芬塔 (VTR) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2015 Ventas earnings conference call. My name's Dave. I'll be your operator for today.

(Operator Instructions)

As a reminder, the call is being recorded for replay purposes. I'd now like to turn the call over to Ms. Lori Wittman, SVP of Capital Markets and Investor Relations. Please proceed, ma'am.

Thank you, Dave. Good morning and welcome to the Ventas conference call to review the Company's a announcement today regarding its results for the quarter ended March 31, 2015.

As we start, let me express that all projections and predictions and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the federal securities laws. These projections, predictions and statements are based on management's current beliefs as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, uncertainties and contingencies. 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, 2014, 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 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 the CEO of the Company.

Thanks, Lori. Good morning to all of our shareholders and other participants and welcome to Ventas' first-quarter earnings call. This morning we are happy to share our excellent Q1 and year-to-date accomplishments and results, discuss our strategy and areas of focus, and provide our outlook for the balance of the year. Following my remarks, Ray Lewis will discuss our portfolio performance, and Bob Probst will review our financial results. Then we'll be happy to answer your questions.

Although we're only four months into it, 2015 is shaping up to be a highly productive and value-creating one for Ventas. Year to date, we have closed over $3.5 billion of investments, received almost $0.5 billion in disposition and loan repayment proceeds, made a strategic and accretive investment in the US acute care hospital space, and announced the spinoff of most of our skilled nursing, or SNP, portfolio to create two faster-growing, more focused companies. We've also selected a name for the pure-play REIT -- Care Capital Properties or CCP.

We also delivered a very strong quarter, in line with our expectations. Our enterprise generated normalized FFO per share of $1.18, representing 8% growth from the first quarter of last year. Cash flow from operations increased by 21% in total, and 9% on a per share basis, compared to the prior period. And our first quarter dividend per share grew in line with that strong cash performance.

We believe our recent announcement that we intend to spin off most of our skilled nursing portfolio into CCP, a pure-play REIT, as well as our pending entry into the US hospital space, are innovative decisions that will deliver significant benefits for our investors, lenders, customers and employees. They also fit squarely with our track record of thought leadership in our industry, value creation, and capital stewardship.

The Ventas team sets the bar high for extreme productivity year in and year out. With a focus on elevating our enterprise and sustaining the excellence we stand for, let me recap some of our highlights so far this year. First, capital markets activity -- maintaining our commitment to financial strength and flexibility, we accessed the debt and equity markets in January on attractive terms, and positioned ourselves for today's outstanding debt to enterprise value of 32%.

Turning to capital allocation, we have had a terrific start to the year, closing $3.5 billion in deals so far. First, of course, was the completion of our HCT acquisition on January 16. The transaction is accretive and consistent with our strategy.

We priced HCT in 2014 in anticipation of the increasingly strong bids we see for healthcare in senior housing assets in the market. Since closing we have been fully integrating the HCT assets and customers into our portfolio. We continue to be pleased with the portfolio's composition of principally newer medical office buildings, or MOBs, affiliated with excellent hospital tenants, and senior housing operating assets managed by quality care providers, all of whom are performing well.

You will see the improvement in several key metrics of our best-in-class Lillibridge MOB business in this quarter's supplemental materials as a result of the HCT acquisition. Finally, I'm happy to report that the NOI from both the HCT and the Holiday deal we closed last year are on track with our original NOI projections, using constant currency as of the date of the announcements last June.

We also expanded our footprint in the UK this quarter. We invested $86 million to acquire five mostly private pay care homes in the London market, operated by Canford Healthcare. The properties are subject to a long-term triple net lease yielding over 6.5% on an initial cash basis after tax.

We identified Canford as an experienced, knowledgeable management team we believe we can grow. Already we are working with Canford on a second follow-on investment to build out their and our senior housing business in the UK. So, now we own both hospital and care home properties leased by quality care providers in the UK.

We also made an attractive investment during the quarter in 12 skilled nursing assets with an existing customer at an initial cash yield exceeding 8% and good cash flow to rent coverage. These facilities will be spun to Care Capital Properties and represent an example of the type of external growth opportunities available to CCP as an independent pure-play REIT.

We also recently committed to participate in a new high end, $86 million ground-up senior housing development project with Atria in Northern California. In this deal Ventas will contribute 25% of the equity capital and our in-place joint venture partner, a state pension fund, will contribute the balance. We expect the unlevered NOI yield upon stabilization to approximate 9% of total project cost. The development is located in an infill barrier-to-entry market with superior demographics.

As you know, we are very excited about our recent agreement to purchase Ardent, a top 10 US hospital operator. This is an exciting strategic and accretive investment for us in the massive, rapidly consolidating hospital sector The hospital sector is one we've been studying for a long time, attracted its size, capital intensity, fragmentation, limited public ownership, and position at the top of the food chain in the US healthcare delivery system.

The sector is currently benefiting from major positive trends such as demographics, the Affordable Care Act, positive reimbursement and an improving economy. All of these trends are driving growth in admissions and emergency room visits.

Ardent itself is a high-quality company that generates over $2 billion in annual revenues, and most importantly, has an experienced management team and scalable platform to grow. Ardent operates in three key markets where it enjoys significant market share.

While there are several moving pieces to the deal, in summary, at closing we expect to have about $1.4 billion invested in 10 high-quality hospitals subject to new long-term triple net leases with the Ardent operating company. The operating company, which we are designing to be strong and profitable, is expected to be owned by the Ardent management team, Ventas, with up to a 9.9% stake and other equity sources. We expect our unlevered going in cash rent yield to exceed 7%, with approximately 2.5% annual rent escalation.

As a further update to our recent announcement we are well under way with a formal marketing process to choose the equity partner for the Ardent hospital operating business. Because Ardent is an attractive and rare opportunity to invest in a quality hospital provider, we are seeing significant interest in the deal from potential equity players.

Our overarching strategy is to combine Ardent's management capabilities, and our real estate capital and hospital customer relationships, with a knowledgeable equity capital partner as the majority owner of the Ardent operating company. Together, we'd expect to be a leader in hospital consolidation.

Because the Ardent acquisition shares many characteristics with our highly successful Lillibridge and Atria acquisitions, in that we have a nucleus of high-quality assets, a strong management team and a scalable platform and system, we are excited and confident about our ability to build a formidable business in the US hospital space over time.

Turning to the other side of capital allocation, let's talk about capital recycling and strategic separation. Already this year we've sold and received loan repayment proceeds of almost $500 million, which we expect to redeploy later this year to partially fund our Ardent acquisition.

More importantly, our proposed spinoff of most of our portfolio of skilled nursing assets, to a pure-play SNF REIT has gained traction. We expect Ventas and CCP to be two faster growing companies with focused differentiated strategies. Upon completion of the spinoff, Ventas will also improve its NOI contribution from private pay assets to a market leading 83%, derive 83% of our pro forma NOI from top 20 care providers, and improve our post acute quality mix to 78%.

Our segment balance and diversification will also be enhanced by the retention of our post acute portfolio leased by national public care providers such as Kindred, Genesis and Health South, and the addition of a hospital segment. We will also retain significant scale at over $30 billion in enterprise value, financial strength, a high-quality SHOP portfolio, best-in-class MOB franchise, and best dividend growth with the most attractive payout ratio in our sector. In fact, we intend to increase our combined dividend by at least 10% at the time of the spinoff.

Looking forward, we are also pleased to raise our full-year normalized FFO per share guidance. Please note that our guidance doesn't yet incorporate any impact from the spinoff or any additional acquisitions.

We continue to see tremendous opportunity both domestically and abroad to invest capital. You can see from the plethora of deals being announced that investment possibilities are abundant. While you should assume we look at virtually every deal in the market, the key for us continues to be, as it always has been, to serve as thoughtful stewards of your capital, and remain ahead of the curve. It goes without saying that we seek investments that present good, risk-adjusted returns, are consistent with our strategy, and will create value for our shareholders.

As I'm sure you can tell, I'm about as fired up about Ventas' business and the future of the Company as I've ever been. With our skill set, opportunities, access to capital, customer relationships and track record, I am confident we will end 2015 with two attractive companies positioned to thrive and deliver for shareholders.

And on that note, I'm happy to turn the call over to Ray Lewis, our President and CCP's incoming CEO.

Thank you, Debbie. Our balance and diversified portfolio of more than 1,600 senior housing, medical office and post-acute properties continued to deliver strong growth in the first quarter. Same-store cash NOI for the total portfolio grew by 3.2% for the first quarter of 2015 as compared to the first quarter of 2014, and was led by strong growth in the triple net lease portfolio.

Let me start with our senior housing operating portfolio. With the closing of the HCT acquisition in January, we now have a total of 305 properties, of which 269 are operated by Atria and Sunrise. The total SHOP portfolio generated NOI after management fees of $149 million in the first quarter, growth of 21% year over year, driven primarily by the addition of 68 new properties since the first quarter of 2014, and solid same-store performance in our Atria portfolio.

Average occupancy in the total portfolio at 91.3%, was 70 basis points higher in the first quarter of 2015 compared to the first quarter of 2014. Our portfolio occupancy exceeds the average senior housing occupancy reported by NIC in its top 99 markets by 100 basis points.

NOI in the 234 properties in our same-store portfolio, increased about 1% in the first quarter of 2015, over the first quarter of 2014. Adjusting for approximately $2.2 million of nonrecurring real estate tax credits in the first quarter of 2014, the same-store NOI grew 2.7%.

Year-over-year occupancy growth was strong at 60 basis points, and occupancy increased in both the Atria and Sunrise portfolios. Year-over-year rate growth was also strong at 3.1% driven by the Atria portfolio. However, as we told you during the fourth quarter call, for both Atria and Sunrise, we are seeing some pressure on expenses, particularly in wages, benefits, insurance and utilities, which manifested in a 5.2% year-over-year expense increase in the first quarter.

On a sequential basis, the 269 properties in our same-store portfolio performed in line with our expectations for the first quarter. Consistent with historical patterns, occupancy declined in the first quarter versus the fourth driven by lower move-ins around the holidays, the impact of the flu season and the inclement weather in the Northeast.

Rate was up 2.8% driven by annual rent increases in most of the portfolio. And expenses were up 2.2%, driven by the wage, utility and other expense items that we discussed when we gave our guidance last quarter. Based on our seasonal trends, we anticipate that occupancy, NOI, and margins should increase through the rest of the year.

Looking at the broader senior housing landscape, construction starts were on par with recent quarters, and construction as a percentage of inventory was about 4.2%, also in line with recent quarters. Due to the high barrier to entry, infill locations that are typical of our SHOP portfolio, construction as a percentage of inventory in the three mile trade area around our buildings, was only 2.3%, and our portfolio continued to outperform the market as a result.

When compared to the NIC top 99 markets, our same-store stable occupancy at 91.7%, is 140 basis points higher than the NIC average. And our REVPOR at approximately $5,700 per month, is 66% higher than the NIC senior housing data.

Next, I'll cover our triple net lease portfolio, which accounts for 50% of our portfolio NOI. This diversified and productive portfolio of 952 senior housing post-acute and hospital assets, delivered another quarter of strong and stable performance.

The 837 assets in the same-store pool grew 4.8% in the first quarter of 2015 over the first quarter of 2014, driven by our contractual escalations and approximately $5 million of anticipated fees. It is important to note that this does not include a $37 million payment that we received from Kindred in connection with the agreements regarding the nine SNFs which we announced at year end.

Cash flow coverage in our same-store triple net lease portfolio for the fourth quarter of 2014, the latest available information, was strong and stable at 1.6 times. Since we last spoke to you, there have been a number of positive reimbursement developments out of Washington.

First, CMS released its proposal for 2016 Medicare rates for post-acute and hospital services, which would take effect in October of 2015 but remain subject to review and comment. Skilled nursing got a proposed 1.4% increase. LTACs received a proposed 1.2% increase, excluding the impact of patient criteria rates which are not expected to impact Kindred until the fourth quarter of 2016.

[urfs] received a proposed 1.7% increase. And acute care hospitals received a proposed 0.3% increase. Note that these proposed increases are industry averages and will vary by individual provider.

In addition, legislation was enacted to provide a permanent solution for the doc fix that entailed [pay force] by the post-acute and acute providers that were significantly better than had been previously anticipated. This is great for the doctors, many of whom occupy our MOBs, and removes a significant overhang from the industry.

Finally, our market-leading Lillibridge MOB business turned in another solid quarter. For the first quarter 2015, NOI in the total consolidated portfolio of 358 properties was $92 million, an increase of 27% over the first quarter of 2014. Performance was driven by solid same-store performance, and the addition of 83 properties from the HCT acquisition in January.

Occupancy they the total portfolio was up 80 basis points to 92.4%, and margins increased by an exceptional 310 basis points, reflecting the quality of the properties we acquired. In the 273 properties in the same-store portfolio, cash growth was 2.2% or 3.6% on our share. This was driven by a 2.6% increase in rental rate, and an increase in margin of 80 basis points, offset by a decrease in occupancy of 60 basis points, which was anticipated in our budgets for the year.

Since the closing of the HCT portfolio, Lillibridge has internalized the management of 25 buildings. Our best practices in property management should lead to increased profitability in these buildings over time. And our sector-leading MOB platform is a unique advantage that enables Ventas to compete and win in the MOB space.

Before turning to call over to Bob, I would like to say a few words about the spinoff of most of our portfolio, of skilled nursing properties, to a new pure-play REIT we have named Care Capital Properties. We are very pleased to have filed the Form 10 with the SEC as of this week. And we are proceeding full speed to execute the transaction as quickly as possible, which will likely be no earlier than September.

As we discussed in our call two weeks ago, the Company is going to have a diversified portfolio of over 350 primarily skilled nursing properties, with overall lease coverage of 1.8 times, and a weighted average remaining lease term of 10 years and relationships with 43 operators. We will deliver external growth by investing with quality regional and local skilled nursing operators to consolidate this highly fragmented, $120 billion market. And as Debbie mentioned, we are already working on building a pipeline of transactions, so that we can hit the ground running.

We will also grow internally through leases lease escalations and redevelopment. Our balance sheet will be strong with projected leverage of about 4.5 times, and we should have access to multiple sources of attractively priced capital, which we can use to invest and grow the business.

Finally, we are going to have a seasoned management team that has learned the ropes at Ventas, and brings a wealth of talent to the new Company. I'm extremely energized by this exciting opportunity to build a great skilled nursing REIT, and I look forward to sharing more about Care Capital Properties with you as the spinoff progresses.

With that, I'm happy to turn the call over to Bob to discuss our financial results and outlook. Bob?

Thank you, Ray. Let me start with the numbers for the first quarter of 2015. In the first quarter, Ventas delivered record normalized FFO of $387.5 million, an increase of 20% versus prior year, and in line with our expectations. Q1 normalized FFO per diluted share was $1.18 versus $1.09 in 2014, an increase of 8%.

The strong Q1 growth over 2014, is primarily due to the positive impact of accretive acquisitions, a same-store portfolio NOI growth of 3.2%, led by our triple net portfolio. As expected, we benefited early in the quarter from approximately $7 million in fee income, or approximately $0.02 of FFO per share. This solid FFO growth was partially offset by an 11% increase in share count in Q1, driven by the close of the HCT transaction in mid-January, as well as equity issuance under the ATM.

Weighted average diluted shares outstanding for the first quarter of 2015 increased to 329 million shares compared to 296 million in Q1 of 2014. NAREIT FFO increased 16% from the first quarter of 2014, to $359 million. On a fully diluted share basis, NAREIT FFO, which includes the deal costs associated with the significant acquisition activity in the quarter, grew by 4% to $1.09 per fully diluted share, up from $1.05 in the first quarter of 2014. Normalized FAD for the quarter totaled $1.08 per fully diluted share, an increase of 8% over last year.

Foreign exchange rates for the Canadian dollar and pound sterling in the quarter were in line with the rates previously incorporated into our guidance. The dividend for the quarter totaled $255 million or $0.79 per share, paid in two installments. Our payout ratio remains strong at approximately 67%, and provides upside for future dividend growth.

Dispositions and loan repayments year to date raised $474 million at a cash yield of 6.8%, and a GAAP yield of 7%. Dispositions included the MOB portfolio previously discussed, as well as senior housing and skilled nursing assets. Cash flow after recurring CapEx totaled $323 million, growth of 20% over the first quarter of 2014.

We accessed the debt and equity markets in January, raising $1.4 billion. In the fixed income market we lengthened and staggered our maturity schedule, and raised $1.1 billion in the US and Canadian markets at a weighted average interest rate of 3.7%, and maturity of 15 years. And we raised $290 million in equity at $77.38 per share under our ATM.

Consistent with our philosophy of having consistent access to all capital markets, and in conjunction with replacement of our expiring shelf registration statement in March, we reestablished our at the market equity program, although we have not used it. The new program remains in effect for three years.

As expected, our net debt to EBITDA at quarter end was a strong 5.7 times. At quarter end, floating rate debt represented 16% of total debt, while fixed charge coverage was an excellent 4.6 times. Currently we have $1.7 billion available under our revolver, thereby providing a strong liquidity position.

Let me now turn to our updated outlook for the full year 2015. As a reminder, our previous expectation as outlined in February, was to deliver 2015 normalized FFO per share in the range of $4.63 to $4.71, translating to 3% to 5% growth over 2014. We are pleased to increase our guidance for 2015 normalized FFO per fully diluted share, to now range between $4.67 and $4.75, representing 4% to 6% growth over prior year.

The primary driver of this increased guidance is the acquisition of Ardent Health Services. As previously quoted we expect that on a leverage-neutral basis Ardent will add $0.08 to $0.10 of FFO per share accretion on a full-year basis. We are now incorporating a July 1 closing in our 2015 guidance.

We have assumed no further acquisitions or speculative fee income in our guidance. This guidance also does not take into consideration any impact from the spinoff of Care Capital Properties. Ventas plans to update guidance once the spinoff transaction is completed.

In terms of quarterly phasing, we expect to see a sequential reduction in FFO per share in the second quarter. On a year-over-year basis, Q2 FFO per share and same-store growth is expected to slow in the second quarter, with growth accelerating in the second half of 2015. This is due principally to receive a significant disposition and loan repayment proceeds and fee income in the first quarter, with expected reinvestment in Ardent to occur in Q3.

We continue to project total Company same-store cash NOI growth of between 2.5% to 3.5% in 2015. Same-store growth expectations for the SHOP, MOB and triple net segments also remain consistent with previous guidance.

Finally, before opening the call up for questions, I am pleased to report that we have further expanded our already excellent disclosure in two ways this quarter. First, on page 19 of our supplemental disclosure, we have provided additional information on our investments and dispositions completed during the quarter and year to date.

Second, on the map page located on the Ventas website, we have added a link where you can directly access our full property listing including address information. We strive to be as transparent as possible and welcome feedback on these additional disclosures.

With that, operator, please open the line for questions.

(Operator Instructions).

Juan Sanabria, Bank of America.

Hi, good morning. Thanks, Debbie. I was just hoping you could speak a little bit more about the SHOP portfolio on two fronts. First, if you can give us any color on what the HCT portfolio how that's growing, how we should expect that to impact the same-store pool. And if you could also give us a little bit more color on the current same-store pool, the margin expectations given the comments on cost pressures.

Juan, this is Debbie. I'll just take one small part of that and turn it over to others. But the HCT's performing in line with our expectations. We would expect that NOI to grow on a moderate basis over the course of the year.

It will not be in same store this year and will appear in same store in the second quarter of 2016 when we've owned it for a full year. On the current same store I'll turn it over to others to answer your question.

Hi, Juan, it's Bob. In terms of the margin question on same store, you saw it decline in the first quarter. That was in line with our expectations. You have the seasonal decline in the quarter, together with the wage and other cost inflation we had anticipated. And in fact, it was exacerbated to some degree by flu and weather in certain parts of the region.

As we think about the balance of the year, that occupancy will pick up, really beginning in the second quarter and accelerate through the back half. That will drive, in our minds, the operating leverage together with the rate we saw in the first quarter, about 3.1% year on year, to really try to hold those margins for the full year. So that's really what's implicit in our outlook for the same-store guidance.

Just to make sure, that guidance is staying the same at 3% to 5% growth for the year?

That's correct.

Great. Thanks. And I was just hoping you could maybe elucidate or give more color on the type of hospital opportunities you see out in the marketplace, who the sellers might be. And is the thought just to look into US markets or are you also looking at hospital opportunities overseas?

Great question. As you know, we own three high-quality hospitals in the UK. I would imagine, though, that the Ardent external growth opportunities are going to be principally, if not exclusively, domestic.

There are a couple different categories of potential acquisitions that we would hope to work with Ardent on. One is a classic purchase of not-for-profit hospitals, and that is probably the biggest kind of pipeline. It's what Ardent has been good at in the past and certainly is a path that many of the public hospital operators take advantage of because they will buy these assets and make them more efficient.

Another avenue would be potential spinoffs or sales by public companies of some of their hospitals. And a third might be really the acquisition of other smaller hospital companies that are for-profit companies. But I do see the first one with the not for profits who own the majority of hospitals in the United States as probably the principal pathway to external growth with Ardent.

Just a quick follow-up on that, do you have any preference for geography? Is it the top 30 MSAs or are you agnostic to that as long as it's a hospital with a good market share and good coverage potential?

I think we would really be looking at hospitals with significant market share where Ardent could drive efficiencies, utilize and scale its platform and have significant negotiating leverage in the market with payers. And so that would be key for us. And also we like Medicare expansion states, things like that, growing populations and demographics. Those would be the key things we would be looking at for additional acquisitions.

Thank you. I'll yield the floor.

Thank you. The next question is from the line of Nick Yulico at UBS. Go ahead.

Good morning. On spinco, a couple questions. First, are you still target a $0.53 to $0.55 dividend there per share, based on Ventas share count?

Yes, Nick, we are.

Okay. And then reading through the Form 10 filing it says that spinco is going to be purchasing a senior housing valuation firm in exchange for spinco stock of about $11 million. Can you explain what's going on there?

Yes. That is an opportunity that we've sourced where we think there are some strategic benefits to aligning with a valuation firm who is going to be farther up the stream potentially in transaction opportunities. This is a very well-known group that has a lot of long-standing relationships with our potential customers. So, it's a way for us to expand an acquisition network without a significant investment, and, in fact, a cash return.

Okay. And who is this firm?

I'm not able to disclose that at this point.

Okay. But it's some firm that's well-known that will help you do acquisitions basically?

Yes, it will be an income-producing investment that in addition will have ancillary benefits of having lots of industry relationships that could lead to more pipeline for Care Capital Properties.

Got you. And then just on the initial SNF purchases here, it looks like this portfolio was purchased from a healthcare REIT and you guys had to reset the lease agreements. Can you just explain the coverage of this portfolio and how the cash yield you cite was affected by you guys having to redo the lease agreements?

Sure. I think it's a little bit different from what you're saying. Actually, this is a customer of ours who assumed a purchase option for the asset that was exercised. So, our customer took over operations of the assets which, of course -- and we bought the assets with them and in support of them, and we basically entered into a new lease based upon the purchase price for the assets, which would be what is typical.

And the coverage is a strong coverage. I believe we quoted above 1.5, and the lease rate is about 8% or more of our investment. It's just like any acquisition that we would make with a customer of ours.

Okay. Got it. Just lastly, your Brookdale exposure went down by 15 assets and real capital outlook shows that Brookdale purchased some of these assets from you guys. Can you explain what was going on there? Was there a purchase option that happened? And did this take place prior to all this news coming out about now Brookdale doing a strategic review of its real estate? Thanks.

Yes, thank you for asking that. We actually did sell some assets to Brookdale in the first quarter. That was part of the $0.5 billion that I mentioned. This was really a collaborative transaction. There was no purchase option.

They were assets that were not performing as well as I think Brookdale wanted them to perform. And we reached a favorable transaction with them where we were able to sell them back to Brookdale. And we both came out I think where we wanted to. So, it was a very collaborative deal.

Thanks.

Thank you. The next question is from the line of Smedes Rose at Citi. Please go ahead.

Hi, good morning. Thanks. I wanted to ask you, in your Form 10, the NOI from CCP was looking like it's around $290 million to $295 million, and I think the guidance is $315 million to $320 million. Is that just reflecting the 12 SNFs that you acquired in the quarter and will get spun to them or is there some other way to get to that NOI number?

It's not only the 12 but it's also the 18 assets from HCT that will be coming over. So, there's a total of 30 that were purchased subsequent to 2014. And so when you add those in, that's how you get to the range.

Okay. Thanks. And then on your senior housing operating portfolio, it looks like where you break out your primary and secondary markets, and it looks like a lot of the wage pressures you talked about were in the primary markets and results outside of those were fairly strong. Do you expect those kinds of wage pressures to trickle down into other markets? And with the rising chorus for a $15 minimum wage, is there any way to quantify the impacts that might have across your portfolio, if any?

That's a good observation. I think as you look at the primary market results there's a couple of things that need to be taken into account. One, our primary markets are weighted much more heavily towards the Northeast where we had obviously the negative impacts of the weather, which resulted in increased expenses, overtime, utilities, maintenance costs, et cetera.

The $2.2 million of real estate tax credits that we mentioned were also in the Northeast and in the primary markets, and so, again, those should be taken into consideration. And then, yes, there are some wage pressures generally in those markets which are reflected in the annual increases that took effect in the first quarter and should not continue to grow throughout the year. In fact, as Bob mentioned, as we add occupancy, we hope to leverage those costs that are in place.

Okay. And then any thoughts around minimum wage or are people generally making above that anyway so it doesn't matter as much?

People are making above that in our buildings. I would say that it does push up the spread, or the spread needs to be maintained so it does have some upward pressure on wages in our buildings.

Okay. All right. Thank you.

Your next question is from the line of Andrew Rosivach at Goldman Sachs. Please go ahead.

Good morning. I was hoping to ask a question to a JD that knows something about healthcare and real estate.

Okay. Go for it. I'll try to find someone for you.

Okay. I think we've found out recently and wondering how it might apply to your business, across the healthcare spectrum -- this includes hospitals, it includes SNFs obviously -- there are often DOJ complaints and settlements on Medicare reimbursement. I was wondering, when you acquired these businesses and you're active where this could potentially be an issue, do you have any recourse if there are complaints for operations prior to you owning the Company?

Okay. I will answer that question. We have, obviously, a lot of experience underwriting and understanding healthcare businesses including the regulatory side. We have an extensive due diligence process that we go through when we deal with these types of businesses, and very extensive risk management processes. In general, when we acquire businesses and have PropCo OpCo-set separations, the OpCo is responsible for those types of obligations, should there be any, both prior to and after closing.

Got it. We've been finding out the hard way, when you look at some of these investigations, that some of them tend to be dated back to the early 2000s. Is there ever any responsibility for the vendor at all for the performers who actually sold you the assets?

Again, that depends on the type of acquisition and the particular terms of the transaction. In a public to public merger, for example, there is typically, as you know, in any type of public to public merger, everybody's on their own after closing. If they're private transactions it all depends on what the terms of the purchase contract say in terms of indemnification for pre-closing obligations.

I think, again, the key take-away that you should understand is when we are a real estate owner and we're doing these PropCo/OpCos the operating company or the tenant is typically responsible for both pre- and post-closing reimbursement items. And we typically conduct very rigorous due diligence.

Right. So it's the tenant but not the capital sponsor typically?

Yes, the tenant. And that's, again, why it's important that your tenants have significant financial and operating wherewithal.

Terrific. This is a lot of help. Thank you.

The next question is from the line of Josh Raskin at Barclays. Go ahead, please.

Thanks. Good morning. The first question just on the Ardent transaction, I'm curious to get a little more color. You mentioned that there was a lot of interest on the operating company. I'm assuming those are private equity shops that are looking at that, so correct me if I'm wrong.

And then what happens if you can't agree in a timely manner on potential valuation and ownership, et cetera, of that entity? What happens with the overall transaction?

I'm so glad you asked that. First of all, yes, there is significant interest from private equity shops to be the majority equity owner of the Ardent OpCo, and we're very happy about that. As is typical with Ventas, we have very experienced deal teams, multi-disciplinary deal teams. So, we typically have multiple ways to complete a transaction, and this case is no exception to that.

On the off chance that there is an outcome that is unexpected in terms of interest or valuation for the OpCo, we have a plan B, C and D that we could pursue, and we would indeed close the acquisition, the transaction, with Welsh Carson under our purchase contract with them.

Okay. So you guys would just own the OpCo for however long it takes to --.

No. Sorry if I communicated that. We have, again, multiple backup transaction plans that would continue to limit Ventas' ownership in the OpCo pursuant to the REIT rules to under 10% of the tenant.

Okay. And it sounds like you guys made a lot of progress and you're assuming a couple of months from now. So was there any sense of what the valuation on that OpCo would look like at this point? Is there an acceptable range, even if it's a broad range, that you're thinking about?

I could tell you but then I'd have to kill you. No, I think we're in a very good spot on that compared to our underwriting expectations.

Okay. And then just a second question on the spinco, or I guess CCP now, we're going to get used to saying that, is there an estimate for what we call disynergies, additional costs that are incurred? Just trying to figure out remainco or Ventas NOI versus CCP NOI now that we've seen the Form 10.

Sure. I'll take the Ventas side. If you look at it, although we haven't included in our guidance, I'd give you a back of the envelope that says the reset of FFO, if you like, arising from the spin, if you assume the beginning of the fourth quarter would be, call it, a $0.20 reduction in FFO per share for Ventas, the composition of which is the NOI which is being spun, G&A synergy, and then the interest savings arising from debt reduction following the dividend from spinco to Ventas. So the net-net of that is about $0.20.

Obviously, the timing is uncertain. That's why we haven't included it in our guidance. But that gives you a thumbnail sketch of the quantum for Ventas's remainco.

I think G&A dissynergies are about $15 million.

$15 million?

Yes.

On the spinco side.

You said the $0.20 FFO, do you know what's an annualized number on that?

That's assumed a quarter.

There's no difference. It's $0.80.

You can roughly multiply by 4, yes.

Okay. Thank you.

The next question comes from the line of Kevin Tyler at Green Street Advisors. Please go ahead.

Good morning. Going back to your comments on the triple net lease portfolio, can you help us break out some of those pieces of the 4.8% same store NOI growth? You said the Kindred payment wasn't in there but there was $5.9 million of fees, if I heard correctly. But it seems to me the growth is still high for a portfolio largely triple net with lease escalations in there running 2% to 3%. Any additional color you could provide would be helpful.

The fee that I referenced was $5 million. And then we do have some escalations that kick in in the first quarter from some of our larger tenants that are driving that.

Okay. Thanks. And then turning back to Brookdale for a second, obviously a sizable partner for you guys. But could you elaborate on the consents you may have in your leases should a sale or transaction come together, and then how much you work with them to get the best outcome for both you and Brookdale in a situation like that?

As we mentioned, we did a collaborative deal with Brookdale in the first quarter that worked out well for both sides. Part of our new emphasis on capital recycling and improving our portfolio. We have an excellent relationship with Brookdale. We have excellent agreements with Brookdale. And we're very supportive of the company.

Okay. So no specific color you could provide on the consents at this point?

I think that we feel really good about Brookdale as the leading tenant and we have a good relationship with them, Kevin.

Okay. Fair enough. Thanks. And then last one from me, just turning to SHOP for a second and some of the CapEx numbers that have been reported. I know you split it out between revenue enhancing and then other buckets. But it seems like the numbers have run in the double digits as a percent of NOI. I was hoping you could shed a little bit of light on how you think about allocating these dollars, and maybe why they've accelerated in recent quarters, and how you think about it over the long term.

I think our commitment to maintain our assets at the highest level, they're premium properties in great markets that are generating premium REVPOR, as Ray talked about, well above NIC averages. We're committed to continuing to keep those assets up to good standards, excellent standards. And I think in general we're spending a little bit north of $2,000 a unit, we're projecting, in terms of CapEx on the SHOP portfolio.

Okay. And the last one I had, just turning back to the expense side of the equation for a second in SHOP, Ray, you commented earlier just about labor and the components of expense growth. But specifically to labor, do you guys have a number that you think about in terms of percent of staff that might be subject to higher wages offered by TJ Maxx, McDonald's, et cetera. I know that part of the staff is highly skilled that deals with the higher acuity patients. But what portion, if you had to come up with one, would you say is exposed to wage increases like that?

It's really going to be the line staff in the buildings in certain areas of the country where there are minimum wage. I don't have a specific percentage on that, but the variable costs in the buildings tend to be about 60%, the largest component of that being the line staff. You also have the folks that are in the kitchen and the housekeepers, as well, that would be subject to that.

Okay. That's all I had. Thank you very much.

The next question comes from the line of Michael Carroll at RBC Capital Markets. Please go ahead.

Can you give us some color on the potential not-for-profit hospital transactions? Will Ardent take those hospital operations over and convert them to for profit?

Hi, Mike. Yes, this is a well-trodden path in the hospital business. I'm going to guess -- again, the majority of hospitals are not for profit. Many of them have lower margins, but good footprints in their markets. And what the for-profit hospitals will typically do is either buy one of the hospitals and then make it more efficient or they will partner.

But, yes, in that example, Ardent would go in and be the new operator and over time increase those margins through driving efficiencies. Oftentimes, as in the case of our Amarillo facility, in Ardent there might be a 20% where other minority stakes that at the community not-for-profit hospital would retain. And that's also a very common model so that the not-for-profit system could get some of the benefits of those increased efficiencies. So, again, a very well-trodden path.

Okay. And then how many assets does Sanford own outside of the recent deal that was completed? I know you indicated in your comments that there's more opportunities for you to expand with that operator.

Canford manages the assets that we acquired and we're working with them to jointly acquire a nice newer portfolio in and around London that they would manage and we would own.

Okay. Great. My last question is, can you give us some color on the 12 Sunrise assets in Canada? It looked like that NOI from those assets rebounded pretty good in the middle of last year but over the past few quarters it seems like they fell back down a little bit.

Yes. Canada, I think, continued to recover in the first quarter. Obviously, the year over year was quite good on a constant currency basis. NOI was up 7.6%. Occupancy was up 380 basis points. We're coming off of a fairly weak comp. On a sequential basis the occupancy was down due to the seasonal trends that we normally see in the portfolio.

And then we did have the same impact on weather in the greater Toronto area that we saw in Northern New York and into Massachusetts. And then we also have the labor problem there. I would say, consistent with what I said last quarter, we would like to see Sunrise make progress on expenses in Canada. And I think in our conversations with them they've acknowledged that that's a priority.

But you're still happy with the transition of the new employees put into place?

I'm sorry?

Originally those assets performed poorly because you had some turnover.

You're talking about the leadership in the buildings. Yes, I think the top line continues to be good. Again, I think the ability to manage the expenses is what we want to see them now start to deliver.

Great. Thank you.

Thanks. The next one is from Rich Anderson at Mizuho Securities. Go ahead, please Rich.

Thanks. Good morning. Do you have a Kindred only coverage? Do you provide that?

We used to. And since Kindred's I think 9% of our business right now, it's mixed in with the rest of our coverages.

Okay. Could you say it's in the range of what the broader coverage number is?

Yes. It's going to be in the close to 2-ish cash flow to rent coverage for the Kindred rent.

Okay. Speaking in terms of the PropCo-OpCo comments you made earlier, do you have any hesitation to take on an ownership stake in OpCos in light of some of the events of the recent -- with some of the DOJ activity and all the rest?

I think we have a great risk/reward proposition at Ventas for our shareholders, which is really reliable growing cash flows, limited volatility, and leases at the top of the capital structure and so on. I do think as the business has evolved, and we've been at the forefront of that, there have been different models that we have come up with and different circumstances, both to create alignment with operators as well as to make money for shareholders in a guardrail way. And we can see that potentially with the 9% stake we may take in Ardent or things like that.

Obviously we're careful about what we do and how we do it. We take it very seriously. First and foremost, we want to do business with the best operators and we believe that we do so. And we're very careful when we do take these equity stakes.

Okay. And do you have any comment about HCR Manor Care, not them specifically but generally about some of this activity potentially becoming more of a mainstream conversation for the entire asset class?

Again, I think we do business with good operators. Kindred, for example, and the other operators we do business with have excellent compliance programs. But as you and I have discussed, from time to time in healthcare you do see some of these things occur. And I think it's important in any business, no matter how successful you are, to remain humble.

The main thing in this situation is that you have good operators, that they have good risk programs, that they have good financial wherewithal so that they have the ability to, if any of these things do come up, to work through them in a position of strength and in an orderly way.

Okay. Great. And I just have one suggestion. You give great same-store disclosure for MOBs and SHOP. I would throw my hat in the ring and say maybe we could have the same thing for triple net. That's just a suggestion. Thank you.

Thanks. Next question is from the line of Vincent Chao at Deutsche Bank. Please go ahead.

Hey, good morning, everyone. Most of my questions have been answered here already. I know we've gone around it a couple different ways in terms of the hospital opportunity. But I was just wondering, quite simplistically, of the 5,000 or 6,000 hospitals out there in the US, what percentage of those do you guys consider in the investable universe?

There's 3,000 owned by not for profits, so even if you took half of them, you'd be at a pretty big number. Importantly, these are large, single opportunities. I would imagine that we and Ardent together, if we acquired one or two of these things a year, we would be on fire.

The thing I love about the hospital business is it's so big, you only need a little bit of success to be very successful. And I do think that we will put together a really great triad of -- Todd's hospital clients, he has over 400 hospital clients, we'll have a good private equity partner hopefully, and we'll have our real estate capital and Ardent's capability. Hopefully we can find one or two of those 3,000 not for profits a year to drive growth.

Okay. Thank you.

Next question comes from John Kim at BMO Capital Markets. Please go ahead.

Thank you. Good morning. A couple questions on Care Capital. Since you made the announcement have you been approached by any third parties to buy some or all of the assets being spun out?

We're really focused on completing the spin and getting our Form 10 filed, as we did yesterday.

Would you consider any offers if they were made to you?

I think Ventas is always interested in creating the maximum value for shareholders. And right now we're very focused on completing the spin as it's been announced.

Okay. I also noticed that the assets are being transferred to CCP at book value and that's net of accumulated depreciation. Was there an option to transfer the portfolio at the fair market value or are you basically implying that this is the fair market value?

The Company's going to be worth $5 billion or upwards of that, and obviously the Form 10's an accounting document so it follows the accounting rules which are book value.

There is no judgment in this. It's simply a transfer at book. Those are the rules.

The Form 10 reflects the book value. It does not in any way attempt to reflect the market value of those assets, which is quite high.

Right. Okay. I'm just wondering, if you had made an acquisition, you would have put the full value of that acquisition on your book and basically CCP is taking the net asset value.

And I think it's important to remember that a number of these assets were in Ventas at its very inception in 1997 and before that in Vencor and were acquired in a pooled accounting method and never written up. The basis on these things in some circumstances goes back to the 1980s.

I think the way you should think about it is we are creating a lot of value.

Got it, Okay. And then also I noticed there's going to be an extra $43 million of merger-related costs this year and approximately $25 million related to the spinoff. Is Care Capital paying a similar amount as far as their portion of the transaction cost?

Just to clarify, the increase in the deal cost I think you see in the table in the press release is really a function of the Ardent transaction, which is a significant increase and change from where we were last guidance. As I said, we haven't included any costs in our outlook here, including those costs of separation for spinco. So that's not in that number.

Got it. Okay. Thank you so much.

Next question is from the line of George Hoglund at Jefferies. Go ahead, lease.

I was wondering if you could give a little bit of additional color on the potential impacts of the recent CMS proposals on the acute care and LTAC side, especially since there seems to be a bunch of moving pieces on the LTAC side where the decline could be as high as 4.6%.

Happy to do that. I think that the rate increase itself is up 1.2%. And as we expected and as everyone knew, the LTACs are going to have patient certification criteria come into play. For Kindred, that's not going to start until the fourth quarter of 2016, and there's a two year phase-in after that.

So, there will be some individual hospital ups and downs as it relates to that. But in general, this is something that has been expected for some time and I think you'll see it play out over the 2017-plus period.

Okay. Thanks.

Next question comes from Todd Stender at Wells Fargo. Please go ahead.

Good morning. Thanks for staying on. Bob, just so I get it right, you highlighted that you might expect some decline in Q2 results, I think due to recent disposition volume. But when you look at same store, what kind of offset can we expect maybe due to seasonality in senior housing? How much seasonality is there? Is that specifically an independent living thing? And maybe can you comment on the recent Holiday portfolio?

In terms of phasing on same store, you will see a slowdown in the phasing of same store quarter to quarter sequentially. That is really a function of the fees I talked about, which we realized in the first quarter, don't expect to recur in the second quarter.

Offset in part to your point, on SHOP, where we will see an acceleration in growth beginning in the second quarter due to that seasonality. Those are the dynamics there but net-net the size of those are such that you're going to have slower growth.

At a more macro level we talked pout the growth slowing year on year and down sequentially. That's really a function of the disposition proceeds versus the reinvestment. So disposition really largely realized, reinvestment in Ardent beginning in the second half, as we discussed. So it's really a timing issue in all cases.

Thanks, Bob. Any specific comments you can make on how Holiday's trending?

Holiday is generally in line with our expectations and performing as expected.

Great. Thank you.

Thank you. The next question comes from Jordan Sadler at KeyBanc Capital Markets. Please go ahead.

Hey, good morning. Thank you. As it relates to the reimbursement question, as a follow-up to George's question, can you respond also as it relates to the acute care reimbursement levels and how they may have flipped relative to your underwriting and expectations on Ardent?

Yes. The hospitals, our proposed rule -- again, all these rules are proposed, they are subject to comment and they will be finalized in July or August. In the case of hospitals, they are getting a market basket increase of almost 2%. There's some offsets to that relative to productivity and the Affordable Care Act. And those are, again, very much in line with our expectations on Ardent.

Ardent is doing well, they're performing well. I think we have and they have modest expectations in the go-forward numbers for Medicare increases. Really, what you have to do is, where you have these market leading positions in markets, you have to drive commercial payer rate increases, which really tend to be higher than Medicare rate increases, and drive volume and cost efficiencies.

Thank you. And then I heard you in a prior question as it related to spinco, or CCP rather, reference a $5 billion-plus in terms of valuation. Should we assume sub-6.5% cap rate? Am I thinking about that correctly?

Go for it. (laughter)

That math pencils, then, right? I'm thinking about that correct relative to the $5 billion-plus?

It's close enough for government work, how's that?

That's perfect. Last one, quick one, on the Ardent transaction, I know it's in guidance as July 1. Is the funding assumption embedded in guidance, Bob, is that on the line or is that at your average borrowing rate? Is there some equity layered in there? What's hitting the guidance there?

Yes, it's consistent with our capital structure and the disposition proceeds. So, you're going to have a mix of funding sources there, very consistent with our overall capital structure. Leverage neutral is the assumption.

Your final question comes from the line of Daniel Bernstein at Stifel. Please go ahead.

Last but not least. Good morning. The only question I have is in the beginning of the call you talked about stronger bids, or buying HCT in anticipation of stronger bids. I look at the 7% or so on Ardent, 5.7% on the MOBs you sold, it looked like smaller tertiary MOBs. How should I think about where cap rates have gone the last six months? Is it down 25, 50 bips? If I'm thinking 7% on hospitals, is it really low 5%s on seniors and MOBs for good, high-quality portfolios?

I think we have seen, as we saw in June of last year, a compression of cap rates for quality healthcare assets because of the good cash flows and demand profile for the assets. And so I would say for high-quality MOBs and senior housing you're definitely going to be sub-6% and in some cases for B-ish assets you're going to be potentially 6% or below if it's a large portfolio. There has been compression and we're glad that we're early and large owners of both of those asset types.

Okay. I'll hop off. It's been a long call. Thanks.

Okay. Thank you for hanging in there with us. And I thank everyone else for joining us today and for your support of both Ventas and CCP. And we look forward to seeing you soon. Thank you.

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