Welltower Inc (WELL) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter 2010 Health Care REIT earnings conference call.

My name is Christi, 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 Jeff Miller, Executive Vice President, Operations and General Counsel.

Please go ahead, sir.

Thank you, Christi.

Good morning, everyone, and thank you for joining us today for Health Care REIT's fourth quarter 2010 conference call.

If you did not receive a copy of the news releases distributed last evening and this morning, you may access them via the Company's website at HCREIT.com.

We're also holding a live webcast of today's call, which may be accessed through the Company's website.

Certain 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 and any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its projected results will be obtained.

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

I will now turn the call over to George Chapman, Chairman, President, and CEO of Health Care REIT.

George.

Thanks very much, Jeff.

Good morning.

It is a particular pleasure to report to you today.

In 2010, our well-positioned platform, driven by our relationship investment strategy, generated a record year of investments.

It only seems appropriate that in our 40th year, we invested an unprecedented $3.2 billion with leading senior housing operators and health systems.

And year-to-date in 2011, we have announced an additional $1.3 billion of high-quality investments.

Relationships with best-in-class operators differentiate our Company.

This strategy has produced excellent portfolio results and in turn will drive strong and accelerated FFO and FAD growth for 2011 and into the future.

Although we faced challenging economic conditions in the last several years, we remain steady and disciplined by preserving liquidity and completing all committed investments.

During the same period, we focused on deepening existing relationships and developing new ones with senior housing operators and health systems.

Our capabilities were strengthened by adding strategic, knowledgeable, and experienced employees to our team.

We also enhanced the full-service capabilities that make us a value-added partner.

And as we've entered into RIDEA partnerships that will enhance our organic growth potential, we have added key personnel to help us in managing those relationships and adding value to the partnerships.

During the last 40 years, Health Care REIT has created a foundation of relationship and trust with senior housing operators and health systems.

Year after year, a large percentage of our investments are with existing relationships.

In 2010, over 90% of our investments were off-market, providing Health Care REIT and our partners an opportunity to negotiate win-win capital structures.

In our press release distributed yesterday, we announced four major investments with Benchmark Senior Living, Brandywine Senior Living, Senior Star Living, and Silverado Senior Living.

These new investments included an expansion of our relationships with key portfolio companies, Senior Star and Silverado.

We also formed new and important relationships with Brandywine and Benchmark, two highly regarded operators in the Northeast.

The Senior Star, Silverado, and Benchmark investments join Merrill Gardens as partnership structures formed under RIDEA.

The Brandywine investment can be converted into a RIDEA structure after the first three years of the lease, subject to specified performance measures.

All of these partnerships offer potential future external growth, with a right of first refusal on future investments.

It is also important to note that all of these partnerships offer internal growth opportunity through occupancy, particularly the Silverado and Senior Star portfolios with properties currently in lease up.

In aggregate, the occupancy of these four new partnerships is 86%, leaving significant room for upside.

These best-in-industry partnerships result in a portfolio of extremely high quality of assets and high barrier to entry markets.

Additional information about these new structures and partnerships is included in our February 15 press release and on our website.

The partnerships extend the Company strategy of capitalizing on favorable fundamentals in the senior housing industry by investing with innovative operators who have a track record of quality care, profitability, and growth.

The Company anticipates earnings accretion in the short run and growth in the long run.

We're quite enthusiastic about these investments and relationships and look forward to being a value-added partner.

During this period of new partnership development, we also continue to grow existing relationships with our highly valued, long-standing operator partners, including Ameritas, Brookdale, Capital Senior Living, Life Care Centers of America, and numerous and notable regional operator partners.

In fact, we now have 63 senior housing and care operators in our portfolio, a reliable and high-quality platform for investment and FFO growth.

In our medical facilities division, we made investments totaling $1.2 billion in 2010, with major investments in 17 medical office buildings master leased by Aurora Health System, an A-rated, highly regarded Wisconsin healthcare system.

We also invested with Forest City and seven first class life science buildings in Cambridge, Massachusetts.

Late in the year, we completed investments in five Florida medical office buildings and 17 medical office buildings primarily in the Midwest.

We now have investments with 46 health systems, with a potential to produce future investment opportunities.

This relationship investment strategy has resulted in a strong, high-quality portfolio that we believe is one of the best in the country.

Our aggregate portfolio coverage is 2.12 to 1, which we believe to be the strongest coverage in our sector.

And following my remarks, Scott Estes will provide additional highlights of our portfolio metrics.

During the past 40 years, our relationship investment strategy has created a 16% average annual return for our shareholders.

The current environment has confirmed Health Care REIT's position as partner of choice in senior housing and a key player in the medical facility sector.

Our guidance for 2011 provides for a range of 6% to 9% FFO and 6% to 10% FAD growth, excluding the benefit of future acquisitions.

The 63 senior housing and care operators and 46 healthcare systems within our portfolio, and the numerous rights of first refusal for future investments, will undoubtedly drive significant additional external growth.

The RIDEA partnerships and life science investments are expected to provide strong organic growth, and these diversified growth opportunities position Health Care REIT to drive significant FFO and FAD growth and result in shareholder value, not only in 2011, but for many years to come.

These relationships, results, and returns could only have been produced by a talented team, and I would like to take the opportunity now to formally thank our committed employees for their tremendous efforts in producing these accomplishments.

Lastly, I am pleased to announce that Health Care REIT will host our first ever Investor Day at our newly renovated headquarters in Toledo, Ohio, on May 19, and we look forward to the opportunity to showcase our Company's industry-leading capabilities, as well as some of our key operator partners.

With that, I will now turn to Scott Estes, our CFO, for a brief financial and portfolio overview.

Scott.

Thanks, George, and good morning, everyone.

As George discussed, we're very excited about the recent additions to our portfolio and our expectations that they will drive meaningful earnings and dividend growth for the Company over the next several years.

We were also pleased with the fundamental performance of the portfolio during the fourth quarter, with rent payment coverage at an all-time high and strong same store NOI growth that ranged between 2% and 5% across all of our asset segments.

We made a decision to raise a significant amount of capital during the fourth quarter, which allowed us to form the additional partnerships announced last evening.

These are all strategically significant partnerships with excellent operators and high-quality health systems that will help generate more significant earnings and dividend growth in 2011, 2012, and beyond.

We believe our enhanced growth potential as a result of these investments more than offsets the minor near-term dilution which occurred as a result of raising the capital early and completing the majority of our investments during the last week of December.

Turning now to the details, as George discussed, we had a very successful year on the new investment front, completing $3.2 billion in total during 2010, which included a record $1.6 billion in the fourth quarter.

In addition, the $1.3 billion of investments announced 2011 to date represent excellent additions to our portfolio and position us to generate FFO growth of at least 6% to 9% this year.

Turning to portfolio performance, first in our stable senior housing and care portfolio, continues to perform well.

Senior housing payment coverage remained at a solid 1.54 times, with occupancy increasing 1% to the current 89% level.

Skilled nursing payment coverage increased 5 basis points sequentially to a historical high of 2.42 times, with current occupancy of 85%.

We generated strong same store NOI growth rates within both the senior housing and skilled nursing portfolios during the fourth quarter.

A same store senior housing NOI increased 2.9% versus last year, while our same store skilled nursing NOI rose nearly 5% year-over-year.

We also continued to see some nice progress at our entrance fee properties.

As a result of this continued progress, on January 1 of 2011, we increased rent on the original nine communities operated by Senior Living Communities by 8.3%, or 50 basis points to 6.5%.

These properties have a current investment balance of approximately $400 million.

The 8.3% annual rent increase on these properties translates into a blended 2011 annual increase of 5.2% across our entire $653 million entrance fee portfolio.

Next I will just briefly discuss our senior housing operating portfolio, which is comprised of our RIDEA partnerships.

As of December 31, the operating portfolio consisted of our previously completed Merrill Gardens partnership and the recently announced Senior Star partnership, which closed on December 31.

And we have included some additional disclosure regarding the operating portfolio for the first time on page 24 of our supplement.

Moving now over to the medical facilities portfolio.

First in regards to our hospital portfolio, fourth quarter stable payment coverage improved 1 basis point to a strong 2.7 times overall.

We also experienced significant 4% same store NOI growth in our hospital portfolio during the fourth quarter versus last year.

Our medical office portfolio had another strong quarter and finished the year exceeding our expectations.

Occupancy increased 10 basis points sequentially in the quarter to end the year with occupancy over 93%, while our retention rate during 2010 was a strong 85%.

We also generated solid same store growth in our MOB portfolio, as fourth quarter same store cash NOI increased 2.1% year-over-year.

Our life science portfolio also continues to perform very well, as we saw nice sequential same store NOI increase of 4.1% versus the third quarter, as depicted on page 30 of the supplement.

Turning now to financial results, we reported normalized FFO per share of $0.75 for the fourth quarter and $3.08 for the year, while normalized FAD per share was $0.68 for the quarter and $2.84 for the year.

Our results came in below guidance as a direct result of the $950 million of capital raised during the quarter, which is not included in our previous forecast, and the fact that the vast majority of fourth quarter investments occurred during the last week of the year.

More important, this activity sets us up for significant growth in 2011 and puts us in a strong capital position to complete the 2011 transactions announced today.

Regarding our dividends, the Board of Directors recently approved a quarterly cash dividend rate of $0.715 per share or $2.86 annually, commencing with the May dividend.

This represents a 4% increase versus the previous rate.

I will now provide some additional detail regarding our fourth quarter capital activity.

The $450 million long tenure unsecured note offering completed in November enabled us to extend our weighted average debt maturity to nine years.

In terms of equity, in addition to our 11.5 million share equity offering in December, we issued 516,000 shares under our dividend reinvestment program at an average net price of $46.50 per share, generating $24 million in proceeds.

No shares were issued under our equity shelf program during the quarter.

At this point our credit profile remains strong through December 31, with debt to undepreciated book capitalization of 45% and interest and fixed charge coverage of 3.4 times and 2.8 times, respectively.

Finally, I would like to review our 2011 guidance and assumptions.

First, I would like to point out one change regarding our guidance methodology beginning in 2011.

We will no longer assume additional investments in our guidance beyond what have been announced to date.

In addition, we are discontinuing the investment press release that was typically issued about 10 days after quarter end that provided investment volumes but limited detail regarding expected returns on those investments.

Instead, we plan on reporting investment results for the previous quarter at the time of our earnings release.

This will enable us to include more detailed disclosures such as cap rates, initial yields, and growth potential, and allow us to provide more details on the rationale behind these investments on the earnings calls.

As detailed in the earnings release, we expect to report 2011 net income available to common stockholders in a range of $1.02 to $1.12 per diluted share.

We anticipate 2011 FFO in a range of $3.25 to $3.35 per diluted share, representing strong 6% to 9% growth.

Our 2011 FAD expectation is a range of $3.01 to $3.11 per diluted share, which also represents a strong 6% to 10% increase over normalized 2010 results.

Our 2011 investment guidance assumes only the $1.3 billion of acquisitions and joint venture investments announced through today and $212 million of funded development on the projects currently under construction.

Also included in guidance is our expectation for approximately $300 million of dispositions in 2011, which are weighted towards the front half of the year.

Finally, we're projecting development conversions for projects currently under construction of approximately $480 million with an average initial cash yield of 9.1%.

As George explained earlier, our overall portfolio mix is now an excellent balance of higher potential growth opportunities supported by the more stable 2% to 3% increase as expected out of our triple-net lease portfolio and medical office buildings.

Including the transactions announced today, we expect that about one quarter of our portfolio has the potential to generate internal NOI or rent growth at 5% or greater over the next several years, while the remaining three quarters is expected to average the more traditional 2% to 3% growth per year.

The higher growth vehicles in our assumptions are the senior housing operating assets, representing 22% of the pro forma portfolio, and our life science investment at 3% of the portfolio.

In regards to specific portfolio segments, in our triple-net senior housing and hospital portfolios, we are forecasting solid same store NOI growth of approximately 2% to 3% in 2011.

As stated earlier, our senior housing operating portfolio will represent approximately 22% of our total investments, including the recently announced partnerships.

We anticipate this portfolio will generate a 2011 NOI yield after management fees of approximately 7% and is positioned to grow approximately 5% to 6% over the next several years.

In our medical office portfolio, we're expecting that occupancy will stay in the 93% range, while same store cash NOI growth is forecast to increase approximately 1% to 2%.

In addition, we have only 6% of the portfolio rolling over in 2011, and we're forecasting solid tenant retention of approximately 80% this year.

Next, we expect that our life science portfolio will continue to perform well in 2011.

The first two leases that came up for renewal, representing about 15% of the total life science portfolio square footage, were renewed at average rate increases in excess of 35%.

Since these new leases are expected to commence later this year, we're expecting average NOI growth roughly of 2% to 3% for the portfolio this year.

However, we do expect to be able to achieve NOI growth in the life science portfolio in excess of 5% over time, as a larger number of leases begin to roll beginning in 2012.

Our G&A forecast is approximately $69 million for 2011, representing approximately 67 basis points of assets this year, including the acquisitions announced today.

As George mentioned, we have continued to add a number of outstanding professionals to our team as we manage the significant growth in our portfolio.

Finally, I will take just a minute to discuss our capital needs as we enter 2011.

As of December 31, we have almost $1 billion of cash and line of credit availability.

And as discussed, we have announced growth investments of $1.5 billion this year.

So approximately $1 billion of this $1.5 billion growth investment capital need is expected to come from the following sources.

First, we will assume approximately $613 million of secured debt associated with our recently announced 2011 investments at a blended rate of 5.5%.

Second, we expect $300 million of asset sales, weighted towards the first half of 2011.

And third, $90 million is expected through our dividend reinvestment plan.

This leaves only about $500 million that's not spoken for.

So given our cash and line availability here of nearly $1 billion and the $400 million in committed bridge financing we obtained, as discussed in our press release, we believe we're in an excellent capital position and have adequate liquidity to meet our current 2011 investment needs.

With that, George, that concludes my prepared remarks.

And, operator, I guess we would like to open the call for questions, please.

(Operator Instructions).

Your first question comes from the line of Jay Habermann with Goldman Sachs.

Good morning, everyone.

Question for George or Scott.

As you look at the balance sheet, and, Scott, you just walked through the details and you're in pretty good shape on the financing side.

If you look at your assets, they're up about 50% year-over-year, can you just talk broadly about the pipeline of what you're looking at today and what you think the HCN platform can handle, I guess in terms of new deal volume for 2011?

Well, Jay, as Scott indicated, we're not giving a guidance.

We continue, though, because of the relationship financing program, investment program, to see all the deals that are out there.

We're seeing probably more senior housing opportunities right now than, say, medical office buildings or hospitals or the like.

And in terms of what we think we will do, it all comes down to the quality of the operator and the quality of the portfolio.

We're reviewing a number of opportunities right now, but we're not really going to say much more than that at this time.

Okay.

And then you mentioned life science.

I know 3% of the portfolio.

Can you talk about the opportunities you're seeing there today?

Because it is certainly one of the areas you mentioned in terms of growth.

Well, I will just start and then maybe I will ask John Thomas to comment on that.

We have looked at a lot of opportunities with Forest City.

It is a very collaborative arrangement, and we have actually pursued several.

And we will pursue life sciences if they are particularly attractive, like our current investment in Cambridge.

John, some comments?

Just to add to that.

This is John Thomas.

We have looked at opportunities on both coasts and the core life sciences corridors, and we expect to grow that when we find best-in-class assets located near universities and core tenants.

So, we expect to grow.

Okay.

Maybe just switching back to senior housing.

In terms of Benchmark and Brandywine, can you talk a bit about rent coverage more on the Brandywine side?

Then in terms of potential rent growth and where occupancy is for each of those portfolios?

We're going to be reporting growth as a part of the four operating senior housing operators, and we're probably not going to give that much specific detail on each one of our senior housing operators every year until we maybe refine our methodology for doing so.

Both Brandywine and Benchmark have a very attractive occupancy right now.

They have done a great job during the downturn.

They have several percentage points of opportunity to grow occupancy, and they certainly have some real pricing power in a very tough area to build in and to develop in.

So, Scott, did you want to add anything to that?

We're very pleased about Brandywine and Benchmark.

We think these are some of the best operators in the country with some of the best assets in very tough markets, and we're looking for real significant growth there.

Our approach to the four, though, is that we're going to be able to grow our operating platform more in the 5% to 6% range annually, and they're certainly going to be great contributors.

Okay.

And then in terms of RIDEA and total, you said 22% of the total portfolio.

How large could that grow over time?

You mentioned Brandywine, could convert after three years?

Yes, and we frankly hope they will.

Our expectation would be that they would be able to convert in three years or perhaps even sooner, depending on what the circumstances are and how Brenda and her team sees the opportunities.

We talked in the past about 25% to 30% or so, perhaps our sort of steady state RIDEA platform, and at this point, I would think that would be appropriate.

Okay.

Thank you.

Your next question comes from Jana Galen with Bank of America.

I was curious how you were thinking about dispositions.

I know as pricing gets competitive, will you consider more than currently the $300 million you have targeted?

I am sorry, what was the question?

Dispositions.

Dispositions?

We undertook a process about four years ago when we were all focused on liquidity, and it was an opportune time to sort of jump start the disposition process that would otherwise take seven to eight years.

So we're getting toward the end of any dispositions that, for example, relate to more stand-alone, Medicaid-oriented skilled nursing facilities, and we have some loans that are due to be repaid this year and next that we've talked about at undue length in previous calls.

So, I think we're getting toward the end.

Thank you.

Your next question comes from James Milam with Sandler O'Neill.

Good morning.I am going to take sort of a different tack on the investment pipeline question.

You guys have talked about in the past $5 billion to $6 billion investment pipeline.

Recently it has been more, you said, sort of 60/40 senior housing versus other facilities and 90% with existing relationships.

Can you just talk about how that's shifted, given the acquisition volumes you guys completed in the fourth quarter and now into 2011?

As you point out, we're talking about $5 billion.

We did $3.2 billion last year.

We've announced $1.3 billion this year, and we frankly think that the pipeline is probably going to refill.

And is probably going to be oriented a bit more toward senior housing, as I said earlier, than the medical facility side.

I would point out, we did $1.2 billion in the medical facilities side.

And all of the noise and whatever about how well we did in senior housing, I am real pleased about John's group and what they have done.

I think it sort of remains the same.

We're just not in a position right now to tell you it is going to be another $2 billion or $3 billion, or whatever the number is.

It is a little hazier today than it was going into the second half of last year.

Okay.

That helps.

I appreciate that.

And then as you guys look at -- on the construction side in 2011, the development balance is going to come down as you deliver a project.

Are you guys seeing more opportunities to refill the pace of new construction, and is the 6% to 8% that you've talked about now, is that sort of a target, or should we think about that more as an upper range of where you guys will be comfortable with that exposure?

I think that's probably an upper range.

The talk about development about two years ago, when the markets sort of fell apart and we had higher than normal development; this is where we tend to be in our development pipeline.

And most of those will be in substantially pre-leased medical office buildings with great systems or some outpatient facilities connected to, related to, affiliated with the really good health systems, as well as some senior housing, generally as part of a master lease.

So we will do development.

We're geared up to do it.

It is particularly important in the health system arena, where they have to develop new medical facilities that are appropriate for the customer and are appropriate for the outpatient nature of procedures today.

But I think that's right, 6% to 8% is probably the high-end.

Okay.

Thanks.

Then, my last one here.

The G&A looks like it is going up quite a bit.

Is that just simply a product of the expanded team given the investment activity and monitoring the new relationships, or are there other items that, on top of that, either related to the RIDEA structures or something else?

I will make a couple comments, and then I am going to turn it to Scott to follow up on some of his comments he made in his initial remarks.

Generally, we have tried to stay ahead of the game in terms of bringing in top-flight people, as I said in my remarks.

We've brought in a lot of people in the medical facilities area, including people who are quite good and add to our property management team as well as our development group.

And then as it relates to senior housing, Chuck has been very active in bringing in folks like Stephanie Anderson to add to our resources there, and the effect has been very good.

Now, we also said that with the RIDEA structures, we're going to bring in a team that will add value.

We have already added two to three people and are looking to add two to three more people as well.

We think that the way healthcare REIT world is evolving as it were -- really complete companies today.

We're not just an entrepreneurial financiers.

We're full-blown companies with top infrastructures and top people, and that's how we've positioned the Company.

Scott, do you want to add anything?

James, I think I'd just add--.

My answer to your question would be really, no, there is nothing beyond just the infrastructure improvements that we've really began as we have embarked on this initiative to grow the portfolio very significantly, really beginning in 2010, and obviously going continuing into 2011.

Obviously, moving from roughly $6 billion in assets now to pro forma in excess of $10 billion, we have started, as George mentioned, staffing for the growth, beginning probably middle of 2010.

When you kind of just look at where the numbers play out, to have the high-quality team in place it is virtually all staffing related.

I think as a percentage of either assets or revenue, it is flat to even slightly down, based on the aggregate portfolio.

Okay.

Great.

Thank you.

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

Congratulations on some of these deals.

We know the operators and you have some good partners there.

Thank you, Jerry.

Just a couple things.

On guidance, and because this is a Scott question, what do you assume on sort of the capital raising side?

Any equity offerings?

I guess just the stuff you mentioned coming from the drip, or just want to clarify that side of it.

Sure, Jerry.

I think the point of -- we were at it from a capital position-- shows that we have a lot of flexibility here entering 2011, but I guess for modeling purposes, we have always assumed the blended mix of 45% debt, 55% equity, kind of our standard in terms of incorporating and providing guidance to you all.

Okay.

And I think it was probably just some rounding, but I just wanted to clarify a couple things when you went through the capital needs end.

You had talked about $1.5 billion.

I think that's what you said, unless I misunderstood you.

That you are really talking about the stuff that has been funded or committed to the $1.3 billion for the first part of this year?

Yes.

It's the aggregate of the announced $1.3 billion of acquisitions and joint venture fundings, plus $200 million of projected development fundings from the projects that are underway this year.

I was forgetting about the development stuff, okay.

Yes.

And any more rationale just about sort of not assuming sort of investments, and you have done that historically in terms of your future guidance?

Sure.

We thought a lot about it.

We have spoken at length about our pipeline.

I think George gave some color, obviously, on we still feel like our position and our investment opportunities are strong, and a lot of it will be recurring business from our existing portfolio of senior housing operators and health systems.

I guess the short of it is, we feel like it will be easier to just communicate the investments as they come through, as opposed to proposing some level of hypothetical guidance and then hypothetical capital raises.

In our opinion, it will just be easier to talk to you as they come through.

Okay.

Just one or two more for me.

The FFO guidance was pretty much what we expected, FAD was a little lower.

Are there any capital CapEx funding needs or anything else that sort of changed on the FAD side that we should be thinking about, particularly as you get into RIDEA?

There's some stuff in lease up.

Do you have CapEx per unit or something like that that we should be thinking about?

Sure.

There is obviously some more CapEx that are included in the FAD guidance, and it is a blend of, really, what we're projecting in our operating portfolio, combined with what we project in our medical office portfolio.

I think when you put it together, it is probably in the $30 million area in aggregate.

I think we're projecting -- guys, correct me if I'm wrong -- pretty typical about $1,250 per unit CapEx in the operating portfolio would be a rough estimate.

Okay.

And on the MOB side, there is no big tenant rollover, or extra TIs, so that's running about where it was on CapEx?

Jerry, this is John Thomas.

That's correct.

We've got a very low roll over this year and next, and so about consistent with 2010 on those numbers.

Okay.

And then last thing for me, I was wondering you how you think about -- and I actually didn't get to calculate cost per unit, but cost per unit on the stuff maybe you bought, the new sort of new senior housing stuff that you announced, and how you are thinking about replacement costs on those properties?

Chuck, do you want to comment on that, Brandywine, Benchmark, and what have you?

As far as replacement costs, we're seeing in these types of markets, they're very difficult to build in, very difficult to construct.

And you would expect in the New England and Mid-Atlantic states to be at least $250,000 to $300,000 a unit plus some fill up costs to stabilize those assets.

So, that's not uncommon for us to see.

The other portfolios were more -- were not in the higher -- were not into the New England or Mid-Atlantic states, somewhere in California.

They're a little bit different.

They're in the $200,000 to $250,000 range to redevelop, reconstruct, so it is kind of typical.

Okay.

And just was there -- I will go back and calculate the price per unit.

That's fine.

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

Good morning.

Can you hear me?

We can.

Just a couple of questions.

First on development, you're going to complete nearly $500 million in 2011.

One of the issues with HCN and maybe a -- something that's pushed back a little bit now, may becoming an opportunity, is your exposure to develop.

Do you see development, because at this point, I think it's in single digits as a percentage of your total assets.

Do you see ramping up development, new investments over the course of the next few years?

Rich, Chapman here.

I already mentioned that 6% to 8% is probably at the high end, but we do view development as a particular opportunity that will even lead to monetization of existing assets with the great health systems.

There is clearly a need for a more customer-friendly facilities, outpatient and otherwise, in the medical facilities area.

And then from time to time, given the demand/supply components, if we can add a very good senior housing asset into an existing master lease with one of our top partners, we will do that.But you should be looking at that range, 6% to 8%, going forward.

Okay.

One of the things that's happening in the healthcare REIT space is a lot of transaction activities become a my pipeline is bigger than your pipeline type of thing.

I guess I wonder, now that you're saying there is not a whole lot of, or as much visibility into your pipeline on a go-forward basis.

Is that kind of a wink that you're willing to slow it down a little bit, allow some of these deals to marinate and maybe address the potential that you have become too big to grow type of phenomenon?

I hadn't gotten over your marinate comment, let alone your previous one, but a vintage question from you.

I think that we're gearing up-- we have already geared up to manage our Company, which is much larger and more complex than it used to be and appropriate for a healthcare REIT going forward.

We are adding to our RIDEA team.

We're very capable of running all of these new investments and adding value to our RIDEA and other partners.

So, I don't think that is a constraint, but we're only going to do projects that really make sense to us.

And I just can't predict, Rich, whether we're going to find a number like we had last year, or we're going to actually not even have the same type of year that we did last year.

It is just difficult to see.

We didn't go into last year thinking we were going to do $3 billion, necessarily, but because of the pent-up demand, I guess, for financing and the need of private equity firms that were approaching their fund lives, we had just a wonderful opportunity to move forward and do more projects with our ongoing partners and to add several more and to move to a RIDEA structure.

So, we're just going to have to wait and see.

Okay, but you don't think that there is a too big type of number in your mind?

You could grow and grow and grow, as far as you're concerned?

I think we can.

I suspect that at some point, when the three REITs that seem to be growing most quickly get to 20 or 25, it is going to be more difficult to grow at 6% to 7%.

It might be 4% to 5%, but you would have to look then at the risk-adjusted return to people.

So, I sort of view the perceptions as changing over time, as some of the larger REITs get much larger.

But we have a lot of very good transactions we can pursue, and we're looking forward to it.

Okay.

Sure.

On the topic of RIDEA, can you comment on you and others taking on more risk and transitioning from extensional Health Care REIT and how investors should view the risk perspective of your Company as you take on things like occupancy, opportunities, and in Silverado and others?I guess the risk perspective is changing for you, and I wanted to see how you think about that as a long-term issue for your Company.

I think Scott made the point very precisely in his comments that we see a balance between triple-net lease portfolio and the operating portfolio as being very appropriate, and that it is just one more way in which we can diversify and provide a better risk-adjusted return to our shareholders.

In terms of the particular risks, you know, we have done business with Merrill Gardens and Silverado for almost 15 years now.

We have been their partner.

We know what they do, and we know how they do it, and we think we're going to be right on top of those.

As you look at our good friends at Brandywine, Benchmark, and Senior Star, who we have been involved with in the industry forever, we think we have best-in-class operators and think that the risks are minimal and very manageable and that our returns, which will be greater than the normal triple lease, more than make up for it.

Okay.

Great.

And one last question is on the entrance fee issue.

You mentioned the 8.3% increase in rent for senior living communities.

I guess that's about eight of the 13 that you have outstanding in entrance fee.

Is that correct?

Rich, it is actually 11 of the 13.

SLC is the vast majority of that portfolio.

Okay.

What amount is still left on the table in terms of recapturing some of the deferred rent that you gave away at the bottom of that market?

Do you see significantly more to catch up on in future years, or do you think you get back to where you kind of started with this increase during 2011?

We sort of look at it as catching up in two or three years, and then perhaps going past and averaging out about the same that we would have otherwise.

So much of it depends on when the economy, or if the economy, regains its previous form and the housing markets come back.

The way we're looking at it is we're going to move.

I think, Scott, isn't it eight out of those 11 that are moving ahead at the 5%?

Nine.

Nine?

Then we can move those ahead at 50 bps increasers for the next several years.

I don't want people to model more than that until the economy really gets going.

And then the entrance fee communities will be the greatest beneficiaries of a faster growing economy.

So the recovery of the entrance fee issue is -- this is the first of a say, two- to three-year process?

I think so.

Great.

Thank you.

Your next question comes from the line of Michael Mueller with JPMorgan.

Most questions have been answered, but on the Senior Star acquisition, I think the going in cap rate was a six, but you have some properties in fill up there.

If you exclude those, can you talk about what the yield would have been on that portfolio?

Chuck, do you want to walk through that, the Senior Star portfolio?

The new acquisitions?

New acquisitions were around a 7% yield going in.

So we had a couple properties in fill up.

This is Chuck Herman.

We had a couple properties in fill up, and then we bought a stable portfolio, or portfolio with some room, but generally stable at around a 7% yield.

And we do think that the Senior Star portfolio could have one of the highest growth rates in the NOI side, so we're very much looking forward to doing a lot of business with Bill and Bob Thomas going forward.

Okay.

And then on the projected growth of, call it about 5% to 6% on the RIDEA assets over the next few years, can you carve that up?

How much of it do you see coming from occupancy versus pricing?

I know you mentioned the portfolios on average were about 86% leased.

Would you say it is two-thirds occupancy pick up and the balance on pricing, or is it even more skewed towards occupancy?

Sure, Mike.

This is Scott Estes again.

We will talk in terms of the aggregate portfolio.

I do think you're right; that is, in our opinion, a good representation of the opportunity on the occupancy front, the fact that the blended portfolio is at about 86% occupancy.

But I think as you can tell from the data, the Senior Star and the Silverado portfolio is due to having some assets in essence in fill up, have bigger opportunities there.

So the short of it is, there are some significant opportunities on occupancy, but some, I would say, somewhat of an occupancy opportunity on both Merrill Gardens and Benchmark over time.

But I think those that are the more stable assets have the best pricing power, probably where'd you see that the margin expansion opportunities, due to their strong market positions and pricing power.

So it's really a blend of both, and I would actually -- I think we're very comfortable with those projections, based on the be numbers that we're looking at right now.

Okay, and last question.

Keeping with you for a second, the 308 for 2010, $0.75 in the Q4.

When you look at the numbers in the timing differential between the acquisitions and the drag, about how much per share do you think the drag was in Q4?

By our calculation, it was about the (inaudible) rate was about $0.05 diluted in the fourth quarter.

We raised about $450 million of 5.03% debt in early November and the 11.5 million shares of equity in early December.

So aggregate, we calculate it's about $0.05.

And really, honestly on the timing, we were just talking about this, even as a means of an example.

If the Brandywine $600 million transaction happened on December 1 instead of December 31, that would have added about $0.03 for the quarter.

So that would be my general view, it was about $0.05 from the capital activity and, really just a lot of the deals all just came at the end of the year, which set us up for a good 2011.

Okay.

Great.

Thank you.

Your next question is from the line of Rob Mains from Morgan Keegan.

Good morning.

Scott, I want to clarify a couple things.

First of all, earlier question about G&A.

Am I correct that the fourth quarter figure specifically does include that $1 million of stock compensation grants?

That is included in the fourth quarter number, yes.

Okay.

So normalized number would be $1 million lower?

That's correct.

And that is in the release, Rob.

In the first quarter, traditionally, we have about $3.9 million of accelerated vesting of grants, as is detailed in the press release.

Remember to do that.

Right.

Okay.

And then I have a question, before your senior housing NOI number gets swamped by the new deals.

In the fourth quarter, we just had Merrill Gardens.

Stop me if any of my numbers are wrong here, but in the third quarter, you had Merrill Gardens on a weighted average for less than a month, because some of the properties closed later.

And you did $4.8 million in NOI, and if I just multiply that by three, I would have gotten $14.4 million.

Your fourth quarter number was lower than that.

Was there anything going on with that portfolio specifically in Q4?

No.

Rob, as I recall in the month of September, in particular, I recall there was a $200,000 or $300,000 adjustment that was a positive adjustment in that month.

So again, I still think the best way to think about the Merrill Gardens portfolio is occupancy was stable.

And again, we're getting an approximate 7% return currently, and we'll continue to roll that out as a part of the portfolio in 2011.

Okay.

So the full quarter that we saw in Q4 is probably better run rate to use?

Sure, if you're going to try model it by operator, sure.

That's all I still have.

Thank you.

Sure.

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

Hi, it's Ross Nussbaum here with Dustin.

A couple questions.

On the operating side for the senior housing assets, what kind of geographic non-compete clauses do you have built into the contracts?

Can you continue to acquire assets in the markets where these operators are operating?

It typically it is a three- to five-mile radius.

We do a pretty good job, though, of working with our operators to make sure we're not going to be competing with ourselves, so we've got a great ongoing relationship with these folks.

We know exactly what the development plans are, where they're looking to acquire, so we feel pretty comfortable with that kind of number.

Okay.

Specifically on the Brandywine portfolio, how do you define what fair market value is in terms of the rent reset?

Well, if the parties can't agree -- this is Scott Brinker speaking -- it would be subject to an appraisal.

I would just remind you that there is always a floor, the prior year plus the increaser, so there is only upside in the recent opportunity for us.

So, would it be fair to say you look where the cash flow is on that portfolio are and in three years and hopefully have a meeting of the minds in terms of what an appropriate yield would be, if you will, from a rent perspective?

That's right.

The other point is, our hope is that this converts into a partnership structured as RIDEA within three years.

And that was the second part of my question on Brandywine, which is, it looks like there is a skilled nursing component there.

How does that fit in under the RIDEA structure?

Is there a private letter ruling that's needed, or do you think it is going to be okay?

This is Scott again.

Skilled nursing would be permitted under RIDEA, and that's one sub-acute unit within an assisted living facility.

Brenda and her team actually have a history of operating skilled nursing and sub-acute units.

Thank you.

Your next question comes from the line of Tayo Okusanya with Jefferies & Co.

Good morning, gentlemen.

Congratulations on the deal.

Thank you.

A couple of quick questions.

The Benchmark deal just for modeling purposes, a date for closing, I think your press release said the first half of the year, but the GPT press release said first quarter.

I think the projection is -- our hope is roughly right around the borderline between the two quarters.

It may be right at March 31 to April for your modeling purposes.

It is a function of licensure transfer and debt assumptions.

That's what's driving those issues.

We have come to all agreements, and we're ready to move forward with the transaction.

Okay.

That's helpful.

And then after you do all of your transactions, you give us a number of 22% of your assets will be within the RIDEA structure, so we'll get a sense of what the percentage of NOI that would be?

I don't know if I actually ever went that far in doing it.

Let me think about it, Tayo, and get back to you.

I don't want to give you the wrong number on the call here.

Okay.

That's helpful.

Then, going back to an earlier question that was asked, the whole idea of the risk profile changing as you are increasing the exposed to the business cycles of senior housing.

I am just trying to get a sense of how you would tackle the world where fundamentals begin to turn negative.

I think right now, you're getting into such fundamentals, I heard the term positive, but once the business cycle changes again, how do you deal with that?

There tends to be only about 15% to 20% of the cash flow that's really going to be all that variable.

That's what, in effect, we're trying to capture with these transactions.

So these assets are going to yield because of the types of operators that we are working with, the quality of the assets, the locations.

There is going to be a yield from these assets.

So it is not they're going to drop off the face and go negative on us.

Because these companies have such high operating leverage, though, it is in a tough environment just a slight drop in vacancy really causes a big impact onto overall margins.

I guess how do you protect yourself against that when the business cycle ultimately turns again, whether it is five years or ten years from now?

I could try to answer first and Scott Brinker add to this.

I would point to the track record of these best-in-class operators in the in-field markets.

I believe Tom right sited the fact they have grown NOI 7% on average over the last four or five years, obviously through one of the biggest downturns.

And we always speak of the resiliency of the senior housing industry, even being not entirely resistant, but somewhat resistant to economic downturns.

So our view is, yes, you may not get 5% plus every year, but the down years shouldn't be that bad.

Then on average, we should be able to get in excess of 5% returns over time.

Okay.

That's helpful.

Just one more question, and I appreciate you indulging me.

The MOB platform and the 1% to 2% cash NOI growth projection for 2011 with flat occupancy.

I am just curious if you can break that out in regards to what you're expecting by way of revenue increases and also operating expense increases?

Tayo, this is John Thomas.

Again, we don't have a lot of roll this year, so most of that is coming from the built in increasers, and we're tightly managing the expenses, and frankly, lowering our costs, particularly on property taxes and energy costs.

So, it is a low year and there is still some ramp pressure out in the market.

That's the tie together.

So is it fair to say something like 1% revenue increases and expenses flat?

Closer to 2% revenue and 1.5% on the expenses, so 1%.

1% increase.

Okay.

Yes.

That's very helpful.

I will hop off.

Thank you.

Your next question comes from the line of Michael O'Dell with AIG Asset Management.

Thanks for taking the call.

Just one question going back to the increased operating leverage in regards to the RIDEA structure.

Just what type of leverage, in terms of a debt to EBITDA basis, you're targeting on a financial perspective?

Mike, it is Scott.

I would point out-- we were talking about this.

The way the adjusted EBITDA page looks in our supplement is obviously skewed by the fact that we completed a very significant amount of these investments on the last, really, days of the quarter.

So what you see on our supplement is net debt to EBITDA 7.6 times.

Basically using the annualized EBITDA from the investments we made in that last week, it would go down to about 6.7 to 6.8 times.

Our model this year shows roughly 6 to 6.5 is what we're basically trying to get to in our internal model this year.

Okay.

And then just in terms of the decision to utilize a bridge facility, seems like you have availability on the credit line.

Just what's the thought process there?

We do, and I think you're right.

I think at the end of the day that the bridge was put in place to provide both flexibility, from our perspective, and just surety of financing.

And we'll see in another month and a half or so if it is needed, but we haven't determined that.

It really was just done for flexibility from a capital management perspective.

Okay.

I think, Mike, again, the 40-- the key is really, we would manage the balance sheet to the 45%, I think, or less over time to debt to undepreciated book cap level.

So you don't think taking more operating leverage would lead to an issue in terms of taking the same, if not more, financial leverage?

You think you're comfortable at that similar 45% level?

We do.

Okay.

And then just in terms of the one, the rationale for the sellers in terms of monetizing their ownership interests, seems like mostly founders that were there for a while making that decision.

And then just some more color on the incentive management fees and whether that's profit driven or revenue driven.

This is Chuck Herman again.

The incentive management fees are a function of several different factors.

Sometimes it is revenue related, clearly NOI related, and occupancy.

They're all different factors that we roll into the overall calculations.

Each one is a little bit different depending upon the deal we could structure, so it changes based on the operator, but those are the basic levers that we can use.

So for these recent transactions in terms of just a proportion of it being either NOI driven or top line driven, can you give me a sense or no?

It is mostly based on NOI.

Okay.

Do you care to comment on the rationale for the sellers on all of these transactions, his other question?

Yes.

The sellers, some of the sellers were larger, private equity folks that were looking to monetize.

That was the case in a couple of instances, in most of the instances.

And then in the other was the management team looking to recoup some capital and then have a platform to grow additionally, so those were the two main reasons.

Thank you.

Yes.

Your next question comes from Michael Bilerman with Citi.

Hello there, it's Quentin Velleley here.

Just going back to the JPT question that Tayo asked, in terms of the NOI yield that GPT stated, I think it was about 6.2%, yours was 6.8% to 7.2%.

I am just wondering whether you could sort of walk us through what the difference there would be?

Yes, this is Scott.

I will try to answer it.

I don't do their calculations, so I don't know for sure, but I think part of it is theirs is based on a trailing number, and also the management fee is different.

I believe they paid a 7% fee versus the 5% fee that we're paying Benchmark.

That accounts for quite a bit of the differential, 50 basis points or so.

I think the rest is just standard NOI growth from 2010 to 2011, which is consistent with what they have done over the last four years during a pretty challenging economic climate.

Perfect.

Thank you.

(Operator Instructions).

Your next question is a follow-up from Jerry Doctrow from Stifel Nicolaus.

Scott, I thought you said Brandywine closed at the end of the fourth quarter, and I thought that was a first-quarter deal, so can you just clarify which of these closed fourth, which of these closed first, and maybe give me a little more color on the additional transactions that closed?

I would probably point you to page 2 of our earnings release that has the four bullets and says the fourth quarter investments, Jerry, but walking through those, the Brandywine closed in December, I really can just reiterate.

And Silver Star, I see.

And Seniors.

And then just any more color, is that all here as well and I just didn't pick it up?

Okay.

Yes, I think it is all there.

That's fine.

Thanks.

Your final question comes from the line of Tayo Okusanya from Jefferies & Co.

Yes.

Just a couple of quick follow-ups.

The disposition of $300 million for the year, I know Jana asked about it earlier, but could you give us a sense of what assets you're looking at?

Sure.

It is a blend of primarily senior housing and skilled nursing assets.

Again, the number is approximately $300 million and, as George pointed out, a good bit of that are some loans this year.

About $150 plus million are actually loans.

So that would be the rough overview, and it is skewed more likely to happen in our model in the first half of the year.

Okay.

Are you selling the loans, or the loans are just maturing?

A couple of those are-- the loans are maturing, those are maturity dates.

Okay.

And then just last question.

George, it is more directed towards you, but with you firing on so many cylinders right now, what is kind of keeping you up at night, or what do you worry about as you kind of think about the evolution of HCN over the next three to five years?

Tayo, what we have been building the last two or three years is a full-service platform, and it is working.

It allows us to invest across the full spectrum of healthcare, and to do what's necessary to be a valued partner, i.e.

in the medical office and medical facilities area, being able to do property management, do planning for health systems, do development if necessary.In senior housing, we have added a lot of people because we have a larger partnerships, and in the RIDEA structure are perhaps much more of a true partnership in the need to get on the ground and really be a help.

So, I think that what would keep us up at night would be just that.

Do we have the right infrastructure and the right people in place, and continuously looking at it?As you look at our employee base, it is right now over 250 employees, and I think we have done a pretty good job at being proactive.

As this very large investment opportunity continues, we're just going to have to keep working to enhance our capabilities.

That's what I think my job is, is to make sure that we're in a position to handle all of these investments and to be a good partner in the RIDEA structure, specifically, but also to health systems and our ongoing operators as well.

Great.

Best of luck.

Thank you.

That concludes today's question-and-answer session for today.

I hand the program back over to Mr.

George Chapman for any further comments or closing remarks.

I would just add that we appreciate your participation.

Good questions.

I think this relationship investment strategy is working.

It's driven a very disciplined growth platform, and we're looking forward to producing very strong FFO and FAD that should translate into very good shareholder value in the future.

So thank you very much.

This concludes today's conference call.

You may now disconnect.