芬塔 (VTR) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2015 Ventas earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Ryan Shannon, Investor Relations.

Thank you, Katina. Good morning and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter ended September 30, 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 and stockholders and others should recognize that actual results may differ materially from the Company's expectations whether expressed or implied.

We refer you to the Company's reports filed with the Securities and Exchange Commission including the Company's annual report on Form 10-K for the year ended December 31, 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 provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations.

Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and it's 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, Ryan, and well done. Good morning to all of our shareholders and other participants and welcome to Ventas' third-quarter earnings call. After our prepared remarks, our senior leaders including Bob, Todd, and John will be pleased to answer your questions.

At the outset, I want to state that Ventas is now a better, stronger and faster growing Company well positioned to deliver sustained excellence. We now have an even higher quality portfolio operated by the nation's leaders in five major asset types. Our portfolio is diverse and resilient with multiple areas for growth. Our team is lean and energized and our results are strong.

I know I speak for all my colleagues at Ventas when I say how excited I am to share our strategy, progress and prospects with you at our upcoming investor day on November 10.

Today I will hit the highlights of an incredibly productive quarter that personifies what sets Ventas apart and demonstrates our winning edge. It is amazing that the interdisciplinary Ventas team completed two highly structured, value creating complex transactions on a tax efficient basis without a snag at the high-end of our expectations and in record time during the quarter. And we did so while continuing to deliver solid results.

Our third-quarter normalized FFO of $1.09 per share represents 7% comparable per share growth versus the same period last year. On the heels of this strong quarter, we are delighted to increase our full-year guidance for both normalized FFO per share and full Company same-store cash flow growth.

When we step back, our high-quality diverse portfolio operated by the 20 operators that lead each sector accounted for our strong performance. Within the portfolio, our metrics are market leading. For example, our NOI contribution from private pay assets stands at 83% and our post-acute quality mix is 75%. We have also maintained our significant scale at $30 billion of enterprise value, our diversification, financial strength, a high quality senior housing operating portfolio and our best-in-class MOB franchise.

From an investment standpoint, we completed our Ardent Hospital investment on a positive note this quarter. Specifically we now have $1.3 billion invested in high-quality healthcare assets in three key markets where Ardent enjoys significant market share. Our unlevered going in cash yield is attractive at 8% before costs and about 7.5% on a fully loaded basis.

The Ardent ownership group is aligned to ensure Ardent maintains its strong financial profile with room to grow. Currently its debt to EBITDA ratio is in the low 2 times.

Most importantly, Ardent is an excellent operator and had a great third quarter. In the third quarter, Ardent grew its top and bottom line by mid-single digits compared to last year. Ardent also showed positive trends in its key performance indicators during the quarter. We are confident we can grow with Ardent because of it scalable platform and the ownership group's collective healthcare experience, contacts and capital.

We already have a few projects on the drawing board where we can help Ardent expand its footprint in its existing markets including potential freestanding emergency room departments and new medical office buildings.

Finally, as a result of our Ardent investment, we have received a notable increase in inbound inquiries from quality health systems asking how Ventas can help them grow, better serve patients and physicians and become more efficient.

Turning to other asset classes, we continue to devote a meaningful amount of capital to redevelopment investments in our portfolio. These redevelopment investments provide us excellent risk-adjusted returns, enhance the quality of our portfolio, drive superior growth and help our customers expand their market share.

Examples of ongoing projects include an atria redevelopment in our high-end Darien, Connecticut community and a major repositioning in our Edina, Minnesota Brookdale community.

We also recently committed to fund two high-end senior housing developments in outstanding locations in San Francisco and Palm Beach County. In both cases Ventas is a 20% to 25% managing partner in a joint venture with an institutional capital partner. Atria will manage both completed communities and the unlevered stabilized yields from the project should exceed 9%.

Turning to another highlight of the quarter, we were delighted to effect our spin-off of most of our skilled nursing facilities operated by local and regional care providers at a valuation of $4.3 billion on a tax-free basis. This innovative transaction improved our relative cost to capital, strategically repositioned our portfolio, enabled us to distribute to our shareholders CCP common equity valued at $8.51 per Ventas share and provided us with $1.3 billion in cash. Post spin, skilled nursing facilities or SNFs represent just 4% of our net operating income. Our retained SNFs are principally operated by our long-standing partner, Kindred Healthcare.

In addition to the spin-off, we have also executed year-to-date property dispositions and received loan repayments of $700 million bringing our 2015 disposition total to nearly $5 billion. From a capital market standpoint, we have also been opportunistic and efficient this year working around periods of volatility and excess supply.

On the equity side for example, we have issued $2.7 billion of common equity at pre-spin pricing of $77 per share and raised $2.5 billion in bank and bond financing. Bob will address the particulars but suffice it to say, our liquidity is outstanding and our credit profile remains strong.

On the investment side, we are pleased with our completed acquisition volume totaling $5.2 billion year to date. With interest rates still low and the private bid for cash flowing assets still high, this quarter we saw some notable large transactions priced at historically low cap rates. That said, we are beginning to see some signs of lighter bid ask spreads and longer marketing periods for certain of our asset types.

With our emphasis on making value creating investment decisions and our relentless focus on cost of capital, we are approaching the investment market with discipline. We are picking the spots where we see accretion, solid risk-adjusted returns, great real estate, compelling strategic fit or the opportunity to help a customer.

We are executing a clear and decisive strategy at Ventas. As we have done so many times in the past, we believe we are ahead of the market as we invest capital, select operating partners and make portfolio disposition decisions across a broad array of healthcare asset classes.

We have great momentum at Ventas. We are looking forward to demonstrating our strategy for sustained growth and excellence, shining a bright light on the terrific Ventas team, and showing the sophistication and scale of our key operating partners at our upcoming investor day. We can't wait to see you there. Bob?

Thanks, Debbie. Let me begin by reviewing the performance of our portfolio of high-quality assets in the third quarter. I would note that unless otherwise indicated, my discussion of our portfolio performance excludes the CCP assets spun out of Ventas in mid-August.

Overall, the third quarter delivered strong portfolio performance with same-store cash NOI growing 4.3% year-over-year. Our triple net lease assets which account for approximately 45% of total NOI delivered accelerated growth in the third quarter. Cash NOI for the 511 triple-net properties in the same-store pool grew 5.7% in the third quarter of 2015 versus prior year. Same-store NOI growth in the quarter benefited from the $15 million positive annual rent increase for the 48 Kindred assets released with Ventas in October of 2014. Even after adjusting for this releasing benefit which will cycle out October 1, 2015, our triple-net same-store NOI grew at 3.4% in the quarter demonstrating a faster growing portfolio following the CCP spin.

Cash flow coverage in our same-store triple-net lease portfolio for the second quarter of 2015 the latest available information, was strong at 1.6 times. Overall, the property level cash flow performance for our triple-net operators was solid growing 3.5% in the quarter.

Our senior housing portfolio reported stable trailing 12 months coverage at 1.3 times while our skilled nursing coverage improved from 1.8 times to 2 times as a result of the CCP spin.

Turning now to SHOP. NOI in the 239 properties in our same-store portfolio increased 3.2% in the third quarter of 2015 over 2014. In sum, it was a solid quarter but fell slightly short of our expectation. Our core markets continue to outperform while driving strong rates in NOI growth in the quarter but total performance was modestly affected by discrete assets, specific issues and limited supply impact.

Our NOI performance was led by continued strong growth across many of our high barrier to entry infill locations. Our largest MSA, New York, grew NOI nearly 7% in the quarter while other key markets such as Los Angeles, Boston and San Jose also demonstrated very strong growth in the quarter.

In total, our core markets represent more than 60% of our portfolio and have consistently been the engine of growth in SHOP. Further, NOI growth in tertiary markets such as Cape Cod continue to be favorable in the quarter on the heels of productive development and redevelopment activity.

Turning to the challenges, specific asset level performance issues in Chicago, Atlanta and Jacksonville contributed 150 basis point drag to overall NOI growth in the quarter. We are working alongside our operators to address these specific issues.

Additionally, select markets were impacted by new buildings opening over the last year within our relevant trade area. For example in markets such as Houston and Raleigh. That said, less than 5% of our overall NOI experienced new supply pressure in the quarter.

Looking ahead at new construction, we continue to refine our methodology to assess apply impacts and now we incorporate seven mile and three mile trade areas around our leased assets based on population density. On that basis, more than 70% of our portfolio does not face a supply surplus based on the third quarter NIC data.

Against this backdrop, Ventas and our SHOP operators are working to drive operational excellence to continue to perform across all markets as we plan for 2016. In particular I would like to call out the exceptional performance of our leading operator and partner, Atria. Accounting for roughly two-thirds of our SHOP NOI, Atria has consistently delivered excellent top and bottom line growth year in and year out including in 2015.

I am fired up that our investor day on November 10 will be at the Atria headquarters. We believe this day will bring to life for our investors the quality of the Atria team and the scale and sophistication of the operation that underlies this outperformance.

Finally, let me turn to our market-leading Lillibridge MOB business. For the third quarter 2015, NOI in the total portfolio of 358 properties was $95 million, an increase of 38% over the third quarter of 2014. Performance was driven by solid same-store growth as well as the addition of 83 properties in January. In the 274 properties in the same-store portfolio, year-over-year cash flow growth was 3.1%. This was driven by an increase in rental rate of 2.6% and strong expense controls offset by a marginal decrease in occupancy.

Sequentially, occupancy in the same-store pool has trended up consistently since the first quarter including a 10 basis point sequential occupancy gain in Q3 to 92.5%. The MLB portfolio continues to deliver stable and reliable performance in growth.

I would like to now turn to the Company's financials. I'm pleased to report solid FFO performance in the third quarter and our third consecutive increase to our FFO guidance range for the full-year. We are also increasing our full-year Company-wide same-store cash flow guidance.

One note before diving in. I will discuss our financial performance on both a reported and comparable basis. Our reported numbers include the results of CCP properties for all periods up through August 17, 2015. Comparable results adjust all current and prior periods for the effects of the CCP spin-off as if the spin was completed on January 1, 2014. We think comparable comparisons therefore provide a true apples-to-apples view of our underlying performance.

Looking at the third quarter, we delivered reported normalized FFO of $365 million or $1.09 per fully diluted share. On a comparable basis, normalized FFO of $0.98 grew 7% versus the third quarter 2014. The solid Q3 growth over 2014 is primarily due to the positive impact of accretive acquisitions and same-store portfolio NOI growth of 4.3%. These growth drivers were partially offset for the dilutive impact of $683 million in year to date asset dispositions including an additional $90 million since our last earnings call.

Early in the third quarter of 2015, Ventas issued and sold a total of 1 million shares of common stock for aggregate proceeds of approximately $67 million under our at the market equity offering program of which approximately 580,000 shares was previously reported.

Also as previously reported, in July 2015 Ventas issued $500 million of 4 1/8 senior notes due 2026. In August in connection with the Ardent acquisition, the Company also completed a $900 million five-year term loan. Also in August, the Company received a dividend from CCP of $1.3 billion. Ventas used these proceeds to repay $1 billion of debt at an effective rate of 3.3%.

Debt repayment focused on near-term maturities and mortgages resulting in an even more attractive maturity profile with a staggered weighted average debt maturity of 7.1 years.

The Company's net debt to EBITDA at September 30, 2015 is 6.1 times only modestly above our 5 to 6 times target. Current debt to enterprise value now stands at 36%.

The Company has strong liquidity with approximately $2 billion available under its revolving credit facility as well as $65 million of cash on hand.

With that let me now turn to our updated guidance for the full-year 2015. We are pleased to raise and narrow our guidance for reported normalized FFO per diluted share to now range between $4.43 and $4.46 representing 7% to 8% growth over prior year on a comparable basis. This new guidance represents a $0.025 raise at the midpoint versus our previous outlook of $4.39 to $4.45. We now project full-year total Company same-store cash NOI growth of between 3.5% and 4% in 2015, up from the previous 2.5% to 3.5% guidance range. We are updating our same-store shop NOI guidance to now range from 2% to 3%, in line with our year-to-date growth of 2.6%.

Our triple-net same-store growth guidance range is now increased to 5.5% to 6% as a result of the CCP spin and the positive Kindred releasing impact while our MOB guidance has narrowed to range from 2.5% to 3%. We have assumed no further material unannounced acquisitions, new equity or debt issuance or asset dispositions in our guidance.

Finally, to enhance our transparency and respond to shareholder requests, we have expanded our investor disclosure in two areas this quarter. First, on pages 23 and 24 of our supplemental reporting, we provide a quarterly analysis of our comparable numbers and related CCP impacts.

Second, on our full property listing on our webpage, we have now included at an asset level a breakdown of our assisted living, independent living and memory care resident splits for our SHOP portfolio.

With that, my colleagues and I will be happy to open the line for questions.

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

Good morning. I was just hoping to start out you could speak a little bit about the hospital business and opportunities you see there and if the recent volatility and weakness in some of the public operators has changed your thinking at all or how you view cap rates potentially for asset opportunities and if any of the cost pressures we have seen in any of the public operators has filtered through to your exposure with Ardent?

Good morning, Juan, and thanks for the question. Obviously we have had a long-term secular thesis on the hospital business which we are lucky enough to have begun to execute during the second quarter. We have always been focused on quality, quality real estate, quality hospital operators and as an owner of the real estate, obviously are very focused on the EBITDAR line. And I think it is very important to understand that we see Ardent having a very good third quarter and even HCA I would tell you announced earnings on the EBITDA line that were at the high-end of its previously provided guidance range.

So there is a lot of stability on that big EBITDAR line and that is what we look at as we try to think about the hospital business because we are at the top of the capital structure in what we do.

In addition, we look at this as you know as having a very high coverage ratio in the case of Ardent in the high 2 to 3 EBITDAR level. So we believe this could create a good opportunity for us as we have outlined our strategy to help Ardent grow and really build a hospital business with high-quality providers and that thesis remains on target. And we believe that some of the volatility in one particular case has to do with an acquisition and not really with the underlying fundamentals as we have talked about on the EBITDA line.

So that is how we think about it and be happy to take any follow-up questions that you have.

Just switching gears to the SHOP portfolio, you mentioned some one-off asset-specific issues I think in Chicago, Atlanta and Jacksonville. If maybe you could just elaborate on that just because a couple of those markets screen as high supply markets from a NIC perspective. And I think you also mentioned that with looking at the three and seven mile radius that your portfolio doesn't face supply issues versus the NIC data and I was just wondering how we should think about versus the NIC data? Is that just you are not at a higher level than the NIC data or you are in line with it or what is your threshold for elevated supply I guess?

Juan, this is Bob. Let me start with the change in methodology because I think that frames the conversation. What we have done is we have looked at population density to determine what the appropriate rings are. And traditionally we looked as you know at our trade area as a three mile radius. We think in many markets a seven mile radius makes more sense. In the top highest density markets three miles continues to make sense for us but we have refined it to reflect for less dense markets to have a broader ring which we think is appropriate.

Against that backdrop, we have looked at what are the openings that we have seen in that context in the last 12 months in our markets and on that basis, there are select markets and I highlighted for example Houston as an example where we have seen an impact and that is affecting our performance. However today as we look at the quarter, the supply issue really doesn't expend more broadly than that. I think I quoted roughly 5% of our business really has been affected as you look at those rings.

As we look through the windshield and look forward based on starts because that is based on openings, based on starts, we highlighted we do see obviously an impact and indeed we have updated our supplemental to reflect that. As you look on page 13, you will see how we have refined that.

But against that as we look at the markets and say based on construction, where do we think we are, we see 70% of our portfolio where we don't see an excess supply situation. Obviously that implies there are markets where there is a supply challenge. And to the Atlanta point, that would be one but there are others.

Nonetheless we think 70% is insulated and that really plays to the high barrier to entry markets that we participate in. So it is a market-by-market conversation and we think we have refined the analysis as we address it this quarter.

And is there any reference to what defines excess?

Yes, we have really looked at what is the underlying absorption rate in a market and taking into account not only obsolescence but population growth and penetration. And against that where do we think we have more than the normal absorption rate. And we have ballparked that at around the 3% sort of range. So we look at that as a threshold against which more than that would really start to become an excess situation. So that is how we viewed it.

Okay, great. Just a last question for me just quickly if you are seeing any pressures on expenses or what should we be expecting for particular wage growth across the businesses but more focused on (inaudible) given your exposure there?

If you look at the same-store P&L in the quarter you will see revenue and expenses largely growing in line with each other, margin as a consequence roughly in line. We do see wage pressure and we have talked about that before. The challenge and the opportunities continue to drive productivity against that and have been largely successful in doing that, so as a result holding in line the rates in the expenses. That will vary as you segment the markets and you look quarter to quarter and there is always some lumpiness inherent in there but generally speaking we have been able to hold that in line.

Thank you.

Smedes Rose, Citigroup.

Thanks. I wanted to ask you, you mentioned in your opening remarks a wider bid ask spread and longer marketing times for assets. Could you maybe just talk a little more specifically about what kinds of markets you are seeing wider bid asks in and maybe by across the asset types and maybe a comment on the product quality that is coming to market and overall volume?

Good morning, Smedes. I'm going to turn it over to John Cobb. I would say in asset types where perhaps people are bringing lesser -- B-ish assets, that is probably where we are seeing it the most. But John can elaborate.

Right, you are seeing definitely a widening of the bid ask spreads on more B style assets both in the MOB sector also the senior housing sector. I think when we are looking we have definitely had a lot more inbounds on the hospital sector where we are seeing high-quality operators come through and we were right on mark on the spreads there.

Okay. Bob, your leverage came in at 6.1 times. I know it is just a little bit above the high-end of your targeted range. Could you talk about maybe the plan to bring that down a little bit?

Sure. We highlighted last quarter as you recall that we expected to be modestly above 6 times as a consequence of the spin which was a leveraging event. At 6.1 times, we are right where we expect it to be. At the time we talked about having multiple clubs in our bag and those continue to be available to us. We highlighted some additional disposals in the quarter. That is certainly something we will continue to evaluate. Obviously we have underlying cash flow that can delever naturally over time. And then equity obviously is an option.

So we are not in a rush. We are patient. The good news is we have great liquidity. I highlighted our maturity profile, the availability under the revolver and so we want to make sure we are opportunistic and patient and do the right thing. So we are pretty much right where we thought we would be.

Okay, thank you.

Nick Yulico, UBS.

Thanks. Good morning. The talk was that it sounds like you are thinking supplies has not been that much of an impact yet. It if you look at your occupancy year-over-year was down 20 basis points in the stabilized pool. I mean that is basically exactly what the industry did for the NIC data. So if it is not supply closing that occupancy pressure, what else is it?

Thanks for the question. I highlighted two different drivers in the quarter that were driving some of the weakness and the primary one was more I call it asset specific factors and I highlighted Chicago, Atlanta, Jacksonville. One of the themes if you look within these markets that specific assets that can have a material impact is ED turnover, the Executive Director at the local level. If they are strong, they leave. That can have an impact in the short run on occupancy. Indeed we saw that in all three of those markets that I highlighted and that was a significant driver.

I mentioned the overall same-store performance was affected by 150 basis points by the performance in those three markets so you can see that can have a material impact on the overall.

Obviously we then talked about the fact the job is to make sure that we are continuing to work to fill those slots with great people and address the other issues that are quote non-supply related. And that is where the operational excellence of leading operators like Atria can really come to shine. So we are working hand in hand with our operators to make sure we address those issues as they arise.

And we did see sequential increase in occupancy in the third compared to the second in the same-store portfolio.

And then for those three markets, has the operator or you already made changes where we should assume that that occupancy issue or that NOI issue is already sort of fixed or is this going to also be a problem for the fourth quarter?

Look, I think naturally in a portfolio of multiple assets you are always going to have some issues. And I also highlighted the fact that we have I call them the engine of growth in our core markets, 60% of our business which has consistently performed very strongly. New York at 7% in the quarter would be the case study to that.

For the specific asset issues, absolutely we are working to addresses those and in some cases we have already taken action. I wouldn't want to pretend that is all going to be fixed in a day or in a quarter. It takes time to address these issues.

But as I think about them, they are transitory. There are things we can address. There are things where you have leading operators, drive great performance through having great staffing, consistent systems, great recruitment. And those are the ways that the winners can win in this industry. So we are absolutely working on it. In these markets particularly, we hope to see improvement but I don't want to pretend it is going to be tomorrow.

Just a follow-up on this is that you talk about EDs leaving. I mean presumably if they are leaving maybe going to newly built communities. So wouldn't that be a supply impact?

I don't think you can draw a straight line between those at all. I do think in general in the industry there is 50% of so ED

turnover in general. And so that is just a fact of life in the industry. And so these are just specific markets where I think we are working with the operators to just improve staffing at the buildings. I think those are more typical what I would say industry issues that Bob is describing.

Okay, thanks. Just lastly, can we get an update on where occupancy is trending so far in the fourth quarter for the SHOP portfolio? Thanks.

Thanks. Inherently in the outlook we gave for the full-year, we are assuming we are going to have some modest growth sequentially in occupancy third-quarter to fourth quarter and against that to be able to hold our rate. The spot, to your point, spot performance suggests that is a reasonable assumption. I think it is important to highlight that we will see some year-on-year challenges. We had some nonrecurring benefits in the prior year that we are going to be lapping. So that is inherent in that forecast as well. I think the underlying sort of revenue profile though will be solid and very consistent with what we saw this quarter.

Thank you.

Daniel Bernstein, Stifel.

Good morning. So not that everybody is not going to ask about seniors housing but I have a couple of questions on that also. If we look at the -- we look at your portfolio today where the construction is it doesn't look too concerning but the general start date has been moving up and up and up the last four, five quarters. What is your general view and concerns about if we look out 12 months, further down the line or how concerned are you about supply getting out of hand or just significantly higher than where we are today?

I would start with a couple of factors. We highlighted 70% of our portfolio today we think is insulated based on the methodology that I described and we do have a great portfolio in that regard. That said, 30% certainly does have exposure and we have seen that trend up as NIC has highlighted no question about it.

So what are we doing against that? I mentioned operational excellence is one way to really partner with the likes of the Atria's to drive outperformance so this is also about share gain. I think there is an opportunity to drive penetration.

We have talked a lot about the value proposition of senior housing and how we need to make sure that is well understood. At 10% penetration it doesn't take more than 1 point of penetration growth to fill all the buildings in the United States so that is clearly an opportunity.

At the same time, we have to think about portfolio strategy and how we think about our markets and our assets in that context. And it is all of those things as we play our portfolio that as we look forward we think are going to be necessary and important.

That said, we like senior housing, we like the SHOP business, we like our operators, we like our position and we are bullish on continuing to drive growth in that business.

Have you seen any current new developments start to struggle and discount against your properties at this point? I mean the other related question to that would be if we can get really granular on the construction that is out there, what kind of price point are those assets at relative to your assets in those markets? I think that is not just the level of construction but what is being built out there as well that I would like to hear about relative to your portfolio.

I think in general we have taken a conservative or broad approach in terms of what is competitive with our assets across different price points. So that is actually a more conservative slice at looking at developments. And I think from time immemorial in real estate you see that as when new assets are filling. Generally the owners will try to do that on an accelerated basis and that is typically where you see the impact and the net impact tends to evaporate as the new building fills. So there is nothing different in what we are seeing than what you would normally see in this part of a cycle.

And then switching gears a little bit to the investment side of the external growth in the portfolio, you are starting to see bid ask spreads widening out but I would say they are probably pretty thin relative to the historical levels. At the same time, we see high-yield bond spreads really have widened out. But do you see any opportunities to -- again, maybe this isn't a long-term strategy but a short-term strategy -- to go ahead and invest a little bit more on the CMBS side or somewhere in a debt stack within the healthcare asset real estate sector?

Good question. I think there has been a good level of stickiness on cap rates because the assets continue to be attractive to institutional capital and international capital, etc. and that really speaks to the resiliency and the quality and the strong cash flow from assets like we own which is good. We have seen the debt markets widen out in terms of spread and we have done a good job over the years of taking advantage of different spots in the capital stack because we are expert capital providers and that is part of I think the excellence that we bring. And so we are constantly evaluating in our investment decisions across the board public to public, private to public where in the capital stack, mezzanine, bonds, etc. within the healthcare universe.

We believe there are a good risk-adjusted returns and opportunities and still maintain a diversified portfolio, still have a margin of safety and still have a strong balance sheet. So I think there could be opportunities in that vein and we are constantly as part of our investment team evaluating those opportunities.

I appreciate that. Not a question but just a general comment, thank you for expanded information on the senior housing portfolio in the supplemental and on the website. It is very helpful. Thank you.

We appreciate you saying so. We work, there's a lot of people here who work very, very hard to make Ventas excellent and also be responsive and transparent to the investment community and so we appreciate your saying so.

Happy to do so. I will hop off and let others ask questions. Thank you.

Tayo Okusanya, Jefferies.

Good morning everyone. Just two specific SHOP questions and one kind of longer one if you can indulge me. First of all, I just want to make sure I got this right for 2015 guidance, same-store NOI growth guidance is 3.5% to 4% but yet as of 3Q year to date, you were at 4.4%. Is there something unique happening in the fourth quarter that I am missing?

Short answer, yes. I highlighted the Kindred releasing benefit that is coming to an end October 1 so you will cycle out of that in the fourth quarter. Even without that, you are above 3% and that is above where we were pre the CCP spin. So it demonstrates the accelerated growth there.

Yes, totally get it. Thank you now. The MOB portfolio 3Q pretty strong same-store NOI growth of 3.6% but a lot of it seemed expense driven rather than topline driven. Just curious the further outlook to kind of maintain operating expenses at current levels or if we would expect to see a slowdown in same-store NOI growth going forward if the topline doesn't move much?

Tayo, this is Todd. We continue to control given our platform, our expense line. I think we have done that year-over-year consistently around our controllable. I think you are seeing that here in the third quarter which we can, we continue to see and we will see that really throughout the balance of this year.

And occupancy trended up in the quarter sequentially.

Okay, that is helpful. And then lastly, Debbie, this one is more for you. We have brought up a lot of concerns that the investors have had about the hospital space over the past month or so, and given the results that some of the public guys have had. Brookdale has had its own unique issues that is creating concerns about the outlook for senior housing.

You are seeing a couple of the skilled nursing guys too talking about pressure on volumes and also kind of talking about all of this DOJ, OIG investigations into overbilling on the therapy side. There just seems to be a lot of headline risk across several of the healthcare property types.

Kind of against that backdrop, I mean what can Ventas really do to kind of just prevent people getting overly concerned about these issues and the potential impact on the Company, whether real or not?

Okay. Well, that is a big question. I will try to answer it briefly. It is fun to be in healthcare right now. I have talked about it as a dynamic sector. At 20% of the GDP and like real estate 20% of the GDP, and we feel lucky to be at the intersection of those. We have a long-term secular thesis in the hospital business which, as I mentioned, we continue to espouse and believe there will be opportunities in this $1 trillion revenue business in the US.

That is the nerve center of healthcare, top of the food chain, whatever label you would like to put on it, and I think there is lots of opportunities there. As healthcare continues to evolve, those hospital providers are going to be in the center of it all with more and more influence and control over where patients are treated and physicians and so on.

So we remain excited about that and I think, again, we have a great history in healthcare. We have managed Ventas for the benefit of shareholders through every imaginable reimbursement, capital markets, and economic cycle, and we have continued to deliver and perform. And so the way we address all of that excitement, if you will, across sectors in healthcare is to do what we have always done, which is to find the best operators, invest in the best real estate, have a margin of safety, stay financially strong and flexible, and be really, really smart about how we work on diversification, portfolio mix and so on.

And I think our hospital investment is evident to that, our spend is evident to that. Our building the MOB business with Todd is evidence of that, and so everybody has their ups and downs. Everybody has their cycles. I think business teaches you to be humble. But at the same time, we have demonstrated over and over again that we are good at managing this company for the benefit of shareholders and delivering results.

All right. Debbie Cafaro for the next president 2016. I like that.

Well, thank you very much. So let's move on to our next questioner.

Rich Anderson, Mizuho Securities.

Thank you. Good morning. It is a quick yes or no question. But if I could paraphrase your hospital kind of thesis given the uncertainty out there, you view that as an opportunity from the standpoint -- from a consolidation perspective, is that the right way to kind of paraphrase your view on hospitals right now?

That is one part of it, yes.

Okay. I said yes or no. So I guess I will stop there. The triple-net growth of 5.5% to 6%, what does that compare to previously, how much did that go up with the spin of CCP?

Rich, it is Bob. It is a little bit tough to kind of wade your way through that because the Kindred impact that I described which cycles of October 1. If you take that out and you looked at our performance in the quarter, we are in aggregate well above 3% and in triple-net, above 4%

Which it was 2 to 3.

It was 2 to 3e. I think as we step back and think about when you look sort of like for like over time, what is the differential in growth rates in triple-net as a consequence of the spin, we could see something in the sort of neighborhood of 40 basis points as a good proxy. So when you kind of cut through it all, that is how I would think about it.

Okay. And then last question, Debbie, you could probably give an unvarnished view on skilled nursing now at just 4% of your portfolio. A lot of talk about CMS and bundling and all sorts of pilot programs to move people out of post-acute into home health. I am curious to what degree you think that would be a concern in the space and also to what degree it caused you to spin off CCP? How much of the dog wag the tail or the tail wag the dog from your perspective on that specific issue?

Look, we have always said that we believe that skilled nursing facilities and other post-acute have a critical role to play in the delivery of care to seniors in the US and we continue to believe that.

I would say that as we go toward bundled payments and things like that, I do believe we are going to see the hospital providers controlling a lot more of the dollars which again plays into our hospital at the nerve center thesis. And there will be a role clearly for low-cost settings, outpatient care like we own with the Lillibridge business and that is an important part of the evolution of healthcare. But we do believe that th0e hospital business is going to continue to influence more and more of where patients go in post-acute settings.

And to that point, we kept for example Kindred that is the leading post-acute provider in the US and as we see them execute an excellent strategy around integrated care markets, I think they with the data that they have and the expertise and skill they have, will likely be a winner as healthcare continues to evolve.

So long answer but we believe in the post-acute space, we are happy with the portfolio that we have retained and we do think the hospitals will continue to play a larger role frankly in post-acute care with bundling going forward.

Are you hanging more of your hat on Kindred's home health business now do you think?

I think what is interesting is that we are hanging our hat more on Kindred as the leading post-acute provider with this very evolved integrated care strategy in their market where they can be a one-stop shop for post-acute patients in any setting as they are discharged from the hospital and so that is what we like about the Kindred story.

Understood. Thank you very much.

John Kim, BMO Capital Markets.

On your 2015 guidance, your merger-related and audit expenses went up significantly to $154 million for the year from $85 million last quarter. Can you just discuss why there was such a large increase in just the past three months?

Yes.

There is really a couple of key factors there. One is obviously we closed Ardent in the quarter and so we had the deal costs associated with that. And then secondly, we had obviously the spin and separation related costs on that. Both of those we kind of consider as transactional expenses.

And the spin was not in the previous because we had not guided to that.

Right, exactly. We had not included the spin costs as you recall in the last call but planned to do so once we had spun it out. So those two really are what is driving that difference. It is obviously focused in the third quarter where all the action happened.

So your prior guidance even though it was full-year guidance did not include the expected costs from CCP?

Correct. We were explicitly excluding the impact of CCP. We gave you the dimensions of it in terms of $0.20 to $0.22 a quarter but we did not give the specifics particularly around things like transaction and separation costs.

This year it is over 10% of your FFO and transactions do occur every year. So can you just maybe discuss why it is added back to normalized FFO?

Yes. It is an apples-to-apples comparison. We have always had normalized FFO net of transaction costs because obviously we exclude forward transactions from our guidance and if we simply stop doing transactions, that cost would go away. So we are trying to give investors the clearest indication of the underlying performance of the Company so that is why we started doing it years ago and why we've continued to do it on a consistent basis.

Debbie, based on your discussion of the wide bid ask spreads in the market, is the logical progression that until cap rates move up that acquisitions and disposition volume will probably slow down or continue to slow down?

Again as I mentioned, we are disciplined investors and I think have the opportunity to move around the wheel in terms of our diverse asset types that we have and so that is a real benefit to us. But we have really identified the kinds of activity that we think will be value creating and where it is strategic, great real estate, where we are helping a customer and so on.

And so acquisition volume is always difficult to predict which is why we don't do it but we have acquired probably I don't know $3 billion plus a year over the past consistently over the past years. And we will know what our volume is as we evaluate opportunities and see which one of them we think create good value for our shareholders.

But that would be on the disposition side as well? Does that slow down in the third quarter?

We had originally I think talked in the beginning of the year about $0.5 billion potentially for 2015. So we have well exceeded that with a $700 million year to date so we feel good about that and we will continue to try to be thoughtful and good capital allocation includes reviewing assets for sale and we will continue to try to do a good job there as we look into 2016 as well.

Okay and then finally on Brookdale, can you just discuss if you have seen any deterioration in operations in any of your assets with them?

I think our experience with Brookdale is very consistent with their publicly reported information.

So that would be a yes?

I think again, it is pretty consistent with their overall public performance.

Thank you.

Michael Knott, Green Street Advisors.

Good morning. A few questions. On the revised 2015 SHOP guidance range, why is it so large for one quarter left? It sort of implies a [4 point] possible range for 4Q?

Good question. I think we feel on the base case pretty solid. I think we mentioned we are continuing to do some things to try to drive growth and that is going to result in some over-under so it might be overly wide to your point. But I think we want to leave ourselves a little bit of flexibility. So I think run rate as I kind of go back to if you look at the underlying run rate, we feel pretty confident in the fourth quarter revenue line and kind of where that is going to come out.

And then I'm going to use a modified version of Rich Anderson's yes or no. If you had to make a bet on where you will set 2016 SHOP guidance will be better or worse than the 2% to 3% for 2015?

I can't wait to talk to you about that.

So you're not going to opine on that one?

That is a very consistent process we follow to roll out guidance and there is a lot of work involved to do so. And we will be happy to share that with you when it is ready.

We are working on that process with our operators right now.

I thought Rich's approach might help me on that one. If you theoretically broke out your NOI growth just conceptually for next year for SHOP, just saying on that same topic, if you thought about it split between the 70% that you say is supply protected and the other 30%, how wide is that gap between those two buckets?

Isn't that a variation on the first?

Or just with your 2% to 3% for 2015, maybe you can think about it that way. Is it that materially different or not?

Look, I think where there is new supply that comes online there will be an impact. There is no question about it and that will look different than in New York City where you have and continue to see inconsistent growth. What that's spread is not something I would want to call today but it certainly will be a differential. I think the thing we keep coming back to is to say the core engine is performing well. We like that. Our job is to make sure we continue to look at that other piece and say all right, how can we address that and to quantify it at this stage would be tough.

Last one for me if I can just on the triple-net portfolio within senior housing, it looks like the occupancy has continued to decline so I'm just curious A, on the supply concern there and then B, is that coverage at risk of ticking down? In other words you have two decimals?

Can I just return to the prior thing. Obviously we have a lot of our triple-net senior housing portfolio with Brookdale and this is second-quarter data so again, I think it is pretty much consistently following the publicly announced comments from Brookdale. That has an outsized impact and again, we believe they are going to get that back on track and so we feel good about that portfolio.

Okay, but it is not at risk of rounding down to the next coverage level?

At some point theoretically but again, it is a trailing 12-month number through the second quarter and it has been pretty consistent there at 1.3.

Okay, fair enough. Thank you.

Jordan Sadler, KeyBank Capital Markets.

Good morning. Thank you. So I am looking at the disclosure for the senior housing operating portfolio, the trade area, construction, the 4.1% supply number. Can you, is that consistent with the disclosure from last quarter or could you give us what that number was last quarter?

Yes, so it has changed. You are absolutely correct the 4.1 is on the methodology I described earlier with seven and three mile rings. The old methodology was three only on the three only basis, we would have been at 3.2%.

And what was it last quarter on the seven mile basis? Do you have that?

we have it on the three mile basis.

On the three mile basis, so like for like 3.2% last quarter, 3.2% this quarter. So trend wise under the old methodology, no change.

And under the new methodology trend wise, do we know?

We haven't gone back (multiple speakers)

Okay, okay. I get it. And then I guess along the same lines but really taking it from the other side, the demand side, we see the population growth estimates and we know them but you sort of I think Bob touched on the potential for increased penetration that could fill up the entire portfolio globally or nationwide. Can you talk about what you are seeing from a penetration standpoint sort of efforts to increase the level of penetration and if you think they are effective?

Yes, I think it is interesting. Bob comes from a marketing type company in consumer products and I think it is fair to say that we are still somewhat Neanderthal in our industry from his standpoint about how to market and improve market share. And I think his experience is going to help us and our operators kind of get better at that.

But it is really interesting. I think the industry has incredible opportunities to sell the value proposition of what we are offering in senior housing, the wellness benefits to a senior of not being isolated which has been deemed to be more dangerous than smoking. And also to in selling the value proposition to charge for the kind of care that is being delivered to in many cases high acuity residence. So that is a big opportunity.

I think you see also the opportunity for sales and marketing efforts which are really all kidding aside, at very rudimentary levels. Brookdale is now of coarse rolling out its new marketing campaign which is I don't know if you have seen that but it is quite good. And I think we have opportunities again on the selling that value proposition and more sophisticated local and national marketing to really make an impact on penetration.

I would only add in more segmented offerings so you don't have just sort of one-size-fits-all but you have different types of offerings whether it be by type as we have talked a lot about, AL etc. but also by price point, amenities, environment and bringing some of those learnings from other industries even within REITs that have done that well. So I think those are all opportunities.

That is helpful. Lastly on that penetration, is there anything that you have historically that talks about changes in the net penetration rate maybe over the last 10 years?

It has been relatively constant and again as Bob pointed out, 1% of penetration fills up all the open units in the whole country so it is a real opportunity and hopefully the industry will be successful in moving that as we look to this next five-year period. We have to move on, Jordan. Sorry.

Joshua Raskin, Barclays.

Appreciate you guys taking the question. I just want to flush out you talked a couple of times about the long-term hospital strategy being able to start affecting that strategy with the Arden acquisition. So it sounds like you guys are under the belief that more and more dollars will go through the hospitals through bundling. And I just want to see what are your thoughts on long-term payer mix and volumes and the value of an inpatient hospital?

And then should we understand that says Ardent being the management company that you will use to acquire or are you listening to incoming calls in the sense that you would be willing to look at investments with other operators?

Let's take that last one first which is I do think because of the quality and experience of Ardent's management team, its scalable platform, we do have an opportunity to grow and consolidate with Ardent just as we did with the Lillibridge MOB business, just as we have done with Atria. But I also believe that we are going to build as we have in these other businesses a business and the inbound calls really are where we could work with a quality hospital system to really do some sort of sale-leaseback transaction with them and that would be a separate way for us to grow that business.

And in terms of the hospital again being the nerve center of healthcare delivery, we do believe that the hospitals will play an increasingly large role as these different segments or sites of care start to converge in a post ACA world and the hospital will be more influential in where the patient goes, where it comes from, where it goes, etc. That is part of why we want to align with that giant very influential industry as you well know as we continue to invest in healthcare. We think that is a very important piece of the overall holistic delivery of healthcare and that they are at the top of the food chain.

So that is one thing. Then in terms of we look at this as really owning a market if you will of real estate not only the core hospital but also the feeder and outpatient facilities that the hospital may own because healthcare is provided holistically. And so we would imagine that in that overall system because of demographics, because of improving economy, because of more insured patients, we are going to capture bigger volumes over time.

Okay. Then do you have a target in terms of how big you want the hospitals to be as a percentage of the total NOI?

Our focus is really on the quality of the operator and the real estate and their position in the market just like we have sort of done our MOB business where we have really done business with the best and 89% of our NOI comes from investment grade hospitals, affiliations and HCA. So it is really more the quality of the opportunities that we get presented that will drive how big that piece of the pie could get and the timing of our growth in that business.

Okay. And then last one, just I think you said Ardent specifically in the third quarter talked about growing both topline and bottom line. Any commentary on specifically around payer mix and what they are seeing for commercial volumes?

Yes, I mean mix stayed relatively constant and so I think they had a good quarter across the board.

Okay. Thanks.

Todd Stender, Wells Fargo.

You mentioned earlier that the CCP spin improved your cost of capital. Can you just discuss what factors you look at to make that statement?

It improved relative cost to capital and what I mean by that is simply when you strip out market changes say in the REIT market, that multiple improved and so it is as simple as that.

And the rating agencies, do they make any comments on now you don't have the SNF exposure?

I would say that the rating agencies have acknowledged in our conversations with them that we have a higher quality more private pay portfolio that is very attractive and I think we agree on that.

I think they would say it is a credit positive.

Okay, thanks. And just a quick one for Todd. Can we hear your expectations for what the MOB portfolio same-store is going to look like maybe just your revenue expense and NOI growth?

Well, as Bob alluded, we modified our guidance so we see ourselves in that 2.5% to 3% range. I think we will be at the upper end of that range by year-end and we see that range going into 2016 as well.

And any changes to your CapEx assumptions?

No, not as we see it now except for the fact I think we are going to see some significant redevelopment opportunities in our portfolio next year.

Great, thank you.

Michael Carroll, RBC Capital Markets.

Can you guys give us some color on the hospital inbound calls that you received? Are these from for-profit operators and what do they need the capital for?

Again, the hospital sector is very gigantic and Todd has about 400 clients so I won't go down his call list but it is both types. I would say as we have mentioned before, there is not for profits, there is for profits, there is publicly traded for profits, there is private equity backed for profit so this is all across the board. And so I think what the opportunity we have is really to show how we can really provide capital to high-quality operators that will help them run their business better, will help them grow, will help them consolidate market share and then they would use those proceeds for income producing consolidation adding bed towers, that type of thing, IT, all the kinds of high-returning activities that a hospital can do.

And then last question, does the dislocation in the public hospitals I guess stock prices over the past month or so, does that provide Ventas with more opportunities to deploy capital in the space or is it just too early to tell?

I think it is too early to tell but I do believe in this long-term secular thesis and I do believe that the recent activities and excitement in our space will give us greater opportunities and we will be patient, we will look for quality and we will look to win with the winners as we have in every other segment.

Thank you. Any other questions, Mike?

No, I am good.

Okay, great. Thanks for bearing with us guys. We really appreciate as always your time and attention. It was an incredibly productive quarter and we can't wait to see you in Louisville on the 9th and the 10th. Thank you so much.

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