Welltower Inc (WELL) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter and year end 2009 Health Care REIT earnings conference call.

My name is Christy and I will be your operator today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Now, I would like to turn the call over to Mr.

Jim Bowe, Vice President of Communications for Health Care REIT.

Please go ahead, sir.

Thank you, Christy.

Good morning, everyone, and thank you for joining us today for Health Care REIT's fourth quarter 2009 conference call.

In the event you did not receive a copy of the news release distributed late yesterday afternoon, you may access it via Company's Web site at www.HCREIT.com.

I would like to remind everyone that we are holding a live webcast of today's call which may be accessed through the Company's Web site as well.

Some statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Health Care REIT believes results projected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that projected results will be attained.

Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news release and from time to time in the Company's filings with the SEC.

I would now like to turn the call over to George Chapman, Chairman, CEO and President of Health Care REIT, for his opening remarks.

Please go ahead, George.

Thanks, Jim.

Before discussing our successful efforts to position the Company for the future, let me review a few 2009 highlights, leaving the more detailed commentary to Scott Estes.

First, in light of the difficult economic times we were quite pleased with the one and three-year total stockholder returns of 12% and 21% respectively.

And our inclusion in the S&P 500 Index in January of last year, and ranking as one of the top 10 total return performers for the decade among all REITs were also very gratifying to management.

Secondly, while the unsecured note markets remained effectively closed, at least through the fist half of 2009, we were able to opportunistically raise nearly $1.3 billion of capital through $700 million of equity, $266 million of Freddie Mac secured debt at an average rate of 6%, and sale of non-core assets that generated over a $325 million of proceeds.

Thirdly, we completed gross investments of $717 million, of which nearly 90% related to our preferred investments in combination senior housing facilities and customer-focused medical facilities.

But today I want to focus my remarks on what we have accomplished during the last several years to position the Company for success.

As we have reported, we have taken advantage of these difficult economic times to restructure the balance sheet by enhancing liquidity, lengthening maturities and deleveraging.

With only $140 million drawn against our $1.15 billion line of credit at the end of last year, and the debt and equity markets open, we are in a great position to take advantage of investment opportunities.

We have also methodically positioned our portfolio and corporate infrastructure to meet the challenges ahead and to take advantage of opportunities.

Even during the last several years of difficulties, we chose to bolster our capabilities through numerous key hires that are providing significant competitive advantages for Health Care REIT.

Our portfolio has proved to be quite resilient through these challenging times as our payment coverages at the property level remained at 2 to 1.

We continue to emphasize portfolio diversification as our top five and 10 operators comprised only 24% and 37% of the portfolio respectively.

We are also quite pleased with the performance of our medical office building portfolio that finished the year over 91% occupied with an average 2009 tenant retention rate of 75%.

You will recall that we acquired two large MOB portfolios as well as our property management capabilities several years ago, and embarked on a process to produce a best MOB portfolio, as well as a best most talented property management Company in the sector.

And we have made great progress as we have added and are continuing to add modern, larger customer-focused MOBs, medical office buildings, while at the same time disposing of non-core medical office buildings.

We are making great progress in reducing smaller, unaffiliated off-campus medical office buildings and expect that percentage to decline to 10% in another three to five years.

We expect our occupancy to be at least at 93% by year-end 2010, and on the management side, our personnel additions have strengthened an already strong property management group led by Mike Noto.

As I mentioned earlier, we have been emphasizing investments in combination projects in senior housing, and medical facilities that are customer friendly and all of them being appropriate real estate platforms for the future.

At the same time, we have been very aggressive about disposing of non-core assets such as stand alone skilled nursing facilities, independent living facilities, assisted living facilities and certain medical office buildings even when the near-term effect was somewhat dilutive.

Let me quickly summarize some of the changes that we have made in the portfolio during the last five years and expect to make in the next five.

In 2005, free-standing skilled nursing stood at 38% of our portfolio, and at the end of 2009, it was down to 17%.

We expect that percentage to be driven down to approximately 10% by the end of 2014.

Our free-standing independent living, assisted living in dementia facilities, stood at 26% of our portfolio in 2005 and we're down to 8% at the end of 2009, and should move to about 5% by the end of 2014.

Our medical facilities are comprised of medical office buildings and hospitals, stood at 4% of our portfolio in 2005, and were at 36% at the end of 2009 and should be in the 40% to 50% range by the end of 2014.

As part of these portfolio repositioning efforts, we have in a sense condensed five to seven years of portfolio repositioning into two with the effect that gains as well as loan losses and impairments have been larger than normal for 2008 and 2009.

We have been aggressive in writing down loans and investments even though our goal remains to collect a substantial portion of such amounts.

In 2008 and 2009, we had a net gain of approximately $126 million when asset sales impairments and losses are considered together.

We are now taking advantage of our positioning to grow our portfolio across a full spectrum of senior housing and health care.

We believe our ability to invest knowledgeably across the full spectrum constitutes a tremendous competitive advantage, and being able to provide full services such as consulting, advising, development and property management in addition to being a capital partner are equality important.

These advantages, however, can only be leveraged by a team of dedicated, seasoned professionals who understand the need to partner with operators in health systems.

Let me be clear.

Apart from the inherent benefit of appropriate portfolio diversification, the obvious benefit of full spectrum investment is the expanded scope of investment opportunities.

By being able to invest responsibly in each segment we can pursue the best risk/reward opportunities as markets change.

We entered 2010 focused on growth and we have begun that process very effectively by being in the process of closing $568 million of investments, including a portfolio of medical office buildings, with our existing customer, Aurora Health System, senior housing assets with Capital Senior Living, and a life sciences joint venture with Forest City; $490 million has been closed at this date.

We are very pleased to expand our relationship with Aurora, an A-rated not-for-profit health system with 13 hospitals and over 3,000 affiliated physicians in Wisconsin.

This portfolio has an attractive initial yield of 9.1% and on a pro forma basis would immediately increase our overall medical office occupancy by 2% to 93% and our on-campus and affiliated mix to 80% of the portfolio.

Aurora has become our third largest customer with a total investment balance of $283 million.

Our sale/leaseback transaction with Capital Senior Living will be our first with that company and will hopefully lead to a growing, long-term productive relationship.

Our investments in the Forest City joint venture, a life sciences project, constitutes a best-in-class opportunity in a leading life sciences market in the United States.

This purchase is consistent with our strategy of investing in high quality real estate that supports leading health care providers, and John Thomas our head of the Medical Facilities Group will discuss this investment at length in a moment.

So as we enter 2010, we are very optimistic that our people and platform can and will drive strong investment volumes and earnings growth going forward.

With that, I will now turn the John Thomas to expand on the Forest City investment, and then John will turn the program over to Scott Estes, our CFO, for a brief financial and portfolio overview.

John?

Thank you, George.

We are pleased to talk about our newest strategic investment, the University Park at MIT in Cambridge, Massachusetts, and our new partner, Forest City Enterprises.

Forest City developed University Park in cooperation with MIT over a 25-year period providing research and laboratory facilities for leading life science companies and health care institutions seeking a campus environment promoting scientific and clinical collaborations and the successful commercialization of that research and clinical work.

The joint venture's clients in University Park include investment grade or subsidiaries of investment grade publicly-traded pharmaceutical companies including Novartis, Genzyme, Millenium, a subsidiary of Takeda -- and I'd note that University Park is the worldwide headquarters for Takeda's oncology research and business -- as well as Vertex.

And we're very proud of the relationship with Massachusetts General and Brigham and Women's Hospital's clinical research operations.

University Park is located adjacent to MIT's campus and is subject to a ground lease with MIT for more than 50 years.

This $668 million joint venture includes all seven of Forest City's wholly owned life science buildings with two attached parking garages with more than 1,700 spaces.

The joint venture was formed February 22 with approximately 1.2 million rentable square feet, 100% occupied, and projected 2010 cash net operating income of $51 million.

We would note $4.7 million of the projected NOI is contributed by the garages.

The joint venture acquired six of the seven buildings this is past Monday, but these numbers are inclusive of the seventh building, which we expect will be contributed in the second quarter.

The average age of these buildings is 11 years, and backing out the value of the garages, the investment per foot is about $510 per rentable square foot, well below today's replacement costs.

The joint venture has no preferred or promoted returns to Forest City or Health Care REIT, and the projected $51 million in net operating income is net of all ground lease payments to MIT, and property management fees payable by the tenants to Forest City, which will continue to manage the properties for the joint venture.

Forest City will receive an annual asset management fee from the joint venture, equal to 50 basis points of the net operating income, for managing the joint venture with future annual increases subject to a CPI adjustment.

The joint venture assumed $321 million of non-recourse debt, with a weighted average interest rate of 7.1% and an average term of four years remaining.

Forest City has maintained 100% occupancy consistently for over 11 years, and has renewed or released space at then current market rates with minimal down time.

First generation leases in place typically are 10 years with second generation at five years on average.

All of these billings have been very well maintained and are built out fully.

Thus, in the rare situation when space has been available, new tenants have been able to move into lab-ready space without additional tenant improvement cost or delay for build out.

This is a very attractive asset for both investment and tenants alike.

Cambridge is a triple net market and build out costs for new lab space are far in excess of typical landlord allowances in the market.

Our initial investment with Forest City brings immediate returns on investment and we expect annual average net operating income growth of 4% to 5% over the next five to 10 years, resulting in a 10-year owned/levered IRR of 9% to 10%.

Forest City's life sciences management team is based in Cambridge and provides over 90 years of combined experience to our joint venture.

This team has led the effort to expand Forest City's life sciences developments beyond Cambridge, to an alliance with Johns Hopkins University for the development of the science and technology park at Johns Hopkins in Baltimore, the University of Pennsylvania in Philadelphia, and the Fitzsimmons life sciences district anchored by the University of Colorado Hospital and its Health Sciences Center.

They also have the Illinois Science and Technology Park with ties to Northwestern University, and another Chicago hospital located in the Chicago market.

As Health Care REIT continues to grow traditional acute care investments with leading hospitals and academic medical centers, we believe it is a logical extension of our services and an important strategic initiative to deliver to our hospital clients the full spectrum of the health care facilities they require to further their missions.

While I personally served the Baylor Health Care System, I had the privilege and responsibility to work with some of the leading scientists in the world, drawn to the opportunity to work with some of the leading physicians in the world, and the development of vaccines and other chemical, biological clinical technology.

Taking scientific advances from the bench to the bedside as quickly and efficiently as possible has become a key driver to the success and growth of the highest quality hospitals in the United States.

Recruiting the highest quality physicians has required these institutions to offer not only modern efficient clinical facilities, but access to adjacent and complementary labs and scientists and ultimately the pharmaceutical and other life sciences companies, seeking to fund the research and the clinical trials necessary for FDA approval and commercialization.

This joint venture provides to us a rather exceptional opportunity to invest in the best-in-class congregation of life sciences buildings in United States and partner with a best-in-class developer and manager of life sciences properties.

Forest City has already taken their proven team and platform to other leading academic health care providers, and over time, in a disciplined and strategic manner, we expect to grow our life science investments with Forest City and our mutual clients.

This partnership offers a strategic advantage for Health Care REIT and Forest City across each of our respective core competencies.

We expect to leverage our collective strengths to have even more opportunities to own and develop more high quality outpatient and other traditional acute care facilities than we otherwise would, and in many of those situations to have access to the best opportunities to own and develop leading life sciences facilities as well.

Health Care REIT's foundation for success for 40 years has been to identify and invest in best-in-class operators and providers across all classes of health care real estate.

These assets have and can take many forms -- these investments have and can take many forms, all with one common objective, growing Health Care REIT's shareholder through investments in the highest quality real estate, posting the highest quality tenants, and managing that real estate either directly or in partnership with the highest quality management teams.

University Park meets and exceeds all of those objectives, and we are pleased to access this important health care real estate in direct partnership with Forest City.

I will now turn it over to Scott Estes, and thank you for your time.

Thanks, John.

Good morning, everybody.

The Company ended 2009 in a very strong position, with a solid balance sheet, low leverage and liquidity that will provide important flexibility as we begin our next phase of growth.

We have continued to diversify and enhance the quality of assets in our portfolio with most asset classes performing fairly well through year end 2009.

Regarding investment activity, we completed $717 million of growth investments during 2009 including $209 million in the fourth quarter.

Fourth quarter acquisitions of $68 million included a skilled nursing property, an LTAC, and a master lease on-campus medical office building at blended initial yield of 8.3%.

Turning to portfolio performance, I will first review our development progress.

For 2009, we originally anticipated $536 million of completions for the year that ultimately delivered $734 million of new projects.

We now have $660 million of projects under construction with only $212 million left to fund.

Regarding lease up, approximately $185 million of our 2009 development completions were medical office buildings.

Upon completion, these projects were 89% preleased on average and moved directly to the stable portfolio.

In addition, I think we made good progress with our senior housing and hospital assets, stabilizing nearly $200 million during the year.

In our stable portfolio, all three of our senior housing asset classes generated occupancy improvements versus the prior quarter.

Sequential quarterly occupancy increased 60 basis points in our independent living portfolio, 80 basis points in our assisted living portfolio, and 40 basis points in our skilled nursing portfolio.

Payment coverage also remained strong, with results generally flat versus the prior quarter, with a -- excuse me, with independent living at 1.27 times, assisted living at 1.58 times and skilled nursing at 2.29 times.

Fourth quarter performance thus far suggests continued improvement in occupancy, and steady payment coverage across the senior housing portfolio.

Now to provide an update on our entrance fee communities.

We currently have 14 properties with a $748 million investment balance as of December 31, representing 12% of the portfolio.

Through December, two of these communities were still under construction, while the 12 open communities continued to meet revised entrance fee move-in budgets with 220 total move-ins versus a budget of 221 during 2009.

During the fourth quarter, there were three additional entrance fee properties that converted from construction representing a total investment of $179 million.

We are currently recognizing a blended rental yield of 7% on these recent conversions, and as a result, for our 12 open communities with an investment balance of $590 million we continue to recognize an average yield of approximately 6%.

Turning to our hospital and MOB portfolios, I can say our hospitals continue to report stable to growing volumes in revenue, as they increased our stable payment coverage by 10 basis points sequentially to a strong 2.47 times.

And as George discussed, our medical office portfolio also finished the year on a high note with occupancy increasing to over 91% and tenant retention of 87% for the quarter and 75% for the year.

Overall NOI for the year was $87.1 million while same-store NOI for the quarter was $20.8 million, down 1.3% year-over-year, but up 1.2% sequentially.

I would also point out that we had less than 7% of portfolio leases expiring in 2010, and only 43% expiring over the next five years.

Our same-store revenue growth, as presented on page 23 of our supplement, declined 2.4% in the fourth quarter.

The decline was primarily result of two specific factors, first, the 13.9% decline we saw in our independent CTRC portfolio, was, again, a result of the yield reduction at several entrance fee communities on a year-over-year basis.

The second factor was the 0.3% decline we saw in our skilled nursing portfolio.

This was a result of transitioning one small portfolio to a new operator plus the restructuring of another master lease portfolio at slightly lower yields compared to last year.

Excluding the impact of these operators, fourth quarter same-store ILCTRC revenue increased 1.8%, skilled nursing portfolio revenue increased 0.8% and our overall fourth quarter same-store revenue would have increased nearly 1%.

I'll turn now to financial results.

Fourth quarter normalized FFO of $0.75 per share and normalized FAD of $0.70 per share both declined 9% versus the previous year.

As we mentioned last quarter, per share results were impacted by the nearly $1 billion in equity in debt capital raised throughout the year.

I think more importantly, fourth quarter FFO results were in line with consensus estimates and exceeded our published FFO guidance.

Next I would like to provide additional detail on the non-recurring items that impacted fourth quarter results.

As a reminder, these items are excluded from normalized FFO and FAD.

First, we recognized $2.4 million of income from a prepayment fee associated with the payoff of a first mortgage loan on two skilled nursing facilities.

The loan repayment here reduced our overall loan portfolio by $33 million.

Next, we reported a net gain of $16.5 million on fourth quarter dispositions, which included a small skilled nursing portfolio, two assisted living properties and several medical office buildings.

During the quarter, we terminated a lease with a hospital operator.

As part of this transaction, we recorded $8.1 million of fee income from the lease termination, which was offset by an impairment of $10.3 million on the building which we continue to hold, resulting in a net loss of a little over $2 million.

Overall, however, this is a very positive outcome for us.

I think as a result of this transaction, $32 million of loans were repaid in full.

I would point out that these items are contained in discontinued operations as this building is now held for sale at year-end.

We reported an additional $13.1 million in impairments mainly related to five medical office buildings that were moved to held for sale during the fourth quarter.

These buildings are generally not affiliated with the health system, are only 80% occupied and are fairly small in size averaging only 24,000 square feet.

At this point, we now believe that we have completed the primary repositioning of the MOB portfolio, and do not expect any more impairments near term outside of minor potential sale price adjustment as these facilities are ultimately filled.

Last, we recognized the $23.1 million provision for loan losses that was primarily related to the write-off of loans to several early stage senior housing operators.

Primarily as a result of the combination of $73 million in fourth quarter loan repayments and these write-offs, our overall loan portfolio declined to $427 million at year-end representing only 7% of the portfolio.

Our balance of loans on non-accrual at yeard end is $67 million with a loan loss reserve balance of $5.2 million.

Additionally, I would point out the balance of loans that we consider at-risk has declined to $83 million compared to $123 million last quarter.

As George discussed, we really have been focused on accelerating five to seven years of portfolio repositioning into the last several years.

I think at year-end we took a more conservative approach regarding collectibility and valuation assumptions related to certain loans despite the short-term earnings impact.

At this point, we feel that we have substantially taken care of the majority of problems in our loan portfolio as a result of these decisions.

I think we are pleased with our overall repositioning efforts and believe the quality of our remaining loan portfolio is incrementally stronger.

To further elaborate, $256 million of our $427 million current loan portfolio are loans to three of our strongest operators who all have a significant master lease with us as well.

The remaining $171 million generally consists of smaller loans with an average balance of approximately $5 million to $10 million each.

I'll now move on to our dividend.

We recently paid the 155th consecutive quarter we cash dividend for the quarter ended December 31 of $0.68 per share representing an annualized rate of $2.72.

The Board of Directors also approved a 2010 quarterly cash dividend rate of $0.68 per share commencing with the May dividend.

We did have a light quarter in term of capital activity, there were no shares issued under the equity shelf program.

And we received $17 million from our dividend reinvestment program through the issuance of 400,000 shares at an average gross price of $43.21.

I think our credit profile remains excellent, with debt to undepreciated book cap at 35%, interest in fixed charge coverage of 3.8 times and 3.1 times respectively and net debt to trailing 12-month EBITDA of 4.5 times.

Secured debt remained very low at only 9.8% of total assets at the end of the year.

Finally, I'll review our 2010 guidance and assumptions.

As detailed in the earnings release, we expect to report net income available to common stockholders in a range of $1.43 to $1.58 per diluted share, normalized FFO in a range of $3.10 to $3.25 per diluted share, and a normalized FAD in a range of $2.87 to $3.02 per diluted share.

I think given the significant capital we raised in 2009 but particularly the large equity offering completed last September, we believe that fourth quarter of 2009 will be an inflection point in terms of future earnings growth.

I would note that our 2010 normalized FFO and FAD guidance represents 3% to 8% growth above fourth quarter annualized levels.

I think we are also very optimistic about our investment opportunities this year, and have included $1 billion to $1.2 billion of growth investments in our forecasts.

This includes $700 million to $800 million of new investments and $300 million to $400 million of funded development.

We also forecast development conversions of approximately $450 million which is heavily weighted toward the first half of the year.

We expect to continue enhancing our portfolio through non-core asset sales, and project approximately $300 million of dispositions this year which are primarily comprised of free-standing skilled nursing assets.

I would like to take a minute discuss the accounting and reporting of our $668 million joint venture with Forest City Enterprises.

Our total investment will be $327 million and will be listed as a new asset class under life sciences in our portfolio composition.

A pro forma for year end, life sciences would represent approximately 5% of our investment portfolio.

For the balance sheet, there will be an increase in equity investments of $170 million, which will represent our cash investment in the joint venture.

The remaining $157 million of our investment, which represents our pro rata share of the secured debt to be assumed by the joint venture, will not show up on our balance sheet but will be listed in our supplement.

Regarding the income statement, we will record our share of the joint venture net income on our other income line.

Now turning to our senior housing and hospital portfolios which represent 75% of our total investment balance, we are forecasting same-store NOI growth of positive 2% in 2010 excluding, again, the impact of the deferrals previously discussed.

As a reminder, roughly 70% of the leases in this portfolio are contingent on CPI growth and I do think this forecast could prove conservative to the extent CPI increases at a greater rate in 2010 as we have the right to recover lost rent due to the previous lack of CPI growth.

Regarding our medical office portfolio, which represents the remaining 25% of our investment balance, we are pleased with our overall performance and are very optimistic about our future prospects in the quality of our portfolio.

Only 349,000 square feet or 6.7% of the portfolio is rolling over in 2010 and we are forecasting solid tenant retention of at least 75% this year.

Driven by the strong retention in leasing expectations in the existing portfolio plus the addition of the 1.2-million-square-foot Aurora portfolio which is 100% occupied we expect to end 2010 with very strong occupancy of at least 93%.

For the properties in our MOB portfolio as of December 31, we are forecasting NOI of $98 million.

I think despite the strong retention in occupancy forecasts, we anticipate same-store NOI will decline about 1% in 2010 and the primary reason for this slight decline is that leases signed through last year, and expected to be signed this year, are slightly below in-place rents in light of the economy and current market conditions.

Finally, we do anticipate investing $17 million in capital expenditures and tenant improvements in our MOB portfolio, primarily to enhance our existing buildings, increase new leasing activity and maintain desired retention levels.

Our G&A forecast is approximately $50 million for 2010.

This includes $3 million in accelerated expensing of stock and options for certain officers and directors in the first quarter, but excludes a $2.6 million one-time performance-based stock award.

As a result, we expect to report G&A of approximately $14 million to $15 million in the first quarter, and then expect a quarterly run rate of roughly $11 million to $12 million through the remainder of the year.

Finally, I will finish by taking a minute to discuss our capital plan for 2010.

As we discussed, we are projecting gross investments of $1 billion to $1.2 billion this year, and we currently anticipate financing these investments through a combination of the following; $300 million of asset sales, $85 million of secured debt through HUD, $60 million through our dividend reinvestment plan, $117 million of assumed debt through the Aurora and Capital Senior Living acquisitions, the pro forma assumption of $157 million in secured debt through our joint venture with Forest City, and approximately $280 million to $480 million in cash from our lines.

Based on the current $1billion of cash in line of credit availability and only $25 million of debt maturities prior to year-end 2011, we believe we are in an excellent capital position and should have sufficient liquidity to meet our current 2010 investment targets.

With that, that concludes my report, and, operator, I guess now we'd like to open it up for questions, please.

Thank you.

(Operator Instructions) We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Andrew [Rieu] of Bank of America Merrill Lynch.

Good morning.

Thank you, just to go back to your same-store revenue growth of minus 2.4, I just wanted to confirm the independent living CCRC rent deferrals, are these all part of what was announced last quarter or is there something new, incrementally new in this quarter as well?

No.

That's correct.

That's the same operators and same amount as last quarter.

There's no change in that number.

It will take obviously another couple of quarters for that to flow through the same-store results.

Okay.

And then for skilled nursing that you guys also reported was impacted by the transition of one portfolio to new operator.

How big, how big of, how big of the investment does that represent for your skilled nursing portfolio and can you give us a little more color on that?

Sure.

In the skilled nursing portfolio, the slight decline, there were two items as I mentioned, the portfolio transition was a pretty small portfolio, it was a little bit less than $20 million, and it was transferred actually out of bankruptcy last July, and we now have a new 15-year master lease at lower rent than the pre-bankruptcy level.

So we are happy with the new operator, in place as a part of that transition, but I guess, slightly lower rents.

And I think another example is the restructuring transaction, we actually were able to extend a $106 million master lease term by five years through these negotiations and provides us with an opportunity to acquire additional properties and actually one of the properties, skilled nursing, we did acquire in the fourth quarter is only one-year-old and has a very high quality mix, I think it's 60% in that asset.

So there's some positives out of that transfer, and just at slightly lower yields than last year.

Great.

Thanks for that.

And then switching gears to your disposition guidance of $300 million, is there a particular asset type you are looking to dispose, and can you guys guide us to what the timing is?

Is it going to be more like the first half of 2010 or like the second half?

Sure.

Again, $300 million is the guidance.

It is virtually all -- at least 85% of the dispositions in our assumptions are free-standing skilled nursing assets.

And really the timing is roughly in the middle of the year, I think that's probably the best assumption.

And generally, the degree of variance in our guidance really is contingent upon ultimately their ability to get financing, (inaudible) are trying to go through the HUD process which can take a long time.

So that would be the color on that.

Great.

Thank you.

Sure.

Your next question comes from the line of [Jorel Gheoti] of Morgan Stanley.

Good morning, gentlemen.

I was wondering if you can talk a bit more about your interest in life science and whether you see this latest acquisition as a one-off or or if can see lab space taking up a larger share of your portfolio in the long term?

Jorel, this is John Thomas.

Thanks for the question.

No, we see this as a strategic investment and initiative, so I would not characterize it as a one-off.

I think it is about 5% of our total portfolio today, and we look to grow that over time with Forest City, and with other academic medical center clients and new clients.

So it will be a measured growth and strategic growth, but we continue -- we do expect to grow it.

And would you look to develop as well?

We would in the right circumstances, a lot of our development with our hospital systems are kind of 100% or largely pre-leased facilities and we would like to, again, have conservative development metrics in place as we expand and develop.

And in terms of the JV itself, there were 10 available life sciences buildings, why were three of them excluded from this JV?

Really nine potentially available for the joint venture, we acquired, the joint venture acquired all of the wholly owned facilities that Forest City wholly owned.

They have partners in two of the facilities, and assets that we would like to acquire and may acquire at some future date.

But today we started with the seven.

All right.

Thank you very much, gentlemen.

Your next question comes from the line of Rich Anderson of BMO Capital Markets.

Thanks.

Good morning, everybody.

Morning, Rich.

On Forest City, so basically right now, you are basically a financial partner, do you have plans to sort of grow your internal life science capabilities through hirings and what not over the next few years?

We -- as a part of this -- this is John Thomas, again, rich.

As part of this acquisition, one of the important things to us was the experience and really the history and philosophy of Forest City and particularly their life sciences management team which is based there in Cambridge, and, frankly, couldn't have found a better fit, and expertise.

So, I've got experience, we may grow experience internally and may add additional expertise in-house, but we partnered with excellent resources and team and they're a dedicated team within the Forest City organization, and as I mentioned, based there in Cambridge.

So, we expect to grow together with Forest City.

All right.

But for the foreseeable future you are hanging your hat on their life sciences capability?

That's right and my own experience.

And like I said, we expect mutual client opportunities.

We have got clients we expect to take with us, take them with us for development opportunities and acquisition opportunities.

Thank you.

How broadly was this opportunity marketed to other potential bidders?

We don't know for sure, but we do know Forest City was looking for a strategic partner as well and, I think, identified us as -- through with their advisors -- identified us as a strategic partner.

So we, the joint venture is actively managed in a governance structure where we are actively participating in the governance and continued management of the Cambridge facilities, but, again, as I mentioned this is throughout the feature and working together with them.

Just so I know, the $51 million that you mentioned, that's the total portfolio, right?

That's the seven buildings.

One build willing be added in --

But not your share, I mean?

That's correct.

That's the total joint venture.

I would like to -- I made one slight correction in my prepared comments, that asset management fee that Forest City will receive for managing the joint venture is based upon the assets of the joint venture not net operating income.

Okay.

And future growth with them would take on a similar form, a joint venture type structure or would there be some sort of nuances to future transactions?

I think you could be fair to say it would be a consistent structure into the joint venture.

But each building, each opportunity, may take different forms, but we would expect to, again, keep it as simple as possible, and coordinate the growth together.

Okay.

And turning to some more broader questions, outside of that, for the guidance, maybe, Scott, to you, the guidance range, how much of an influence was the billion plus investment program on guidance?

In other words, what would be your guidance range, or give me some color on it, in the absence of this heavy dose of acquisition activity for this year?

I think, Rich, as we built the model and thought about the guidance for the year, you probably, the biggest factor going into the process was the equity we raised last year, really going into the year at a lower run rate, I think really is your starting point, and then we were happy to grow that run rate via the acquisitions we made early in the year.

I think the other factor that is impacting numbers really is the timing of those dispositions.

$300 million at 11%, obviously, is roughly $33 million of impact.

If it happened the first day, zero, if it happened the last day of the year.

So we use that in our guidance and I think that was kind of the picture of how we started to build and ultimately what we came out with.

But the vast amount or all of the acquisition opportunity of $700 million or $800 million, I think you said, would be immediately accretive to the first, in the first year?

It is kind of a generalization.

Obviously, yes, we are not assuming any incremental capital from the deals that we are talking about here.

But, yes, the yields, they're adding immediately to earnings once they come on.

Okay.

George, when you went through your look-see into 2015, what percentage of the portfolio do you think will be entrance fee and what percentage do you think will be pure hospital as opposed to the medical office component?

Oh, Rich, it is hard to say.

I think I said to the end of 2014, but entrance fees will probably will around 5%, would be my guess, at that point, given our growth and we have always thought that larger combination facilities, we'd probably favor rental, and we just had some opportunities to do a lot of entrance fees during the last two or three years.

So we'd figure probably the combinations would be much, much greater than entrance fees, but we also think the entrance fees, as I've said before, are going to be very valuable pieces of our portfolio.

So I guess 4% or 5% by four or five -- five years out.

In terms of the hospitals, Rich, we really couldn't say.

I mean within that category,of course, we have LTACs, we have IRFs and a lot of other types of properties.

Part of that answer relates to how the medical facilities area evolves.

Increasingly, MOBs are larger with more medical services within them.

If that continues, or if the bond markets come back to the hospitals and there is more stability in the revenue bonds, but I would say that the MOB growth would be more significant than the hospitals.

But there are a lot of variables.

So, John, I don't know if you want to comment on that further?

No, I think that's right.

And our -- things like Loma Linda University Medical Center that we are building out of Murrieta, they are already projecting for the future growth.

I think a lot of the growth in our hospital investments will be with existing clients, and growing existing assets but it is hard to say how much of that growth over time is -- our original Aurora project or investment that we developed last year with Hammes has substantial services included as George mentioned.

So the hospital really is evolving to large ambulatory care centers.

Right.

I think, Rich, the first one, just to pick up on your point, John, on the first Aurora deal last year.

We had a cancer center and an MOB connected to the hospital, and where one ends and the other begins is becoming increasingly interesting to watch.

It is not unlike how senior housing has evolved where the different types took on different patients and characteristics.

So, again, we are certainly not shying away from a modern customer-centric hospitals, though, especially those out in the suburbs and those that are branded by a great system that is forward-looking.

Right.

It is getting blurry between the two.

You said --

Okay.

Thank you.

Your next question comes from the line of Dustin Pizzo of UBS Securities.

Hi.

Thanks, good morning, guys.

Hi, Dustin, how are you?

Good.

Jim, or George, was there any opportunity to own 100% of life science assets?

The, this is John.

Dustin, I think the, what Forest City was looking for was a strategic partner, and a partner to grow with outside of Cambridge and so there was a discussion about it, but, again, mutually, the joint venture decision was the best one for us.

Okay.

And then, John, can you also just dig a bit further into the various pieces behind the forecasted 4% to 5% NOI growth?

I may have missed it, but specifically what does these (inaudible) over the next few years and where are the in-place rents relative to where you guys think market rents are today?

Yes, current market rents as posted in existing facilities and existing space is in the $55 to $60 range, a lot of that is not built out.

There's, as leases expire in the Forest City and the University Park range we expect those type of market rents to be available to the joint venture.

So, again, the competitive advantage is these buildings are already built out and the lab space is excellent.

So tenants are looking for and trying to get into those buildings today.

So the near term, there are not a lot of near-term expirations, but over the next four to five years there will be a measured amount and market rents should be available.

I'm sorry.

So the current market rents of $55 to $60, where are the in-placements today?

I think the average across the portfolio is around $40.

Just finally, George, following up on some of the bigger pieces for life science, I know John talked a bit about the strategy for the platform longer term, and I understand the attractiveness of capitalizing on the strength of the Forest City near term, but if I were a shareholder in (inaudible) why should I be happy today with the minority interest in the portfolio that is going to be essentially externally managed by another public company when I could at the end of the day just go invest in one of the other short-play life science REITs and not have to pay any additional management fee and have full control over the asset?

I think there a lot of reasons to be very supportive of this investment.

One is, relates to the quality of the real estate, and I really hope that a number of fund managers and analysts get the chance to visit.

These are the premier life sciences, some of the premier life science assets in the country.

It is, therefore, consistent with our goal of having the best quality real estate assets in the sector.

Two, we have a strategy of being partners with some of the best academic medical centers in the country.

And clearly life sciences is a critical part of that.

We do think that Forest City as a joint venture partner, is very attractive, and it is not just in the life sciences area either.

Forest City adds a lot of development expertise in the commercial area, in the residential area.

And it is not just expanding into health care and life sciences, it could well be that being able to have Forest City join us in some of our ventures and in purchasing certain communities, that we can really take advantage of what we have told the street is happening around the country, which is that multiple types of services are coming together in a village, in a community, and we will have the ability to make some great investments together.

We really had to evaluate one another, Forest City and Health Care REIT came to the conclusion that we think a lot alike about how we treat operators and tenants.

We found that to be very positive.

In terms of making sure that we could be involved in the critical decisions, we are going to be very active players with Forest City on the major decisions as well.

John, do you want to add anything?

No, I think that did -- again, the attractiveness of these assets, and these buildings and these tenants as we mentioned, Massachusetts General and Brigham and Women's hospitals' clinical operations are on this campus, and we have other academic medical centers we believe will be attractive to the life science companies.

The quality that is in University Park and almost all of them are large publicly traded investment grade organizations.

They're looking for access to the academic medical centers and the clinical material and the physicians and vice versa.

So we think it is a very strategic growth initiative both for ambulatory care, medical office facilities and life sciences.

It should be very attractive for our shareholders.

So when you really come down to it even though you raise the issue of the so-called minority interest we are protected from a governance standpoint and the advantages going forward far outweigh that concern in our minds.

Okay.

Thank you.

Your next question cops from line of Rob Mains of Morgan Keegan.

Yes, good morning.

Hey, Rob.

Hey, John, want to make sure I heard this right, the $5.1 million, that's after the management fee?

The $51 million --

Sorry, $51 million, yes, sorry.

Yes, Rob, the $51 million is after property management fees which are paid to, the tenants pay the property management.

So the $51 million is net of those fees and net of the ground rent payable to MIT, it is not net of the asset management fee of 50 basis points and, again, that is a 50 basis points of the assets on the joint venture.

Right.

Okay.

Thank you.

And then, this is where I got the decimal point from, the Aurora deal, 9.1% cash yield, I haven't heard a lot of folks talking about any kind of MOB deals of that sort of yield, is there anything different about this portfolio to get that type of yield?

Just a persistence in growing the relationship with Aurora and with our partners with Hammes in the joint venture.

And it's a large portfolio, Rob, it is, a great portion of it is in Milwaukee and attached on-campus and attached to their hospitals.

Some of it is in some smaller buildings and some older buildings and in rural markets.

But I think ultimately as Aurora was looking for a -- and Hammes was looking for good partner, they need to grow some of these facilities and we'll work with them to grow these facilities over time, but otherwise, it is just a mutually beneficial relationship.

Right, and it said in the press release that this is a joint venture.

The $192 million, though, is your slice?

That's all inclusive through the joint venture.

Okay.

And to finish up, but your, the $192 million is your $192 million, the 9.1% yield will accrue to you, right?

That's correct.

Yes.

And just in general, when you are looking at MOB investment opportunities, I'm assuming you're not seeing a lot of nines out there?

No, I think the market's been pretty strong for one building at a time, two buildings at a time and some of those are trading in the eights and even premiums to that.

But for portfolios this size there just haven't been many opportunities.

And, again, the hospital systems are looking for a relationship out of these, of an investment of this size, Rob.

So that's, we haven't seen of those kind of opportunities, the one-off trades are priced in that 8 to 8.5 range and some are getting below 8 today.

Rob, I think you should emphasize John's point about being a flexible partner and understanding the acute care business is telling here.

We know that a lot of these facilities may need additions, may need to be reconfigured, may need new capital and as we have talked at length, the acute care space is changing, the MOB space is changing.

So I think the ability to interface with us, we have a pretty good feeling for where the acute care space is going, makes us hopefully a very good partner for Aurora.

Right.

Okay.

And then, George, in your initial comments when you talked about reducing your exposure to single-function buildings and particularly skilled nursing, there has been a fair ament of speculation obviously about private equity-sponsored skilled nursing that could be up for sale, some of it may be in Toledo, and I just want to know your appetite for what's perceived as pretty high quality nursing home assets even if it is just SNF and nothing else combined with it?

Rob, I -- we are very supportive of the higher end stand alone skilled nursing assets.

We probably prefer SNFs in combination.

But, I think it was just fourth quarter we bought a brand new skilled nursing facility down in Texas, I believe.

So we are not adverse to it now.

Whether we would go after a whole portfolio, a large portfolio, I really couldn't say.

When we talk about what our plans are and where we're going to go by 2014, about the time we think that's what's going to happen along comes 2011 and the whole world changes and we have a great opportunity, and if you are talking about a quality company and a quality set of assets such as Toledo then it will be hard to turn down a good investment in something like that.

So --

Okay.

Great.

That's all I needed.

Thanks a lot.

Your next question comes from the line of Omotayo Okusanya of Jefferies and Company.

Good morning, gentlemen.

Good morning.

Hey, Omatayo.

A couple of quick questions.

Back to the JV, thanks for giving us detail about the expected annualized growth and the lease role, but just to get to your overall, I think, John, you mentioned 9% to 10% IRR calculation on the deal, can you talk a little bit about assumptions you're making about exit value on the deal?

And also, in regards to the long-term financing on it?

Yes, Omatayo, thanks for the question.

Our assumption, again, is a long-term goal, but looking at it 10-year IRR assumption, is a going in, or a coming out cap rate is about the same as the going in cap rate.

Okay.

How our model works, but again it is really the growth, and substantial growth in NOI over that 10-year period.

Got it.

What about on the funding side?

Right now I think $170 million is just going to come from your line of credit, correct?

Yes, [Tayo], it is Scott.

That is correct.

And I would generally view that as a part of our overall capital plan where we think we are adequately capitalized given the aggregate investment volumes we see, but you should always expect us to consider raising capital should we see an incremental amount of investment business from the levels that are included in our guidance which we do think is an opportunity.

Okay.

Great.

Thank you.

So just to make sure I am getting this right, so you are kind using the $170 million kind of stays on the line over that 10-year period.

So you got the 9% to 10% IRR calculation?

I'm speaking big picture, you are talking about the specific IRR calculation, it is an unlevered IRR calculation.

Unlevered IRR, okay, great, thank you.

And then just another quick question, on the 2010 guidance, you talk about the new development funding of $300 million to $400 million, but when I look in the supplementaL on page two when you talk about your development funding, there $168 million targeted for 2010.

Am I to assume there's going to be more development coming up in 2010?

That is implied.

You can see on the page two, [Tayo], that's right, there's $168 million of funding from existing projects.

And given the guidance, it would imply another $130 million to $230 million of fundings from projects that hadn't started at the beginning of the year.

So we will have -- we do expect to see some great development opportunities but that would be a supplement to our acquisition growth which we think at this point will be more significant than additional development.

Got it.

That's helpful.

Then on the development side, it seems like in fourth quarter you kind of had more conversions than I think you were expecting as of third quarter and even on the 2010 side, it seems like more conversion being moved into first quarter than what you were projecting last quarter.

Can you talk a little bit about what is changing from that perspective?

I think we are just actually, people focused on buildings.

John, correct me if you feel differently.

But our focus on the projects underway, there's not a lot of construction going on and you're seeing full attention and projects are getting completed on time, on budget and often early.

Yes, Tayo, that's correct.

We have got no shortage of contractors and subs available to work on these projects and most of them, actually all of them are moving ahead of schedule.

We've also, oddly enough we've had favorable weather in the construction sites where we are actively working.

So things have moved along very well in our development pipeline.

Okay.

That's helpful.

And then on the skilled nursing side within your portfolio, can you talk a little bit about the state your in, any concerns you may have about Medicaid reimbursement going forward given some of the states have cut Medicaid rather significantly?

This is Scott.

I'll try to take that one.

I think our skilled nursing portfolio has been quite stable.

If you look at our occupancy trend over the last, really, three to five years has been flat.

If you look over five years, again, we've received a lot of benefits from the favorable reimbursement environment of five, four and three years ago such that our coverage increased from about 2 times up to the current 2.3.

Yes, we are watching obviously, I think you're entering a period where you may see Medicare and/or Medicaid reimbursement not quite match the rate of expense growth, but given the buffer in terms of coverage, we are not spending a lot of time, if any at all, worrying about the coverage risk in our skilled nursing portfolio.

So we are watching like everybody else in regards to health reform and, again, that's probably an overview there.

Got it.

Okay.

And then the last question before I hop off.

Fourth quarter operating trends, I know you mentioned that you felt that they were stabilizing or getting better across many property types.

Can you give us a little more detail about what you are seeing regards to improving occupancy or rental rate increases?

Sure.

You know, the comment was really on senior housing.

So that would be IL, AL and skilled nursing, and generally, somewhere in the 20 to 50-basis-point improvement range for all three, call it zero to 50, one was between zero 30 was our preliminary guess.

So it's basically flat to up maybe 0.5% through the first couple months of what we've received so far in the fourth quarter.

All right.

Thank you.

And coverage would be about flat.

Okay.

Are you seeing further improvement into January/February from fourth quarter?

We don't have info that far yet, things we receive from our operators to date, but if anything, it is, one or two anecdotes of up would be our position.

Okay.

Great.

Appreciate it.

Thank you.

Your next question comes from the line of Todd Stender of Wells Fargo Securities.

Hi.

Good morning, guys.

Good morning.

For your disposition guidance, how much of that is related to tenant purchase options?

Is that going to be one-off sales to third parties or the tenants --?

Either the skilled nursing operators, Todd, and I think a couple of them are purchase options.

The key really is getting the financing on the other end, is people that like to evaluate repurchasing the building have generally been in our portfolio awhile and since they are free-standing skilled nursing we are generally fine with them refinancing (inaudible) they are able to get it.

So a couple of these -- I would say in general in size there are two that are approximately $80 million to $100 million that are skilled nursing portfolios that are contingent on timing and going through the HUD process, and in one case I know in particular.

So then the rest of the other $100 million would generally be smaller pieces of assets.

Are you willing to provide seller financing on these to just facilitate the sales?

Not on these portfolios.

Okay.

And just with your guidance, do you have any debt repurchase activity included in the guidance?

No.

Okay.

All right.

Thanks, guys.

Sure, Todd.

(Operator Instructions).

Your next question comes from the line of Jerry Doctrow of Stifel Nicolaus.

Hi.

This is actually Dan Bernstein filling in for Jerry.

Hi, Dan.

Good morning.

I guess I had a question, everybody has spoken about the JV, so I want to switch topics to the dividend policy.

And you may have addressed this earlier, I actually jumped on the call late.

But the dividend was kept flat with the current quarter, and I guess we are trying to reconcile our thoughts with your very positive about the acquisitions, and stabilization of some of the portfolios and development, but you didn't raise the dividend.

So we wanted to try to get some thoughts on your management and Board thoughts on why the dividend was kept flat and what that says about how you feel about the Company?

I think that we are a little conservative in that regard.

We knew we were going to have a pretty good year in terms of volume of investments, but also look at coverage, FFO and FAD, and thought for now at least we'd see how the year played out.

I suppose even within this year that we can reevaluate that every quarter.

I think that was a consensus of the Board and management and might just reflect our basic financial conservatism.

We are certainly very optimistic about our ability to do excellent acquisitions, and to a lesser degree, really quality developments.

You shouldn't read any concerns into it.

It is just perhaps our approach to doing business.

And historically you have been in the low-80%, I guess, FFO pay out ratio.

Is that where you would like to be going forward?

I mean it seems like you are higher than that now and did that play a part in the decision?

We had historically been in the low-80s.

As we see the marketplace evolve, we're going to have to evaluate exactly where we want to be.

There has been a great change in the leverage percentages with a wide array of feelings about low leverage versus running at 45% or even as high as 50%.

We're going to let it shake out a little bit and look at it and come to a conclusion in the next quarter or two as to where we want to go, and, therefore, reevaluate whether or not we should increase our dividend.

That seems pretty reasonable to me.

The other question I had was on the development, you didn't list, and, again, you may have spoke about this earlier, you didn't list any development that was expected to come online in the out years 1212 to 1214, are you strategically thinking about pulling back on development some versus acquisitions?

It seemed like that in some of your comments but I might have missed the beginning where you talked about the overall strategy for development.

I believe that development is a critical part of our program going forward.

We've talked about the changes in the acute care space.

Even medical office buildings are changing dramatically, larger more customer centric, more medical services, more one-stop shop.

We've talked about senior housing projects getting larger and better and more common space.

So it is going to have to be a critical part of anybody's portfolio if they are going to continue to have the most modern portfolio.

But I think to some degree, the economic times allowed our development to become a higher percentage perhaps than we would have liked during the last year or two because we are quarter, a third, half way through development and you don't stop good developments.

So I think we've always had the approach that, and we maintain it, that development should be a key part of our future.

We are going to continue doing that.

We've begun a new cancer center down in Florida, we are doing another high end medical office building out in California, and we have others on the drawing boards.

But I think that as Scott pointed out, we have some great acquisitions and to the extent that we can focus on acquisitions, but not be concerned about proceeding with the great state-of-the-art developments that's our approach to business.

I appreciate all of the comments and that's all I have.

Thank you.

Thank you.

I will now turn the conference back over to Mr.

Chapman for any closing remarks.

Thanks very much.

Just like to express our appreciation to everybody who participated today.

And Scott and Mike and team will be available for any of your follow-up questions.

Thank you.

Thank you again for participating in today's conference call.

You may now disconnect.