芬塔 (VTR) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2014 Ventas earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Lori Wittman, Senior Vice President of Capital Markets and Investor Relations. Please proceed, ma'am.

Thank you, Mark. Good morning everyone and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter ended September 30, 2014.

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 as forward-looking statements are subject to many risks, uncertainties and contingencies and stockholders and other should recognize that actual events 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, 2013 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 provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations.

Please note that the quantitative reconciliation between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure as well as the Company's supplemental disclosure schedule are available in the investor relations section of our website at www.VentasREIT.com.

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

Thank you, Lori, and let me repeat to all of our shareholders and other participants a warm welcome for joining us this morning for our third-quarter 2014 earnings call. It is great to be here with you to discuss our excellent third-quarter results and share our continued growth and progress on numerous fronts including closed and pending transactions.

After Ray Lewis and Rick Schweinhart complete their remarks, we will be happy to answer your questions.

Our strong performance showcases Ventas' sustained ability to provide growth to our investors and to our customers. We deliver superior results on a repeatable basis because of our dedicated team, our deep knowledge of healthcare and senior living, our diversified productive portfolio and our expansive base of leading care providers. These characteristics position Ventas for continued success and value creation.

First, let me recap a few highlights. We achieved record normalized FFO for the quarter of $1.12 per share, 9% growth over the third quarter of last year excluding non-cash items. We are also delighted to increase our full-year normalized FFO guidance because of our excellent results to date and our expectations for the final quarter of 2014.

Stepping back to look at our larger enterprise, Ventas annualized revenue for the quarter exceeded $3 billion and our adjusted annualized net operating income, or NOI, totaled nearly $1.9 billion. Our balance sheet and liquidity position remain outstanding. Pro forma for HCT, our annualized NOI, is approximately $2 billion.

In addition to driving outstanding results, the Ventas team turned in an incredibly productive quarter and achieved many significant goals. Among them we closed the Holiday Retirement acquisition for CAD957 million and transitioned management of these 29 independent living communities to Atria. This is our second deal with Holiday and was favorably priced given the high quality of the assets which are over 90% occupied and located in attractive local markets in seven Canadian provinces. These assets performed well in September, the first full month after closing.

We also completed over $250 million in additional investment since July 1 at an average yield of just under 7%. The acquired assets are principally triple net lease and managed senior living assets operated by existing customers. We filed our 2012 and 2013 reaudited financial results including KPMG's independent audit opinion which confirmed and reiterated the accuracy of our previously reported results.

We completed the largest REIT fixed income deal in Canada, raising a total of CAD650 million at an effective rate of 3.5% and an average maturity of seven years. We filed our proxy for our pending $2.9 billion acquisition of HCT. We paid a dividend of $0.725 per share representing a 65% FFO payout ratio. Our strong dividend payout ratio and record of 9% compound annual dividend growth for 10 years is an important component of our total return proposition for shareholders and a significant differentiating factor for Ventas.

We were proud to appoint a new independent Board member, Melody Barnes, who served our nation as the Director of the White House Domestic Policy Council. Our full Board continues to represent our shareholders with integrity, commitment, experience and independence.

And we were excited to hire our new CFO, Bob Probst, who will begin at Ventas next week. Bob has an exceptional record of success at every stage of his 25-year career and we know he will bring energy and new perspective and a commitment to excellence to Ventas.

Year to date we have closed about $1.5 billion in acquisitions at nearly a 7% yield. Importantly, over 85% of our year-to-date investments represent follow-on business with existing relationships and the balance was our first investment in the UK with respected hospital operator, Spire.

At Ventas, we pride ourselves on helping our customers grow. I would like to take a few minutes to give you some powerful examples.

One of our recent acquisitions is $110 million investment in seven senior living properties operated by Milestone Retirement Communities under a triple net lease. Milestone is a high-quality regional operator who became a Ventas customer via one asset we acquired with the NHP merger. The latest transaction is just one small example of how we work with our existing customers to help them grow.

As we have gotten to know Milestone's management and observed the quality of care they provide and strong operating results they deliver, we have expanded our business relationship with the company in a series of transactions from 1 to 12 communities.

In total, we have committed $200 million of incremental capital to help Milestone grow and our recent investment should produce over an 8% unlevered return to Ventas. Milestone is thriving and now operates 22 senior housing communities.

Similarly since we acquired the real estate assets of Atria in 2011, its business has expanded by 50% from 118 to 183 communities and Atria has extended its brand into the attractive Canadian market. We have invested an additional $1.8 billion of capital to help Atria, one of the highest quality providers of senior care in the country continue to grow.

Avamere is a similar success story. This high-quality Pacific Northwest provider of post-acute care and senior living was a client we shared with NHP at the time of our merger. We owned 28 buildings with Avamere at that time. Since then, we have added 10 buildings and funded a significant redevelopment project to help Avamere grow and position itself as a provider of choice in its markets as it pursues thoughtful strategies for bundled payments and increasing its managed care mix.

Another way we are committed to helping our customers succeed is by making additional investments in our portfolio. As Ray will discuss in greater detail, we have $188 million in development and redevelopment projects underway with existing tenant operators.

Turning to our acquisition of HCT, we are very pleased that our acquisition remains on target for a late fourth-quarter closing. With an equity component totaling $1.8 billion to $2 billion of the total $2.9 billion acquisition costs, we believe the transaction is balance sheet friendly, contains a reliable equity funding source and provides an attractive opportunity for HCT shareholders to become long-term Ventas shareholders.

We believe that the HCT acquisition will contribute positively to our portfolio of high-quality diversified assets and consist growing cash flow and provide new relationships for us to foster and expand. With the HCT acquisition, we will add 10 new senior living operators to our existing customer base and over 20 new health systems to our MOB relationships including Baylor and Memorial Hermann.

Taking a page from our NHP playbook, we will work hard to earn the confidence of our new tenants, operators and affiliated health systems and intend to commit capital to help them expand and grow their businesses.

We expect to fund the balance of the HCT deal on favorable terms. The debt capital markets continue to be attractive, consistent with our view that interest rates may stay persistently low in the near to intermediate term.

Following the HCT closing, as we told you last quarter, we expect to sell a pool of nonstrategic MOBs as a partial funding source for the HCT deal. We will continue to identify candidates for disposition in 2015 as a way to recycle capital, take advantage of favorable market conditions and optimize our portfolio.

Not only do we have great relationships, we have amassed a fantastic portfolio that is second to none. We are the largest owner of medical office buildings or MOBs in the nation and our leading MOB platform contains 15 million owned and 5 million managed square feet. Our owned MOB portfolio is 96% on campus or affiliated with hospital systems and over 80% of our MOB NOI is associated with Single A or better rated health systems and leading hospital company HCA.

In addition, Ventas recently ranked as the largest owner of senior living in the 2014 ASHA 50 list. This segment of our asset base is also extremely high quality. 80% of our total senior living portfolio is operated by the top 10 national care providers. As a further indicator of portfolio quality, our 270 shop assets are 91% occupied and highly productive generating annual NOI of $20,000 per unit after management fees.

Our post-acute portfolio has a very desirable 65% quality mix, also evidencing its attractiveness and productivity. We aim to continue building a great portfolio through our investment activities. The current investment environment remains very active. John Cobb and his team continue to burn the midnight oil assessing the merits of potential transactions. We are also actively evaluating with existing partners a couple of large Class A developments in the MOB and senior living sectors. These projects if they become a reality would be state-of-the-art healthcare and senior living facilities in attractive major markets.

Our investment approach has consistently focused on allocating capital where we see good risk-adjusted return, strategic and accretive growth opportunities and positive underlying fundamentals with an emphasis on private pay assets. We seek to build long-term collaborative relationships with quality care providers who serve an important niche in their respective markets. We acknowledge that there is significant competition in the market but we also know that Ventas has the experienced team, cost of capital and intellectual firepower to win more than our fair share of deals.

With our strong and expansive customer relationships, our top quality portfolio and our consistent investment approach, I am confident that we will continue our long track record of excellent performance and produce reliable growing cash flow and dividends for our shareholders.

As a final note, I continue to marvel at the healthcare and senior living space which is highly dynamic. The consolidation and vertical integration we have been predicting is accelerating. We would like to congratulate our tenant, Kindred, on its recently announced acquisition of Gentiva, the largest home health care and hospice provider in the US. Upon the closing of this transaction, Kindred will solidify its position as the nation's premier post-acute and rehabilitation services provider with over 100,000 employees and $7 billion in annual revenue.

Kindred has executed a forward thinking strategy of providing comprehensive coordinated patient care in targeted integrated markets which will benefit patients, healthcare systems, ACOs and managed care organizations. We are delighted for Kindred's success and look forward to continuing to work with the Kindred management team. And now that Kindred is our fourth largest tenant operator, we can even work on growing with them.

I am very happy as I'm sure you are as well, to turn the floor over to Ventas President, Ray Lewis.

Thank you, Debbie. The third quarter represented another quarter of consistent and strong performance from our diversified portfolio of seniors housing, medical office and post-acute properties with same-store cash NOI for the portfolio growing by 3% year-over-year in local currency.

Performance was good across the board with our balanced portfolio of 1468 shop, triple net and MOB assets delivering reliable and growing cash flows which I will now break down by segment.

Let me start with our seniors housing operating portfolio operated by Atria, Sunrise and now Brookdale. With the closing of our acquisition of 29 Canadian properties from Holiday, we now have 41 properties north of the border. In order to help you focus on property level performance, we are now providing enhanced disclosure in local currency and the shop statistics I will be providing in my prepared remarks will also be in local currency.

Let me start with our total portfolio. This portfolio now stands at a total of 270 properties and accounts for approximately 30% of our portfolio NOI. The total portfolio produced $132 million of NOI after management fees in the third quarter of 2014, an increase of approximately 15% over the prior year. This increase is due to the impact of acquisitions and the steady performance of our same-store stable portfolio offset by decreases in our redevelopment portfolio due to units off-line for refurbishment.

NOI in the 217 properties in our same-store stable portfolio increased 4.4% year-over-year and occupancy grew by approximately 20 basis points to 92.1%. This is 180 basis points higher than the occupancy reported by NIC in its primary markets. REVPOR grew by 2.5% to over $5600 per month which is higher than the NIC primary market REVPOR by nearly 60%.

The 12 properties in our Sunrise Canada portfolio began to rebound in the third quarter. Occupancy increased almost 200 basis points sequentially to 91.7% but was flat year-over-year. NOI after management fees was up 9% sequentially and while improving year-over-year, it is still below our expectations at just under 3% growth. So we are cautiously optimistic that the changes Sunrise has implemented are positioning this portfolio to return to its historically strong performance levels.

Occupancy in the 227 properties in the same-store stable portfolio increased 220 basis points sequentially following historical seasonal patterns. Similarly, expenses increased sequentially in the third quarter consistent with historical trends due to an extra day in the quarter and seasonal increases in holidays and paid time off, utilities and repairs and maintenance. We had seven properties undergoing redevelopment in the third quarter of 2014 versus three properties in 2013. For these seven properties, NOI was down by about $1.4 million year-over-year in the third quarter as we had approximately 130 more units off-line this year versus last. We expect that the redevelopments currently underway will contribute strong growth as they come back online over the next year.

Lastly on SHOP, construction as a percentage of inventory in the 31 primary markets as reported by NIC declined during the quarter to 3.5%. By contrast in the three-mile trade area around our buildings, construction was only 2.5% of inventory due to the high barrier to entry infill locations that characterize our SHOP portfolio.

Next I will cover our triple net lease portfolio which accounts for 53% of our NOI and is the engine of our cash flow growth. This diversified and productive portfolio of seniors housing post-acute and hospital assets delivered another quarter of strong and stable performance. Same-store cash NOI for the 836 properties that we owned in the third quarter of 2014 and 2013 was up a positive 2.6% year-over-year.

Cash flow coverage in the 717 properties in our same-store triple net lease portfolio for the second quarter of 2014, the latest available information was strong and stable at 1.6 times. Moreover, less than one-half of 1% of our NOI comes from leases with cash flow coverage less than one times. So the triple net portfolio continues to perform well and deliver reliable and growing cash flows.

The releasing of the Kindred portfolio is substantially complete. We have now transitioned all but five facilities and they are on track to be transitioned or sold by year end.

Building on the success we have had with our redevelopment and our SHOP portfolio, we are also gearing up redevelopment in our triple net lease portfolio. We currently have 25 triple net projects approved totaling $125 million of investment when fully funded most of which is with our largest tenant, Brookdale. Returns should average between 7% and 9%.

We have a team dedicated to identifying these opportunities and presenting them to our portfolio relationships. These investments make our customers more profitable and enable us to generate attractive yields while upgrading our portfolio. Unlike SHOP redevelopment, we typically receive rent immediately upon funding. So we continue to work with our relationships and actively manage our triple net portfolio to drive performance and growth.

Finally, I would like to briefly discuss Ventas' portfolio of 275 consolidated medical office properties spanning over 15,000,000 square feet and accounting for 15% of our annualized NOI. Here are a few of the MOB segment highlights for the third quarter.

For the total portfolio, NOI at 100% share was $73 million and occupancy was a very healthy 92%. Cash NOI in the 263 same-store consolidated medical office buildings continued to show strong performance increasing 3.5% year-over-year driven primarily by a 2.1% increase in rate and a 110 basis point increase in margin. Occupancy was strong at 92% and consistent with last year's third quarter.

Sequentially cash NOI grew just over 1.1% in the stabilized portfolio. Rental rate and occupancy were stable relative to the second quarter and expense controls and recoveries drove the sequential cash NOI growth. Our retention continues to be good at 77% and we are seeing positive net leasing spreads of approximately 2%. So we continue to lease space, push rates, manage expenses and drive bottom-line growth in our MOB portfolio.

In summary, our balanced and diversified portfolio delivered strong performance across the board in the third quarter and we continue to be on track to meet our same-store cash NOI growth range of between 3.5% and 4% in 2014.

With that, I will turn it over to Rick Schweinhart to discuss our financial results. Rick?

Thank you, Ray. The Company invested $1.28 billion in the third quarter, repaid $632 million in debt and paid dividends of $214 million. Those amounts were funded by cash flows from operations of $324 million, debt issuances and assumptions of liabilities of $1.7 billion, and sales of real estate and other investments of $132 million.

During the quarter, we borrowed $725 million in Canada on a one-year bank term loan at CDOR plus 105 for our Canadian acquisition. Shortly thereafter, we have refinanced the majority of the term loan with permanent financing with the issuance of $580 million in senior notes in Canada with an average interest rate of 3.5% and a weighted average maturity of seven years.

The proceeds were used to reduce the bank term loan. The $32 million of mortgage debt prepaid was at a weighted average interest rate of 7% and a GAAP rate of 3.7%.

Normalized FFO was $1.12 per diluted share for the third quarter of 2014, an increase of 9% excluding non-cash items and 8% as reported in each case compared to the third quarter of 2013 per share results. Normalized FFO increased 8% to $333 million compared to $307 million in the third quarter of 2013. Normalized FFO increased due to improvements in all three segments and the impact of accretive investments completed in 2014 and 2013.

This strong performance was partially offset by the dilutive impact of asset sales and loan repayments we received in 2013 and 2014.

We translate our revenue and net operating income from Canada to US dollars reported in our financial statements. This quarter and year to date the US dollar has strengthened against the Canadian dollar which effectively reduces the US dollar amount of that revenue in NOI and our financial statements compared to prior periods. However, because we also borrow in local currency, these currency changes have a lesser net impact on our FFO results because our interest expense is also lower when translated to US dollars in our financial statements.

Our fully diluted share count increased less than 1% in the third quarter of 2014 to 296.5 million shares compared to the same period in 2013. Our average cash interest rate improved 30 basis points to 3.6% at September 30, 2014 compared to September 30, 2013 and we have been able to maintain our weighted average debt maturity at approximately 6.5 years.

At quarter end, our credit stats remained outstanding with net debt to pro forma EBITDA at 5.8 times, our fixed charge coverage ratio in excess of 4 times and secured debt to enterprise value of 8%. Currently our revolver balance is approximately $135 million and our debt to enterprise value is an outstanding 34%.

We are increasing our 2014 normalized FFO per diluted share guidance range to between $4.44 and $4.47, an increase from our previously announced 2014 guidance range of $4.39 to $4.43 per diluted share. Our guidance if achieved represents 8% to 9% per share growth excluding non-cash items estimated at $0.12 per share. Our new guidance range excludes any impact from the HCT acquisition which we expect to close later this year. Our guidance does not include the impact of additional unannounced capital transactions or acquisitions or dispositions.

In summary, we had an excellent quarter and we are well-positioned to deliver positive results for the balance of the year.

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

(Operator Instructions). Juan Sanabria, Bank of America.

Good morning. I was just wondering if you could give us a little flavor for the relationship transactions you noted at the beginning of the call and what you think could be a sustainable annual or quarterly run rate that investors could sort of pencil in going forward?

Good morning, Juan. This is Debbie. I would say that it is our view that this business that we do that is follow-on business with existing customers will certainly continue but the timing and volume of acquisition activity will always be lumpy and difficult to predict. So we were trying to give you some great color on our year-to-date acquisitions which again were 85% new business with our existing customers.

Great. Thank you. Just on the dispositions that you noted still having some I guess waiting to be sold around the timing of the HCT transaction, how much do you expect to close for the balance of the year and kind of maybe what is left over that you could look at at disposing in 2015?

Well, I would say that it could be very end of this year, early next year and we are looking at 200 plus or minus and in terms of 2015, we are working on that and are likely to provide some additional guidance on volume and yield when we talk about 2015 projections.

So I do think we have some opportunities in the market that will be attractive for us to dispose of some additional assets in 2015.

Great. And then if I could get just a comment on what your views on cap rates are. Clearly 10-year treasuries and debt markets have been volatile but maybe surprised some people and kind of headed down. There have been some big transactions. Sabra paid sub 6 cap rate for Holiday.

What is your view on kind of where cap rates are and maybe particularly for senior housing assets? If you could comment if you think the Sabra transaction resets the market or that was more of a one-off in your discussions with potential sellers?

One thing I would like to say is that we feel really good about the almost $4.5 billion that we are closing and underwrote this year between HCT, our Holiday deal and our other transactions that we described. I think the one thing that we sometimes see earlier than the analysts and the investors is where pricing is going because we do see such a large volume of transactions. So I would say that healthcare assets continue to be attractive because of their demand characteristics and so on and the cap rates continue to be kind of in and around the 6 to 7 range but can go lower based on specific characteristics of a given transaction.

Okay.

As you mentioned about treasuries, I did comment at your conference and I think we said again today that we tend to ascribe a little bit to the PIMCO view that we are going to see a little bit persistently lower rates because of the global economic situation.

Thank you very much, Debbie.

Thank you.

Jack Meehan, Barclays.

Thanks and good morning. I just want to start with the SHOP portfolio. Obviously really impressive occupancy momentum in the third quarter and obviously Canada helped with that. But I was wondering if you could just touch on maybe were there any different strategies that were deployed this quarter with your operators there? Where did you end the quarter in terms of like a point in time occupancy number?

Sorry, operator, is there anything coming through? I think it was on mute.

Thank you. So, Jack, as you pointed out, occupancy did improve sequentially. This is consistent with typical historical patterns. As we look back across the portfolio performance over time I think we have always seen in the third quarter that we get a bump but we were also aided as you point out by Canada. I think the strategies that Sunrise has implemented as well as the new personnel that they put in place are starting to gain some traction and we are hopeful that that will continue.

Then I think the last thing is that our operators are really pushing on the sales front and we have seen the move in trend be pretty good relative to historical levels and notably the move outs that had been higher in the first and the second quarter have abated. So I think all of that is feeding our occupancy growth rate sequentially.

Interesting. And then I guess just on the moveouts, is there any real difference you see in the demographics of the people that are coming through? Like is there a change in the age -- and I'm not sure if this is something that you track -- maybe the age of the people that are moving in to begin with?

Our operators haven't pointed that out to us as a driver for the moveouts, I think they are really just saying that we had an unusually high number of moveouts in the first and the second quarter but they haven't pointed to any particular demographic driver of that age or otherwise.

Okay. Maybe last one for Debbie. In the press release at the beginning, you mentioned the increase in the number of insured individuals. I was wondering obviously with health reform this year, everybody has got their eye on where that could help the healthcare REITs. I was wondering if there was any point in the portfolio where you have seen that show up maybe in the MOBs or have you seen any sort of benefit yet?

We are excited to see that we are expecting another $4 million of additional exchange enrollment in 2015, $2.5 million of which we expect to these previously uninsured individuals and we do expect to see increased utilization from those trends. Actually Todd and I were talking about this as we got ready for the call and I think we are starting to get anecdotal and more quantitative evidence of whether traffic is up in the MOBs and so on. We do expect 20% increase in outpatient visits over the coming years.

We also think that as hospital admissions increase from these trends, we may see a positive overflow impact into the post-acute business. And interestingly the LTACs are starting to see some good increase in terms of Medicaid population that they hadn't had before.

So we are seeing some impacts from policy being the low-cost most clinically appropriate settings and we expect that these numbers from the CBO and from other sources will start to translate into meaningful quantitative utilization statistics in the future.

Okay, got it. Thanks, everyone.

Nick Yulico, UBS.

Thanks. Good morning, everyone. A couple of questions. First, kind of a big picture one on your senior housing operating segment. You are now in that 4% to 5% same-store NOI growth range for that portfolio. It seems like it is a little bit more mature today, maybe less occupancy upside than the past.

And what I am wondering is do you think about maybe pruning some of the assets in this segment, selling some of the more mature ones, taking advantage of the very low cap rate market for senior housing and maybe investing into more assets that maybe have more future occupancy growth to perhaps improve the growth rate of that portfolio?

Yes, Nick, excellent question. You know, I think as we look at our SHOP growth rate, same-store stable and 4.4% kind of in line with our 3% to 5% expectations that we have consistently articulated for that portfolio. So that is good. But you are right, we consistently look at our portfolio and evaluate properties based on their performance, the forward-looking environment with respect to the markets, the physical characteristics of the asset and how they line up against their competitors. And I think we are always looking for opportunities to recycle and we may in fact do some of that over time.

So I think that is a good observation. I would say I still think there is good upside across the portfolio generally with respect to occupancy. We have tended to out run the NIC occupancy a little bit earlier and our rates have been higher than NIC but I think that is reflective of the quality of our portfolio and we expect that it can continue to perform well going forward.

That really ties -- we are right on the same wavelength -- ties to the comment I made earlier. Remember, there still is expected to be positive absorption in senior housing in 2015. I would say that we have talked about before one way that we make money for investors, obviously, is to try to invest in the right segments at the right time.

So trying to make early-cycle investments like we did in Atria, like we did in Lillibridge, where we saw the opportunity for cap rate compression and/or NOI increases, and that is how you obviously grow value for investors. So really coupling the idea of portfolio optimization where you may be pruning selectively and then redeploying that capital into earlier stage investments is very much top of mind if we think about the go-forward.

Okay, thanks. Just to follow-up on that. When we look at you report the top 20 market performance for that portfolio, and then your overall in the top 20 markets are outperforming their 70% of that portfolio. What is going on in those non-top 20 performing a little bit worse, and is that where you would maybe look to as asset sale candidates?

You know, Nick, that is a great observation. We noticed that as we were preparing for the call as well, and we went back and looked at it. And I think there really wasn't any pattern that we could draw from it. I think there were some circumstances of isolated and episodic underperformance in some of the non-top 20 markets. But you are right, that is a pool where if we see some patterns or trends there that emerge where we may look to dispose of some assets over time.

Thanks. Just one last one on the guidance. There was this new $4 million to $5 million add-back to your normalized FFO for a change in fair value of financial instruments, which was new this quarter. Can you just explain what is going on there? Thanks.

Yes, that is just a non-cash charge that relates to movements in swaps and things like that. It is not a cash item.

But that was not in your prior guidance, right? So is that -- I'm just trying to wonder --.

Yes, we do. We have always excluded those items because we do have them on a fairly regular basis.

Okay, thanks.

Thank you.

Michael Bilerman, Citi.

Debbie, a question just in terms of the MOB portfolio that you sort of want to list in the -- it sounded like the fourth quarter and potential continued asset sales. Can you talk a little bit about sizing of how much you would like to raise from those sales?

I think with respect to the MOB portfolio, we are in that $200 million plus or minus range and then in terms of 2015 again, we will provide additional detail on that going forward.

But I guess is there a certain -- now as the portfolio continues to grow, would you seek to sell down further assets and how large could sale activity be as you continue to hone in on the portfolio?

Right, that is what we are of evaluating now for 2015 and I would guess it could be 250 to 750-ish but really we haven't settled in on a specific plan and we will be happy to provide more detail on that as we do.

And then just a question in terms of global and you talk in the press release about building Ventas to be the leading global brand in healthcare. And I know you have spent a lot of time talking about global opportunities, global trends, clearly you are in Canada. You have had some toehold or at least a pinky toehold in the UK.

Can you talk a little bit about as Ventas as a brand, clearly you are not operating the assets, your name is not on the buildings. Can you talk a little bit about what you sort of envision in building Ventas to be a global brand and how quickly you want to and how wide you would look globally and what you sort of really mean by maybe I'm reading too much into it being in the first sentence but it just caught my eye.

Okay, well, we are aspirational as you know and always set the bar high at Ventas in terms of our wanting to be excellent and continuing to provide our investors with good growth in good channels for continued growth. So part of that has been the evolution of our thought process around international investing which as you know, Simon has done and many of the other REITs have pursued successfully.

I would say that our brand, the Ventas brand, is a business to business brand and when we think about it as a leading global brand, we think about it in terms of what investors, capital sources to Ventas think about us so our equity investors, our fixed income investors, etc. and then what our customers and potential customers think about Ventas as a partner and capital provider.

So that is the brand, not a consumer type brand but one that is recognized and respected by our business to business peers and we also do that by obviously building the brands of our operating partners like Lillibridge and Atria.

So on the focus question of international, we do have a fairly refined sense of the types of jurisdictions that we would consider investing in. They have to have the right demographics, they have to have the right -- if it is a reimbursement type asset -- they have to have the right policy support for funding of those assets including cultural support. And we obviously care about political risk and obviously the efficiency of the capital markets in those jurisdictions.

So those are some of the things that we look at and when you go through our criteria set, you end up with a handful or so of potential jurisdictions where we would consider committing capital.

And I guess is there anything -- I don't want to say imminent -- but is that spending more of your time ex-US versus in US today?

I still go back to the fact that we have $1 trillion healthcare market here in the US that is really fragmented and dynamic and I believe that the majority, you might even say the lion's share of our investment activity will likely continue to be in the US and we have lots of opportunities here.

So unlike some of the other sectors that are very concentrated here, we don't need to go abroad. It is more of an evolution, a natural evolution of our continued growth and diversification and continued efforts as I said to provide long-term growth.

Just last question because you did mention Simon in terms of their global, one of the things that they did in Europe is buy a 30% stake in another public company. As you think about going global, would you examine different ways of doing it rather than doing wholly-owned portfolio deals or whole company, would you actually think about some sort of tie up like that or you are referencing it more -- ?

Yes, I would say that we are very creative and experienced in terms of deal structuring and we would be open to good opportunities. The one thing I do think is very interesting about Ventas and the healthcare REIT model is typically when US REITs go abroad to operate, people talk about don't you need a local partner? That is a very common refrain when you go abroad. Healthcare REITs like Ventas are always working with a local partner so it is a very natural way I think for us for example with Spire, they are our local partner and our local operator and that is a very consistent structure to what we are used to in our business model.

But yes, we would consider equity investments and other type investments and entities in the way that Simon did with Klepierre should they feel like they are attractive investment opportunities.

Great. Thank you so much for the time.

Thank you, Michael.

Tayo Okusanya, Jefferies.

Not bad. First of all, I just wanted to say congratulations to Bob for joining the wolf pack. I don't think he is on the call but look forward to working with him.

A couple of questions from our end. The first one is around HCT and you guys are definitely expressing a lot of confidence about the deal closing in December. Just curious if there is any insight in regards to how HCT shareholders ultimately will vote, whether you are getting any sense of that around the deal?

Second of all, if they do vote yes and the deal gets done because of the large amount of retail investors they have in the name that typically tends to sell after these type of transactions, if you have any concern about a lot of selling in Ventas shares from these shareholders post the merger?

We started to get a little visibility into the shareholder base and I do believe that the shareholders will approve the transaction, I have every expectation of that. I would say that this is a little bit different from some of the other private REIT transactions in terms of post closing sale dynamics and what I mean by that is this was already a public company and I think the patterns will tend to follow more along the normal kind of M&A (inaudible) type lines than they will be more private REIT be getting liquidity type lines. And so we expect a pretty conventional public to public M&A pattern and I think we should potentially get some lift from the closing of the transaction because we should get re-weighted in the indices upon issuance of the 1.8 billion to 2 billion shares to the HCT shareholder base.

Okay, that actually makes a lot of sense. And then second of all, the recent Germany transaction that MPW announced just kind of curious whether that is something you looked at at any point and you have any comments generally about that portfolio if it is something you are familiar with?

You know, again, I think you should assume that Ventas sees a tremendous volume of deal activity certainly domestically and now I would say internationally and I think we just feel really good about talking about the deals, the $4.5 billion of deals that we are doing.

Okay. That is fair, Debbie. Last one for me. Just going back to the SHOP portfolio again and looking at the US and the slowdown in the same-store NOI to 4.5 this quarter versus 6.6 last quarter, and that is sort of a stabilized portfolio. Wanted to understand the comment you made earlier about the higher amount of redevelopment going on in the portfolio, if that impacted the stable same-store NOI or whether there is something else going on that created that slowdown quarter over quarter in regards to the same-store NOI growth for the stabilized portfolio?

No, the stable portfolio does not include the redevelopment assets. Really what is going on in the stable portfolio is normal patterns that we have seen where the third quarter has typically grown less than other quarters in the year and I think it was similar last year. We just have as I said an extra day in the quarter, higher expenses, those sorts of things and I think we may have seen a little bit more of that on the expense side this year so that is what I would attribute it to, Tayo.

This is very much in line with our expectations and when we talked in the second quarter which was only 2.5 months ago if that, we talked about these seasonal patterns that Ray is referring to.

Very helpful. Thank you.

Thank you.

Rich Anderson, Mizuho.

Good morning. So I am sorry, I may have missed this and I'm never afraid to ask a dumb question but when did Brookdale get added to your (inaudible) portfolio? And how?

Thank you for asking that. It got added this quarter.

In what fashion, you bought or transitioned? I didn't see anything. I was looking.

We acquired an asset that was through a relationship we got with NHP that is being managed by our friends at Brookdale.

Okay, fair enough. A single asset, is that right?

Correct.

Okay. On HCT, how do you feel about the MOB portfolio given that it is 70% off-campus?

I wish you would have been here last quarter because I waxed eloquent about that very subject. So we feel really good and think that the MOB portfolio in HCT is one of the big attractions of the portfolio because it is about 50% of the portfolio and Todd is very excited to bring those into the fold. So a couple of the characteristics that make us like them are they are 97% occupied, have longer lease terms of over eight years and half the buildings were newly constructed. So each of those metrics will improve those same metrics in our existing market-leading MOB portfolio.

They are 90% affiliated or on campus with strong hospital sponsorship and credit quality is strong and so the key point about them is that they are affiliated with leading regional health systems like Advocate Baylor, Memorial Hermann, UC Davis. They are larger building sizes averaging over 50,000 square feet and they are comprehensive or specialty outpatient centers that are essential hubs for the Affiliated Health Systems Care Network. So we really like that they are really at the leading edge of kind of successful population health management trends.

So we also see an opportunity in the multi-tenant ones to bring management inside and leverage the Lillibridge platform. So those are all aspects that we really like about it and Todd is sort of chomping at the bit to get to the closing so we can bring them into the fold. Aren't you glad you asked?

Yes, perfect. It sounded like you were reading. No, I am just kidding.

I have a good memory, that is all.

Okay. In Canada, REVPOR went from $7200 in the second quarter to $7900 in the third quarter. How did that happen in such fast pace?

I think, Rich, that it is a new staff in there, new salespeople focused on nuts and bolts. I mean if you look at it, they had improvement in all the key metrics so your occupancy went up, your rate went up and your expenses went down and that to me is just blocking and tackling and executing and I am hopeful that they can continue to do that.

Remember again as we said last call, these were the top-performing assets (multiple speakers) irreplaceable top quality portfolio and so it should be able to do better.

And then the last question is on the MOBs that you are selling, I think it was $200 million or so, what do they look like? Are they under occupied, how below the radar screen are they in terms of quality relative to the rest of your MOB portfolio? Do you still think you can get a 6-ish type of cap rate on it? Thank you.

I think that portfolio is a combination of stabilized properties that have consistent cash flow and then properties that are in lease up that have upside in them and between those two I think they will be very attractive to buyers who want to be able to generate additional value going forward out of the portfolio.

So I think the 6 cap is pretty reasonable if you take into consideration the upside that might be embedded in those assets.

Okay, thanks.

Thank you.

Michael Knott, Green Street Advisors.

Good morning. Debbie, just wanted to ask you about your new investment activity was fairly modest and I am just curious if that is maybe because asset values have risen so much in the private market that it is so much more competitive or maybe a view of your cost of capital maybe trading probably pretty close to NAV these days, just curious how you are thinking about new investment activity?

Well, my dad was a mailman and 4.5 billion was far from modest in a year for him so I am feeling like we are doing a lot and so I would say in the quarter we closed $1.1 billion and we also invested almost a total of [1.3] including development and redevelopment so we are feeling good about that. I think the allocation of capital to our redevelopment/development business is a good risk-adjusted return that we see continued capital allocation to. And as I said, we are good investors, we are consistent investors. We have created a lot of value over a long period of time and we think when we pick our spots, we can continue to invest accretively and strategically but we will continue to be smart investors.

Okay, thanks. And then on your comment to Michael Bilerman about potential, the range of potential asset sales next year I think you mentioned the top end could be as high as 750. Just curious, if you got to that high and I appreciate you are going to talk more about this on the next call, but would that sort of be a change in your philosophy on recycling capital if you got to that high?

Actually, I want to strongly caution all of you from running with any of those numbers. What we will be happy to do is when we come to you about 2015, we will be happy to give you some visibility into expected asset sales. I do think we have been talking about it for some time now and we are starting to implement with the MOB sale that we talked about.

A strategy to recycle capital, optimize the portfolio and those are all positive sort of typical real estate activities and I think we can probably provide more color on that which we will be happy to do in the first quarter call, in the year-end call.

Okay, that is fair enough.

Thank you.

Then if I can just ask a disclosure question, I think on the last call someone had asked about foreign exchange and you mentioned that you typically reflect foreign exchange impact at exchange rates and then this time I think you are sort of front and center NOI growth presentation on sort of the first page of the supplement, second page was in local exchange rates. And we appreciate the enhanced disclosure in the middle of the supplemental package but just curious on the philosophy. Will we see the local currency be now more of the focus whereas in the past it was US dollars?

Again, we are trying to provide great visibility into property level performance and if you look at the supplemental pages 13 and 14, you will see that we have presented them in both. I don't know if it is 13 and 14 or 12 and 13 but we have presented them in both and we are talking about them in local because it gives you that visibility into performance. We really talked about in our guidance saying that we are assuming a constant exchange rate and so reporting in local currency is just a different way of saying the same thing.

And then Michael, remember that the way that we hedge currency is through borrowing and that shows up below the NOI line so I think the best way to look at the property level performance particularly now that we have 29 more properties in Canada is to look at local currency. It is starting to become a bigger driver and I think you will get a much better picture of the true underlying performance in local currency.

Okay, thanks for all that. I appreciate it. And then last one for me just housekeeping, Debbie, I think on this call and also the last one I think you mentioned 65% Q mix for what I think you termed your post-acute. And then on page 2 of the supplement for the skilled nursing portfolio it shows a 51% Q mix. I am assuming the delta there is just you are somehow bifurcating your skilled nursing portfolio. Is there anything else on this?

Actually, no, actually it is much better than that because the long-term acute care hospitals and IRFs are part of the post-acute continuum and so we have a tremendously high quality portfolio there and so we are basically taking the whole post-acute continuum and quoting a very high attractive quality mix.

So it is actually a great statistic for about 26% of our NOI so that is a good question. Thank you for asking. We are going to have to hustle here because there are a couple more people we want to make sure we get to, Michael.

Thank you.

Daniel Bernstein, Stifel.

Good morning. I just want to ask a quick question on the [ATT] SHOP portfolio. Obviously can't talk about the third-quarter results but how is that ATT SHOP portfolio compare performance wise compare to what the existing Atria or Sunrise assets have done and maybe compare the growth rate of the two over time and where you expect that to be.

I think we talked about some statistics of the senior living portfolio and in particular the managed portfolio last time. There are 29 managed senior living assets and eight operators who will be new care providers and customers for us and they have about 94% occupancy and NOI per unit per year of about 17,000. So they are very high quality and compare favorably with NIC and other kind of wholly private pay portfolios that don't have skilled nursing beds or super high acuity Alzheimer's in them.

So essentially probably I should expect a similar growth rate to what your existing SHOP portfolio can do?

Yes, I think that is what we were underwriting and suggesting to the Street.

Okay. And then when I think about your development portfolio, you talked a little bit more about the potential for some ground-up development, Class A ground-up development. How do you see -- right now your development is mainly tilted toward [re-nav]. Do you see your development portfolio tilting a little bit more towards ground-up development over the next say 12 or 24 months and how big could that get as a percentage, maybe not as a percentage but on a dollar amount of -- on the development side?

We really like the redevelopment because we think it is great risk-adjusted return, there are small slugs of capital with existing customers, it proves our portfolio, helps our assets win in the marketplace and our tenant operators win. But focusing on kind of ground-up development I think we are super selective and we have done ground-up development in Cape Cod with Atria and that has gone really well. We will do pre-leased MOBs and we have the in-house capability and partnership capability of doing that really better than anyone and I think if we find kind of as I said really compelling projects that have ground-up development and meet the characteristics that we believe are appropriate, then I think we will pull the trigger. But there is a very high bar for us for ground-up development.

And then in terms of these seniors housing industry itself, we have seen a lot of interest in development in construction but not a lot of that has translated into new starts. How long do you think the seniors housing fundamentals can remain strong as to where they are now? I mean how would you characterize where we are in the cycle? Are we near peak in industry fundamentals? Do we still have a couple of more years to go? How are you thinking about the seniors housing industry broadly?

I think our view is that we are still in a very good spot in the seniors housing cycle. I think you are right to point out that we haven't seen a tremendous amount of construction relative to the inventory in place. The demand fundamentals remain very good and so I think we have still got a couple of years here of good visibility into positive net absorption in the space.

Okay. One more last quick question. I'm not specifically commenting on the Germany transaction that NPW did but you and others have not done a lot of investments or any investments really on the European continent really sticking to the UK. How do you think about the opportunities on the continent itself versus the UK?

Well, some of the countries within the Eurozone do meet the criteria that I outlined, really great capital markets, efficient, you can borrow very efficiently and they do have policy support for healthcare and favorable demographics. So some of those countries would fit within the criteria and framework that I outlined.

If the right opportunity popped up, okay.

Yes.

All right. I will hop off. I know we are getting late in the call.

Thank you, Dan. We want to make sure everyone has a chance to ask their questions.

Vincent Chao, Deutsche Bank.

I just have a simple question, I apologize for being a little dense here but understanding that the same-store NOI trends here in the quarter were consistent with your expectations and given some seasonal impacts in the SHOP portfolio, I am just curious why would seasonal impacts impact your year-over-year trends? It seems like they would be similar in both periods?

Yes, I think as I mentioned when I answered the question we did have a little bit more of the expenses in this year than we have seen in previous years and so I think that is sort of the difference there.

Okay, so that should moderate in the fourth quarter?

We hope so.

Okay. Thanks.

Thank you.

Karin Ford, KeyBanc Capital Markets.

Good morning. I just had one question, just a follow-up to Tayo's question earlier on the deceleration in the US SHOP portfolio. Based on the performance that you have seen here in the fourth quarter so far, do you expect that deceleration to continue here into the fourth quarter and do you care to comment on the possibility for re-acceleration into 2015?

I would say last year that the third quarter was the lowest year-over-year growth and we would expect the fourth quarter to be kind of flattish and potentially a little bit up. Those are the patterns that we have historically followed.

Okay. And based on the industry dynamics that Ray just talked about, do you think there is a possibility that growth could reaccelerate as you look a little further into the future?

Certainly as we finish our redevelopment and lease those up, we continue to work in Canada, continue to focus there to get that turned and back to where it should be. And as we work with our operators to push rates where we can and manage our expenses, give rope and drive occupancy where we need to, I think that we can see some reacceleration in the growth rates.

Remember the Holy Grail too from a big picture standpoint is to increase kind of the capture rate if you think one in seven seniors or so uses a senior living community, if the industry can increase that even slightly, that obviously generates a whole new level of demand and I would say that that really is the challenge and opportunity for our industry is to continue attracting more seniors to senior living and making it the statistical case that it is better for health and wellness, longevity and frankly long-term costs for the overall system.

Thanks for the color.

Thank you.

Michael Carroll, RBC Capital Markets

It looks like the Sunrise portfolio in Canada, they were able to quickly stabilize those assets. Did they implement anything special to stabilize that so quickly?

Yes, I don't think, Michael, that those are stabilized yet. I still think there is a way for those to go to get back to their strong historical levels of performance. But I will say we are pleased with the progress that was made during the quarter.

The basic things as I said we are getting the right staff in place at the buildings and executing and blocking and tackling and I think if they can continue to do that, they should be able to build on that momentum and get them back to where they have been which is 94% plus occupancy and strong year-over-year rate growth with best in portfolio margins and there is still room to run there.

As my mother said, sometimes when you just pay attention you do better. So I think that it is a good story and hopefully more to follow.

Okay, great. Thanks.

Anything else, Michael?

No, that's good.

Okay, okay. Thank you so much this morning for all your patience and your interest in the Company. We really look forward to seeing you in Atlanta and give you a chance to meet our new CFO, Bob Probst, and we are very excited that the conference will come right as he begins. And since this is Rick Schweinhart's last Ventas earnings call, I want to thank him again for his tremendous leadership and partnership over the last 12 years.

So with that, we will say goodbye and look forward to seeing everyone in Atlanta. Thank you.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.