Welltower Inc (WELL) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2011 Health Care REIT earnings conference call.

My name is Brooke 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, Brooke.

Good morning, everyone, and thank you for joining us today for Health Care REIT's fourth-quarter 2011 conference call.

If you did not receive a copy of the news release distributed this morning, you may access it via the Company's website at hcreit.com.

We are holding a live webcast of today's call which may be accessed through the Company's website as well.

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

George?

Thanks, Jeff.

Let me begin by providing some perspective on the growth and transformation of our Company.

During the last five years we have built a large S&P 500 Company with great personnel and scalable processes.

Our assets and enterprise value have more than tripled to $14.9 billion and $18.9 billion, respectively.

The Company has become a full-service healthcare real estate organization dedicated to the continuing improvement of healthcare delivery.

As we reflect on our Company's accomplishments I would like to highlight just a couple items from 2011.

First, last year we generated one-year and five-year cumulative total returns of 21% and 71%, respectively.

Both were best among our healthcare REIT peers.

On the investment front, we completed a record level of $6 billion of investments including $1.2 billion of new investments in the fourth quarter.

Clearly our relationship investing program is working.

At year end, 71% of our revenues were derived from private pay sources.

We will move that number to the 80% level in the next year or so.

Health Care REIT continues to differentiate itself in the market with its relationship investment strategy.

Our long-standing immersion in healthcare is an inherent part of our ability to execute on this strategy.

Because of this knowledgebase we are able to identify healthcare trends early, and position and even reposition the portfolio for the future.

Moreover, we are able to add substantial value to our operators and health systems.

Our success in attracting leading operators to our portfolio continued in 2011.

We generated $5.2 billion in high-quality senior living investments.

Significant additional investments were made with existing operators including Brandywine Senior Living, Merrill Gardens, Silverado Senior Living, and Capital Senior Living.

In the last half of the year we also developed important new relationships with Chelsea Senior living, Belmont Senior Living, and Chartwell Senior Housing REIT.

We are obviously very excited about our partnership with Chartwell, the premier and largest publicly traded operator of senior housing in Canada.

This important new relationship establishes a best-in-class platform for Health Care REIT in Canada and extends our proven business model into the Canadian market.

The high-quality portfolio is in attractive metropolitan markets with favorable demographics and will be immediately accretive to FFO with future NOI growth projected at 4% to 5%.

We expect to grow this partnership in the future with rights of first offer on acquisition and new development opportunities.

In our Medical Facilities division, we made investments totaling $745 million last year in high-quality health system-affiliated medical facilities.

At year-end, our sector-leading occupancy and retention rates exceeded 93% and 79%, respectively.

We continue to increase average size of our MOBs to 60,000 square feet and the percentage of MOBs affiliated with health systems to 87%.

At year-end, we owned and managed over 11 million square feet of MOBs.

A touchstone of the long-term success of our relationship investment program is the strength and quality of our portfolio.

We have sector-leading portfolio diversification with our top 10 operators constituting only 52% of our portfolio.

And in the face of challenging economic times our aggregate facility coverage was 1.9-to-1, demonstrating much greater resiliency for healthcare and senior housing facilities than for other real estate classes.

We are enhancing our portfolio by capturing investments that reflect emerging industry trends in the evolving senior housing and healthcare environment and by culling properties from the portfolio that are not aligned with our strategy.

In 2011, we disposed of $352 million of non-core assets.

During the five years ended 12/31/11, we averaged $230 million of dispositions per year.

Most of these dispositions were older, primarily Medicaid-funded skilled nursing facilities, small and affiliated MOBs, and smaller portfolios.

We have positioned our portfolio in high-end high-barrier-to-entry markets across the country.

At year-end, 40% of our portfolio was located in the Northeast and mid-Atlantic areas; 76% our portfolio and 91% of our RIDEA investments were located in the East and West Coast markets or the top 31 MSAs.

Historically, facilities in these high-barrier-to-entry markets generally outperform other facilities.

These concentrations also give us the opportunity to foster collaboration among portfolio partners across the healthcare spectrum.

Health Care REIT's growth particularly during the last two years has been fueled by rapid growth and change within the healthcare market.

We expect that growth and consolidation in healthcare to continue for several years.

It is being driven by economies of scale, the clear need for professional management and training, and the critical importance of technology to integrate clinical care, accounting, and sales and marketing.

These larger, professionally managed and visible operators and systems should derive significant future investment opportunities for our Company.

So we emerge from 2011 as an industry leader with a most unique and sustainable platform for future growth.

This platform and our industry-leading portfolio will continue to drive strong organic and consistent, reliable external growth.

Before turning the presentation over to Scott Estes, I would like to take a minute and congratulate Scott Brinker, who was recently promoted to Executive Vice President, Investments.

Since 2001, Scott has played a key role in growing our portfolio from $1 billion to over $15 billion of real estate investments today.

We look forward to Scott continuing to play in a central role in executing our strategic objectives; so congratulations, Scott.

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

Scott?

Thanks, George, and good morning, everybody.

I apologize, I am a little bit under the weather's today, I have a little bit of a cold, so not quite 100%; but have a lot of exciting things to talk about today.

As George discussed, 2011 was clearly a remarkable year in which we transformed our portfolio, completing a record-breaking $6 billion of gross investments.

Our portfolio continued to perform well in the fourth quarter, highlighted by blended same-store cash NOI growth of 4%.

Our recent investment success and strong internal growth drove 21% FFO per-share growth and 18% FAD per-share growth in the fourth quarter.

Our relationship investment strategy continued to differentiate the Company, having completed an additional $1.2 billion of high-quality investments in the fourth quarter and the recently announced expansion into Canada.

At this point, our largest operators are performing well; and as George mentioned, we remain confident that we can generate both internal growth from our existing portfolio and external growth from our relationship investment program.

Finally, our balance sheet remains strong and we had ample liquidity with $1.6 billion of line capacity and cash on hand entering 2012.

Turning to the details of the quarter, regarding investment activity we completed a significant $1.2 billion of gross investments during the fourth quarter, which again speaks to the consistency and sustainability of the HCN relationship-based approach to investing.

The assets added during the fourth quarter were virtually all private-pay seniors housing and medical office buildings, nearly 75 of which are located in the top 31 MSAs and are generally in the upper echelon of our portfolio in terms of asset quality.

We believe these are outstanding additions to the portfolio and plan on making them available for property tours throughout the year.

We have profiled many of our newest investments on our website and encourage you all to take a look as well.

As detailed in the press release we completed $178 million in seniors housing triple-net lease investments during the quarter.

The most significant of these was the addition of five facilities to our existing Brandywine Senior Living partnership for $120 million at a 7% yield.

These assets are a strong geographic fit with our existing portfolio and are all located in the New York and Philadelphia MSAs.

In addition, we completed $627 million of investments in senior housing operating assets at a blended yield of 6.2%, which reflects the higher quality and growth potential of these investments.

The largest of these investments was a $415 million addition to our Merrill Gardens partnership.

These properties are located in excellent West Coast markets including the San Diego, Santa Barbara, San Jose, and Seattle MSAs.

We also assumed $224 million of debt associated with this portfolio at an attractive rate of 3.5%.

With the portfolio expected to stabilize over the next three years, we expect it to generate NOI growth at 5% or better through 2014 and then 4% to 5% longer-term.

We also added two outstanding facilities to our operating portfolio through our new $185 million partnership with Belmont Village Senior Living.

These facilities are only two years old, are in exceptional condition, and are located in the premier submarkets of Los Angeles and San Diego.

Consistent with our overall operating portfolio, we are confident that these properties will also generate long-term NOI growth of 4% to 5%.

Also during the quarter we completed the acquisition of 12 medical office buildings for a total of $263 million at a blended yield of 6.8%.

The additions average nearly 78,000 square feet in size, are only seven years old.

They boast 94% occupancy and are 100% affiliated with major health systems.

These are state-of-the-art outpatient facilities offering services such as outpatient surgery, radiology, oncology, hematology, and neuroscience.

As a result of these acquisitions, the overall percentage of our medical office portfolio square footage affiliated with health systems has increased to 87% at year-end.

Finally, yesterday we did announce our entry into Canada through a $925 million transaction with Chartwell Seniors Housing REIT.

Our aggregate investment of approximately $503 million will be funded through a combination of $244 million in new and assumed debt at a blended rate of 4.7%, and approximately $259 million in cash.

I would note that we put a hedge in place to effectively fix the purchase price through the anticipated second-quarter closing date by locking in the exchange rate on the cash portion of the transaction.

Chartwell is the largest seniors housing operator in Canada and will represent our sixth operating partner in the Health Care REIT portfolio.

This portfolio consists of 42 facilities with approximately 8,200 units, with over half of the facilities located in the five largest Canadian markets, and the majority of the remainder located in the top 35 Canadian census metropolitan areas.

Importantly, the portfolio has the potential for expanding occupancy beyond the current rate of 88% over time.

The Year One NOI yield on our investment is expected to be approximately 7.4% after management fees.

As a result, we expect the transaction to be immediately accretive to FFO and generate NOI growth of 4% to 5% over the longer term.

We will not consolidate the 50-50 portion of this investment and will report the net income from these facilities on the Income from Unconsolidated Entities line of our income statement.

And again as I mentioned we do expect the transaction to close during the second quarter of 2012.

Turning now to portfolio performance, before I begin I would point out a few changes to our supplement this quarter.

We included property-level coverage after management fees on page 2 of the supplement; and we also added some more detailed disclosure regarding our operating portfolio on page 7, which includes a summary at the bottom of the page detailing operator concentration within the operating portfolio as well as Health Care REIT's ownership percentage.

First, both our stable seniors housing and skilled nursing postacute care portfolios continue to perform in line with expectations.

In regards to our seniors housing triple-net lease portfolio, payment coverage stands at a solid 1.4 times, while occupancy increased 50 basis points from the prior quarter to 88.2% on September 30, as reported in the supplement.

Through the months of October and November our stable seniors housing triple-net occupancy continued to strengthen, and it's tracking at about 89% as of the end of November.

This performance contributed to the strong 4.7% year-over-year same-store cash NOI growth within the seniors housing triple-net lease portfolio during the fourth quarter.

Now I would provide a brief update on both our skilled nursing portfolio, including some comments regarding Genesis.

We continue to believe that skilled nursing facilities are the most efficient, cost-effective settings for providing many healthcare services; and we intend to focus our portfolio on a select number of key relationships with the strongest operators.

Our most recent cash flow coverage, as listed in the supplement, for the trailing 12 months ended September 30 was a strong 2.2 times.

Our overall skilled nursing occupancy increased 20 basis points from the prior quarter to the current 88%, while same-store cash NOI increased 1.5% in the fourth quarter versus the prior year.

I would note that same-store NOI would have increased by the more normal 2.5% to 3% this quarter, but was going up against a tough comp of 4.9% growth in the fourth quarter of 2010, which included a significant catch-up of CPI-based revenues that quarter.

Now to provide a brief perspective regarding how our operators are performing since the Medicare reimbursement changes went into effect on October 1 of 2011.

Although significant, the Medicare daily rate impact through December and January was actually somewhat less than originally projected when considering the potential impact of both the 11% Medicare rate reduction and the changes in reimbursement for therapy services.

In terms of Genesis, we had a chance to catch up with George Hager and his team last week.

They are performing slightly above expectations, with their Medicare daily rate coming in slightly above projection through January of this year, combined with the successful execution of cost mitigation efforts.

Specifically to date they have already put in place about $70 million of $80 million of annualized cost savings contemplated for 2012.

Looking ahead, Genesis remains focused on increasing occupancy and improving quality mix.

They have actually developed a plan to expand the short-stay postacute component of their portfolio to grow overall quality mix at a more accelerated rate than in recent years.

As a result, we again remain confident in our view regarding Genesis's overall operating performance and their ability to pay our rent, as we expect the company's corporate-level fixed charge coverage to be at approximately 1.4 times in calendar 2012.

At this point, I will provide an update on our seniors housing operating portfolio, which is comprised of our RIDEA partnerships.

The blended occupancy across our five operating portfolios at year-end increased 70 basis points versus the prior quarter to 87.3%.

In addition, same-store operating portfolio cash NOI for the quarter increased 7.7% versus the comparable quarter last year, driven by a combination of 30 basis point occupancy increase, 5% revenue per occupied unit growth, and a slight expansion in margins.

Our operating portfolio continues to perform in line with expectations, and we remain comfortable with our NOI growth expectation of 4% to 5% over the long term.

Moving to the Medical Facilities portfolio, our MOB portfolio performed well in the quarter with same-store occupancy increasing 20 basis points sequentially to 93.6%, while same-store cash NOI 0.4% for the quarter and 1.9% for the year.

For 2012, we expect our overall MOB portfolio occupancy to improve slightly to the 94% range, a tenant retention rate of approximately 80%; and note that only 6% of leases are expiring this year.

In regards to our hospital portfolio, cash flow payment coverage remained strong at 2.5 times.

We again experienced solid 3.5% same-store cash NOI growth in our hospital portfolio during the fourth quarter versus last year.

Our life science portfolio also performed well in the quarter, generating strong same-store cash NOI growth of 7.8%.

And the portfolio remains full at 100% occupancy.

Turning now to financial results, we did report normalized fourth-quarter FFO per share of $0.91, an increase of 21% versus last year's quarter, and normalize FAD per share of $0.80, up 18% versus the comparable quarter last year.

The quarterly performance was driven by the internal growth generated by our existing portfolio combined with our success investing profitably throughout the year.

We recently declared the 163rd consecutive quarterly cash dividend for the quarter ended December 31 of $0.74 per share, representing a 7% increase over the same period last year.

In terms of fourth-quarter capital activity, we successfully raised $630 million of equity in November, which funded a portion of our fourth-quarter acquisition activity.

We also issued 665,000 shares under our dividend reinvestment program, generating over $32 million in proceeds, and issued 106,000 shares through our at-the-market program, generating an additional $5 million in proceeds.

At the end of 2011 we had $1.4 billion available on our $2 billion line of credit and had an additional $163 million of cash and cash equivalents, providing $1.6 billion in liquidity as we enter 2012.

At the end of December, our debt to undepreciated book capitalization stood at 46.1%, a decline of 50 basis points versus prior quarter.

Our secured debt to total assets was 14.2%.

Our trailing 12-month interest and fixed charge coverage remains solid at 3.0 times and 2.4 times, respectively.

Net debt to adjusted EBITDA, as reported in our supplement, was 6.9 times; but I think more importantly, including the full annualized EBITDA from our fourth-quarter investments, and then backing out transaction costs, impairments, loan loss and gains, it was about 6.2 times.

Over the longer term, we continue to expect to drive debt to undepreciated book capitalization toward the 40% level and net debt to EBITDA to 6 times or below.

Finally, I will review just briefly our 2012 guidance and assumptions that are contained in our earnings release.

As a reminder, our guidance for 2012 does not include the impact of any additional investments other than our existing development pipeline and the Chartwell investment.

We expect to report 2012 FFO in a range of $3.68 to $3.78 per diluted share, representing strong 8% to 11% growth.

Our 2012 FAD expectation is a range of $3.26 to $3.36 per diluted share, which also represents a strong 9% to 12% increase over normalized 2011 results.

In terms of investments, our 2012 guidance includes our $503 million Canadian investment expected to close in the second quarter and $248 million of funded development throughout the year for projects currently under construction.

We expect approximately $200 million of dispositions at an average 11% yields, consisting primarily of skilled nursing assets that don't match our focus on postacute care.

Finally, we are projecting development conversions for projects currently under construction of approximately $355 million at an average cash yield of cash yield of 8.6%.

As we have explained in the past, we believe our current portfolio mix is an excellent balance of higher growth opportunities through our operating portfolio supported by the more stable long-term rent increases expected out of our triple-net lease portfolio and medical office buildings.

As a result, we are currently forecasting same-store cash NOI growth of approximately 3% in 2012.

Last, our G&A forecast is approximately $91 million this year, which includes approximately $5 million of accelerated expensing of stock-based compensation which will hit in the first quarter.

These changes in part reflect our continuing addition and retention of outstanding professionals who have helped us successfully manage the significant growth within our portfolio.

Operator, with that, that concludes my prepared remarks and we would like to open the call for questions.

(Operator Instructions) Adam Feinstein, Barclays Capital.

All right, thank you.

Good morning, guys.

Very strong quarter here.

Here with Bryan here also.

So maybe just a starting point, I was wanting to ask more about Genesis.

It sounds like things are going well there.

You talked about the cost-mitigation strategy.

So it was I guess almost a year ago when you guys announced the deal.

So maybe just talk about how things have gone relative to the initial thoughts and just about future development opportunities in terms of finding more assets where you can partner.

Adam, we have had a great relationship with George and his team, a terrific seasoned team that really is doing a great job in the face of these reimbursement cuts.

If anything, we have accelerated some of the postacute -- short-stay, postacute facilities.

We have been working with George and his team, having meetings with assisted-living operators so there can be discharges to them, and also going both ways at it.

And then also to various hospital systems, and to make sure that there are going to be excellent discharges, excellent relationships between the hospitals, the high-end hospitals and Genesis, so that the postacute facilities will really perform well.

So I think all together, except for an obvious reimbursement issue to deal with, it has been if anything even better than anticipated.

Anything else, Scott, that you want to add to that?

No, I think that's a good overview.

Yes, Adam, we really are impressed with their focus on managing the business and managing their team.

As it relates to some of the cost-mitigation efforts they really have been very focused, and I think that is why they are so successful in achieving a lot of the potential cost savings for the year.

Maybe just to provide a little bit more color on that, they really looked at internally weighted benefits to FTEs.

Incentives was a significant component of it.

Overhead expenses they have looked at.

One thing was interesting; they looked at their center-level, individual facility level, spending by facility and actually ranked all their buildings to really assess any outliers and required them to reduce costs a bit, which are already in place, which has helped.

And some of the professionals and vendors savings that you would expect them to be able to get.

Actually the only thing that is still pending I think as we move throughout the year as a bit of the, I would call it the therapist productivity.

A lot of the efforts they have to more efficiently bill by giving their therapist at the bedside iPads to do real-time billing.

And that is going well, but I think the cost savings of that will be realized throughout the year.

Hey, guys.

It's Bryan.

Just a quick one for me.

I know in the past you talked about $1.5 billion of acquisitions in your informal guidance.

It looks like you pretty much did that in the back half of '11.

So you have got some new relationships here.

So wanted to see if you could just give us an update on informally what you can do with your existing relationships, and what you are seeing in your pipeline.

Well, clearly, you are identifying a success story, Bryan.

In the fourth quarter, when we already were adding on assets in the Merrill Gardens and Brandywine and Silverado portfolios, it is showing that as we add each different operator, new operator, it is just adding to the opportunity to do a large, cumulative amount of investments each year.

But I think we are going to stick with the $1.5 billion to $2 billion right now because we think that, while there may be some ongoing consolidation next year or maybe in the next two years, that that is more of a steady-state kind of number that we think is a fair one, once we reach that time when things are a little slower and there has been more consolidation and growth.

All right, thank you.

Rich Anderson, BMO Capital Markets.

Good morning, everybody.

So, quickly on the deals with Brandywine and then the operating acquisition, it seems counterintuitive to me that you would have a 7% return on the triple-net and a lower return on the operating.

I figured you would be compensated with the risk that you are taking on.

Can you comment on why those two numbers are kind of reversed?

Sure, Rich.

It's Scott.

How are you doing?

I will try to take that.

I think as it relates to specifically the 6.2% yield on the RIDEA deals, if you think about it, in my opinion it really comes down to the quality of those assets, first of all.

You are in outstanding locations in West Coast markets.

And the biggest component of those investments this quarter is the Merrill Gardens, which is actually not yet stabilized, which as I noted will have higher growth than 5% we think through 2014.

So when you are trying to take the aggregate picture in terms of growth prospects and looking at these actual assets in the premier markets, generally the West Coast, plus their growth potential, I think you're painting a pretty good risk-adjusted return picture.

Yes, but Brandywine are East Coast.

They should be in good locations as well, no?

Yes, I think you could probably, Rich, think about the 7% starting yield; but think about the increasers too.

You know 2.5% on a triple-net versus a 4% to 5% longer-term growth potential, if not a little bit better near term.

I'd also even point out too we had some attractively priced debt on the Merrill Gardens portfolio.

The $224 million at only 3.5% should probably be considered as well.

Okay.

Then going to the Canadian deal, you mentioned or it was mentioned the 88%, and there is upside.

That doesn't sound like a lot of upside to me.

Maybe there is a little bit more to get.

But where do you think the main occupancy opportunity is within that overall portfolio?

Are there specific clusters of where you can see greater upside than other areas that you are buying there?

Rich, I will just make a general comment and then have Scott Brinker add some color to it.

But we have not only occupancy upside but we have some staffing cost and other ways that we can improve everybody's return.

We think that Chartwell is really a fine operator.

They operate very much like we want our -- like our top operators do in the United States.

We also think we might have some ability to add ideas and through the collaboration look at everything that can be improved in this new portfolio.

Scott Brinker?

Yes, Rich.

This is Scott.

There are, I would say, three or four fill-up buildings that are less than two or three years old that still have census in the 70% to 80% range that we think over the next three years will improve to the 90-plus-% range.

The other point that I would make is that in Canada, a number of these markets had some overbuilding over the last five years that is starting to burn its way through.

So industrywide in Canada, census is down 300 or 400 basis points from three or four years ago, and we are finally starting to see that move back in the correct direction.

So at least long-term we think sort of low 90%s, 91%, 92% is highly achievable.

That is what Chartwell had done historically; and this portfolio at 88% we think there really is (technical difficulty) 400 basis points of growth over the next three to four years.

But are there any geographical areas though, specifically where it is lower than others?

Like say Ontario or someplace specifically within the portfolio.

Yes, it is market-specific, but if I had to make a general comment I would say Ontario suffered more than Quebec.

Okay.

Why didn't Chartwell want the three properties you are going to own yourself?

Yes, it's a good question.

This is Scott again.

It really comes down to the importance of immediate accretion to them.

These are three very high-quality purpose-built fairly new buildings that haven't yet filled.

They have occupancy around 70%.

So when you look at the purchase price versus the NOI that is there today, at least for Chartwell the immediate accretion wasn't there that they needed.

We like the growth profile in those assets and we think that our purchase price over time is more than reasonable, and we are happy to own them.

Okay, and then last question, on management fees that you are paying them.

Does it work out -- if I am doing my math right, assuming sort of like a maybe 40% operating margin to get to a revenue number maybe in the $9 million annual range for management fees that you are paying to them?

Is that about right?

That is roughly correct.

Okay.

Thank you very much.

Jeff Theiler, Green Street Advisors.

Good morning.

Lots to talk about today.

I guess I will focus on Canada.

Can you talk a little bit about what really drove your decision to go into Canada and why you thought now is the right time to do it?

Let me start and then I will turn it back to Stephanie Anderson and Scott Brinker again.

But frankly, Jeff, I wanted to emphasize that we think this is a natural extension of our relationship-driven strategy.

These guys are terrific.

[Brett] and his team operate facilities, provide the kind of care we like to see provided; and it's a very comfortable relationship between the two companies.

So we can add value to one another.

So, we view it first of all as less of a huge international investment leap and more of an extension of our relationship strategy.

Scott or Stephanie, you want to start?

Yes, we had spent some time over the last year or so looking at different marketplaces.

And Canada we thought was unique in the sense that their growth of the elderly population as a percent even exceeds the US.

There is also -- they've had less of a hit to their economy by the housing there.

So even though there was some overbuilding specifically in the seniors housing market, it did not impact their economy; and so the stability of that economy was an advantage.

We also are very lucky to have the top operator as our partner there.

We think that the growth in -- to grow with them in that market will be extremely successful.

So all of those things really are what drove us to Canada.

Okay.

I guess along, kind of following up on that, so when you think about the differences of senior housing in Canada versus the US, what are the key differences or things that you have got to focus on?

It's a very similar marketplace to the US.

That was one of the things that also attracted us to that market.

It is understandable.

It is mainly -- it is lower acuity.

These are really independent living facilities.

The difference in Canada is that they have socialized healthcare once you reach a certain age and acuity level.

So that causes there to be less acuity in this portfolio.

There has also been some changes on the regulatory side in Canada that happened this last year, where they are starting to have more licensing requirements, as well as they have moved the acuity levels up to be able to move into the socialized housing.

So therefore, that creates additional private-pay opportunities, which over the next five, 10 years, we think we will be an advantage.

Scott Brinker, anything to add?

Yes, Jeff, I would just mention that it is all private pay and the buildings are comparable to what you would see in the US.

If anything they are a little bit bigger, but they had en suite bathrooms, all the amenities that you would want and expect in the high-end US senior housing market.

So, we think that we will do some site visits and people will be very excited about the quality of the real estate that they see, in addition to the operating partner.

Then, I guess flipping this around and looking at it from Chartwell's perspective, it seems like a good acquisition.

Why did they want or need you to come in and partner with them?

Yes, this is Scott, Jeff.

Better for them to answer that question; but our best guess is that it is a huge portfolio.

This is a meaningful increase in the size of their company.

They raised some capital last night to help them pay for it.

And I am not sure that they could have raised as much as they needed to, to fund it 100%.

We had been talking to Brett and his team over the last year about any number of opportunities; decided that we had a common approach to doing business and there were mutually beneficial opportunities on both sides of the border for us to work together.

All right, fair enough.

One last quick question.

In Chartwell's disclosure, they have this NOI guarantee reserve.

Is that -- are you just ignoring that reserve, or how are you accounting for that?

That's correct, Jeff, that is not included in the $925 million purchase price.

And similarly, we did not take any credit for that in the NOI or cap rate expectation that we have provided.

Right, that's what I figured.

Thanks very much.

James Milam, Sandler O'Neill.

Hey, good morning, guys.

A question on the Chartwell portfolio.

It looks like it is majority IL.

Is that the correct way to think about it?

Or is it a more service-oriented product?

Then also, is there -- do you guys have any identified plans to either adjust the unit mix there or make them more assisted-living type of units?

Yes, this is Scott again.

It is independent living, but all of these buildings have the ability to provide services.

So there is no nursing care happening; this is all private pay, but certainly activities with daily living is something that can be provided.

But if you were to walk through the facilities, they are very low acuity.

Chartwell over time may decide that the best approach in a specific building is to add more healthcare services.

They have the ability and capability.

But today, it is a very low-acuity portfolio.

Okay, thanks.

Then is there anything you guys can tell us about Chartwell's US portfolio that they are working on divesting?

No.

Okay.

A quick one, just Scott, maybe you can just take us through sources and uses on the balance sheet, just giving more of the line of credit balances, and obviously you have some capital needs to close this Chartwell.

Are you guys thinking unsecured debt?

Maybe you could tell us where you think a current 10-year would price, and then thoughts on maybe equity as well.

Yes, sure.

I think we actually have a lot of flexibility entering 2012.

You know, we had as I mentioned only $610 million borrowed on the line essentially at year end; and we actually had $163 million of cash with some dispositions that occurred right at the end of the fourth quarter, helping the cash totals there.

So the Chartwell transaction is not expected to close until the second quarter, and our cash requirement really for that is only about $250 million.

So we actually have good flexibility from a capital perspective.

But I do think as always we are watching the debt markets, equity markets.

Pricing on a 10-year for us today I think is probably in about the 4.5% area.

Seven years probably in about the 4% area.

But again, I think most importantly we have some good flexibility and have a lot of time to think about what we need to do.

Okay, thanks, then just my last one, on the G&A.

That looked like a higher number than I was expecting.

Can you just talk about the acceleration of the amortization for the stock-based compensation?

Is that unique to this year?

Then, is the rest of the increase -- is that due to an increase in staff?

Or is it just that people have been working hard and deserve more compensation for the service they are providing the Company?

I think first just overall, James is referring to our G&A, which in 2011 was about $77 million, projected to increase about 18% to $91 million in 2012.

You know, the overall G&A, James, versus thinking about that, I actually think we are doing a good job trying to staff efficiently.

We have really added some outstanding people and do need to retain them.

But if you think about that, traditionally the Company has probably run about 50 to 60 basis points of G&A as a percentage of assets.

We just added $5.6 billion of net assets, but that G&A increase of $14 million is actually only a 25 basis point increase in G&A.

So I think we are still actually staffing as reasonably as we can.

I can see that George is very focused on controlling costs, and we are all thinking a lot about that.

As it relates to the $5 million, that has been in the first-quarter numbers probably the last four or five years.

Basically, people if they have had enough years of service at the Company or are Directors of the Company, you expense the annual grants in the first quarter immediately.

Okay, great.

Thanks a lot, guys.

Derek Bower, UBS.

Ross Nussbaum here with Derek.

A couple questions.

The 7.7% same-store NOI growth for the senior housing operating portfolio, can you break out how much of the top-line revenue growth was driven by increased occupancy versus higher rate?

Hey, Ross, it's Scott.

The number there is about 30 basis points of occupancy improvement; and I believe it was a 4.6%, which I called 5% in my prepared remarks, so a little less than 5% revenue per occupied unit increase.

And margins as a result, as you can see in the same-store calculation, I think are up about 70 basis points.

Where did that come in relative to your expectations when you bought these assets?

My view, it's pretty good.

We have always said over 5% near-term, and I think the three or so quarters we have generated same-store cash NOI returns on the operating portfolio -- and you guys can all look, and don't hold me to these; I believe it was about 12% and about two per quarters at 8% growth.

So again, near-term I think we see some better growth.

There is a few of the assets in the portfolios we have acquired in fill-up, and we should continue to see some of those benefits over the near term.

But again, long term, we still like where these operators are and think they're the type of operators that we are comfortable believing can generate long-term NOI growth of 4% to 5%.

Right, and I was actually a little pleasantly surprised on that rate number, because I thought that the upside near-term was going to be occupancy-driven as some of the lease-up facilities were improving.

That rate improvement is pretty meaningfully above what [Nick] has been reporting lately.

What do you think is driving that in your facilities?

I think, Ross, it confirms our premise that some of these high-end markets have a lot of pricing power and are very strong facilities.

So we are really pleased with that number as well.

Okay.

Let' me switch over to MOBs.

On the $263 million of MOBs you purchased during the quarter, where are the in-place rents relative to market, in your view?

John Thomas?

Yes, Mike Noto and his team are working hard, market by market, to get the best rates possible.

Again, our increase in occupancy or our increase in the percentage of our billings affiliated with healthcare systems, again we get -- we have stronger rates and stronger renewals because of that.

So that is -- again we continue to focus on that and that is where we are getting better rates to market based on that concentration.

So if you -- just to be clear, if you look at the actual in-place rental rate per square foot today, you think that is at or below market?

At or above.

I'm sorry, you said on the acquisitions?

Yes, on the acquisitions, where are those rates relative to the current market rents?

Yes, I apologize.

They are at or below.

We did find some very attractive high-quality assets in the fourth quarter with rates at or below, but with very attractive increasers built into those leases.

Okay.

From a location perspective it looks like from your website -- I was trying to dig this out.

Are most of these in Atlanta and Central Texas?

Atlanta and Central Texas.

Dallas, North Dallas in the Southlake area.

Houston -- excuse me, Atlanta and then Central Texas.

Okay.

Let me go back to the Chartwell transaction.

How did you structure it, or have you structured it to avoid any cross-border taxes on that investment?

Scott Brinker?

Yes, I don't think it's necessarily appropriate to go into the details; but one thing that we liked about the Canadian market, in addition to its proximity, is the fact that the tax burden is very low.

So most of the taxation is actually upon the exit from the investment, which may or may not ever happen.

So the taxes during the holding period are very low and therefore attractive to us.

So it won't meaningfully reduce our yields.

So as you bring those profits back on an annual basis into the US you are not expecting any federal taxes?

There is a tax, it is just a very low.

Okay, understood.

Last question for me, the dispositions that you have in guidance, looks like the cap rate there is high.

What kind of assets are you disposing of at 11% cap rates?

Ross, we have been really looking at Medicaid-oriented SNFs, and a number of those have been in our portfolio for a long time and have high yields.

That is just a choice we are making to gradually dispose of assets that perhaps won't be as closely aligned with our strategy in the future.

Appreciate it.

Thank you.

Nicholas Yulico, Macquarie.

Hey, good morning, everyone.

Going back to Chartwell, can you just talk a little bit more about this idea that socialized medicine in Canada, most elderly people actually are going into long-term care rather than assisted living?

Since when you're looking at the portfolio there are, based on the Chartwell press release, there are a number of the facilities particularly in Quebec that do offer some level of assisted living or Alzheimer's.

Stephanie?

Right, in Canada, there is an acuity test for when you go into a government-sponsored, they call it a nursing -- they call it long-term care homes.

It is not the same as our nursing homes in the US.

If you went to visit one, they are much lower acuity.

If you went back 10 years ago in the US, when the hospitals did not have DRGs and there were -- the elderly ended up staying longer time periods in the hospital.

So that is more similar to where the Canadian healthcare market is today.

So, you have their government-supported long-term care home, which is more like a high -- it's more like assisted living in the US today.

But you do have that gap where you have someone that is not going to live at home, and they need some supportive services, but they do not qualify for the long-term care homes.

And that is a gap that -- the gap in acuity is expanding.

We do believe there is a lot of opportunity there to provide those services.

Yes, definitely with Alzheimer's and things like that, it is lower acuity Alzheimer's than what you would see in the US, but --

That's helpful.

Then along those lines, are all these facilities set up so that residents who do need to use -- who get older and need more intensive healthcare services, that they can bring in an outside agency to do that at the facilities?

They don't really have the same -- definitely they have the ability to offer those additional services already.

It would not necessarily have to be an outside agency.

Chartwell is an operator in Canada and they operate along the continuum in Canada.

So, we can add nurses to the building if necessary; we can add caregivers.

It is just a little bit less regulated market in place right there today.

So there is a lot of flexibility in the way that we work with the portfolio to provide additional services.

Okay.

Then just one other thing on Chartwell is, it looks like the average age of all the buildings is 13 years old.

There are some -- obviously some of the older ones in some of the cities in Quebec.

But are you guys looking at any of these facilities as needing redevelopment to maybe enhance returns on the facilities?

Yes, this is Scott.

I mean there are a few facilities that don't perfectly fit our profile, and we will evaluate whether the right approach is to add services, renovate, or sell.

But that is a small number out of the 42.

Most of these are very high-quality and markets that perfectly fit our profile.

Okay.

Then just quickly, last thing on Merrill Gardens, are the new acquisitions, do they have a similar unit mix as your old relationship, which I think was 66% IL?

Scott Brinker?

Yes, they are similar.

They are a little bit more weighted towards independent living, and they are a little bit bigger.

One thing that Merrill does is try to fill a facility with independent residents that then might add services over time.

So a newer building would tend to have a much lower acuity resident than one that has been in existence and managed by Merrill for a number of years.

Okay; thanks, guys.

Karin Ford, KeyBanc Capital Markets.

Hi, good morning.

Wanted to ask about the 3% NOI growth guidance for the same-store pool for 2012.

How much of the -- how much of your NOI is in the same-store pool in 2012?

What are the growth prospects for the non-same-store pool relative to that 3%?

Hi, Karin; it's Scott.

I think it was about 60% this quarter, a little bit less.

And the big reason was some of the significant level of acquisitions we completed during 2011.

When you really look at that, you roll -- the Genesis is probably the most significant, that gets rolled in there over time.

So the bottom line is the expectation of 3% really comes from the triple-net seniors housing, hospitals, and skilled nursing are basically 2.5% to 3% growth.

You have some higher growth projected out of the RIDEA portfolio as well as the life science at 5%.

And the medical office portfolio we are roughly projecting flat to up 1% same-store NOI.

We do have a small amount of leases expiring in the MOB portfolio at slightly lower yields that is impacting that number.

But all in all, (multiple speakers) 3% is a reasonable expectation.

It sounds like the non-same-store pool would be higher than 3%, generally.

Yes.

Okay.

Second question just relates to going back to the sources and uses question.

What type of sources and uses are assumed in guidance?

Do you assume that the $600 million out on the line and the Chartwell deal are financed just on the line?

Or do you have any permanent financing assumed?

No, we do not include any permanent financing in those numbers, nor do we include any investments, as I said, beyond what is in there.

The biggest variability in the range that we provide is the dispositions.

Basically if you take $200 million at 11% at the beginning or the end of the year, it gets you your about $0.10 flexibility in the guidance number.

Okay, and last question is just going back to the relative cap rate discussion.

Can you just talk about what you attribute the differential in cap rates you paid between the 7.4 for Chartwell versus the 6.2 for the $627 million operating senior housing in 4Q?

Given I think you are expecting similar NOI growth in the two portfolios over the next few years.

Do you want to comment Scott?

Yes, this is Scott Brinker.

The NOI growth on the US assets is higher than in Canada.

They are both well in excess of the triple-net lease escalators that we are accustomed to.

But there is a meaningful difference over the next three years at least, especially in the Merrill Gardens portfolio, with respect to NOI growth.

Okay.

Meaningful?

You are talking about that 4% to 5% range that you quoted for both, so you think Chartwell is closer to 4% and the US assets are closer to 5%?

Yes, let me verify.

The 4% to 5% is upon stabilization.

And I would say that the growth profile in the two portfolios is similar once they are stabilized; but over the next three years the fill-up and therefore NOI growth in Merrill Gardens is much higher.

Got it.

Thank you very much.

Tayo Okusanya, Jefferies.

Good morning.

Just a follow-up question on Merrill Gardens.

Could you just tell us where the occupancy is right now?

So we can get a sense of just what kind of occupancy gains you could get over the next three years.

Yes, this is Scott again.

There are six buildings of the nine that are above 90%.

There is one building in San Diego that just opened recently, so that is dragging down the portfolio average.

Then there are two in California that are below 90%, closer to 85%, that we would expect to stabilize in the low 90%s over the next year or two.

Okay.

The one recently opened building is -- what is occupancy there now?

Well, it opened in the fourth quarter, so zero is close to it.

Okay, got it; that's helpful.

Then just in regards to the senior housing operating portfolio, you guys have been on a tear the past 18 months, really building this platform out.

Could you give a sense now, with all of these new deals, fourth quarter as well as Chartwell, how large the senior housing operating portfolio is as a percentage of NOI?

And basically how large can it get?

And if you start to run up against any REIT rules that may limit further growth in this platform?

Let me just try to look at this more generically.

I mean, one, probably there are fewer pools out there of large senior housing portfolios; but we seem to continue to find them and our operators tend to find them.

I don't know any reason why we would be running into any kind of REIT rules in terms of growing our senior housing portfolio.

Right now we are, you know, $5.2 billion out of our $6 billion last year, Tayo, were senior housing assets and we are already starting out this year pretty well.

But I look out another year or two and maybe we get to more of a steady state in terms of what we can do.

But we continue to be a bit surprised at the opportunities.

Chuck, Herman, do you want to -- head of senior housing, do you want to comment at all generally about the markets?

I mean generally, the markets -- as George stated, we are feeling pretty good about those prospects especially with the quality of the operators that we have got in place.

These guys tend to find a lot of off-market transactions which give us a more stable growth profile over time.

We also are seeing a fair number of portfolios, as George stated as well.

So we feel pretty strong about the market right now.

So on a pro forma basis, the operating portfolio as a percentage of your total NOI is what now?

Tayo, pro forma for the deals announced in the fourth quarter plus the Chartwell deal it's about 17.5% NOI.

That is about what we have talked about.

We have talked in general and as we evaluate our longer-term strategy, 20% range is a nice balance we think of having operating asset exposure.

Okay, that's helpful.

Then just one last question, just giving where cap rate seems to be going directionally, is there any interest at this point of ramping up development again?

Or is it still too early to get involved in that?

We have talked about being careful about development.

But in the -- let me get into the acute care space too.

Clearly there is more profound change occurring in the medical facilities health system area, and we have found some awfully good pre-leased top-end large MOBs to do with great systems, and we will do a certain amount of that.

We tend to limit those developments to around $300 million in a year when we go into our planning with John and his team.

Then in senior housing, there has been surprisingly little development.

We would do some development of high-end facilities with our existing operators, with whom we have Master Leases and a great deal of confidence.

There is some room for development, but again we are looking at (technical difficulty) $300 million in each category is sort of our cap.

Okay.

Okay, and if I could add, George, it may have been a little bit lost in the shuffle, but we did start $150 million of development projects this quarter at a blended yield projection of about 9%.

Yes, that is particularly why I asked the question.

I noticed that and I was wondering what was going on there.

Yes, I think that's right.

I mean for us to add potentially starts of $300 million to $500 million a year would be just a nice supplement to an acquisition program that has been very active.

And as George mentioned, the two MOBs we started this quarter are 100% pre-leased; and everyone else is an existing operator generally with a combination seniors housing facility.

Okay, that's helpful.

Then, Scott, when the Chartwell deal is closed, just wondering -- I know you guys are not going to be consolidating that.

But will you be giving us operating statistics associated with it going forward?

You know, we are still evaluating that, Tayo, as we think about it.

Obviously everyone will want to understand the performance of that portfolio, and we will give as much as we can.

Yes; I still think we are just talking about it internally, haven't finalized it.

But we will make sure people can understand how they and the overall RIDEA portfolio are performing.

Great.

Thanks for the improved information on the supplemental this quarter as well.

And Scott Brinker, congratulations on the promotion; it is well earned.

Thank you.

Thank you.

Michael Mueller, JPMorgan.

Hi, actually this is Molly McCartin for Mike.

So, I have a couple questions.

First, sorry if I missed this, but what drove the strong 4.7% senior triple-net NOI growth in 4Q, higher than the 2.5% to 3% outlook?

Yes, we actually didn't mention that; you didn't miss it.

We are again benefiting in 2011 from the stronger than expected bumps we put through on our entrance fee portfolio this year.

That is driving the -- a little bit more than you would expect to more of a normal 2.5% to 3% growth there.

But we increased rents in our entrance fee portfolio at a greater rate during 2011.

Okaying, great.

Then also, did you mention what the full-year 2011 same-store NOI growth was?

No, we didn't.

We actually could do that.

You could just calculate it probably from the four quarters that we have reported.

But we did not do that and I don't have that right in front of me.

But I do recall that most of the quarters this year have been -- what, guys?

Between 3% and 4%?

My guess is it would be somewhere in that range if not even a little bit better.

It is generally toward the 4% range.

Okay, great.

Lastly, what is happening with the average time to stabilize a development right now, and what is the trend going forward?

Chuck?

What we are finding on the senior housing side, yes, it really depends on the size of the asset and the pre-leasing.

Generally the newer ones that we are doing tend to have pretty strong pre-leasing in the seniors space.

A lot of John's staff in the medical office building area are 100% pre-leased the day the doors get opened.

So I would say it depends on size on the seniors side and the amount of pre-leasing; 12 to 18 months is pretty typical in our space.

But they are on target.

But they are on target, yes, they are on target.

(multiple speakers) On the medical side, we don't start development projects unless they are 75% pre-leased.

And we are hitting close to full occupancy, if not 100%, before they are open -- or complete leasing before they are open.

Okay, do you see it going in the right direction?

Is time getting shorter?

Or has it been flat?

You know, I think people -- some of our operators have done extremely well.

So it is case-by-case basis, but generally we feel pretty strong about the market right now.

I think with so little development, Chuck, these are filling very quickly.

It is not like years ago, 10 or 15 years ago when a lot of development was going on and it was really a tough slog.

They are all doing very well.

Okay, great.

That's all for me.

Thanks.

Jorel Guilloty, Morgan Stanley.

Good morning, gentlemen.

I was wondering, could you provide an estimate on the current margins on the Maestro portfolio?

And where do you expect them to go?

Yes, just to clarify the question, you asked the current margins and where you --

Yes, on the Maestro portfolio, your Canadian acquisition.

Yes, this is Scott.

So, the current margins are in the low to mid 30% and we would expect stabilized margin in the mid to high 30%s.

Okay, got it.

Does the future rights agreement that you signed with Chartwell, does that include their US portfolio?

It does not.

This is Scott again.

It is within defined boundaries of the joint venture assets that we acquired in this portfolio.

Okay.

Given that you guys went north of the border, would you consider going to other regions internationally, perhaps Europe?

Well, you should note that back in late 1990s, was it, we were over in England, the UK, with [Dan Beatty], [Bill Colson] and we had a local partner, Pat Carter who ran the fourth-largest skilled nursing facility public company in that country.

So, if we have the right opportunities, we would look hard at it.

But I will tell you that one has to really look hard at the opportunity cost, the time commitment.

And we would only go in if we had really excellent opportunities with local partners, like we did years ago in Great Britain and as we are doing now with Brett and his team up in Canada.

Got it.

Going back to the Canadian -- I mean Canada as an acquisition region, would you be willing to go higher on the acuity spectrum?

You mentioned earlier that perhaps Chartwell will add perhaps a memory care unit on the independent living assets that you already own in the JV.

But would you be interested in like focusing on postacute, for example, or going to other asset classes within Canada?

We're really focusing on driving our private-pay percentage up to 80% in part so we don't have to talk about reimbursement, I suppose.

So we are not eager to do that right now in Canada.

I think this is a great first step to learn more, to be with the top senior housing operator in Canada; and then we will have years to evaluate what, if any, additional moves we make in any country.

Got it.

Talking about the RIDEA portfolio, the same-store NOI, it's at 7.7%; it was 8.2% last quarter.

At what point do you think that the current portfolio will go to a more stabilized 4% to 5% same-store NOI growth rate?

This is Scott.

I guess I would just be speculating.

My guess would be over the next year or two.

Okay.

You're getting some benefit and we'd hope to have some stronger growth for a while, but again a 4% to 5% long-term growth rate would be great for those assets.

Okay.

Thank you very much.

Daniel Bernstein, Stifel Nicolaus.

Morning.

I think we're still in the morning.

I had a question on the, I guess, senior housing portfolio, maybe picked up --

Could you speak up, Dan?

Sorry.

Question on the senior housing portfolios that you picked up in the fourth quarter and first quarter.

Do you have a sense of what stabilized initial yields are since a lot of that is already in lease-up?

I'm sorry, I didn't hear what he said.

Would you ask that question again?

You cut out a couple times, Dan.

Sorry.

Do you have a sense of what initial yield is on stabilized assets for the acquisition, your housing acquisitions that you have done in the fourth quarter in Maestro?

Senior housing triple-net acquisition yields you are asking, Dan?

And Brandywine (multiple speakers)

Sorry.

I was asking -- a lot of the assets in the operating assets that you're picking up in the fourth quarter and in Maestro here in the first quarter are in lease-up.

Do you have a sense of what the initial yield would be on stabilized assets in place today?

If you were just isolating the stabilized properties, what would be the initial yield on those assets, you think?

I guess my rough answer would be they would be slightly higher than the yields we reported because of that.

But it obviously depends on the asset quality and the size of the portfolio and its growth potential.

But I would guess, something in the 6.5% to 7% range for high-quality stuff.

Okay, then the other question I have is the MOBs at 6.8%, it seems like -- I guess it might be the asset quality itself that is driving that down.

But are you seeing any cap rate compression in the MOBs?

And perhaps any -- is there any additional competition given the low cost of capital for I guess both MOBs and maybe senior housing?

Let me start and, John, I will throw it to you in just a minute, but there has been ongoing strong competition and probably a limited number of really high-end portfolios out there.

So we think that this is a very appropriate cap rate for the quality of these two portfolios.

John?

Yes, hey, Dan, congratulations on your promotion as well.

There is a lot of competition in the medical office space and a lot of alternative capital and private equity chasing medical office space.

So there has been cap rate compression generally.

We have been very disciplined on pricing, been particularly focused on the quality of assets and as presented on the website today and the assets that we picked up.

As I mentioned before, the very high occupancy; located on great hospital system campuses; great hospital tenants; and as I said before, the in-place leases were at the high end of increasers, and we are looking to increase the NOI growth of those potential.

So very appropriate pricing for these assets, and we look forward to touring you through them in Dallas or in Atlanta when you have the opportunity.

Yes, absolutely.

I wanted to go back to George's comment from the beginning of the call about working with both the senior housing operators and the postacute operators for changes in the healthcare reform and change in the environment.

Particularly I was thinking about accountable care organizations and the possibility of bundled payments and readmission penalties to hospitals.

So have you gotten together with your senior housing operators and your postacute operators to actually come together with maybe a combined plan that you can go to the hospitals with, and say -- here is our readmission rates, this is why you should give us the business going forward?

Have you actually gone down that path at all?

Yes, we have.

We have done a lot of work just with our assisted living, senior housing, and postacute operators here in our headquarters talking about that very topic, as well as best practices and other ways to develop win-win situations and maybe even joint buying and other things like that.

But an example in -- actually out East, Dan, is with a new hospital that we have done a lot of work with, health system, great health system.

One of our assisted living operators is actually building right to the North of the hospital; and one of our top postacute operators is building right adjoining the hospital.

And there are ongoing discussions about how they can vet one another, and to be prepared for ACOs, bundled payments when they actually hit.

Everybody is trying real hard to figure out how to do it and how to do it effectively.

And we have been right in the middle of it, and we are hoping that our areas of concentration will continue to provide an opportunity for John Thomas and Chuck Herman and our people on both sides of the house and myself to foster more collaboration.

Because, frankly, even without stiff penalties being in place right now, there are some benefits for trying to deliver healthcare much more effectively and cost efficiently.

So we have been very active in that area, and we are starting to see a lot of really good collaboration developing.

Good.

One more quick question.

I assume you are splitting the CapEx on those Chartwell assets equally with Chartwell.

And about -- what should I think about in terms of CapEx per unit for those facilities?

Yes, this is Scott Brinker.

The 39 buildings that are owned 50-50, everything is 50-50.

There are no promoted interests or anything.

So we split all the cash flows equally and all the capital expenditures equally.

In terms of the CapEx that will be needed over time, it helps that the buildings have been well maintained by the current owners and are relatively new.

Best guess is $1,000 a unit plus or minus.

We will have to assess that over time.

But we think based on the age of the assets these are probably at the low end of the spectrum range for CapEx.

Okay.

Thank you.

That's all I have.

Super quarter again on the acquisitions.

Congratulations.

Thanks, Dan.

Todd Stender, Wells Fargo Securities.

Hi, guys, just to stay on that theme, probably a question for you, John Thomas.

What is the CapEx you are looking for on the new medical office building portfolio?

Yes, great question.

We build it into our underwriting and reserves.

But again these are very new assets and the age of our portfolio is younger, much younger than our competitors.

These are all fairly new assets.

So kind of $0.50 a foot from time to time is an appropriate reserve.

Is that about where they were?

Is that -- last couple years?

Yes, yes.

Okay.

Then any indication, just what does the lease maturity schedule look like over the next two years, call it?

Yes, very low turnover.

We have got about 6% of our portfolio rolling in '12; 5% to 6% next year and the next.

We really -- Mike Noto has done a good job of spreading out renewals and getting longer-term leases in place for us.

We have a very balanced portfolio.

Again, the upside of this and what we just acquired in the fourth quarter, those come in at about 94% occupancy, so we have very little roll in the next years.

Okay, thanks.

And probably a question for Scott Brinker.

How much does occupancy factor into the price?

This refers to the Chartwell deal.

Would you go after a RIDEA deal if it say was in the 91%, 92% occupancy, maybe at a cyclical high?

How do you think about that?

We would; it is just a matter of how it is priced.

Benchmark, the portfolio that we bought a year ago, had occupancy in the low 90%s.

They have been able to increase that slightly and generate some very strong NOI growth.

But the cap rate on that portfolio was a little bit lower than it would have been on a fill-up portfolio like you see with Merrill Gardens.

Okay.

Just sticking with Chartwell, do you guys have a purchase option to revert the Chartwell portfolio into a wholly-owned net lease portfolio at the end of some predetermined period?

Not necessarily.

There is a buy/sell after 10 years, but otherwise there is no right to acquire their interest or for them to acquire our interest.

This is Stephanie.

We look at this as a long-term partnership.

As George spoke to earlier on our relationship strategy, we would like to grow in Canada alongside with Chartwell.

That would be our long-term plan.

I think the other point I would make is that, while we are going to have sort of a cap for at least a while on how many RIDEA deals we do, to work on it, watch it, and just make sure that they are working as well as we thought -- and so far they are great, the real strategy is to partner with the best operators.

Many times an operator has a strong preference for a RIDEA structure or a net lease deal.

And we went to be with the best and the brightest and support them and grow with them.

As Scott says, of course you have to worry about how you price it, if perhaps there is higher occupancy and things like that.

But again I want to get back to basics and that is, we want to be supporting the best health systems, the best senior housing and care operators in the country.

And some of them are going to be done through RIDEA and some through triple-net, and we think we have assembled just an outstanding group of operators and health systems.

Okay, that's helpful.

Just the last piece here, just going back to the dispositions, I think, George, you indicated that certainly your slant toward the skilled nursing category and Medicaid.

Any specific state concentrations?

Any states that you would start to migrate more so away from?

Not at the moment, not at the moment.

I think it is more of a generic desire to have a higher private pay.

Okay, thank you.

(Operator Instructions) Rob Mains, Morgan Keegan.

Yes, thanks.

Don't have much left here.

Just one.

The comments on Genesis and some of the public companies, what they have been saying suggests that the nursing home cuts haven't been as dire as we might have thought on the last couple conference calls.

Just how does that translate into any changes for your appetite for the asset class or the availability of investment opportunities?

Hey, Rob.

Scott Estes, I will take a shot at that one.

I think you are correct.

We have seen a little bit less than what was projected in terms of the aggregate potential impact of the Medicare rate increases in the therapy changes.

Does it change what we're trying to do?

Probably not, because the bottom line is we are really focused on just a handful of key relationships in the skilled nursing postacute area.

Frankly, five to seven operators in particular that we are likely to continue to grow with.

I guess maybe that could mean with those operators we may get more comfortable growing sooner than later.

But I think most importantly, as George mentioned, we will continue to probably creep up our aggregate private-pay mix from the low 70%s now toward 80% over time.

Okay, then just one follow-up to Dan's question about the Chartwell CapEx.

Would that all -- is that going to all come through on the CapEx line?

Or is some of it going to be operating income?

I am just trying to think about how we should be modeling the FAD impact.

That CapEx does not hit -- that CapEx does not come through.

So that will come in -- we will have to give you that information in the supplement, Rob.

For the 50-50 building, it's the only -- everything will come in on the net income line in terms of the interest in an unconsolidated entity line.

For the three buildings only, it will be consolidated in our RIDEA portfolio, and you would see those facilities.

But we will help you guys do that.

Right.

But for the 50-50, that will be a JV adjustment on the FAD?

Yes.

Okay.

But the question, the $1,000 number per unit that Scott put out there, that would be a pure CapEx number; that is not 50-50 between operating expenses and CapEx?

Oh, right, yes.

It is a 100% CapEx number to be shared, yes.

Okay, great.

That's all I had.

Thanks.

Tayo Okusanya, Jefferies.

Yes, just a quick follow-up.

In regards to dispositions could you give us a sense of timing around that?

Tayo, it's Scott Estes.

I think probably your best convention modeling is assume middle of the year.

Middle of the year?

All right.

Yes; that is the best way to do it.

Okay.

Appreciate it.

Thank you.

Daniel Bernstein, Stifel Nicolaus.

Hi, guys.

Sorry to keep you on the line.

One more question.

The guidance for 2012, does that include a step up already in the CCRC portfolio?

It does include our estimate for the entrance fee portfolio.

I think it is now down to only about 3% to 4% of the total.

We did see an increase in both entrance fee and rental occupancy of 2% this quarter; and based on where we're at, we were able to increase -- at least with our largest operator -- the aggregate payments to us by about a little over 4% in 2012.

Okay, good.

That is included in that number.

Yes, that is why I asked.

I noticed that in the supplement.

Yes.

All right, thanks.

At this time there are no further questions.

I will now turn the conference back to Mr.

Chapman for closing remarks.

Thanks very much.

I would like to thank everybody for participating in the call.

Very productive call for us and we are very, very pleased with what we have managed to achieve in terms of our investments and forming relationships with new operators and new health systems and developers.

So with that, I'd just remind you that we will be available for any follow-up questions later.

Thank you.

Thank you.

This concludes the conference.

You may now disconnect.