Welltower Inc (WELL) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the first-quarter 2012 Health Care REIT earnings conference call.

My name is Brooke and I will be your conference operator today.

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

We will be facilitating a question-and-answer session toward 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 of 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 first-quarter 2012 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 its 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 very much, Jeff.

I'm pleased to report another strong quarter for our Company and its shareholders.

We had a record 24% and 26% normalized FFO and FAD per share growth quarter over previous year quarter.

Our relationship investment strategy is hitting on all cylinders, driving $750 million of investments for the first quarter and $1.3 billion year to date.

Most importantly, this strategy has produced a consistent and predictable pipeline and enhanced the quality of our already strong portfolio.

And of the $750 million of new Q1 investments, nearly 90% of them were with existing partners.

We have attracted the industry's finest operators and health systems, largely as a result of our reputation as a value-add partner.

This reputation has been earned over many years of being a key part of numerous providers' successes, yet we understand the needs to earn that confidence every day.

We are also quite pleased to welcome Senior Lifestyle, the tenth largest senior housing operator in the United States to our portfolio, and we're excited to have Bill Kaplan and Jon DeLuca and team added to our portfolio of best-in-class operators.

And on May 1 of this quarter, we closed the previously announced $937 million Chartwell transaction.

As most of you know, Chartwell is Canada's largest senior housing operator with high-quality assets in metro areas.

The investment will be immediately accretive in markets with excellent demographic trends, and we look forward to a successful partnership and future growth in Canada.

Our portfolio continues to perform well with blended same-store cash NOI growth of 4.2%.

Our RIDEA partners had same-store NOI growth of 10.3%.

We believe that there are ample opportunities for continuing improvement in seniors housing as the economy and the housing markets improve.

We also continue to be impressed with how well our skilled nursing operators are coping with the previously announced Medicare cuts.

The general ability of operators to execute on mitigation efforts has been quite impressive.

We continue to believe that post-acute providers particularly will be a key part of the evolving healthcare delivery system.

Genesis has a strong team and a scalable infrastructure that will allow the Company to grow and produce strong results, and we are working closely with George Hager and team to help grow the short-stay post-acute component of their portfolio, resulting in accelerated quality mix improvement.

In the MOB space we have a sector-leading occupancy of 93%, and excellent retention rates.

With nearly 90% of our facilities affiliated with strong health systems, our MOB portfolio is well positioned for strong performance.

In addition to adding high-quality investments, we continue to enhance portfolio quality through the disposition of non-core assets.

We are increasing our anticipated dispositions by $100 million to $300 million and expect most of the dispositions to be older, primarily Medicaid-funded skilled nursing homes, and older, smaller unaffiliated MOBs.

We believe our active approach to portfolio management has helped us to maintain a sector-leading portfolio in terms of quality and diversification.

Our portfolio is positioned in high-end, high barrier to entry markets.

40% of the portfolio is located in the Northeast and mid-Atlantic areas; 76% of the entire portfolio and 90% of our RIDEA investments were located in East and West Coast markets or the top 31 MSAs.

Facilities in these markets have generally outperformed.

But in addition, these concentrations have provided and will continue to provide opportunities to foster collaboration among portfolio partners across the healthcare spectrum.

As the healthcare markets have changed dramatically during the last several years, Health Care REIT has benefited from extraordinary growth as our commitment to relationships, improvement of healthcare delivery and collaboration has appealed to operators in health systems.

We expect the evolution of healthcare will continue, given the need for professional management, technology and economies of scale.

We believe this will drive continuing change and consolidation, resulting in larger, professionally managed, branded operators and health systems that should further strengthen our portfolio valuation.

We're very pleased with the ongoing volume of new investment opportunities, yet there are fewer larger portfolios still available.

And at some point, the pure transactional volume will decrease.

And at that point, our relationship strategy will constitute an even more important competitive advantage by providing consistent and predictable access to ongoing investment opportunities from our portfolio of companies.

Scott Estes will primarily focus on capital markets, activities, and financial and balance sheet metrics, but let me simply make two points.

One, we achieved our record FFO and FAD growth while maintaining conservative leverage with current liquidity of $2.2 billion.

And two, through our capital markets activities, we extended our average debt maturity to 9.5 years, the longest average maturity among the so-called Big Three.

And this 9.5 average debt maturity closely mirrors our portfolio lease duration of approximately 10.4 years.

Before turning to Scott for his comments, I'd like to take a moment and welcome Judy Pelham to our Board.

Judy has been actively involved in the healthcare industry for over 30 years, including leadership roles with leading hospital systems and healthcare institutions.

Most recently she served as President and Chief Executive Officer of Trinity Health, one of the top 10 healthcare systems in the United States.

Ms.

Pelham currently serves on the Boards of Directors of Amgen and Smith College and we all believe that Judy will be a great addition to our Board.

And with that, I'll ask Scott Estes, our CFO, to address financial and capital markets matters.

Scott?

Thanks, George and good morning, everyone.

As George discussed, our relationship investment program continues to generate a steady pipeline of opportunities and our portfolio continues to perform well, highlighted by 4.2% blended same-store cash NOI growth including over 10% growth in our seniors' housing operating portfolio.

We put ourselves in a great liquidity position, having raised over $2 billion of capital through early April, which lowered leverage and was used to pay down our primary credit line; retire $275 million of higher yielding preferred stock; redeem $126 million of convertible debt; pay off $185 million of secured debt and finance our investments.

Despite the number of moving parts as a result of our first-quarter capital transactions, we were able to generate normalized FFO and FAD per share growth of 24% and 26%, respectively, our best in recent memory.

Turning to the details of the quarter, regarding investment activity we completed $753 million of growth investments during the first quarter, $654 million of which were acquisitions with the majority of the remainder development funding.

During the quarter, we expanded our partnership with Belmont Village, acquiring six seniors housing operating assets for $210 million.

In addition, we acquired 13 medical facilities which included 12 medical office buildings for $332 million that are, on average, 94% occupied, 83,000 square feet per building, and all affiliated with leading health systems in their respective markets.

Finally, as George mentioned, we added another high-quality operator to our portfolio through the addition of Senior Lifestyle Corporation, acquiring three triple net leased senior housing properties for $96 million.

In terms of first-quarter pricing, our triple net seniors housing investments were generally priced at initial yields in the low to mid 7% range.

Our recent RIDEA transactions were priced in the upper 6% range, and medical office buildings were priced in the mid-6% range, reflecting these very high-quality additions to the portfolio.

Our first-quarter dispositions consisted of four smaller nonstrategic medical office buildings with a net book value of $32 million, generating a small $769,000 gain on sale.

As always, additional detail regarding the timing and pricing of first-quarter acquisitions and dispositions can be found in our supplements.

We're off to a great start to the second quarter having completed our $510 million investment in the Chartwell transaction last week, and our pipeline throughout the remainder of 2012 looks strong and remains heavily concentrated in private pay seniors housing and medical office building opportunities.

Turning now to portfolio performance, before I begin here, I would point out several additions to our supplement this quarter.

We consolidated our old construction book into a development project summary on page 12, which includes more detailed disclosures such as pre-leasing and health system affiliations.

And on page 14, we added new information detailing the success and history of our relationship investment program.

Both are stable seniors housing and skilled nursing post acute-care portfolios performed in line with expectations, in light of recent additions to these portfolios and changes in Medicare reimbursement in the skilled nursing sector.

Our seniors housing triple net lease payment coverage stands at a solid 1.35 times before management fees and 1.16 times after management fees, while occupancy increased 90 basis points from the prior quarter to 89.1% as of December 31.

The stability of our seniors housing triple net portfolio was once again demonstrated through a first-quarter increase in same store cash NOI of 3.4%.

Our skilled nursing portfolio of payment coverage currently stands at 2.04 times before management fees and 1.57 times after management fees for the trailing 12 months ended December 31, 2011.

Our overall skilled nursing occupancy remained flat at the current 88% level while same-store cash NOI increased 2.7% in the first quarter versus the prior year.

Our coverage declined somewhat sequentially, primarily due to the lower Medicare rates implemented in October.

Importantly, however, much of the successful cost mitigation efforts were not in place at Genesis or many of our other skilled nursing operators in the fourth quarter.

I think what I can provide is what I consider to be the most important perspective in terms of what are our current 2012 run rate coverage numbers, which would be inclusive of the full effects of the Medicare reimbursement changes as well as the mitigation efforts which are in place as of today.

Based on that criteria, we believe our current skilled nursing portfolio calendar 2012 run rate coverage levels are about 1.7 to 1.8 times before management fees and 1.3 to 1.4 times after management fees.

Genesis makes up the largest portion of these numbers and after speaking with George Hager and Tom DiVittorio last week, I can report that Genesis operating performance year-to-date is slightly above budget and that cost mitigation efforts continue to go well.

As a result, our overall expectations regarding Genesis corporate level fixed charge coverage remains unchanged at close to 1.4 times for calendar 2012.

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

Our operating portfolio continues to perform well and is ahead of budget through the first quarter of the year.

The blended 87.3% occupancy rate across our five operating portfolios for the first quarter was flat versus the prior quarter and up 3.1% versus last year.

In addition, the same-store operating portfolio cash NOI for the first quarter increased a strong 10.3% versus the comparable quarter last year, driven by an 80 basis point increase in occupancy and a 5.1% increase in revenue per occupied unit.

Through a combination of strong revenue per occupied unit growth and solid expense controls, margins in our same-store portfolio expanded 110 basis points year over year.

Moving now to the medical facilities portfolio, our medical office building portfolio metrics were stable as expected during the quarter with overall occupancy up 20 basis points year over year to 93.1% while trailing 12-month retention was 82.5% including 88% for the first quarter.

Same-store occupancy of 92.9% remains among the highest in the sector while same-store cash NOI grew 0.2% for the quarter.

For 2012 we continue to expect over all MOB portfolio occupancy to improve slightly to the 94% range and expect a tenant retention rate of approximately 80%.

In regards to our hospital portfolio, cash flow payment coverage remains strong at 2.45 times before and 2.1 times after management fees.

We again experienced solid 2.8% same-store cash NOI growth in our hospital portfolio during the first quarter versus last year.

We believe the recently announced proposed rules regarding fiscal 2013 Medicare rate increases for both the in-patient hospital and LTAC sectors were generally positive news, though I would note that we have only 3% of our portfolio investment balance in in-patient hospitals; 2% in LTACs with the remaining 1% in in-patient rehab facilities.

Our life science portfolio was fairly steady in the quarter as the portfolio does remain 100% occupied, generating same-store cash NOI growth of 1.9%.

More importantly, we expect another significant acceleration in our life science NOI growth, back to the 5% level during the second half of 2012 as we recently renewed approximately 20% of the overall portfolio at renewal rates that averaged 60% above current rates, commencing in mid-2012.

Turning next to financial results and guidance, we reported normalized first-quarter FFO per share of $0.87, an increase of 24% versus last year's quarter, and normalized FAD per share of $0.78, an increase of 26% versus the comparable quarter last year.

Quarterly performance was driven by the strong internal growth generated by our existing portfolio combined with a nearly 70% increase in gross real estate assets invested accretively over the past 15 months.

We recently declared the 164th consecutive quarterly cash dividend for the quarter ended March 31 of $0.74 per share, representing a 3.5% increase over the same period last year.

I would also note that our preferred dividend of $19.2 million paid in the first quarter were about $2 million higher than the previous quarter or about $0.01 per share.

This was the result of having about a month of overlap when we had both our new $287.5 million, 6.5% preferred Series J as well as the old $100 million, 7 7/8% Series D and $175 million, 7 5/8% Series F securities outstanding.

The $275 million aggregate value of this Series D and F were redeemed at par at the beginning of the second quarter.

So as a result, our preferred dividend payment should decline to about $16.6 million per quarter.

Our first-quarter G&A expense totaled $27.8 million, which, as previously disclosed, included approximately $5 million of accelerated expensing of stock-based compensation, which typically occurs in the first quarter.

First-quarter G&A also included $4.3 million of special stock-based payments for executives awarded for retention, performance, and excess shareholder value creation over both the short and longer term.

Excluding these factors, we currently forecast a G&A run rate of approximately $21 million to $22 million next quarter and note that our overall G&A is running under budget year to date.

In terms of capital activity, we were very busy raising over $2 billion in aggregate thus far in 2012.

We raised $1.1 billion of equity in February at $53.50 per share, representing the highest offering price in our history.

We issued $287.5 million of preferred stock late in February and a record low 6.5% coupon which was used to refinance the $275 million of outstanding preferreds with coupons over 100 basis points above the new issue.

We also issued 429,000 shares under our dividend reinvestment program, which generated $23 million in proceeds.

And finally, we issued $600 million of seven-year notes in late March price yield 4.2%, which settled in early April.

As a result, at the end of the first quarter our entire $2 billion line of credit was available and we had $469 million of cash on the balance sheet.

I would point out that following the end of the quarter our March 31 balance sheet was impacted by the following items.

I will go through the list here.

First, we issued the $600 million of senior notes.

Second, we repaid $275 million of preferred stock.

We redeemed $126 million of 4.75% convertible debt.

We repaid $185 million of secured debt at an average rate of approximately 4.25%.

And finally, we funded the approximate $263 million cash component of the Chartwell transaction on May 1.

So after all the dust settles on these transactions, we will be left with our full $2 billion line of credit available plus an approximate $200 million in cash.

Our capital transactions significantly strengthened our balance sheet.

At the end of March our debt to undepreciated book capitalization stood at 41.2%, representing a 5% decline from the prior quarter.

Our trailing 12-month interest and fixed charge coverage remains solid at 3.2 times and 2.4 times, respectively.

Net debt to adjusted EBITDA as reported in our supplement has improved to 5.5 times.

Importantly, these metrics will not be significantly impacted by capital activities subsequent to quarter end as we used much of the senior note proceeds to pay down debt as recently mentioned.

Finally, I'll provide an update regarding our 2012 guidance and assumptions.

As a reminder, our investment guidance for 2012 only includes the impact of investments completed during the first quarter; our Canadian transaction with Chartwell, including debt assumed as a part of that transactions; and third, the ongoing funding of our existing development pipeline.

Our earnings guidance does include all the capital activity announced year-to-date, including the April senior note issue in the payoffs I just discussed which occurred subsequent to quarter end.

And the final change included in our guidance is $100 million increase in our planned dispositions from $200 million to $300 million as we have identified certain nonstrategic Medicaid-focused skilled nursing facilities for sale.

We remain proactive in managing our high-quality portfolio as we accelerate the push to move our portfolio to over 80% private pay.

As a result of the $100 million increase in our disposition forecast, we have lowered our guidance by $0.03 per share, resulting in a new 2012 normalized FFO range of $3.50 to $3.60 per diluted share and a new normalized FAD range of $3.08 to $3.18 per diluted share.

Importantly with $2.2 billion of current cash and line of credit availability, to the extent our relationship investment program continues to prove successful throughout the remainder of the year, we do have the potential to move toward the higher end of these ranges or beyond.

Operator, does that does conclude my prepared remarks and we would like to open the call for questions, please.

(Operator Instructions).

Jana Galan, Bank of America Merrill Lynch.

I have a question on the greater disposition guidance.

Do you already have a large portion under contract?

Are you seeing increased demand or more favorable pricing for these SNFs and MOB assets?

I think the fair answer to that would be that we have more interest and ability on the parts of the operators to buyback, refinance, recap some assets.

And we have an interest in reducing our commitment to Medicaid-oriented SNFs.

And certainly, an overall desire to move toward private pay at 80% to 85%.

So it's just really that their abilities and desires seem to be coming together with ours.

So we see more opportunity to do it.

But until it's over, it's not over.

So we will wait and see, to some extent.

But we have some term sheets in certain cases and some desire on others and we'll keep reporting back to you.

Thank you.

And I believe there's also a hospital marked for sale maybe if you could speak to that?

It's Scott.

There was just a small hospital facility in the held-for-sale bucket that also met similar criteria.

Do you guys know the amount of that, Steve?

We gave you the amount, I don't have it right in front of me.

Okay, no problem.

$1 million, so it's a small --

Yes, it was very small and it was sold subsequent to quarter end.

Okay, thank you.

And then just quickly on the financing for potential future acquisitions, you brought down leverage quite a bit.

I was wondering if we should still think about them being funded as 40% debt, 60% equity going forward.

We think so.

We think we've done a few things that are going to be very important to strengthen the Company going forward.

One is keeping the leverage at around 40%; and two, moving toward a higher percentage of private pay.

Thank you very much.

Adam Feinstein, Barclays.

This is Brian Sekino, on behalf of Adam.

Just a question on the dispositions increase.

Would you classify that more motivated by potential acquisitions that you're seeing and needing just a little bit more fire power?

Or is it a change in your view of those assets, given some of the reimbursement changes over the last few months?

I think the latter, Brian.

We have $2.2 billion worth of fire power and, right now, an incredible ability to raise capital.

So we don't need it for that.

But we are still very much dedicated to the post-acute platform and to certain operators within the SNF portfolio.

But strictly within the Medicaid-oriented SNFs, we think we can drive a higher Company value by having more dedicated to the key components of the future healthcare delivery systems such as post-acute, but in particular driving more value through private pay, whether it be MOBs or perhaps more importantly, through a private senior housing.

Okay, thanks.

And then, just an update on the deal environment.

It looks like you've got an improved balance sheet, there's certainly some unknowns for reimbursement.

But it appears CMS is not likely to issue proposed rules or make significant changes for SNFs and other post-acute providers.

So is that helping the deal environment?

And despite the uncertainty on the election and maybe talk about your appetite to capitalize on that.

Well you know, we're not going to be out there buying a whole lot of skilled nursing.

We are going to help George Hager and his team grow his post-acute platform.

We think that's just critical.

And for us, we've had an ongoing access to good deals because of our relationship in investing platform.

I think we've told the Street in the last 10 quarters we have averaged new investments of $1 billion, okay?

And 40% of those have come from our ongoing partners.

So we're just seeing it because of our relationships.

Senior housing is, people are still coming to us.

People are adding onto their existing portfolio and we feel like we have an ongoing predictable deal flow.

Okay, thanks a lot.

Karin Ford, KeyBanc Capital Markets.

Just wanted to ask about the same-store growth this quarter.

It's running ahead at 4.2%, I guess it's running ahead of your 3% guidance you had indicated for the year.

Did you change that in the updated guidance at all?

And do you expect it to come back down to the 3% level or what are your expectations for the rest of the year?

Karin, it is Scott.

We didn't I guess, provide an official update to that.

I would say through the first quarter, clearly, the most significant outlier in the positive sense would be the operating portfolio.

I think it's really based on timing.

I still believe our projection for the full year for most all the components of the portfolio remain unchanged.

So you may see a bit of a trend we may average more toward the 3% level.

I think as we said, medical office building forecasts was zero to 1%.

Most of the triple net portfolios were roughly 2.5% to 3%.

And then I'd still think that as I mentioned on my prepared remarks, life science should get back to the 5% area in the third and fourth quarters.

And I think the RIDEA portfolio projection, it's a little bit above budget but we're still forecasting somewhere on average for the full year, I would call it 5% to maybe a little bit above 5%, 5% to 6%.

That's helpful.

And just one other question on Genesis.

I think you were due for a rent bump on April 1.

Can you just talk about did that happen and how much was it?

We did.

The CPI was in excess of 1.75% threshold to give us the full 3.5% rent bump in April.

And that's incorporated in that 2012 pro forma coverage number that you gave earlier?

Yes, it has been added always has been in the numbers that we've given around Genesis and the aggregate portfolio.

Great.

Thank you.

Philip Martin, Morningstar.

A couple of questions.

First of all, Scott, can you give us a quick update on maintenance CapEx especially -- well, obviously, with regard to the RIDEA portfolio, how we should be thinking about that going forward given the growth of the portfolio?

Sure, Philip.

I guess our general forecasts, the two largest components of CapEx, are both in the medical office building portfolio as well as the RIDEA portfolio.

As a quick aside, we would expect the medical office building CapEx to be a little higher than it was in the first quarter due to just some timing of some renewals and other projected capital expenditures.

And the RIDEA portfolio continues to run -- what, guys?

-- around I would say about $1,700 per unit per year is probably the number to think about.

It tends to translate into something let's call it about 75 basis points per year is about the number we've used in terms of RIDEA CapEx.

Okay.

And then a broader industry question, George, you spoke a bit about this and obviously working with Genesis, et cetera, but give us your thoughts on post-acute five years into the future as part of the integrated healthcare delivery system.

Are you going to be seeing a bit more demand or could you see this portfolio growing into the ancillary healthcare business?

I know you're going more toward private pay, certainly.

But the front end of the healthcare system and even the post-acute ancillary outpatient services are something that the REITs aren't as heavily involved in yet.

And I say that yet with a big question mark, but I would just be interested in your thoughts.

Yes, we really believe that post-acute is going to be a critical part of the healthcare delivery system, and post-acute can be defined in a lot of ways.

You can have IRS or you can have LTACs or just post-acute like George runs.

And if anything, George Hager and others who are oriented toward post-acute and the SNF, general SNF category are moving toward more specialty units within existing SNFs or moving to standalone post-acute.

And we are very supportive of that.

In terms of just post-acute as well, or looking at different settings, even some of our larger medical office buildings have surgical centers and all types of services that could even fit generally within the ambit of post-acute.

So we actually just see healthcare as rolling out in an entirely different way with much more preventative care; much more post-acute care, sometimes within the hospital system itself or through affiliations with it.

So we clearly think healthcare is changing and will continue to change in that direction.

Exactly how it's done, exactly what role the hospital plays in terms of ownership or joint venturing it or just affiliation agreements, that's more difficult to tell, Philip.

Okay, I appreciate those thoughts.

Tayo Okusanya, Jefferies.

Just wanted a sense of the acquisition pipeline that George mentioned earlier.

I'm just trying to get a sense of pricing-wise, what you think a lot of that stuff may fall out.

And generally, your overall sense of pricing trends.

I noticed that cap rates for the acquisitions you did this quarter were somewhat better than fourth quarter except in the medical office building category where you [saw that] further cap rates compression.

Well, first of all, there wasn't further capital rate compression in the MOBs, it was just a continuation of the acquisition of two of the higher end portfolios in the country that began in the fourth quarter.

So there's no additional compression.

We thought the pricing for those particular portfolios was totally appropriate.

We think that cap rates can come down into the 6's for some of the remaining really good MOB platforms which generally are closer to 7% to 7.5% as are generally senior housing assets.

Again with the best packages coming down into the 6's on occasion.

Okay, that's helpful.

And then on the medical office building side of the business, you did talk about in first quarter, there was a 20 basis points same-store NOI growth.

Could you just talk a little bit about what renewal spreads look like within that portfolio?

It is John.

The renewals -- still continue to see some pressures on renewal rates, but our retention was higher than expected which offsets that.

And also as Scott mentioned, lowers our CapEx requirement so, the portfolio is being managed well.

I'm really proud of our expense reduction, which continues to drive and offset those -- the pressure on rental rates.

When you say there is renewal pressure, are you talking about negative mark-to-market or are those basically flat?

Yes, there's still a slight negative mark-to-market.

The leases that are renewing this year off of the 10-year highs of 10 years ago.

So these are second-generation off of 2002 rates, which are really the peak so --.

John, maybe you want to -- let me make a general comment.

I think some of the earlier platforms that we purchased years ago are smaller.

And they are facing more resistance in certain markets.

As we see the newer, larger portfolio roll through, you're going to see some nice pickups in terms of renewal rates.

Yes, that's right, George.

That's helpful.

If you do look at the renewal rates, it is only about 20% in aggregate over the next five years, which is among the lowest and we do often receive the question, how much of the legacy [wind rose] portfolio is comprised -- is in the aggregate MOB portfolio.

And I think it's less than half.

I think it's actually more like 30%-ish, right, guys?

30%.

So it's clearly a much smaller part of the aggregate given the larger buildings we have been buying over the last three to five years.

That's helpful.

And then just lastly, with the closing of the Chartwell transaction, since you announced the deal, anything between the announcement and the closing, any kind of new information in regards to things that you found that were better than you expected or things that you found that were worse than you expected?

Tayo, I would say the portfolio is performing in line with underwritten expectations really, through the first few months of 2012.

So I would generally say there's no change from our underwritten expectations at this point.

Okay, that's helpful.

Thank you.

Josh [Potemkin], BMO Capital Markets.

It is Rich Anderson here with Josh.

So did you mention the seller of the MOBs?

No.

Can you?

Yes, Cambridge.

It is in the annual.

Oh you mean the seller of the ones that we've purchased.

Yes.

Yes, it was Cambridge and Richmond Honan.

It was Richmond Honan.

Both of them, both quarters, right, John?

Yes.

Okay, so do you have more obviously more to go there then, right?

Particularly in Richmond Honan?

One more to go -- Rich, this is John Thomas.

We've got one more to go and expect it to close here soon.

Just a quick question on the normalizing of FFO.

I'm curious why you think stock compensation should be a normalizing factor.

Rich, it's Scott.

I'll try to take that one.

I think we feel pretty strongly, the number you're probably referring to is our lease categorizing the $4.3 million special stock grant.

That was all stock that was paid across the nine executive team.

It really was a special grant that was made for the successful transformation of the Company and the very strong relative performance our stock has had over both the one- , three- , and five-year periods.

And that stock was actually granted after year end and wasn't in our previous expectations.

In our view, since it was granted for past performance, we chose to exclude it

I hope you don't mind if I don't.

Do what you like to do, Rich.

On the pro forma coverage, the 1.3 to 1.4 after management fees, you mentioned that includes the mitigation efforts.

To what degree is that an offsetting factor?

How low would it be after the full CMS but not including the mitigation factors?

I don't know if we've ever looked at that.

We decided to look and basically try to give you a run rate from where we're at in the first quarter, based on what mitigation efforts were in place today.

I think you've seen varying levels of success on mitigation.

I know most of our operators are very focused on it.

And really for us, like we've said with Genesis representing about -- I think about two-thirds of our current skilled nursing portfolio, they currently have I think it's about $71 million of in place annualized mitigation efforts.

So it helps.

But I still think the coverage levels are more than adequate with or without those specific mitigations.

Let me add a few comments, Rich, and let me disagree with you, too, and the premise of your question.

It seems to me sort of an interesting but totally theoretical question you are asking.

Because as we lived through 20 to 30 years of watching skilled nursing sometimes win some with the regulators and sometimes lose some.

The nursing home operators are used to operating in a regulated environment.

And to think that they wouldn't mitigate through cost reductions or more efficient staffing when there is a revenue effect, is just to sort of ignore what people have been doing for all of those years.

And I think they've all done it pretty well.

Maybe George Hager and Mike and the rest, somewhat more efficiently, but everybody is not -- they were used to doing this.

It was just a big, big cut in reimbursement.

They're demanding perhaps more severe cuts to the costs.

Okay.

And then last question just on guidance, to Scott.

You mentioned that and it says in the release, it's almost all a function of the higher level's dispositions.

But there's a lot of -- the deleveraging steps, the shares and all that, that netted to a zero impact on your guidance?

Yes, maybe let me just walk through that, Rich, for everyone's benefit.

I think it's important.

I would say the best way to think about it is our guidance would not have changed but for the increase in dispositions.

We did not have -- so what was not included in our previous guidance was, first of all, the $600 million of senior notes at 4.2%, which I guess of their own accord were about, call it, a $0.09 potential negative.

But that was in aggregate, [offset] by $0.09 of positive from the $146 million of additional investments we made post that $508 million investment announcement when we put a release out in mid-February.

So the $146 million of additional investments; the $185 million of secured debt payoffs; and the $126 million of convertible debt payoffs basically net out the new debt issue.

So again, just adding $100 million to the disposition guidance at 10% to 11% probably happened around midyear is about $0.03.

Perfect.

Thanks for that color.

Sure.

Nick Yulico, Macquarie Capital.

I want to see on the seniors' housing development side if you guys could maybe talk about whether you're thinking at all about increasing your investment there; maybe give a sense about how big that pipeline could get, based on your existing relationships today.

Because it seems like that's one of the best ways you guys can add NAV upside to the stock at this point.

Nick, help us understand the question.

Did you say senior housing operating or senior housing triple net or just in general as you were thinking about the portfolio?

I mean, just in general, mostly it's been on the triple net side, right so but I mean, could that piece of business go higher on the triple net side?

Are you guys considering doing more on the operating side, perhaps?

Got it.

Yes, I'm sorry, I didn't understand you were asking about the development component of the portfolio.

Yes, actually we see development as a great opportunity in general.

If you really look, most of our development would be focused on private pay, seniors housing, rental model rolling into a master lease with an existing operator, as well as medical office buildings that are largely preleased.

We don't break ground generally, unless they are about 75%-plus preleased.

We actually include that stat now in the book, which I think the projects we have underway are what is it?

96% there?

I think so.

96% preleased, the projects we have underway.

So I actually think the development projects are a nice supplement to our acquisition base growth.

And I would say, we generally, I think, would probably have the potential to do something in the magnitude of maybe $300 million to $400 million to $500 million of starts per year.

But I think we want to keep it pretty focused on existing relationships, high-quality assets, and definitely keep it more toward the 5% to 8% range of the total portfolio.

John, I don't know, maybe you or someone we could comment -- we had a great facility open.

We didn't talk about it this quarter with the Virtua addition -- almost a 300,000 square foot medical office building that I believe is 98% occupied at opening and about an 8.2% initial yield.

And attached to a hospital.

And on the senior housing RIDEA side, is there any way to get a sense for how much is left as far as units, or some sort of way to frame the size of the possible future opportunities set with your existing partners at this point?

I don't know that it really is.

We have been --.

If you look back over a number of quarters, we've been running at $400 million to $500 million with existing RIDEA partners and other partners.

And we've managed to add some RIDEA partners in the last two or three quarters, although it's perhaps the volume is reduced a bit.

I think that I'd just go back to my comment during my opening remarks.

And that is that probably the volumes are going to decrease somewhat over the next year or two.

And that's where our ability to continue to execute on our relationship investing program gives us a large competitive advantage.

Okay, that's helpful.

And then, sorry, just one last quick question.

On the dispositions, is it possible to get the debt balances for those properties?

Which ones, the ones that --?

The $200 million to $300 million -- is there debt associated with them?

I'm just trying to figure out what the net cash proceeds might be from that.

I think zero, right?

Isn't that zero, guys?

Yes.

It is, it's zero on that aggregate $300 million.

Okay, all right, thanks guys.

If it's not -- well, if it is, it's a relatively small amount.

(Operator Instructions).

Michael Mueller, JPMorgan.

A few questions.

First of all, on the senior housing RIDEA portfolio, I think you mentioned a 5.1% revenue increase.

Considering occupancy went up about 80 basis points, can you talk about what the other revenue driver factors were?

Was it just general increases in base rate?

Is that residents using more services, or something else?

Do you have any of that pinned down?

It's those two points -- it's both in [an] services and also just the normal annual increases.

And they are probably different for different operators, because while some people are really push enhanced services and others have been doing, making it up elsewhere.

I don't know if we could pin that down further.

Chuck?

It's probably difficult to do.

Okay, what do you think, ballpark, has been the average base rate increase?

It varies by market.

This is Scott -- but generally it is 3% to 4%; in some of the better markets, we're able to do even better.

But generally speaking, they are getting at least CPI and if not better, which is why we prefer newer buildings, high barrier markets.

Over the years, we've seen those markets or those facilities outperform inflation.

Got it.

Okay.

Going back to the pipeline that you're seeing on the investment side, could you just roughly quantify what the visible pipeline is that could close in 2012 or could close this year?

Even though nothing is in guidance for it at this point.

Mike, it's Scott.

It's a tough call.

Maybe I would point to, I think, our relationship success in the past and we've been able to generate somewhere in the range of $300 million to $500 million of repeat business per quarter.

That is about, in my opinion, where the potential is.

As I mentioned, it's a lots of seniors housing assets as well as some additional medical office billing opportunities.

So that's pretty consistent with the pace that we have viewed as or call it, general relationship-based business opportunity.

Okay.

And last question for me, shifting gears and going to Genesis, can you talk a little bit about just the cost mitigation?

Where exactly are the costs coming out of the system?

Is it labor?

If so, where particularly in labor?

Is it someplace else?

Sure, I talked again with George and Tom.

I think they are doing a good job.

I think the specific answer to your question if they are at a run rate of about $71 million, I would say at least half of those are coming at the facility level, cost administration, maintenance, dietary, housekeeping, items like that.

And then, there's probably another $20 million or so or at least a portion of them are also facility-based but also maybe more general as would hit both the facility level as well as overhead, like some of the therapist productivity efforts, 401(k) management incentive comp changes that they've done.

So actually, it's a -- pretty good percentage of it is actually at the facility level.

Daniel Bernstein, Stifel Nicolaus.

I guess a couple of portfolio questions.

It looked like the lease coverage dropped a little bit on the triple net unit housing.

Was that just from the additional acquisitions you did in the quarter?

Yes, I think you were breaking up a little bit.

I think you said the senior housing coverage.

Yes, the whole trend there is really solely a function of -- some of the additions to the portfolio as they have come in over the last three or four quarters.

Okay, that's what we thought.

And then also on the medical office buildings, it looked like occupancy dropped on the same-store portfolio a little bit quarter over quarter.

Obviously, it's still very high occupancy, but if you could just talk a little bit about that drop there and do you expect to get that back with some new tenant leases?

You're breaking up, but you're asking about the slight drop in occupancy quarter over quarter?

Yes, on the same-store portfolio.

I just picked up my phone instead of the headphone here.

Yes, just a very slight occupancy which we'll recover -- decline, which we will recover this quarter or next.

We had one tenant downsize slightly.

But comfortable that the occupancy will increase as Scott mentioned at the beginning of the call, by the end of the year.

You know, back to the 94% range.

Okay.

And maybe a little nuance question on the SNF portfolio.

But looks like the Medicare mix dropped quarter over quarter.

I understand that the coverage dropped coming from the Medicare cuts, but just wanted to understand the change in the mix.

Is that also a result of the drop in the reimbursement or is that something else going on within the portfolio in terms of mix?

No, it's due to that, Dan.

Our [data] has basically stayed about the same in terms of percentages of what we show in the supplement as revenue and the Medicare decline is a result of the rate reduction in October.

Okay.

And then and just also, I glanced at the supplement here on the CCRCs, they look like they are continuing to trend up very slowly.

That would be your take as well.

And the other question related -- do you see any acquisition opportunities in that entrance CCRCs space and you haven't done any of those -- but do you see opportunities there?

Generally not.

We've decided to orient much more toward the rental model.

And there are conceivably some that are arguably undermanaged by nonprofits that could be purchased but it's not going to be Health Care REIT that does it.

Okay.

And is that because of your view of that particular model?

We've had some Web calls on the higher entrance age and hire turnover and CCRCs.

Is that just a strategic decision based on your thoughts on the viability of the model or was there something else factoring into this decision?

No, I don't think so.

I think that the entry fee model has a lot of viability.

We just think we've got to have more predictable earnings and present our senior housing platform defined generally to include triple net and operating in a much more constructive way.

Okay.

I think that's it for me.

Thank you for taking my questions.

Thank you.

At this time, there are no further questions.

I will now turn the conference back to Mr.

Chapman for his closing remarks.

We all thank you for participating.

And again, if there are follow-up questions, Scott and team will be available.

Thank you.

Thank you.

This concludes the conference.

You may now disconnect.