芬塔 (VTR) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2018 Ventas Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Juan Sanabria. You may begin.

Thanks, Michelle. Good morning, and welcome to the Ventas conference call to review the company's announcement today regarding its results for the year and quarter ended December 31, 2018.

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 meanings of the federal securities law. The company cautions that these 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. Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations.

Additional information about the factors that may affect the company's operations and results is included in the company's annual report on Form 10-K for the year ended December 31, 2017, and the company's other SEC filings.

Please note the quantitative reconciliation between the non-GAAP financial measures referenced on this conference call in its most directly comparable GAAP measures as well as the company's supplemental disclosure schedule are available on the Investor Relations site on our website, www.ventasreit.com.

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

Thank you, Juan. We're very happy to have you join us on this side of the table for your first call. And good morning to all of our shareholders and other participants, and welcome to the Ventas Year-end 2018 Earnings Call. I'm delighted also to be joined on today's call by my outstanding Ventas colleagues.

In 2018, Ventas extended its 2-decade track record of sustained excellence. We delivered positive total returns to our shareholders, substantially outperforming both the REIT index and the S&P 500. We increased our dividends, harvested proceeds from successful investments that we redeployed to enhance balance sheet strength and invest in future growth. We added selective premier private-pay assets to our portfolio, and we built a high-quality research and innovation development pipeline, exceeding $1.5 billion with leading research universities. Importantly, we also enhanced and expanded our relationships with key industry partners: Wexford, PMB, Ardent, Atria and Sunrise during the year, and we crafted new beneficial arrangements with care providers, including Brookdale and ESL.

In addition to achieving these strategic objectives, we also delivered on our financial goals. 2018 normalized FFO per share was $4.07, at the high end of our improved expectations on a best-in-class balance sheet. During the year, we were gratified that our team and our company were recognized repeatedly for our track record of outperformance, our significant contributions to the industries where we have a major presence and for our leadership in environmental, social and governance matters. Along the way, our Ventas team remains strong, smart and unified.

While I'd love to elaborate on our 2018 accomplishments, they are well described in today's release. Instead, allow me to outline our expectations for 2019, highlight some of our key opportunities for the year and describe our commitment to returning to growth.

We entered 2019 on a strong foundation. We expect 2019 normalized FFO to range between $3.75 and $3.85 per share, assuming no acquisition activity. We also anticipate that our diversified portfolio will grow same-store cash net operating income year-over-year. We expect 2019 to be a pivot year and our transition back to growth, following a multiyear period of strategic improvement in our portfolio quality and mix from the disposition and receipt of loan repayments totaling $8 billion. We used the proceeds of these transactions to substantially improve our portfolio and tenant mix and replace lower quality assets and tenants with high-quality health systems and research and innovation properties with highly rated leading universities.

While the specific timing of our return to growth following 2019 is difficult to predict, the building blocks are clear: deliver organic portfolio growth when senior housing operating conditions improve as other business lines continue to grow; capture the benefits of our research and innovation business and development pipeline; utilize our financial strength and flexibility; and reignite our long-standing history of completing successful accretive acquisitions.

Let's talk about those building blocks in turn. First, looking at senior living trends nationally. We are very encouraged by the recently reported continued improvement in senior living starts, which have reached their most favorable points since the third quarter of 2012. As starts continued to moderate, demand for our product ramped to its highest level ever in 2018. The 75- to 81-year-old contingent is growing 4% per year for the next 5 years; and the 82- to 86-year-old cohort begins to grow over 3% per year after 2019. Assuming these trends continue, we anticipate a bottoming in senior housing so that the supply/demand equation moves in our favor in the future, creating a powerful cyclical upside. Potential increases in the penetration rate would incrementally improve this picture.

Second, we've enjoyed significant growth in our university-based research and innovation business to date, from the original portfolio we acquired in late 2016 and the delivery and lease-up of additional properties. We expect research and innovation growth to continue in 2019. Building on our momentum, we have today announced the extension of our collaborative partnership with Wexford until 2029 and the creation of a strong development pipeline exceeding $1.5 billion in projects with the lead research universities that will accelerate our growth in this high-quality, sustainable space. The pipeline cements our leading position in the market and demonstrates, again, our ability to acquire and grow a differentiated, value-creating business. Our robust pipeline of developments with top-tier research institutions contains about 10 expected projects, roughly half with existing university relationships and half with new ones. Pro forma for the announced development pipeline, our investment in high-quality, new real estate leased by leading research institutions will exceed $3.5 billion, more than doubling our original 2016 investments. And NOI from research and innovation investments would represent about 10% of Ventas' NOI. The pipeline projects have excellent risk-adjusted return, with expected unleveraged yields of between 6.5% and 8% of stabilization, and significant pre-leasing, credit-worthy tenants and long-term leases.

Today, we announced the first development in our pipeline, a $77 million project with Arizona State University, a highly rated public research university and a new relationship for Ventas and Wexford. The project will be fully lab-enabled and principally used for biomedical discovery and innovation in health outcomes. It is 50% preleased to ASU and should open by the end of 2020. With best-in-class developer and manager, Wexford, we look forward to meeting the needs of leading universities who wants powerful knowledge communities on their campuses to supercharge research, innovation and economic activity.

Our third building block of future growth stems from our financial strength and flexibility. During 2018, we paid down and refinanced debt totaling $3.4 billion. So we entered 2019 with an industry-leading credit profile, limited near-term debt maturities, terrific liquidity and capital access.

Finally, current market conditions are becoming more conducive for accretive external growth. Our team continues to evaluate investments across our verticals. Our strong relationship in all our business lines provide a competitive edge in acquisitions, and we intend to be proactive and opportunistic to increase investment activity. However, because investment timing and volume are unpredictable, consistent with our historical practice, we have not built any acquisition activity into our projections for 2019.

In conclusion, with nearly 20 years of 23% compound annual return to shareholders, we are happy with our 2018 accomplishments and financial performance; we are introducing 2019 guidance that is consistent with our previous statements to you; and most importantly, we are confident in our positioning for another 20 years of growth and success.

Now, I'm happy to turn the call over to our CFO, Bob Probst.

Thank you, Debbie. I'm happy to report another solid year of performance from our high-quality portfolio of health care, seniors housing and office properties. Our total property portfolio delivered same-store cash NOI growth of 1.2% for the full year 2018, above the midpoint of total company same-store guidance. In 2019, we expect our total portfolio of same-store NOI growth to range between 0 and 1%, benefiting from diversification of asset class, operator, geography and business model.

Let me detail our 2018 performance and 2019 guidance for our properties at a segment level, starting with triple-net. We were very pleased by the performance of our triple-net portfolio, which grew same-store cash NOI by an excellent 3.6% for the full year 2018. In the fourth quarter, triple-net same-store cash NOI increased a solid 2.1%. Across our total triple-net leased portfolio, trailing 12-months EBITDARM and cash flow coverage for the third quarter of 2018, the latest available information, was stable from the prior quarter at 1.5x.

Within that, seniors housing remains flat at 1.2x, while IRFs and LTACs remains consistent at 1.4x. As we predicted, performance of the assets for our Kindred LTACs improved in the second half of 2018, with the operational strategies taking hold to mitigate LTAC criteria. We expect this improvement to continue in 2019. Also, [MedTech] just recommended a rate increase for LTACs, recognizing their value in the health care delivery system.

Meanwhile, Ardent's third quarter 2018 results were strong and the fourth quarter showed continued momentum. Ardent recently filed for an IPO. Ardent's rent coverage remained robust at 2.9x, and hospital Medicare rates increased approximately 3%, effective in the fourth quarter of 2018.

As we look at 2019, triple-net same-store NOI is projected to grow, albeit at a more modest rate. Rent escalators are assumed to be partially offset by expected lease modifications with certain smaller senior housing operators, where rent coverage and credit is challenged. Though we have multiple potential approaches to these situations, including operator and business model transitions, our guidance at this stage assumes a $10 million NOI reduction in our triple-net same-store pool, equating to 130 basis point year-over-year same-store impact. In addition, the lapping of the 2018 Brookdale lease modification lowers triple-net same-store NOI growth by 70 basis points in 2019. On these assumptions, we forecast that our overall triple-net portfolio same-store cash NOI will increase between 0.5% to 1.5% in 2019.

I would highlight that guidance does not include any lease modifications for our portfolio of 26 communities managed by Holiday. These assets represent only 3% of our company's NOI, with approximately $60 million in annual contractual rent, which is fully current. Holiday has recently entered into a variety of transactions with its other landlords. In our case, we have a wide array of possible options and many tools and previous experiences at our disposal to obtain an optimal outcome if we believe a transaction is appropriate. Importantly, we believe that in any transaction we'd be made substantially, economically whole, and any impact would be immaterial to Ventas.

Moving on to our senior housing operating portfolio. To summarize, our 2018 SHOP results were in line with expectations, both for the fourth quarter and full year. For 2019, our SHOP guidance estimate point represents a year-over-year improvement relative to 2018, though we continue to work through the near-term supply/demand mismatch. And as we look beyond 2019, we're excited about the powerful upside opportunity in seniors housing and in our excellent market position.

Let me unpack each of these topics in turn. In 2018, our SHOP full year same-store NOI growth was minus 2.1%. Full year same-store occupancy in 2018 declined by 80 basis points versus 2017, driven by the cumulative impact of new deliveries in select markets. REVPOR growth through the year was 1.9%. Operating expenses rose 2.5%, with wage growth partially offset by cost controls. Positively, the year-over-year occupancy gap continued to narrow to minus 10 basis points in the fourth quarter, though new deliveries continue to pressure rate. Q4 expenses were up 3%. At the bottom line, Q4 same-store SHOP cash NOI declined 3.5%, in line with our range of expectations.

Turning to 2019 guidance. As we've previewed on our Q3 call, we expect full year 2019 SHOP same-store cash NOI to range from minus 3% to flat. At the midpoint, this represents a 60-basis point improvement in year-on-year performance in 2019. Please note our 2019 same-store pool now includes 74 assets operated by ESL. We forecast same-store occupancy in 2019 will range from flat to down 50 basis points for the full year. We expect new deliveries in 2019 to be at a similar level to 2018, as we digest the high level of inventory initiated several years ago.

In terms of rate, we continue to see healthy increases on in-place rent and care for existing residents. Encouragingly, the majority of the 2019 REIT letters have gone out with increases that exceed 5%. That said, price competition for new residents is expected to result in negative rent releasing spreads in the high single-digits range. Overall, we expect REVPOR growth for the year to approximate 1%.

We forecast operating expenses to increase in this 2% to 3% range, with continued wage pressure partially offset by strong cost controls and more modest incentive management fees.

The early read in Q1 of 2019 suggests the flu impact to be more modest than 2018's severe levels. Extreme weather conditions in many parts of the country at the start of the year may also affect the first quarter.

Finally, as we look beyond 2019, we're excited about the very positive trend in new construction starts, together with accelerating demand. The implication for positive occupancy and NOI gains from this data supports a powerful upside we expect in seniors housing.

To finish up the segment discussion, let's turn to our office reporting segment, which represents approximately 27% of Ventas' NOI. For the full year 2018, office same-store cash NOI increased by 1.7%. Within office, the R&I portfolio performed very strongly in 2018 and reached the high end of our guidance range by delivering full year same-store cash NOI growth of 4%. Average revenue per square foot increased 4.9%, and occupancy was an exceptional 96%.

The same-store pool in the fourth quarter, R&I increased same-store NOI by an outstanding 8.6%, driven by continued execution on our lease-up assets. In 2019, we expect attractive full year same-store research and innovation NOI growth in the range of 3% to 4% and total R&I portfolio NOI growth to exceed 7%. With a number of new developments coming online in 2019, we expect the R&I portfolio NOI to really begin to accelerate into 2020 and beyond.

Turning to our highly valuable medical office business. MOB same-store cash NOI increased by 1.1% for the full year 2018. Tenant retention in 2018 was strong at 80%, and same-store occupancy improved sequentially in the fourth quarter. In 2019, we expect 1% to 2% cash NOI growth from our same-store MOB portfolio. Guidance assumes occupancy increases during the leasing, continued strong retention rates and less square footage expiring than prior year. The total MOB portfolio is expected to benefit from the opening in 2019 of our new MOB development in downtown San Francisco, which is now over 80% preleased, Sutter Health. On a combined basis, our same-store office portfolio of research and innovation properties and MOB assets is expected to grow cash NOI in the range of 1.5% to 2.5% for the full year 2019.

Now onto our overall company financial results. In 2018, we delivered normalized FFO of $4.07 per share, matching the high end of our guidance range. Adjusted for Q4 natural disaster impacts, our GAAP net income and NAREIT FFO results were also in line with expectations. Meanwhile, we successfully recycled $1.3 billion in capital and built a balance sheet that is the strongest in our sector. In 2018, we proactively refinanced near-term debt to manage future interest rate risk and increased average debt duration by nearly 1 year to 7 years. At year-end, net debt-to-adjusted EBITDA was 5.6x; fixed charge coverage, an exceptional 4.6x; and net debt-to-enterprise value was 34%. We have also enhanced our supplemental disclosure package to incorporate feedback from investors and analysts as well as industry best practices. We welcome your ongoing feedback.

I'll close out the prepared remarks with our full year 2019 guidance for the company. The key components of our guidance are as follows: net income is estimated to range between $1.23 and $1.38 per fully diluted share; normalized FFO is forecasted to range from $3.75 to $3.85 per fully diluted share; we expect portfolio same-store cash NOI will range from 0% to 1%; and net debt to adjusted pro forma EBITDA is expected to stay flat at 5.6x by year-end 2019.

Last quarter, we highlighted that 4Q 2018 guidance annualized of $3.76 per share of normalized FFO was a good run rate for 2019. Today's 2019 official guidance is in line with our first read discussed last quarter, with the 2019 range of $3.75 to $3.85 per share or $3.80 at the midpoint. The 2019 normalized FFO guidance is explained by 3 drivers: First, underlying total property NOI is expected to grow modestly, with solid organic growth in multiple asset classes, largely offset by the impacts of the supply/demand cycle in senior housing. Second, we expect to recycle $500 million in asset dispositions, and receipt of loan repayments, into funding $500 million of developments and redevelopments principally behind the R&I pipeline. This capital recycling is dilutive in 2019, but deliver strong future growth and value creation. And third, we expect higher interest expense in 2019 from higher rates and incorporate $0.02 in incremental leasing expenses from a change in lease accounting standards effective starting in 2019.

Finally, as is customary, guidance does not include new acquisitions and also assumes approximately 361 million weighted average fully diluted shares.

In conclusion, we are pleased with our performance in 2018. However, the Ventas team is intently focused on together delivering on our 2019 commitments and on our return to growth.

With that, I will ask the operator to please open the call for questions.

(Operator Instructions) Our first question comes from Nick Joseph of Citi.

What's assumed in guidance for the timing of the asset sales and delivery payments?

Sure, Nick. The $500 million in dispositions and loan repayments is really back-end weighted. The loan repayments open really -- beginning in the summer. So our guidance is really midpoint of that back half -- at the midpoint.

Okay. Then, as you think about 2019 being a pivot year, where will you enter 2020 on a run-rate basis from a quarterly FFO perspective? Obviously, the midpoint suggests $0.95 quarter, but it will be variable given those loan repayments and contribution from development and redevelopment?

Yes. So you're right to point out. In terms of the phasing for the year, quarter to quarter, we certainly would expect in the second half sequentially to see lower FFO per share. And that is indeed the case here. I wouldn't say wildly different, but it does trend down over the course of the year based on the timing of dispositions, which, again, are uncertain. So it's hard to say exactly, quarter by quarter, what that's going to look like.

Is the return to growth more of a 2021 comment than 2020?

Nick, as we said, that we're intently focused on returning to our historical growth, and the timing is not easily predictable within a specific quarter or so. But we know we're going to get there. We know what we have to do. And we know how to do it. So I feel good about that.

Our next question comes from Josh Dennerlein of Bank of America.

You mentioned that your team has been underwriting acquisitions. I know you have nothing in guidance. I mean, where would -- where is the team most active? Is it senior housing, MOBs, other segment?

Well, clearly, we've been very busy building this great research and innovation pipeline, and I thank John Cobb and his team for that. In terms of looking forward, I would say, there is a combination of -- across our verticals, a combination of regular way type potential investments as well as more opportunistic type things that may come into focus over time.

Okay. And then on the Wexford, the 10th project you've identified, is that over the kind of the lifespan of the contract being extended to '29? Or is it kind of just what you have in the near term kind of lined up?

Yes, this is John. It's in the near term. It's not -- in the next 12 months.

It's in the next couple of years.

Next couple of years, okay. So what do you think you can kind of do per year, like 2 or 3 of these projects and get run rates?

Yes, well, the $1.5 billion, typically, it's 24 months -- 18 to 24 months to start-to-finish, to open the building, and then a couple of years to stabilize from there, depending on the pre-leasing. So that's how you should think about the phasing of the $1.5 billion.

Our next question comes from Nick Yulico of Scotiabank.

Just following up on Wexford. Is there any -- you talked about the 18 to 24 months start-to-finish, is there a way you can get a feel for future starts you're assuming for this year and next year? And -- because if, I guess, I go back to the disposition guidance, it talks about $500 million there, which would be used for development and redevelopment. And based on your current pipeline and supplemental, you don't have that much spending. It looks like you have, like, another $250 million or $300 million of starts that would be maybe as soon this year. So please give us a little feel for that.

Just directionally, I would say some starts in 2019, the back-end weighted, and then a ramp in 2020 and some spend thereafter.

Yes, I'll build on that, Nick. In terms of the $500 million of development and redevelopment spend forecast this year, call it, 70% of that is, in fact, development. And indeed the majority of that is behind the pipeline just announced. So really, this is about accelerating that pipeline beginning in this year.

Okay, that's helpful. And then, Debbie, I wanted to go back to when you're talking about external growth. You're saying current market conditions are good for accretive external growth, and I guess, I'm just wondering. You have been a little bit quieter on the larger portfolio acquisitions in the last year, some of which have traded. How much was your cost of equity a factor in that? And now with the stock price where it is, up since -- significantly versus its low point in 2017, how much is that also affecting your thinking on the ability to do accretive acquisitions?

Right. Well, as I said, I mean, we're excited about the investments we're making in research and innovation. I do think the environment is more conducive. And it really is around the fact that we may be seeing a slight upward drift in cap rates, and therefore, rewarding our patience, coupled with an improved cost to capital. And then there are certain -- again, where opportunistic things that come and go, and where perhaps, over time, those could become more interesting to us. So it's a variety of factors.

Okay. Just one last question. Bob, I want to follow up on -- when you gave the triple-net segment guidance, you talked about some certain lease modifications with senior housing operators. But I think you said that did not include Holiday. Is that correct?

That is correct, yes.

Okay. And then you also talked about there's a lot of different scenarios with Holiday, but you expect to be made substantially economically whole. I guess, the question I have though is that there is some significant straight line rent associated with that lease. So I mean, is there still a chance that -- I mean, how should we think about an economic issue versus a GAAP FFO issue, where there is some potential for straight line rent reduction if you had to restructure that lease?

I'll take that one. There's, again, a wide array of options, many permutations. We're looking rightly, as you said, at being made substantially, economically whole. We do have a structured guarantor, whose credit has been directionally improved as a result of the other transactions. And so we're really looking at it from an economic basis right now. And then the GAAP impacts and so on are -- will follow depending on whether we do a transaction, if so, what that looks like. And the GAAP will follow whatever transaction, if any, we do.

Our next question comes from Steve Sakwa of Evercore.

I guess, I just wanted to talk maybe about some of the timing of deliveries. I think some of the delivery dates got pushed back a little bit. I mean, just what are you seeing on the construction front? And how do you sort of see the delivery timetables maybe changing over the next 1 to 2 years?

Sure, Steve. It's Bob. So in terms of deliveries, we take the NIC data and we then risk adjust that, should I say, based on our experience of how long it typically takes to deliver. And in fact, that trend has been lengthening, i.e. it's been taking longer than normal. I'd say we are pretty accurate in our forecast for '18 in terms of those deliveries. And as we look at '19, we expect to see similar levels in our portfolio of new deliveries as we saw in '18. Obviously, the trend down in starts is encouraging, as we said. That gives us some visibility now into '20. Of course, that will be a function of timing of deliveries, but we do expect based on the starts trend, which has been so favorable to see, in 2020, a reduction in the amount of deliveries. So hence, some of the commentary around the improving trends that we see over time in seniors housing.

And I guess, maybe just to stay on that business, kind of the wage issues. I think you said expenses might grow 2% to 3% and embedded in that might be slightly higher wage growth. Just what kind of comfort do you have around sort of the wage component and that not putting upward pressure on overall expense growth in 2019?

Yes. This has been pretty consistent theme, Steve. I think I asked the same -- got asked the same question this time last year. Wages have clearly been under pressure, no doubt. Tight labor market, we're all aware of that, minimum wage, et cetera. What the operators have done is a phenomenal job of cost control, whether that be the business model, the operating model, how they staff, managing indirect costs, et cetera. And so if you look at our full year, for example, 2018, operating expense grew 2.5%. That's right in the midpoint of the range we've just given for '19. Our operators believe they have continued opportunity runway for cost control, but that is certainly necessary in light of the wage pressure, as you point out.

Okay. And then last question on the R&I business. I guess, the ASU deal, it sounds like half of that is at least going to the University. I guess, are your expectations that the other half would go to traditional, kind of life science type tenants or would you expect the University to take the other half over time? And what do your prospects or pipeline look like for leasing out the balance of that building?

Sure, this is John. Historically speaking, we target the private sector, like you said. But we have had a lot of -- where the university does take additional space. It just happened to us in -- at our Wash U building that we just completed and successfully filled up. So we target both, and our prospects are good.

Our next question comes from Andrew Rosivach of Goldman Sachs.

I really found something I got this morning that I didn't know the answer to. 12% of your SHOP in the fourth quarter was outside of the same-store pool, and I think I modeled this wrong. First, you have that new line of 16 properties intended for disposition on Page 2. I'm guessing that's outside of the same-store pool?

Yes.

That's correct.

Any sense of how that portfolio trended in 2018?

Sure. So first of all, in terms of the same-store pool, I would just emphasize again. The ESL assets going into the full year pool in 2019, they're not in the full year pool in 2018 as we transition them. So that's the biggest driver. 80% of our assets -- that said, even before ESL, are in the same-store. We do have some assets which we're actively marketing into -- for disposition is the term we use. Now typically -- in seniors housing, specifically, these may be in some higher supply markets. And so the trends would mirror those types of markets.

I don't want to put words in your mouth, Bob. But probably, that -- just it looked -- if you look at it, there's only $1 million of NOI on $20 million of revenue. That was probably assets that were pretty tough in '18?

Yes. Those have trended down pretty consistent with the market.

And then my second one. You mentioned ESL. If you broke your same-store portfolio in '19 between ESL and non-ESL, would there be a difference in the expectation for performance?

Yes, great question. And perhaps a chance just to discuss ESL a little bit. The last call, we mentioned they stabilized. We saw a good fourth quarter from ESL, really, on the cost side in particular, getting their operating model in play. So nice stabilization of performance there. In terms of the impact in '19 in the same-store pool, that's a positive impact to the overall by about 60 basis points in the same-store pool overall. So put it another way, you can adjust the same-store midpoint by that amount if you excluded it.

Got it. So basically, so there's a bit of an easy comp, if you will, where your SHOP can do better than kind of a generic SHOP portfolio in the U.S. because of the ESL portfolio?

Well, we -- I would just say that we expect it to have a positive contribution, and that's what we intended when we moved the assets.

Our next question comes from John Kim of BMO Capital Markets.

In your supplement, you provided what looks like a new line of 8% to 12% range in stabilized return on incremental capital?

Yes.

Just to clarify, is that a development yield or an IRR figure?

It's an unlevered yield on incremental capital, John. I'm glad people are noticing some of our good additional disclosure, and I'm glad it's helpful. But that's kind of -- that's an unlevered yield on incremental invested capital at stabilization.

And is that pertaining just to redevelopments or does that include developments as well?

That's redevelopments, John. Specifically on that page, you'll see at bottom for the redevelopments. Developments we show expected and stabilized yields specific to the projects.

Got it, okay. I think, previously, you've stated that your life science land bank can provide up to $2 billion of development. And in today's press release, you're saying $1.5 billion. So despite the ASU project, what was incrementally new as far as projects that you agreed upon?

One thing we did say is that with the tenants, sort of half are with new relationships, roughly half with existing ones. I'm glad you remembered that we do have a land bank with some of our better universities that could support about $2 billion of development. And to tie that all together...

Yes. The half -- rule of thumb applies as well in terms of that land bank that we quoted going towards -- half of it roughly is going towards this new pipeline. That still remains as an opportunity.

Okay. And then, Debbie, you mentioned an answer to a previous question that opportunistic things come and go. Can you just maybe provide some more color on that? Does that specifically mean public opportunities?

Right. I mean, almost by definition, opportunistic is little bit come and go, if -- to use your words. It is more expansive in terms of things where we have a unique insight or we have a unique relationship that we can employ to capture an opportunity that is unique.

Our next question comes from Jordan Sadler of KeyBanc Capital Markets.

Bob, could you clarify on the ESL piece? Did you say it's a 60-basis point positive contribution to the overall or just to the SHOP piece?

To the SHOP same-store piece, not overall company.

Okay, I thought so. And then as it relates to SHOP NOI trending throughout the year, we're talking about sort of the sequential trend in, maybe, FFO. But I was kind of curious. I think -- it feels like your toughest comps are probably earlier in the year, and so I would expect some sort of gradual improvement throughout the year? Is that how you guys are thinking about it?

Actually, we think it's likely to be pretty consistent throughout the year. Forget seasonality. I'm just saying in year-over-year performance. Some of the things notable last year in the first quarter was the flu. You know this year we have, as I've said, an easier flu, albeit above normal levels. But severe weather is kind of a new factor in the mix in Q1. But as we look out over the course of the year, I don't see anything that spikes any particular quarter, frankly, on a year-over-year basis.

Okay. And then just on the acquisition, minor opportunities. Are there any particular segments that are sort of cropping up as having better or worse opportunity? Has your interest level in senior housing picked up at all, given sort of the fact that we're getting closer to sort of the ramp in the demos and possibilities in penetration?

This is John. I think it's across the board. We're seeing it in all the sectors that we look at.

Is there anything you would point to that's driving that? Is it just more willing sellers or prices -- or falling prices?

I mean, I think we're -- Debbie said earlier, I mean, we're seeing a little bit uptick in yields. So that's making some of it more attractive. But sometimes, deals just come to market, so.

Our next question comes from Derek Johnston of Deutsche Bank.

For senior housing, are you seeing better supply/demand dynamics in major metro markets versus secondary or suburban? And really, how economically viable is senior housing in markets like New York City and San Fran, where costs seem somewhat prohibitive?

So in terms of supply/demand, we -- it's really a market-by-market conversation. I quoted a few, in the past, of the major -- or primary markets like Atlanta, Chicago, where we have seen a significant amount of supply/demand. That continues. Secondary markets, if you just look at the segmentation in our supplemental. You can see, it does have what appears a little bit like a more significant impact in terms of supply. Some of the smaller markets, Salt Lake City, et cetera. But it really is a market-by-market conversation. And again, I think, just pivoting back to the overall trend downward, it's -- and starts is the encouraging piece that we keep wanting to point to. Because it's clearly, as we look at 2020, kind of towards the tail end, coming down in terms of delivery expectations. So that's really good news.

Okay, got it. And just quickly for my second one. Could you just talk about the West Coast strategy and the expanded relationship you continued with PMB, and ultimately, how Sutter is progressing? And any updates there?

Great. This is Debbie. I would say that we are running the West Coast offense. We have been lucky enough to be partners with PMB, that is a very well-known West Coast developer of high-quality medical office and outpatient. And we recently extended that relationship. It's been a very positive one. And they continue to have a good pipeline of development opportunities, and we have an exclusive pipeline arrangement with them. Sutter, as you point out, is one. And it is -- I've just visited it during NAREIT, I believe. And it's looking great and ready for occupancy and right across from a $2 billion new hospital that Sutter is moving into shortly. So we're excited about that one, and we look forward to taking investors there as soon as we can.

Our next question comes from Chad Vanacore of Stifel.

This is Seth Canetto on for Chad. First question, looking at the dispositions, do you guys -- is there any update on the $30 million of rent that was associated with Brookdale? Is that most of the $500 million disposition, including guidance? And have you identified those properties and any insight on timing or expected yields?

Yes, so good question. So as you recall, early in 2018, we did a very attractive arrangement with Brookdale that extended our leases and also targeted about $30 million of rent for disposition at a 6.25% deal to Ventas. We have identified an early tranche of those potential dispositions, and that is part of the $500 million, to which Bob referred. And we're at the very early stage of marketing that portfolio, and that's where we stand. And that will continue to improve the overall quality of our portfolio and be helpful to Brookdale as well.

And I would add, the loans are, I'll call it, $300 million, $350 million of that overall total.

Loan repayments represent that rest of it, yes.

Got it. And then when we look at last quarter and you talked about your preliminary SHOP outlook, it was pretty much the same as '18. And it seems like the upper end of that range was improved. Was that predicated on the outperformance of ESL or overall supply/demand dynamics? Or just any more color that gave you confidence that's it's going to -- a possibility of improvement in '19?

Yes, great question. I'd highlight a few things. And this thematically applies not just to '19, but as we think about '20 and beyond. One of the things we have seen is solid occupancy. And I noted 10 basis point gap versus prior year, which had narrowed throughout the year in 2018. And in fact, sequentially, we grew occupancy in the fourth quarter for the first time since 2015. So there's something going on that's very positive on the occupancy side. I think it's market share gains and penetration. But that's really one of the things we find very encouraging. ESL, you rightly pointed out, is another. And then the third I would highlight is redevelopments. We have redevelopments in our same-store pool, and we are seeing some lifts from the redevelopments in '19 and into '20. So to give you a view of the ideas that, that give us that confidence of the midpoint improving in '19 and then beyond.

Our next question comes from Jonathan Hughes of Raymond James.

Thank you for the added disclosure throughout the sup, I really appreciate it. With that, on the external growth front, earlier, you mentioned pricing for deals has drifted up. That was on Nick's question. I'm not sure if that was specific to a certain health care real estate asset class or just a broad comment, but would you care to maybe quantify that rise with specific emphasis on the MOBs? Have they maybe moved up 20, 25 bps over the past 6, 9 months?

Again, it's -- we're starting to see a slight drift upward, and it really is in several of the asset classes. And so I think you're on the right track.

Okay, fair enough. And then I haven't -- I don't think we've talked about Ardent in detail yet. But in the past, you really wanted to expand that platform. There was a recent acute care deal granted outside of the U.S., but curious if you looked at that. And then maybe where you're seeing any hospital or acute care opportunities within the U.S.

Great questions. So as you know, high-quality health systems -- and I'll just point to HCA as a public example of that. It has done and have the opportunity to continue to do well. We certainly have a great position within the health system market. It's a large market. And I think we would be very interested in continuing to grow that business if the right opportunities present themselves. We said at the beginning and continue to believe that we will be very selective in the investments we make in this space as we have been to date. And we'll remain opportunistic. That's an area where I think we'll be disciplined and selective, but opportunities that could arise, we are in a good position to capture.

Are you open to any international acute care opportunities?

We have looked at acute care opportunities abroad over time. And it obviously depends on the market and the yield after currency and taxes and whether we think it's a good risk-adjusted return. But we have looked at opportunities outside the U.S. in quality health systems over time.

Okay, that's great. And then just one more for me. And I realized there were some accounting changes over the past few years, so this is a bit cosmetic. But G&A has gone up a good amount over the past few years while the asset base has remained fairly stable. And I know this is going to be impacted by accounting changes again this year, but I was hoping you could maybe steer us to a good, maybe, growth number on last year's G&A line item. Not guidance, but just a suggestion of maybe what we can kind of expect this year.

Sure, I'll take that one. G&A in the '18 -- the '17 really followed the good performance that we had in '18. So it's really a function of incentives. Staffing has been quite stable and we continue to be very lean. As we think about it -- and that's a variable, therefore, that was around every year. I would start with inflationary sort of increase on a normalized basis, you pointed out, adjusted for accounting type impacts, inflationary increases, '19 v. '18.

Our next question comes from Tayo Okusanya of Jefferies.

Same thing, thanks for the additional disclosure. I'm going to give all credit to Bob because Juan just started this year.

It's all Juan's doing.

Anyway, I wanted to focus on SHOP a little bit this morning. The first thing is just the REVPOR trend: 1% this quarter, 1.8% last quarter, about 3.1% a year ago. I just wanted to get -- can you just talk a little bit just about what's happening with pricing power? I couldn't help but fixate on your commentary about -- for new leases that is going to be a negative mark-to-market there, which seems to fly in the face of some of the data we have seen from NIC.

Yes. So I love this topic, Tayo. I wouldn't focus on the NIC data because it really doesn't look at apples-to-apples. It's not actual rates and it's tough to divine, certainly, in our opinion. For our data though, we can see quite clearly the trend. And that's -- the REVPOR has 2 components, as you know. It has the in-place increases for residents that have been here year-over-year. And that, we continue to see very nice pricing power on. I mentioned north of 5% for those REIT letters that just went out. So that's -- continues to be very encouraging, with very few with financial move-outs by the way. What's driving that risk that you pointed out rightly in terms of REVPOR over the course of the year is the releasing spread. That has been, in the mid- to high-single digits, down versus previous residents. And that is a function, of course, of new competition. And so on a blended basis, 3.2% in 2019 and the 1% range for REVPOR, it really reflects those 2 factors. But it's a blend, frankly.

Got it. And then just one other point in regards to just the dividend outlook going into '19. Again, when we kind of take a look at your guidance, make all the adjustments to kind of get the FAD, we kind of start getting to kind of a like a mid-90s type FAD dividend payout ratio. And just in light of that, wondering how you guys are thinking about the dividends.

Yes, well, thank you for asking. The board just increased the dividend in December, and we feel very confident about our position. Relative to the dividend at the midpoint, it's in the low-80s relative to normalized FFO. And as we said, we're committed to returning to growth and confident we can do so.

Our next question comes from Daniel Bernstein of Capital One.

I'll just ask one question. So as you've accelerated the development on the life science side, and I was wondering, did you see any potential for synergies between the MOB and life science development platforms, given all those university relationships -- most of those universities have some very good hospital systems affiliated with them? Do you see any synergies to accelerate your MOB development as well?

Yes, that's a great question. So this is Pete Bulgarelli. Thanks for the question, Daniel. It's really a strategic focus for us. I mean, there is an incredible overlap between our research and innovation portfolio and the opportunities with the MOB and the medical portfolio. And kind of in between there is the academic medical function as well. So you think about a typical -- many of these universities we're working with, they have life science research. They also have med schools and they have academic medical facilities, and usually, a leading research hospital. And so if we look at cross-selling opportunities and the integration that we can do with those institutions, we see a lot of clear blue water.

Our next question comes from Michael Caroll of RBC Capital Markets.

Bob, I wanted to touch on the $10 million rent adjustment you mentioned in your prepared remarks. Do you have the timing for those reductions and how many tenants that relates to?

Mike, it's Debbie. It's a handful of tenants, and it would be throughout the year.

And did Ventas receive anything in return, I guess, for doing those rent adjustments? And was there any discussion to move that to the management portfolio?

Right. As Bob said, this has not occurred. And so this is a bit of an estimate, our best estimate, albeit regarding our expectations for '19. While we've modeled it and forecast it as just a triple-net roll-down estimate, as Bob said, there's a whole variety of things that might happen, including, as you suggest, a transition of those assets to other operators and a management contract and/or asset sales. And so that's -- we expect really for it to be a combination of those things. But the easiest way to think about it was how we put it in the numbers, which is in triple-net.

Okay, great. And then last question related to the 2019 guidance. Does the range include any nonrecurring items similar to the Ardent prepayment fee that was recorded in 2Q '18?

No. Thank you for asking. We do not have fees or payments from tenants as we did last year.

Our next question comes from Lukas Hartwich of Green Street Advisors.

I'll just ask one. So like can you remind us what your plans are for the Ardent stake, assuming that company does go public?

Well, we have about a $50 million investment in Ardent, and given the quiet period that Ardent's in, I would prefer to defer that discussion until another time.

Our next question comes from Todd Stender of Wells Fargo.

So CapEx spend was up in Q4, just looking at the office segment. It was about 22% of NOI, but it's more like 12% for the full year. Just -- I want to see what accounted for that spike in Q4. And then, maybe, what's your budgeting for 2019?

Yes, Todd. It's Bob. We do see typically in the fourth quarter a ramp on FAD. We saw that again. That's true across the portfolio, including office. We saw that again this fourth quarter. And then, as we look at the guidance for '19 in terms of FAD CapEx, it reflects really some increases from -- in the office, in particular, from lease-up. And LC and TI is a consequence of that. That's the biggest driver.

And then percentage of NOI, what's a fair number for 2019?

For which NOI?

For the full year?

For the full year, just for the office segment.

Mid-teens, 15% or so.

And our last question comes from Michael Mueller of JP Morgan.

For the $10 million rent reduction that's in 2019, how different is that from the full annualized amount that will carry over into '20?

Again, it depends on when and how it's structured. There could be some potential carryover effect that would make it a little bit larger for '20, but immaterial, basically.

Got it, okay. That was it.

All right. Well, thank you. I just want to thank everyone for their attention to Ventas and your interest in our company. We appreciate it greatly. Our whole businesses continues to be driven by this great demographic demand and need-based, diversified, resilient long-term cash flows. And our team is really in great shape, and we feel good about our relationships with our partners and care providers, our balance sheet, our opportunity for growth, externally and our large and growing development pipeline of terrific research and innovation assets. So we're feeling good and we look forward to seeing all of you soon. Thank you.

Ladies and gentlemen. Thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

Thank you.