and this is even more confusing but still important, we also got $5 million cash payments in the second and third quarters of 2010 for prior years, and if you take that out of the full year of 2010, the midpoint of our guidance for 2011 is 3.5%.So if we end up in the top half of our 2011 guidance, I think you're looking at 3.5% to 5%-ish growth in NOI, which we think is good.

Okay, thank you.

Is that helpful?

Yes, that's good, thank you.

Okay, thank you.

Jerry Doctrow with Stifel Nicolaus. Please proceed.

Thanks. Debbie, just to follow-up on the same item, so the margin, which was 37.5%, all of those extra payments are basically in as expenses and the adjustments, so the actual margin is lower then as well?

Yes.

Okay, and in terms of just actual margin performance on the portfolio, net of all that stuff, I haven't done all those calculations today, are we seeing any issues on the core expense side separate from all of your adjustments with them?

No, I mean, I think when you back out the things that Debbie talked about, expenses have been pretty consistent and pretty stable, nothing unusual.

Okay, and can we get anything more on timing of Atria, other than just first half because obviously it makes a big difference one month or the other.I'm assuming there's some licensure issues and that sort of thing you can't fully control, but is it closer to the beginning of the second quarter, late second quarter, any guidance you can give us?

Well, I think that, again, as you mentioned, there are no issues but -- and it's proceeding according to plan, but we don't control the state licensing authorities or their timetable, and so we're just dependent on that, and we're pushing to close as early as possible, and working it every day, every week with Atria.And we feel confident about the first half, but I think we'll just have to stick with that until we get a little bit more visibility from the licensing authorities, Jerry.

In your guidance, is that a big variable in the range, or what do you assume mid-second quarter?

It does affect it, a month does affect it a penny or so either way, but that's part of the explanation of the range.

Okay. A couple just bigger strategic issues, Debbie, because I know you always worry about this stuff. On senior housing, anything in terms of the proposed changes to Fannie Mae or Freddie Mac that might change the availability of capital and move cap rates, and similarly Medicare and Medicaid, and anything you're thinking about, how are you thinking about that risk as we go forward?

Yes, Jerry, we bond over policy (inaudible), but I would say on Freddie and Fannie, not clear still what is going to happen there. I think they have committed to continuing to support multi-family, of which senior housing is a part. I would say we support the presence of the agencies within our sector. There are pros and cons of course, to the agencies perhaps pulling back from the business. On the one hand, you'd have to get more conventional financing as someone who has great access to capital and a low cost to capital, I think that would be okay for us, and, in fact, we've been trying to reduce our secured debt and going unsecured because that is a positive financial impact for us, and creates better financial flexibility.

To the extent the operators rely on agency financing as well, that could present opportunities for us to invest more capital through triple-net leases and other kinds of investments in seniors housing. All that said, I do think Freddie and Fannie support multi- and seniors housing in a positive way, and so there might be some interim disruption to valuations if they in fact totally exited.So there could be positives and maybe some interim disruption if Freddie and Fannie decide to exit the sector. I think for now we're assuming they are going to continue to be an important participant in multi- and senior housing.

Medicaid, was that the second part of the question?

Medicaid/Medicare, yes.

I think you're seeing the positive impact of RUGs 4 on the nursing home providers in the fourth quarter, which is good. I think we always try to collar the good and the bad in terms of Medicare reimbursement. As you know, it tends to stay in a range that is acceptable but goes up and down every year, and we feel great about where our Kindred assets are.

We're glad that there's a little positive lift from RUGs 4, and I think Medicare generally is going to stay in a pretty acceptable range as far as our position as a landlord and the assets that we have.And on the Medicaid front, I think there's a little bit more question, which is why we feel good about having a 70% quality mix, but at the end of the day it doesn't have a major impact on our coverages really one way or another, and we're expecting Medicaid to be negative one to positive one, so I think we're in great shape on that.

Okay, and last thing for me. You and some of the other executives have talked over the last couple days, have talked a lot about strategic opportunities and consolidation and that, and I guess I was trying to get a little more color. Are there big mega-deals out there like Atria, like ManorCare, or is it more smaller roll-ups? Just a little bit, any additional color you can give us what you're thinking about.

Ray?

Jerry, I think it's both. We're seeing some large opportunities that exist out there, both in the seniors housing and the post-acute area, so I think there will continue to be some bigger transactions, some bigger fish to go after.And then we're seeing a fairly active pipeline of what I'll call middle-sized opportunities between, say, $300 million and $600 million portfolios.And then there's still a pretty consistent flow of smaller, single and two to three property portfolios that continue to come in.So the positive trends in our industry, the availability of capital to the healthcare REITs has, I think, kept deal flow pretty strong across-the-board.

And just to clarify one thing, you specifically included hospitals in that list of potential strategic things, when you talked earlier, Ray?

Well, I think what I was suggesting was the trend towards consolidation in the hospital space could create opportunities for us to acquire hospital-related real estate, which would in most circumstances be medical office buildings, but could also extend to the core hospital itself. I think that's a rarer circumstance, but certainly could be an outcome of that trend.

Okay, thanks.

Thank you, Jerry.

Jay Habermann with Goldman Sachs. Please proceed.

Hi, good morning. [Connor] is on as well.

Hi, Jay.

Debbie, you mentioned the new investments and obviously your cost of capital advantage and the $4 billion of transactions that you've either closed on or identified. Could you talk about just the return expectations as you look out to 2011? How much have things changed in the last 12 months?

Well, I think that often in real estate, the interest rate environment and other things do have an effect, albeit lagging, on what sellers sell for and buyers buy for, and that's been a pretty immutable principle for a while. I would say that over the last year, and even over the last six months, there's been increased valuations, and that was partly why we were willing to really go hard after Atria, which we believe is a really high-end asset that we bought at an attractive valuation.And I think current market conditions are really proving that out.And so I think there has been a little bit of cap rate compression over the last, even, six-month period of time, and we continue to try to look for good risk-adjusted unlevered returns, with an eye on our cost of capital but with a conservative capital structure.

Okay, and you mentioned I think Atria's trending consistent with your views that you've identified. Could you talk about comparing the potential NOI growth of that portfolio versus the forecast you've issued for the year of 3.5%?

For example, compare and contrast Sunrise and Atria?

Exactly.

Yes, we'll be happy to do that. Good question.

So, Jay, the Atria portfolio and the Sunrise portfolio are a little bit different animals along several parameters. Atria is more of an independent-living portfolio, Sunrise is more of an assisted-living portfolio, so they are going through the recovery at different stages in the cycle, the need-driven assets tended to recover a little sooner than the independent-living assets.So the occupancies in Sunrise are higher than Atria's occupancies, which give Atria a little bit better growth potential.

There are also different underlying drivers. One of the key benefits of our Atria portfolio is that they're in very high-end markets in coastal locations. There's an opportunity, as we talked about when we announced the transaction, to redevelop a number of these assets to really drive additional rate and occupancy growth above normal industry standards.And I think when you couple those two factors together, you can get to a growth rate in Atria that, at least in the next couple of years, should pretty well outstrip our Sunrise growth rate.

And again, remember that Atria has already redeveloped a number of these assets. They came on for a partial year, say, in 2010, and so they will really have high growth rates in 2011, and then there were other assets that just came on that we should see higher growth rates in.So this is embedded within the portfolio that we're acquiring.

Helpful.And then on the MOB side, can you talk about what rent growth expectations you anticipate for those lease rolls?

Yes. This is Todd. Two fronts. One, I think we see, given contractual rent increases in the 2% to 3%, and I think we continue to see pressure on new leasing, albeit given the marketplace around consolidation both in terms of the providers as well as the positions themselves.So again, I think we're going to see pressure around rent increases, but we've put a number of tactical elements in place to thwart that activity, and we do have new leasing occurring, and so that's on that end is very positive.

Right. It's a good stable asset class, and I think we'll be able to drive growth through the scalable platform. That's the thesis on the investment.

Okay, and just final question, on the loan receivable from ManorCare, is there any expectation that gets repaid this year?

Yes, definitely. We've modeled that in as a receipt in the first half, assuming that the whole ManorCare debt piece gets paid off.

Okay, thank you.

And that's $112 million-ish, I think.

Yes, thank you. Okay, thank you.

Rob Mains with Morgan Keegan. Please proceed.

Yes, thanks, good morning, everybody.

Hi, Rob.

Ray, want to make sure on the Sunrise I heard you right. $4 a day ADR, and did you say 140 basis points occupancy?

Yes, that's right.

Okay, is that occupancy number, is that year-end to year-end or is that average over the year?

That's average over the average.

Okay, what was the average for the year on that? On the portfolio in 2010?

It was 89.1%.

Okay, so still seeing an increase from the fourth-quarter levels?

Yes.

Okay, and then in terms of pricing, I know that it's been a little bit of a challenge in an environment where occupancy has been soft. Now that we're above 90%, where do you see the opportunities to maybe push price to something more in the 4% or 5% range?

Certainly, we're very focused with Sunrise in going through our portfolio asset by asset, and even unit by unit within each asset to identify which of the properties and which of the units are the most desirable, to make sure that we're driving rates on those assets.And so that's a big focus of our asset management team this year. We're hopeful that we can drive above market-rate increases in those assets, but remember that the portfolio as a whole is coming out of the recession, and as we do that, there will be some residents that have been in for a long time whose rates have escalated quite a bit that we'll be rolling off.And we'll be picking up new residents coming in, so that will potentially have a dampening effect on the amount we can drive growth, even in a rising occupancy environment, but that should be temporary.

Okay, and then just one question, a follow-up on the acquisition environment. Skilled-nursing facilities, a couple events obviously a really big transaction was announced, and then also as you alluded to the favorable experience operators have had to date under the RUGs 4 system. Are you seeing that being an impediment to deals getting done in terms of unrealistic pricing expectations?

Well, one thing that we have really pounded the table on for a long time is that these cash flows from very well covered, well structured top of the capital structure master-lease rents should get a lower cap rate, if you will, lower discount rate, higher valuation.And again, there's a lot of different nursing homes as you know, and a lot of different operators and a lot of different structures, and so in some ways, I think the enhanced pricing on nursing home assets is something that we welcome and support, and have been a proponent of for a long period of time.And so that's to the good side.

I think we continue to take a very strict underwriting view toward coverages and structure and everything like that on nursing homes because as we know the changes in Medicare and Medicaid over time do create some significant ebbs and flows in operator cash flow, and we always want to know that our rents are money good and very collectible, and that our tenant is very credit-worthy.So in our mind, the valuations are for the right kind of assets fine, but asset valuation, you really need to get great assets, they need to be very carefully underwritten, need to be a great operator, and you need to have a very tight structure.And so that's how we look at the business, and it served us very well for a long period of time.

That's very helpful. Thanks a lot.

Thank you.

Dustin Pizzo with UBS. Please proceed.

Hi, everyone, good morning. It is Ross Nussbaum here with Dustin. I apologize if this was asked. Unfortunately, I think a lot of us were kicked off the call about 15 minutes ago.

Oh, I'm sorry, well, welcome back. If it was asked, we'll do our best to answer it again.

Not a problem. So obviously over the last six months or so, we've seen a ton of RIDEA-like structures, and my question is in a broader context, is the sale lease back structure dead for assisted living? Is every regional operator out there saying -- let me turn into a manager, maybe with a small ownership position? I mean, is RIDEA that much of a game changer?

Well, I think that, as you know, we started this management structure when we acquired Sunrise in 2007, and to directly answer your question, the sale lease back business is alive and well, and we're looking at some transactions like that and we're looking at some transactions that would be more in a management structure. I think each deal has to stand on its own. Each seller has its own objectives, and we have our own objectives for us.It's not an accident that these Atria and Sunrise very high-quality assets, which we've said and I hope you didn't miss that, we believe deserve a multi-family valuation. It's no accident that those are the assets and the operators and the markets that we have in our management structure, because we believe they provide higher long-term growth and lower downside risk, and that's where you want to do a management contract.

The difference, for example, for skilled nursing where I think you would want to do a triple-net lease, and some other kinds of senior living assets and some other kinds of operators, you'd want to do a triple-net lease deal. So I think each transaction has to stand on its own. I think it's great that we have different structuring arrows in our quiver, and can continue to provide customized solutions for our operating partners, and that creates more opportunity and more deal flow, and that's partly why, again, we're poised to continue to expand. I think having these different options helps deal flow and transaction activity because there's more ways to make the lines cross and provide solutions that work for both parties.

And I'll just add to that, from the operators' perspective, I think different operators will value different things in a particular transaction. Some people really want to capture the upside, and for them a lease transaction is an ideal solution for that. Some people just want to generate stable fees, and for them perhaps a management structure is more attractive.And I've always said to operators when I sit down with them and talk about different capital structure alternatives for them, they should have a little bit of all.They should have some assets they own, they should have some assets that they lease, and they should have some assets that they manage, because that gives them the most balanced and flexible capital structure, and I think that's how most of the operators are trying to approach it.

Okay, and part two of that question is, Debbie, I did catch the comment on multi-family valuations and that comparison.

So you got it twice.

There you go. How do you think about, clearly the CapEx on assisted living, it looks like it's been running higher than multi-family, so if we want to make a comparison we should probably do it on a post-CapEx basis, and on that front senior housing is probably still higher but not as wide as it may seem. Would you agree with that?

I think that you certainly, we couldn't argue with the methodology that took recurring CapEx into account in the business. I think you'd have to compare for example, in the case of Atria, the CapEx that would be similar to a portfolio in New York or Boston or things like that, and then do the computations, I think you would still find that the senior housing has a higher cap rate, ie, lower valuation.And I think over time you will see those potentially converge because the trends are very strong. The asset quality is very strong. The demographics demand is excellent, and so I can see those cap rates converging over time, admittedly taking CapEx into account.

Okay, fair enough, last question for me. Life science, where is your thought process on that segment of the world right now in terms of life science office?

It hasn't changed. I think we've said that that's an area that's of interest to us. We believe it has a place in a healthcare REIT portfolio. We have looked at a number of different opportunities, but we're still trying to identify the right partners and entry point into that space.

Thank you.

Thanks a lot.

Jim Sullivan with Cowen Group. Please proceed.

Thank you, good morning.

Hi, Jim.

A question for you, want to make sure I can paraphrase this, been a lot of discussion about senior housing and the margin comparison, and I think in the prepared comments, the phrase was used in terms of your guidance that you'll project margins to be stable, but of course, there was so many things going on in 2010 between the expense adjustments as well as the positive impact at the operating level. I just thought I'd try and get a start of trying to phrase what's going on with how we should think about it, but the stable margin I guess means back out the one-time expense items in 2010, reflect the higher management contract rate per your agreement, and that that would be offset by the positive operating trends. Is that the best way to think about it?

Jim, first let me just clarify with respect to stable, I was referring to the Sunrise portfolio margins, and yes, I think the way that you're thinking about it is right if you backed out the one-time items.What we're looking for going forward would be a stable margin off of that rate.

Okay, good, thank you. And then in terms of the MOB portfolio, just a couple of questions. First of all, I think the comment was that you would expect stable performance. I wonder if someone could address the outlook for the non-stabilized portion of the MOB portfolio, number one.And then number two, there was the indication that there would be more activity in terms of acquisitions and development.And I guess maybe if Todd could address this, moving from the private to the public world with the access to capital that he now has, how he thinks about maybe the shape of his portfolio changing as more deals become possible in the current environment.

Sure, Jim. First question, really a non-stable, we had six in the portfolio compared to 63 in our stable portfolio, which again is enjoying a near 95% occupancy. We do see growth in our non-stabilized portfolio, which is currently almost at 74% and rising, and we predict that to increase here this calendar year.

On the acquisition front, we are seeing a series of opportunities, although I think what's important to us is we remain very consistent with both our investment thesis, which quite frankly is what we've brought forward from Lillibridge, but also very consistent with the legacy business that Ventas built.So we don't see, Jim, a change in our approach in investment and type of assets that we have been familiar in developing, let alone acquiring.Again, the combination of not only high occupancy, but again, portfolio-wide we have a 90% on-campus percentage of assets, which again continues to be very important, especially in this time of consolidation both in terms of hospitals and physicians.And we've enjoyed, this past year, an 85% tenant retention, which I think is also a very important statistic even given the comment I made earlier on this downward pressure on rent.So, we're seeing opportunities, but I think what's important is that we've been at this long enough to know what not to buy, and we've seen through at least a good downturn both economic and through consolidation, again, what to stay away from and what to pursue.

On the development front, I think as you know, development activity dropped off considerably across the country with the rebalanced, if you would, of the balance sheets, and the pressure of the finance community for not-for-profit healthcare in particular at the early end or end of 2008, if I would.I think what we're now seeing is a pick up, although capital remains very scarce, especially with a number of the major systems, but we are seeing more development activity. We currently have two projects under way, we have three additions that we've awarded, we have a pipeline of five additional, and you put all of that together it's a little under $200 million in total development projects. A majority, I will say, are for fee, which will be generating fee revenues, but I would say a majority of the pipeline opportunities are for ownership.

There's no doubt obviously Lillibridge having the strength and capital, and quite frankly the flexibility that we at Lillibridge didn't have as a private company, so having great access, great cost of capital is certainly key.And obviously we're combining that to leverage our brand, our history, our diversified portfolio, which is now across 20-some-odd states and about 60 different markets.So we're excited about what lies ahead in our side of the business, but we also know we're going through a period of time of transformation, and it's important we make the right deals.

Good, thank you.

Thank you.

Bryan Sekino with Barclays. Please proceed.

Thanks a lot, good morning.

Hi, Bryan.

Just wanted to follow-up on the margin question before, and I think you said your margins would be stable excluding the impact of the overage expenses in 2010. For your guidance, you're giving growth in the occupancy, as well as on the rate. Is there something on the cost that you can call out as to why we can't see some margin increases in 2011 similar to what you got over the last year?

No, Bryan, I think as we look at the expenses, there are a number of things that potentially could be increasing this year, utilities and food come to mind, as potential expense drivers, but I think we're looking at a 4%-ish year-over-year expense increase, not entirely inconsistent with what we've seen historically.

Okay, thanks a lot. That's it for me. Thanks.

Dan Cooney with KBW. Please proceed.

Good morning, guys.

Hello, Dan.

I guess if we could just stay on the margins with Sunrise, I know it's a little early to talk about 2012, but do you think it's likely that we'll actually see margins contract a little bit just as the management fee structure returns to that 6% level?

So again, we are going to have a 3.75% management fee in 2011, and then we have a structure where the management fee would be between 5% and 7% in 2012, depending on where portfolio performance is on the NOI line.And I think what you'll see is, it depends, if the portfolio is occupied at 95% in 2012, I think you'll see perhaps some, but very limited, margin contraction year-over-year.But at that point, and if not you'd see a little bit more margin contraction, obviously as -- if you move the 3.75% management fee to 5%, you lose a little bit on the NOI line.But what we're really looking for ultimately is continued demographically-driven strong demand for these assets with rate increases and increasing NOI, and we feel good about that long-term projection.

Okay, great, and then just on the Lillibridge side, can you maybe talk a little bit about the potential to consolidate the ownership of that portfolio? If you look at your partners there, are they likely long-term owners or more likely to be looking for an exit over the next year or two? Thanks.

Well, that's a good question because when we bought the 96 Lillibridge assets, there's a wholly-owned portfolio that Todd mentioned being 95% or thereabouts occupied, and then we own [5%] and 20% of a portfolio, and we're the managing partner of that, where pension fund capital owns the balance, and we have a right of first offer on the balance of that portfolio.And over time, I think it could generally be assumed that these are limited life investments, we're very happy to have them as our partner now, but over time if they choose to divest, I believe we would be the appropriate counterparty for consolidation.

Okay, great. Thanks.

You're welcome.

Rich Anderson with BMO Capital Markets. Please proceed.

Good morning, and sorry to keep things going, but I have a few questions.

No, we're happy to have you join us.

That's why they pay you, right, to deal with people like us. Sunrise --

They pay us to make money for shareholders.

Well, that's true.

And this is just an added benefit (laughter).

I want to ask the obvious question on Sunrise, if I could. Isn't there like a fair amount of conservatism being dialed into this? You're going from 18% to 3% growth year-over-year. I understand all the metrics and all that stuff, but if the business is really buzzing now, and you have a lot of good things going on within the assisted-living business overall, aren't we really just being super conservative?

Remember when you were pitching, and the umpire said we call them like we see them, and I would tell you that we are doing the same with respect to both our Atria acquisition and our Sunrise projections. I think we really are giving you our best view as to what the portfolios will deliver, and again, at the midpoint it's 3.5% growth if you take out the $5 million of cash payments we got in 2010 that related to prior years.And we are working with Sunrise, as Ray said, to really try to drive that higher, but we don't want to commit that it will be higher because we want to deliver to you consistent, reliable projections that we think, again, with our guidance we're at 7.5% per share FFO growth, that's pretty outstanding I would say, and we're calling it like we see it.

We think Atria has higher growth. Maybe we'll be wrong on both fronts, and Atria will be a little bit less and Sunrise will be a little bit more, but right now we think Atria is in the high single digits for the reasons Ray articulated, and we think Sunrise at the midpoint's about 3.5%, and we'll work our Asset Management department to death talking to Sunrise to try to drive that number higher, but right now that's where we see it.

Does a full year of Steeles fully occupied move the needle on the overall number?

Not particularly. It's maybe $1 million or so.

Okay. A question on RIDEA, and a conceptual one that I come back to almost every quarter, but I assume you wouldn't have wanted to have, or be tied up with a RIDEA structure in, say, 2000 and 2001 when the assisted-living business went to hell, or heck, I'm sorry. And that's what I'm worried about with all of this, and I'm wondering how you feel about RIDEA, not so much for now when things are going well but for the next 10 years when you can have over-building in assisted living, and you could have problems while the pool of potential residents is much smaller than it is for multi-family.And so just wanted to comment, if you could comment on that for me.

This is an important question, I think that we think a lot about, and what we are trying to do is really about portfolio management, and creating a diversified and again, diversified by business model, by geography, by payor source, by operator, a diversified portfolio that will deliver consistent performance over long periods of time and in different cycles.Because the cash flows come from different sources, from different people, and maybe some are more granular and have higher growth in an economic recovery and lower growth in a recession, as you point out. I think we have confidence in assets that we've put in a management structure with Atria and Sunrise. We do think the fundamentals in seniors housing are positive in the near and intermediate term because there's very limited supply and there is growing demand.

We think they are great operators with the ability to give us good public company reporting information, good data, so we feel really good about that, but the key point is that overall, we're creating a high-quality balanced portfolio that's going to have growth from triple-net contractual escalations and hopefully higher growth from these management deals with Sunrise and Atria, and we'll be able to perform and do well in all environments. That's what we're trying to create. I think we're not trying to go all one way or all another way.

I would remind you relative to your stated worry, we are in a good time in the cycle, and you need to think about the fact that you love multi-family, multi-family is an all-variable business, and again, commands a very high valuation despite the fact that it ebbs and flows with economic cycles. So I think we feel good about the balance that we're creating, we feel good about the high-quality assets we own and that we're trying to acquire, and the structures we're putting them in, as well as the operators.And hopefully we'll be able to maintain that balance and tweak it as we see where we are in the cycle with different kinds of asset types, and continue to drive value through that portfolio management.

I think the population of potential residents for senior housing though is a bit more fragile than it is for multi-family.

But when you say that, the over-85 population is the fastest growing. Both are very demographically-driven that over-85 is the fastest growing segment of the population and there's limited supply, so they are fragile people and individuals in health potentially but --

No, I don't mean it that way.

But the demographic data is very strong. It's analogous to the echo boom thesis in multi.

Well, growth off of a smaller number looks big in percentages, I guess that's the way I would say that.

Okay, good point, but anyway, does that address not this last part of the conversation, but the earlier part about portfolio management and balance, and high-quality assets that are, does it help answer your question?

It does, but still you're going to be close to 40% RIDEA when Atria is done, and if today we were to have the problems in 2000 again, that would really hurt you guys. That's a big number, 40%, and that's my only point. I'm not saying it's not going to be --

Well, there's a couple of points I think, Rich, I'd like to add to what Debbie said. One, we've been very careful as we constructed our portfolio to select assets that are in higher barrier to entry, in-fill locations, major metro areas, so our RIDEA portfolio is constructed around that profile.

The second point I think is that there really hasn't been very much new construction in the seniors housing space. There's not a lot of available capital for it at the moment, so at least in the near term, to get that stuff started, to get it out of the ground and open and start leasing up, we are a ways off from that, even if it were to start today, and there's really no signs of it starting today or any capital available to really do it in any scale. So I think that's why we are comfortable with being where we are in the portfolio at this moment in time.And as Debbie said, we're constantly monitoring the market conditions and adjusting our portfolio as we grow and diversify.

And just before we close this topic, thanks, Ray, I just do want to add one thing. If you look at the performance of the Sunrise portfolio through the financial crisis, the recession, and Sunrise's corporate challenges, the variability of the NOI was about $10 million or so in a given year, and that's with our current NOI is about 708 in the denominator, and with Atria would be maybe closer to 900.So if that variability is in, if it continues to be in that range of variability for Sunrise and maybe a similar range for Atria, we're really talking about a very manageable variation in annual cash flows at Ventas.And again, that's what we're trying to create, which is an entity that can deliver good performance in different kinds of environments, growth year environments and more challenging environments.

Does that put it in context for you?

Don't get me wrong, I think your business and your peers is quite good. I just try not to ask questions like how great will you become (laughter). And then the last quick one is on the Kindred deal, with their acquisition, do you see that providing a pipeline of potential acquisitions for you guys?

Yes, I think we really have a good, we've developed, and I give a lot of credit to Paul (inaudible), a very excellent working relationship and partnership with Kindred now.And one of the benefits, honestly, of growing Ventas is that we will have the opportunities to do business with Kindred, and I know that Kindred trusts us to deliver for them, and I would hope that in a larger scale that we have that we do have more opportunities to do business together because of that relationship of trust that has developed between us.

Great. Thanks very much for the color.

Thanks, Rich.

Thank you, ladies and gentlemen. I would now like to turn the call back over to Debra Cafaro for the closing comments.

Thank you, Angela. Look, if you can tell from all of our comments, we're tremendously excited about the future here at Ventas, and the landscape in the healthcare and senior housing business. I really believe that the sector is the most dynamic in all of real estate, with a large and growing, highly fragmented business, growing demand from the over-85 population and baby boomers, consolidation among both asset owners and operators, integration of post-acute care, healthcare reform, the need for increased capital sources among both healthcare systems and senior housing care providers, as well as evolving investment rules on the healthcare REIT front.So this environment is very compelling for us because if we are right about having cost of capital advantages, experience, resources, and the right team, I think we can really make the most of this external environment, and create long-term benefits for all of our stakeholders.

So, we really appreciate your participation today. We thank you for your support, and we look forward to seeing you soon. So, thank you.

Ladies and gentlemen, this does conclude today's presentation, and you may now disconnect. Thank you very much, and have a wonderful day.