芬塔 (VTR) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Ventas earnings conference call. My name is Erin and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Ms. Lori Wittman, Vice President, Capital Markets. Please proceed, ma'am.

Thank you. Good morning and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter and year ended December 31, 2012.

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 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, 2011, 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.

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

Thanks, Lori, and good morning to everyone. Welcome to our year-end 2012 earnings call. I'm delighted to discuss the highlights of our successful year and our expectations for a strong 2013. This morning, Ray Lewis will also discuss our portfolio performance; and Rick Schweinhart will review our financial results in detail. Following those remarks we will be happy to take your questions.

2012 was a year of successfully executing our strategy and harnessing the power of the diverse assets, platforms, and people we acquired over the past several years to deliver outstanding results for our stakeholders. Our total return to investors for the year was over 22%; and over the last 13 years Ventas has delivered 32% compound annual returns to shareholders.

As you know, we have built a balanced business model to provide consistent, superior returns in a variety of economic, reimbursement, and capital market environments. And our performance demonstrates the success of that approach. Ventas total return has exceeded the US REIT index and the S&P 500 in each of the trailing 1-, 3-, 5-, and 10-year time periods.

Our strategy is simple and consistent -- increase diversification and private pay assets in our portfolio; grow cash flows; maintain financial strength and flexibility; improve our cost of capital, make disciplined investments; and actively manage our portfolio and enterprise risk. At Ventas, we strive to achieve and sustain excellence so that we can provide consistent, superior total returns to investors.

Our drive for excellence is supported by three key activities -- allocating capital, raising capital, and asset management. Here are a few of our 2012 highlights.

Our full-year financial results were outstanding. Normalized FFO for the year was $3.80 a share, up 13% from last year; and total FFO grew 44%. Importantly, excluding non-cash items, our normalized FFO per share grew 10%.

We completed $2.7 billion of investments, which were generated from all parts of our business including existing, NHP, Lillibridge, Cogdell Spencer, and Ventas relationships as well as new customers. 97% of these investments were in private pay assets.

Our cash unlevered yield on our 2012 real estate investment approaches 8%. We also improved our cost of capital during the year. We raised $2.6 billion in debt capital in 2012 at an interest rate of just over 3%. And our balance sheet remains pristine, with debt to total capitalization a strong 31% at year end.

Our asset management group and our quality tenant/operators continued to drive portfolio performance this year. Same-store cash NOI in our portfolio grew 4.4% year-over-year, normalizing for the scheduled increase in the Sunrise management fee during 2012. And that doesn't even include the outstanding high single-digit NOI growth in our Atria managed assets which we acquired mid-2011.

As expected, we have completed signed agreements for all 89 licensed healthcare assets whose lease term comes up for renewal on May 1, 2013. This is a great example of our disciplined approach, our active portfolio management, and our team's execution capabilities. We project that rent and reinvested sale proceeds on these assets should approximate $125 million in 2013.

Notably, in 2012 the Company generated $1 billion of cash flow from operations, a real milestone for us. Excluding litigation proceeds we received in 2011, cash flow from operations grew 74% in 2012, while our share count grew only 28% year-over-year. Even after paying dividends to our shareholders and funding recurring CapEx, retained cash flow approximated $200 million in 2012 that we redeployed toward income-producing activities.

Finally, at the end of the year, we made a strategic investment in Atria Senior Living, the nation's fifth-largest senior living provider. As the senior living business continues to evolve, grow, and consolidate, Ventas is poised to enjoy a meaningful role through both our real estate ownership and senior housing assets, our relationship with multiple leading care providers, and our strategic investment in Atria.

Today we announced our 2013 normalized FFO guidance of $3.99 to $4.07 per share. At the midpoint of the range, our normalized FFO guidance represents 9% growth per share, excluding non-cash items. We expect net operating income, or NOI, to exceed $1.6 billion in 2013.

As a result of our successful performance in 2012 and our confidence in cash flow growth and our business, we are pleased to announce an 8% increase in our dividend to $0.67 in the first quarter. Ventas's compound annual growth rate for dividends has been 8% for the last eight years; and yet we retain one of the best, safest payout ratios in our sector, with room for future dividend growth. We believe that our dividend is an important part of the total return proposition we offer to our shareholders.

The healthcare and senior housing investment market remains very active, and we continue to see significant opportunities from this $1 trillion market that is growing, highly fragmented, rapidly changing, and consolidating. It is also supported by significant demographic demand.

Opportunities for external growth abound, yet we can never predict with certainty the timing or volume of our investments. We do know that our investment professionals will bring home more than our fair share of good deals that create value for Ventas and offer our sellers a reliable, customized capital solution that meets their needs.

Finally, I want to publicly thank and recognize the Ventas team, which is a deep, experienced, skilled, and cohesive group. Working together, they produce outstanding outcomes for our constituents year after year; and 2012 was no exception. We will continue to raise the bar in 2013.

Thank you, Debbie. Our diversified and productive portfolio of 1,442 seniors housing, medical office, and postacute properties turned in another year of very strong performance. For the full year, our same-store cash NOI grew by 4.4%, normalizing for the 2012 scheduled increase in our Sunrise management fee.

So our portfolio continues to deliver consistent, reliable cash flow growth; and I would like to take a few moments to share the highlights by segment. Let me start with our portfolio of 220 high-quality, private pay seniors housing operating assets.

The total seniors housing operating portfolio delivered $386.6 million of NOI after management fees in 2012, and $455.8 million before management fees, growth of 38.6% and 44.1%, respectively, versus the prior year. Excluding properties acquired in the fourth quarter and not included in our previous 2012 guidance, NOI totaled $386.2 million compared to our most recent range of $383 million to $385 million.

Our results outperformed the top end of the range due to better than expected occupancy in our Atria portfolio and better than expected REVPOR in Sunrise. Expenses in the fourth quarter increased in line with our expectations.

Occupancy in the 212 stabilized properties finished the quarter at a very strong 92.1%. If we include a full year of results for Atria in 2011, average occupancy in the 194 same-store communities increased by 255 basis points to 90.1% in 2012.

NOI before management fees was up 8.8% to $427.7 million. Importantly, each of our same-store Atria and Sunrise portfolios had both occupancy and REVPOR growth in 2012 versus 2011. NOI before management fees for the 194 property same-store portfolio increased 6.2% in the fourth quarter of 2012 to $107.3 million, compared to $101 million in the fourth quarter of 2011. Occupancy increased 360 basis points, and REVPOR increased 2.6% in the fourth quarter of 2012 versus the fourth quarter of 2011.

Occupancy in the 200 property same-store stable portfolio grew 130 basis points sequentially from the third to the fourth quarter of 2012, and REVPOR was essentially unchanged. For 2013, we expect total NOI for our Atria and Sunrise senior housing portfolio to range between $430 million and $440 million, representing a same-store NOI growth rate of between 5% to 8% year-over-year.

As you can see from our results again this quarter, trends in the seniors housing industry remain positive and the fundamentals are among the best of all real estate sectors.

Next I'll turn to the performance of our triple-net lease portfolio which is diversified across 842 seniors housing, skilled nursing, and hospital assets. Same-store cash NOI was up 3% for the year. Cash flow coverage in the 374 properties in our same-store triple-net lease portfolio for the third quarter of 2012 (sic), the latest available information, was strong at 1.6 times; and our Kindred coverage remained strong at 1.9 times.

We are extremely pleased with the results of the re-leasing process for the 89 healthcare facilities up for renewal May 1, 2013. Kindred renewed or entered into a new lease for 35 of these facilities. Of the remaining 54 assets, 49 have been leased to seven qualified nursing operators and five are under contract for sale. All seven of the operators are well-respected private regional companies. Three are existing Ventas customers which came through the NHP merger; and four are new relationships.

The rent and reinvestment proceeds on these assets should total $125 million in 2013. Six of these assets have already been transitioned successfully to their new operators. The remaining assets are on schedule.

Post-transaction, we expect to Kindred revenues to represent about 8% of our total. As you can imagine, a lot of work went into this process; and the expected successful outcome is a great testament to the abilities of our asset management and legal teams, who worked tirelessly to get us to this point.

Lastly, I would like to briefly discuss Ventas's MOB portfolio of 300 consolidated properties spanning over 16 million square feet and accounting for 17% of our annualized NOI. Here are a few of the MOB segment highlights for the fourth quarter.

Total portfolio NOI grew to $227 million, up from $106 million in 2011, due primarily to a full year of NHP results, approximately $1.2 billion of MOB acquisitions, and internal cash flow growth during 2012. Cash NOI in the 69 same-store consolidated MOB portfolio increased 2.2% year-over-year. And the 173 assets that we owned in the second half of both 2011 and 2012 increased 2.5% year-over-year.

Occupancy in our 285 stable MOBs was a very strong 91.9% in the fourth quarter. Importantly, we continue to make progress in our lease-up portfolio, with the same-store occupancy improving sequentially by 200 basis points in the 13 properties owned in both the third and fourth quarters of 2012.

Finally, our consolidated MOB portfolio has grown from 9.3 million square feet at the end of 2011 to 16.1 million square feet at the end of 2012. Our MOB team has done an outstanding job of integrating Cogdell Spencer and the other acquisitions completed last year, and optimizing our portfolio operations.

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

Thank you, Ray. In the fourth quarter, we invested over $1 billion in senior housing communities, medical office buildings, and secured loans. We also extinguished our $44 million obligation related to the earnout arising out of our 2011 acquisition of the portfolio of Atria-managed senior living communities.

To fund our investments, we entered into a five-year $180 million term loan at LIBOR plus 120 bps and issued $925 million of senior notes -- $700 million 5-year at 2%, and $225 million 10-year at 3.25%.

For the full year, including development, redevelopment, and CapEx, we invested almost $3 billion. To fund this investment we issued a little over $340 million of equity and $2.6 billion of debt at a stated rate of 3.2% with a weighted maturity of 7.7 years. Our revolver balance at year-end was $541 million.

Now let me focus on fourth-quarter results. Fourth-quarter 2012 normalized FFO was $0.99 per diluted share, an increase of 11% compared to the fourth quarter of 2011 per share results of $0.89. Normalized FFO increased 13% to $294 million compared to last year's fourth quarter of $259 million.

Fourth-quarter 2012 normalized FFO increased from last year's fourth quarter due to our $2.7 billion in 2012 investments. NOI increases in all three of our segments, offset somewhat by higher interest expense due to higher debt balances from our acquisition activity.

On the expense side, our average cash interest rate improved 70 basis points to 4.1% at December 31, 2012, compared to December 31, 2011. In total, consolidated interest expense increased to $77 million this quarter from $67 million last year, reflecting all of the debt activity in the last four quarters.

Looking at sequential results, normalized FFO increased $8.7 million to this quarter's $293.6 million, primarily due to third- and fourth-quarter investments and an increase in interest income on loans due to a note repayment in excess of carrying value, and lower G&A expenses, partially offset by an increase in interest expense to fund our investments.

Since September, we have closed or collected about $120 million due to asset sales, proceeds, and investment and loan repayments. The weighted average cash yield on these dispositions and loans was 7.7%.

Comparing full-year 2012 to 2011, normalized FFO increased 44% to $1.1 billion compared to last year's $777 million. Normalized FFO was $3.80 per diluted share, an increase of 13% compared to 2011 per-share results of $3.37.

Non-cash items totaled $0.20 a share in 2012, as detailed on page 12 of the press release. Weighted average shares outstanding for 2012 were 295 million shares, up 28% compared to 2011.

2012 normalized FFO increased from last year due to our $2.7 billion of investments in 2012; the full-year effect of our 2011 investments; and portfolio NOI increases; partially offset by higher interest expense; increases in G&A; and the Sunrise management fee and income reductions from our asset sales and loan repayments. We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. Net cash provided by operating activities increased 28% to $1 billion for 2012 from $773 million in 2011, and 74% if you exclude the 2011 litigation proceeds.

At December 31, our credit stats were outstanding, with net debt to pro forma EBITDA at 5.4 times, our fixed charge coverage ratio in excess of 4 times, and debt-to-enterprise value at 31%. In December, Moody's raised our Stable outlook to Positive; we are currently rated Baa2 Positive.

We are initiating our 2013 normalized FFO per diluted share guidance at $3.99 to $4.07. At the midpoint of the range, that is growth of 6%, and 9% excluding non-cash items. 2013 non-cash items are currently estimated to total $0.12 per share as detailed on page 12 of our press release.

Our 2013 guidance assumes about $100 million of acquisitions under contract; about $300 million of dispositions and loan repayments; and $400 million of debt financing. The guidance does not include the impact of additional capital transactions or unannounced acquisitions.

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

(Operator Instructions) Jeff Spector, Bank of America Merrill Lynch.

Good morning. This is Jana for Jeff Spector. I was curious, Ray. In your expectations for 2013 guidance, what are you thinking about same-store NOI growth for the MOB portfolio and the triple-net portfolio?

For the MOB portfolio, it will be plus or minus 3%. And then in the triple-net portfolio, 2% to 3%.

Thank you. It looks like you have some MOB leases rolling over. I was just curious if you could provide an update on those.

Yes, if you look in the supplemental at our lease maturity schedule, and you look at what we've got coming up in 2013, it is about 11% of the total MOB rent, which is pretty consistent with historical levels there. So it is just normal ordinary course.

Thank you.

Michael Carroll, RBC Capital Markets.

Yes, now that your Kindred 2013 expirations are done -- congratulations on that, by the way -- when does the next pool of Kindred leases expire? And when do you expect to approach them about a potential renewal?

We are very pleased with our efforts to re-lease the 2013s as we expected. Those transitions, as Ray said, have begun and will be continued, and we expect to complete that process for the 2013s in the coming months. The next pool of assets that are subject to renewal would be in mid-2015.

So when do you typically approach the tenants about a renewal? Or when does those discussions start?

Well, the important point to remember about the Kindred master leases is that those master leases and the structure of the master leases is set up to protect Ventas. Relative to the 2015s, Kindred has five-year renewal options; and that option would have to be exercised no later than April of 2014.

If Kindred chooses to renew, the leases would carry on at an escalated basis starting in 2015. And if they do not, then of course our team will get back to work and re-lease those assets as we are doing right now for the 2013s.

Okay. Then with your skilled nursing facility coverage ratios down to 1.7 times right now, where do you -- or do you have a sense where those ratios will stabilize after the litigation efforts are fully reflected in the coverage ratios?

As you know, this quarter in the supplemental represents the first quarter where the trailing 12 months fully reflects the loss of the RUGs IV revenues that the nursing home operators got in the prior calendar year. So this is a level where, at least relative to prior sequestration or prior any other changes, we think is a stable level of EBITDARM coverage at the 1.7.

So you think this -- going forward next quarter or the next few quarters, once the mitigation efforts begin to be fully reflected you are not going to see too much improvement from the 1.7 mark?

That will depend, again, on what changes -- positive or negative -- you see in the forward reimbursement environment and what the cost structure of the operators is, and how those interrelate with each other. But we think this is a relatively stable level for the time being.

Okay, great. Thanks.

Jack Meehan, Barclays.

Hi, thanks and good morning. Could you talk about the types of things you are doing around expense management and the shop portfolio? It looks like expense for the same-store stabilized assets increased a little under 9% year-over-year.

How much of that was tied to the growth in occupancy? And I am guessing only about 200 bps is the higher management fees.

Yes, the management fees do account for a big chunk of those expense increases. We work very closely with our operators to manage the expenses.

You would also expect to see, as occupancy increases by 360 basis points, that your labor, which accounts for about 60% of the expenses, would increase as well. So I think when you factor in the labor increases and the management fee increases and look at the balance of the expenses, they would be within normal tolerances.

Got you. So it would be fair to say maybe 300 bps of that is related to maybe performance incentives or improving occupancy in the fourth quarter?

Well, remember the change in the management fee has to do with the scheduled increase that took effect in 2012, because we had a 3.75% benefit in 2011. So that was a significant portion of it when it reverted to a contractual 6% level in 2012. And then there was some amount of incentive management fee because the Sunrise assets obviously did exceptionally well.

Got you. Okay. Then I guess more of a strategy question. We have seen some really good growth metrics in the RIDEA portfolio and the outlook for 2013 is positive. Would you ever look to convert some of the triple-net leases over to operating assets? Or will you look to grow shop more through new investments?

That is an important question. We have had a very defined strategy around senior housing operating assets, which the market often refers to as RIDEA. Our strategy there has been to get the highest and best-quality assets with the highest growth potential in the best markets with the best operators that has, simply stated, the most growth potential with the most protected downside.

That has really been our Atria and Sunrise portfolio. And that strategy is working with those high single-digit growth NOI levels that we are seeing. So the most important part of our strategy is really, when we acquire things, what assets and what operators we are having in the management structure.

And, Jack, I would just add a little color to that. We have got a lot of those similar types of assets in our triple-net please portfolio as well. Although, because they are high-growing assets that have a lot of NOI growth, the operators generally prefer to keep them in that lease structure so that they can receive the benefit of that cash flow growth.

Okay, got you. Okay, perfect. Thank you, everyone.

James Milam, Sandler O'Neill.

Hi, good morning. Just want to ask the first one on the balance sheet. I guess, can you talk about your expectations for the maturity that you may pursue with the $400 million debt offering that you talked about?

Then also, with the line of credit balance at $540 million, does that include -- or actually I assume that doesn't include the first-quarter maturity being repaid. So I am curious if there are any other sources of capital that you guys are looking at for 2013.

Right. As you mentioned, we are forecasting, assuming no additional unannounced acquisitions, about $400 million of debt financing. Of course, the most important thing to think about when you think about Ventas is that, despite our above-average dividend increase of 8%, we also would expect to generate after dividends almost $300 million of free cash flow in 2013. So that is also a very significant and important source of capital for us.

Okay. So that effectively $500 million on the line plus $250 million of a maturity, and then you basically outlined $700 million of sources; that is the way we should think about it?

That is a great way to think about it. Yes. That is essentially the way we forecast.

Okay. Then just bigger picture, you guys have done more 5- and 7-year maturities than 10-year maturities, at least in 2012. I am just curious if in 2013 your intent would be to lengthen maturities. Or I know there is another hole in the maturity schedule around 2020, if you would maybe look to fill that first.

Are you turning into a bond guy?

I am just curious. 10-year bonds cost a little bit more than 7-year bonds and that affects free cash flow to equity. That is all I am after.

Yes. No, one of the things that we really feel is a core competency and is one of the most important things that we have to be excellent at is raising capital. So our team is constantly looking at different types of capital, different tenors on debt maturities, different structures; and we are trying to get a staggered debt maturity schedule, a balanced capital structure; and we are also trying to pick the right spot at the right time in the market.

And all of those things affect our decisions about how we go to market, when we go to market, and what products or tenor we are choosing. So we will hopefully make the right decisions for the capital structure and for the shareholders when we raise debt this year.

Okay, fair enough. Then, sorry, I just want to ask one on the re-leasing. It looks like the rents, based upon the numbers that you provided for the 54 skilled nursing facilities, are down about 10% over where they were with Kindred. So I guess, A, am I correct in that thinking? B, what is the coverage on the new leases?

And then C, how does that affect your thoughts? I know 2015 is still a couple years out, but as you look at the re-leased assets coming up then. And then that's it for me. I appreciate it.

Yes, well, thanks, James. First of all, we are very pleased with the outcome on the 2013s. It is very consistent with our expectations.

And we believe that this is a really great opportunity for us to achieve greater diversification and the same amount of rent. As we looked forward, we think Kindred is going to be about 8% of revenues for Ventas in 2013, and so we feel good about where we are.

You have to think about these -- again, I said the Master Lease and a bundled structure protected Ventas. That is because this is really a pool of cash flow and a pool of rent. So if you think about it, basically you've got more rent on some and a little bit less rent on others; but at the end of the day the same NOI level obtains.

As I was thinking about it this morning, if we were David Simon and we had 20 malls, and we had Saks in 20 stores at $1 rent a year, and Saks decided not to continue; and we went out and we re-leased 10 of the stores for $1, and five of them for $1.25, and five of them for $0.75, then we are in the same spot. And that is what good real estate companies do, and that is part of our business. We are just applying that same level of retenenting expertise to the healthcare business.

So you have to think about it as a pool of cash flow and a pool of assets, and what those assets in total are going to generate in rent. We have said we thought that we could replace the current rent levels, and that is exactly what we are doing.

I'm sorry, can you give the coverage for the new leases?

Well, if you think about what the coverage is now and you assume the rent is the same, you would imagine that the coverage would be about the same. Now, if the operators turn out to have lower cost structures, it could go up a little bit. If reimbursement changes, if it goes up or down, that could obviously affect it.

But you would imagine if rent is the same, the coverage would be the same.

Right. But for the 54, it sounds like the rent is a little bit lower on the 54. That is the reason for the question.

Well, remember that the LTACs went up $6 million -- $5 million, $6 million. So that is the offsetting. Those are offsetting.

That is why you come back again to the pool concept and the same amount of rent.

Okay. Let me yield the floor. Thank you, guys.

Tayo Okusanya, Jefferies.

Good morning, everyone. I just wanted to focus on the Atria Senior Living acquisition that was done at the end of last year, and the minority stake you guys now have in the management company. Would like a little bit color in regards to why exactly you decided to do that. What kind of returns are you generally expecting from that business?

Okay, well, let's recap. Thank you for asking, because we are actually very excited about the transaction. And because we announced it on December 24, I think we haven't gotten to talk about it as much as we would like.

The fundamental transaction is this. We paid $242 million and we bought the fund, which owned 3.7 million shares of Ventas, which at that time was worth maybe $230 million something. And we bought a third stake in the Atria management company, which as I mentioned is the fifth-largest provider of senior care in the United States.

So that investment is really a strategic investment for us. The management team now owns the other two-thirds of the business, so it provides great alignment. And Atria is in a great, great spot, really to continue to grow and we hope to grow with them.

I guess could you just talk a little bit, just about what kind of returns you expect and what the overall profitability of that business is? I know it is just --

We expect to make money on that investment, and the business is very stable. It has about $30 million of cash on hand.

And we expect to make a profit on the investment. But the real reason that we are doing it is to have alignment with our provider and to help them grow. The investment itself is very, very small.

Okay. That's helpful. I guess for me it's just -- again it was like a bit more of a defensive move, given what had happened at Sunrise, more so than anything else. Or --?

Well, as you know, we are all about offense and defense and this is a great -- again, Atria is well positioned and so are we, as I mentioned in my opening remarks, to really take advantage of this operator consolidation craze and the changes in the senior housing business. So Atria is in a good spot, and we are in a great spot with our third investment to have a lot of options going forward in the senior housing business.

Okay. That's helpful. Second -- one more question, I'm sorry.

Okay.

In regards to acquisitions on a going-forward basis, specifically life sciences, I know we've brought this up with you at different times; but right now that entire sector is going gangbusters. I was just very curious if your thoughts towards an investment in life sciences had changed or had evolved since the last time we talked about it.

I think we have felt the same for a while. So there is no change in our position.

Okay. That's helpful. Thank you.

Quentin Velleley, Citi.

Hey, good morning. Just in terms of the acquisitions pipeline, in the prepared remarks you said that opportunities abound. Can you just give us a sense of the size of the pipeline you are looking at and where some of the better opportunities might be? If it is in seniors housing operating assets, seniors housing triple-net assets, medical office, or even potentially skilled nursing again.

Thanks, Quentin. I would say that the pipeline is very active and very large, as it has been for the past multiple years. Again, we are in a great sector for external growth and I think we are very well positioned with all of our relationships.

And it is really across the sector. Senior housing, medical office, and the government-reimbursed sectors as well as others. So we feel really good about the forward environment.

Okay. Then just given the strong fundamentals in the seniors housing side of the business, how should we think about page 18 of your supplemental, the development pipeline? You have currently got about $60 million of projects under construction.

Are you and the Atria team seeing more opportunity? And are more development feasibilities starting to spec up, given rent and occupancy growth?

We are seeing significant redevelopment opportunities in particular. Ray can add to that comment.

Then we would expect at any given time to have $100 million to $200 million of development/redevelopment projects in progress.

But, Quentin, as we have seen in the time period that we have owned the Atria assets, the redevelopment projects have been a great addition to the growth of the NOI of the portfolio. So we are going back through the portfolio, combing it, trying to find more and more of those opportunities and accelerate that activity. So you might see us do a little bit more of that in the near term.

You also might see some income-returning investments in our triple-net portfolio as well, where we can get above-average risk-adjusted return on existing assets.

Yes.

Debbie, it is Michael Bilerman speaking; good morning. Just thinking about the opportunities abound, which Quentin mentioned. How does that translate relative to US versus other potential markets? Do you have stuff that you are looking at expanding in Canada at all, and adding to those investments after you had done a Sunrise a number of years ago? Or other global markets? Or is the main focus continuing to be US?

The domestic opportunities, given the fragmentation in the market and the need for capital and the consolidation in the markets, as well as just all the change within the healthcare and senior housing business, we have a ton of opportunities domestically. We certainly have talked about and from time to time look at international opportunities in Canada and elsewhere.

And if we found something that worked for us, we would attempt to see if it worked for our shareholders. But the focus continues to be on the domestic opportunities.

Is there anything in terms -- in the loan book right now that we should be aware of, of that converting into real estate, into fee at all?

In general, when we make loans, we consider them for repayment rather than loan-to-own. So that is how you should think about it.

What is the maturity in terms of that $700 million? Obviously you're earning a pretty good rate. Does any of that mature this year or next?

No. I mean, we have a small amount, obviously, that paid off last year; and that is in our disposition and loan repayments section that we talk about. It was about $420 million last year.

And then this year, we are modeling about $300 million of -- it is mostly asset sales, but it also is a little bit of loan repayments. But very little in the loan book in 2013.

Is there on hospitals that -- I guess obviously as a size of investment relative to the Company it is the smallest piece. Is there anything changing on that end, where some of that real estate can be unlocked?

I think that we have made the case over time that real estate assets will ultimately flow to the most efficient owners. And I think the capital needs in the hospital business and the hospital business is enormous. The capital needs are great, and the sources of capital available to hospitals continue to be constrained and a little bit more expensive.

So over time I would imagine that opportunities will present themselves that are perhaps higher quality than the kinds of hospital opportunities that have been available in the past.

How would you think about, if you were to own those assets, about security of that income but also the growth underlying that income of owning hospital assets?

Right. I mean, it would really be just like any other underwriting that we do in any of our sectors. Which is, to understand what the sustainable cash flow and cash flow growth is; what the volatility is; and then what the risk-adjusted return and coverage should be. So, it is just a different analysis, depending on which subsector, but it is the same principles.

Then just one last question, just in terms of the dividend. The dividend went up 8%. Cash flow growth is 9%. Is there any reason why you just didn't match them completely?

We like to be -- we like the 8% in eight years. But I think that we have a really good record of increasing dividends at above-average cash flow levels, at above-average rates, but also retaining more cash flow every year to reinvest in continuing growth. That is how we think about it; and hopefully we will be able to continue that trend in the future.

Okay. Thanks for the time.

Daniel Bernstein, Stifel Nicolaus.

Good morning and congratulations on an excellent quarter. I want to turn to the senior housing portfolio and what is embedded in the guidance for 2013. Given that the portfolio is over 90% occupancy, are you looking at, say, improved rate growth into 2013, 4% or 5% margin expansion? I just want to understand what is embedded in that senior housing guidance.

Sure, let me just give you the basic assumptions and perhaps that will answer your question. I think just to go back to the basics, we have given a range of $430 million, to $440 million, which represents 5% to 8% growth year-over-year.

Embedded in that, at the midpoint we are looking at occupancy going up around 200 basis points, rate going up around 3%, and then your margins would expand slightly, maybe 30 basis points or so. And that is the basic assumption that we are using going into the modeling.

And that is a comparison versus a full-year 2012.

Yes, those are averages, yes, against -- thank you, Debbie. Those are against the averages for the year.

So if I was going to go 4Q to 4Q, I guess the average would be -- the occupancy increase would be a lot less than that. But I imagine it is going to -- what you're expecting is something close to what the industry might be, 100 basis points of occupancy. Would that be the right way to think about it?

I mean, more or less.

Okay. Then also, and maybe I missed something prior press release or earlier in the call. But your secured loan balance on the balance sheet jumped $400 million. I don't know if you could just talk about what that is and make sure I understand what that secured loan was.

Right, when we put out our press release at the end of the year in terms of our year-end investments, we did -- we made about $400 million of senior secured loans.

Is that all seniors housing then?

Yes. It is in the healthcare space, yes. It is not all senior housing. It is a mixture.

Okay. Then also, just thinking of that in terms of the acquisition environment and pricing, obviously the 10-year has gone up over 2%. Debbie, you were on a panel at ASHA where I think of Noah Levy of Prudential indicated he thought assisted-living cap rates could back up given how close those cap rates were to IL.

Given where interest rates are, given what your capital structure is, how are you thinking about what you are willing to pay for acquisitions in 2013 versus 2012? Is at about the same level? Or you think you're going to be a little bit more cautious on how you bid for assets?

Well, I mean, I think what has been great about Ventas is we have been able to acquire $14 billion or more at assets over the past couple of years and our unlevered returns are quite high. This year the $2.7 billion was the cash unlevered yields approaching 8%. So that has been outstanding.

And one of the ways that we think about acquisitions is to try to be ahead of the herd as we acquire things, and I think we can still acquire assets in our core sectors at attractive risk-adjusted returns, depending upon the growth profile for those assets. We will continue to watch replacement cost levels as we make acquisitions, as we always do. And we will be a disciplined acquirer.

But I do think the environment continues to be good for us to be able to add value through our acquisition activity.

Okay. But do you think cap rates are at about the same as 2012, or do you think they can compress further or back up?

I think they are about the same.

Okay. Are you seeing any additional competition from, say, private equity or other investors getting excited about seniors housing and MOBs? Or do you expect the REITs to continue to be probably the highest bidder or lowest cost of capital in the healthcare space?

Well, we are always glad when other people discover the benefits of our asset base, as the largest owner of some of these sectors. I would say it has always been competitive and it still is competitive. But as I said, we have a great team, great relationships, and I think we will get more than our fair share.

Okay. Well, that's all I have for now, and again, congratulations.

All right. Thanks, Dan. We have got to hustle up a little bit because we're coming up on one hour. So we will take the next caller, please.

Jeff Theiler, Green Street Advisors.

Good morning. I will make it quick. I just wanted to follow up on the question that James was asking about the coverage on the re-leased Kindred assets. For those re-leased assets, I understand that different operators can have different cost structures and maybe produce different results; but if you just assumed it was the same run rate that Kindred was doing, what would the coverage be, I guess, overall on those re-leased assets?

Well, if you look at the supplemental, you would see that the Kindred EBITDARM coverages on SNFs are about 1.5 now; so you would guess in the kind of 1.5 plus or minus range assuming no --

Okay, so 1.5 EBITDARM coverage on those re-leased assets. And what are just the escalators on those on average?

The new leases are about 11 years and the average escalation is about 2.5%.

2.5%? Okay, great. Then just lastly how are you thinking about skilled nursing these days? You are not really going out and actively acquiring the assets, but you only sold a few of them.

Do you think that the risk is being overpriced in the private market? I.e., cap rates are too high so they are not a great sale target right now. Or how do you view that property sector in general?

We have taken a deliberately private-pay approach to most of our investment activity. We have always been a supporter of the skilled nursing and postacute business. It is the low-cost provider, and it has a place in a healthcare REIT portfolio. It has a place in the delivery of healthcare in the United States.

But we have since probably 2010 been very active in building the private-pay part of our business. And that is kind of where we are now.

Okay. I will let other people ask. Thank you.

[Tom Chuksilo], Bank of America Merrill Lynch.

Hey, guys. I'll try to make a quick as well. Appreciate all the comments from James earlier on the balance sheet and sources and uses of cash. You also have about $283 million of secured debt coming due in 2013. How should we think about that and your attempts to reduce your secured leverage?

Whenever we have a chance to pay off secured debt on our consolidated portfolio, we will do it.

Okay. Easy enough. Then the second question is, you talk about continuing to buy the best and the highest-quality assets and being interested in doing that in an operating senior housing portfolio. Obviously that adds some risk to your income statement, even though the outlook is very positive now.

Can you talk about maybe your willingness to continue to grow that portion of your portfolio as a percentage of total portfolio? And then do you think that changes the way you need to manage the balance sheet in any way to offset some of that income statement risk?

I totally disagree with the statement and the premise. These are the best assets in our industry with very, very stable operating histories. They had positive -- this industry had positive NOI growth through the financial crisis and recession, which is the only real estate asset class to deliver that kind of performance.

And that is because the assets are need-based; they are supported by strong demographic growth in the over-85 population. And we have the data that supports that performance through basically a depression in the United States.

So I think these assets are our best assets and ones that actually improve the reliability of our cash flows. If you look at our total NOI of, let's call it $1.6 billion next year, and this is a quarter that -- if it goes up or down 2% or whatever, that is an absolute immaterial impact on our cash flow and our debt coverages.

So I think this portfolio improves the reliability of Ventas as a Company and as a debt issuer. And we believe it is going to grow, as Ray said, 5% to 8% same store as we look into 2013.

I should've asked it a different way because I agree with all your points there. Have you had any luck in convincing rating agencies that that is the way they should look at it, given that [HTP] has been given higher credit ratings than you? And how do you --?

Yes, Moody's moved us to Positive in December; and I think it as the assets continue to perform and the facts become known -- you can't fight the facts. The performance has been very strong and reliable.

The most important thing is that we have a huge business with scale; it is balanced and diversified. And that is the best possible thing for bondholders and equity holders alike.

So, Tom, we are going to have to move on to the next question. Thank you.

Nick Yulico, Macquarie.

Thanks. For the five assets that were sold, the Kindred SNFs, can you just talk about why they were sold and not re-leased?

Yes. As we looked through the portfolio we thought that these were assets that we would like to sell, and so we put them in the sale bucket as opposed to the re-leasing bucket.

What was the cap rate on those assets?

The cap rate -- the total proceeds are maybe about $9 million or $10 million.

That is the total cash proceeds?

Yes.

Okay. Then just lastly, just going back to the coverage question. Kindred, if you go back to the Fall, they gave a 2013 coverage pro forma for the 54 SNFs they weren't renewing; and it was 1.15 times EBITDAR. So I guess I am wondering.

You said there could be a different cost structure, a new operator. But is that a coverage that you ended up writing these new rents at? That low of a coverage?

Well, again, if you look at all the -- if you look at the portfolio right now in the supplemental, basically after all the RUGs removal has washed its way through the system and then before perhaps all the mitigation has taken effect, you are at about a -- somewhere in our portfolio for skilled nursing between a 1.5 and a 1.7 EBITDARM coverage.

Then depending on what's the overhead you want to allocate as a percentage of revenues, you get down to, let's call it a 1.3, 1.2 EBITDARM coverage. And we are perfectly comfortable with that.

So I mean, it is fair to assume that you wrote rents at a similar coverage to that? A 1.2 type EBITDAR coverage?

Yes. Which, again, makes sense because the assets are profitable and they will continue to be profitable to the new tenant.

Okay, thanks. That's all I had.

Rich Anderson, BMO Capital Markets.

Thanks for letting me ask a question.

Absolutely. How are you?

I was watching the clock tick. Just quickly, real quick for Ray, the same store for Atria, Sunrise, 5% to 8%. Is that before or after management? Or does it matter?

That is after management fee; and it doesn't really matter.

It doesn't matter because you had the full 2012 impact.

Exactly right.

You got it.

Debbie, just rebutting a little bit on the RIDEA strategy and all that, do you ever wonder what the other side of the table is thinking? In the sense that differing views on the same subject are what make transactions happen. So maybe they know something that others don't, and that is why they are so willing maybe to do an operating lease as opposed to a triple-net lease. Is there any -- what would you say to that comment?

I would say that I love our portfolio and it is delivering high single-digit growth. And it is really just a little bit of a strategic matter relative to the operators and how they are going to organize their business. You see that in the hotel sector as well.

And sellers sell for different reasons, Rich. If you look at the Lazard situation, they had been in the investment for a long time; Sunrise REIT was an M&A opportunity. So you have different reasons.

What would you say the RIDEA premium you require versus a comparable triple-net execution would be?

We look at every deal to judge whether -- on many, many different metrics -- it will create value and it is a good risk-adjusted return for that investment, and then how it fits into the overall Ventas balance that we want to have in our portfolio. So I think it is really just a case-by-case basis, depending on the quality of the assets, the growth we expect, the markets, the operator. Is it a new relationship with someone? Is it a pool, etc.?

And all of those factors really go into how we price our investments and how we decide whether to go forward or not. I would say that, again, our strategy that we put in place with the balanced portfolio, the percentage of our portfolio that is in these high-quality senior housing assets, coupled with the stability of the triple-nets and MOBs has been working very, very well.

What is the premium for the Atria RIDEA structure? Could you comment on that?

You know, I really don't even understand the question in terms of premium or not. We look at it and we say -- would be happy to own these assets at a, pick a number, 6.5 cap rate with a high single-digits growth rate? And the answer in these primary markets with barriers to entry, the answer is a resounding yes.

Okay, so it is mutually exclusive. Last question. What is the risk of owning 34% of the management company? Knowing the bogey is 35, what could happen to trip that number and then what would happen in that circumstance?

Well, we have -- I have been walking around glued to our tax guy who has kept us on good stead in the REIT compliance area for 13 years. And I would say we are well in compliance and we expect to stay so. We have lots of protections to make sure that is the case, as we always would do.

Is there a cure period?

The REIT statute itself does have cure provisions in it; but we would not expect to need to rely upon that.

Okay, fine. Thank you very much for taking my questions.

Rich, thanks for hanging out with us till the end. We really appreciate it, and we want to close the call with appreciation to all of you for listening and we look forward to seeing many of you in Florida in the next couple of weeks. Thanks again.

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