Welltower Inc (WELL) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2014 Health Care REIT earnings conference call.

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

(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 and Chief Operating Officer.

Please go ahead, sir.

Thank you, Espalonnie.

Good morning, everyone, and thank you for joining us today for HCN's fourth-quarter 2014 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.

Before we begin, let me remind you that 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 HCN 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 Tom DeRosa, the CEO of HCN.

Tom?

Thank you, Jeff.

And good morning from Toledo, Ohio, where it is minus 12 degrees and we are on emergency generator power.

So, if we cut out at any time for this call, just stand by, because we will be back.

By all measures, 2014 was an outstanding year for HCN.

Our 48.5% total return made us the top-performing large-cap REIT in the S&P 500.

Simply put, the best portfolio of healthcare real estate in the top markets in the US, UK, and Canada, occupied by best-in-class operators and health systems, provides our shareholders with consistent, resilient portfolio and earnings growth.

Our 2014 results demonstrate just how our shareholders benefit from our unique position in the healthcare real estate space.

We completed $3.7 billion in new investments, of which $2 billion were generated from our existing operators.

The quality and transparency of that investment growth is unparalleled in our industry.

Our normalized FFO per share increased 8% over 2013 and, if you follow the NAREIT definition of FFO, that was a 15% increase.

This earnings performance was generated by industry-leading 4.2% same-store NOI growth across the portfolio, and a remarkable 7.3% same-store NOI growth in our operating portfolio.

But that, my friends, is the old news.

Why are we so optimistic about our business?

We've been telling you for some time that we have a differentiated model that is driven by our unique alignment with the best senior housing and post-acute operators in the US, UK, and Canada, as well as top health systems.

We are relentless real estate asset and portfolio managers.

Keep in mind that our FFO growth has occurred while we have sold over $2.5 billion in assets over the last five years.

We have always believed that a strategic disposition program is in the best near-term and long-term interests of our shareholders.

Hence, we enter 2015 with perhaps the most modern, best-located, and relevant real estate portfolio in the healthcare real estate industry, a portfolio that is increasingly concentrated in markets with superior demographics and economic drivers that are attracting global wealth, like New York, London, and Washington, DC.

And because we have sold older, non-strategic assets, we can focus on driving the performance of our A quality healthcare real estate in 2015 and beyond.

Having raised over $3 billion in capital last year, we are in one of the strongest credit and liquidity positions in our 45-year history.

This will enable HCN to continue to meet the capital needs of our partners as they drive the future of healthcare delivery.

Further, 2015 will benefit from the dominant position we have built in high-end seniors housing in London, and the innovative post-acute platforms we are building with Genesis and Mainstreet.

When you combine this with our deep engagement with our operators to drive growth through best practices, innovative transaction structuring, our focus on technological innovation, and good old-fashioned Toledo-style hard work, all the pieces are in place to deliver the quality of growth that you have come to expect from HCN.

Scott Brinker, our Chief Investment Officer, will give you a closer look at our portfolio performance and growth, including details on the fourth quarter.

He will be followed by Scott Estes, who will do a deeper dive on our full-year 2014 results, as well as our fourth-quarter financial performance.

Over to you, Scott.

Okay.

Thanks, Tom.

Our positive momentum continues, so I have very good results to share.

Strong demand for our real estate drove 3.5% same-store growth last quarter, and 4% average growth over the past four years.

The sector-leading quality of our real estate and operating partners is the main driver of the outperformance.

I'll provide some color on each business segment, starting with seniors housing.

Same-store NOI in the operating portfolio grew 5.7% last quarter; occupancy was up 1.6%; and rate was up 3.6%.

Importantly, we're getting these results without pouring money into the buildings.

We own Class A assets that need relatively little CapEx.

Performance continues to be exceptional in the global wealth centers, where we purposefully have a large footprint.

This includes markets like London, New York, and Los Angeles.

Just under 60% of the operating portfolio is located in the 10 largest MSAs in the US, UK, and Canada.

Our decision to concentrate in these markets is paying off.

Moving to triple-net seniors housing, same-store NOI grew 2.6% last quarter.

We don't include any one-time fees or CapEx funding, so our triple-net growth is very consistent and predictable.

We view triple-net as a nice complement to our operating portfolio.

Next up is medical office.

Our platform delivered sector-leading rental rates and occupancy.

Same-store NOI increased 2.5% last quarter, as expected.

The outlook for this segment is continued steady growth, driven by our modern assets, a larger insured population, and the shift to outpatient care.

Turning to post-acute and long-term care, our rental income is well-secured and growing consistently.

Same-store NOI increased 3.1% last quarter.

We had a big win two weeks ago, when Genesis completed its combination with Skilled Healthcare.

Genesis became a publicly traded company with improved access to capital.

Payment coverage is solid at the corporate and facility level.

And we're excited by the likelihood of improvement over time -- in particular, Genesis projecting higher coverage from expense initiatives, synergies, new development, debt paydowns, and refinancings.

We continue to grow the relationship with brand-new, rehab-focused buildings that are highly demanded by patients and payers.

Importantly, all of our Genesis properties are in a single master lease that matures 17 years from now.

This gives our rental income long-term visibility.

Beginning this quarter, we moved our nursing homes and post-acute hospitals into a single reporting segment called long-term and post-acute care.

This better reflects the services provided and the movement toward site-neutral payments.

We also added a table in the supplement that details our quality mix, which will improve over time as we acquire the Mainstreet development projects.

In our experience, payer mix impacts value.

Hopefully, this information helps your analysis.

Turning to investments, we had a fantastic quarter.

Our partners helped us generate $1.8 billion in new investments.

Initial cash yield was 7.2%, substantially above our cost of capital.

We completed the acquisition of HealthLease, and we have already begun acquiring properties from the Mainstreet pipeline.

As usual, we completed follow-on investments with several existing partners, including industry leaders like Sunrise, Genesis, Silverado, Avery, SRG, and Kelsey Seybold.

Expanding with known, trusted partners is our primary avenue for growth.

It leads to better execution and higher returns.

Bigger-picture, our investment strategy is to lock arms with premier operators and grow alongside them.

We bring them opportunities, and they bring us opportunities.

Both parties benefit.

Over time, these strategic partnerships between capital and operations will capture market share and outperform.

This strategy is far removed from growth fueled by paying the highest price in an auction.

When we do make an investment, there's always a longer-term plan.

Here's an example.

The initial investment with our top 10 operators totaled $6.5 billion.

It's a big number, but we have more than doubled that amount in follow-on investments with those same 10 operators, and there's a lot more to come.

We're actively growing with more than 30 of our partners.

It's the breadth and depth of these partnerships that differentiates HCN.

It leads to superior internal and external growth.

We'll add to this foundation in 2015 with a handful of new partners who have long been on our wish list.

We actively manage the portfolio, and are always looking to maximize value.

Sometimes the best answer is to sell assets.

Last quarter, we sold an entry fee portfolio for $441 million, which was a mid-5% cap rate on our rent.

Entry fee assets tend to struggle during downturns, and this portfolio was no exception.

The $94 million gain on sale highlights our ability to work with operators through up and down cycles to maximize value.

This sale was a fantastic outcome for all parties.

In summary, last year finished strongly, and we're ready to build on that success for 2015.

Scott Estes will now discuss our financial results and guidance.

Thank you, Scott, and good morning, everyone.

The performance of our portfolio and the success of our partnership-based investment strategy translated into another year of strong financial results.

My specific remarks today focus on our recent financial performance, our current balance sheet and liquidity, and the key assumptions driving our 2015 guidance.

I'll begin by taking a look at our fourth-quarter and calendar 2014 financial results.

Normalized FFO increased to $1.03 per share for the fourth quarter, while FAD came in at $0.91 per share, representing solid 4% and 6% increases year-over-year, respectively.

More importantly, for the full year, our normalized FFO increased 8% to $4.13 per share, and FAD increased 9% to $3.66 per share.

Results were driven by the strong same-store cash NOI increase and the $2.7 billion of net investments completed during 2014.

In terms of dividends, today we will pay our 175th consecutive quarterly cash dividend of $0.825 per share, a rate of $3.30 annually.

This represents at 3.8% increase over the dividends paid last year, and represents a current dividend yield of 4.3%.

We finished 2014 with our most significant investment quarter of the year, totaling $1.8 billion for the period.

As Scott mentioned, approximately half of our fourth-quarter investments came from our existing operators, with the remainder a result of our HealthLease acquisition.

Turning now to our liquidity picture and balance sheet, in terms of fourth-quarter capital markets activity, the highlight clearly was our second successful UK unsecured debt offering completed in mid-November when we issued GBP500 million of 20-year notes priced to yield just over 4.5%.

Based on exchange rates at the time, this translated into approximately $783 million.

These offerings fit nicely into our maturity schedule, and have extended our average unsecured debt maturity to nearly 10 years, at a blended rate of 4.4%.

In addition, we had a number of other capital activities during the fourth quarter.

We issued just over 1 million common shares under our dividend reinvestment program, generating $70 million in proceeds.

We generated $558 million of proceeds through the sale of non-strategic assets and loan payoffs, including $111 million of gains on sale, resulting in a blended yield on total proceeds of 5.5%.

We repaid approximately $39 million of secured debt at a blended rate of 5.7%, and assumed $142 million of secured debt associated with acquisitions at a blended 5.5% rate.

And last, we repaid the $250 million of 5 7/8 senior notes that were to mature in May of 2015.

So as a result of these activities, we have no unsecured debt maturing in 2015.

We ended the year with no borrowings on our $2.5 billion line of credit, and we had $474 million of cash, leaving us in an excellent liquidity position entering the new year.

As a result of our recent financing activity and portfolio performance, our balance sheet and financial metrics at year-end remain at or slightly better than our targeted levels.

Our net debt to undepreciated book capitalization was 38.6% as of December 31, and net debt to enterprise value was 28.3%.

Our net debt to adjusted EBITDA stood at 5.5 times, while our adjusted interest and fixed charge coverage for the fourth quarter were a solid 3.8 times and 3.0 times, respectively.

Our secured debt as a percentage of total assets is 11.9%.

In light of the recent strength in the US dollar against both the pound sterling and Canadian dollar, I'd like to take a minute to provide an update on our hedging strategy and positions entering 2015.

We have minimized any material risk as a result of exchange rate fluctuations.

Through a combination of unsecured and property-level debt denominated in local currencies, and other currency hedges in place, our international investments are approximately 97% hedged from a balance sheet perspective, and 75% hedged from an earnings perspective.

So, as a result, the significant strength of the US dollar versus both the pound and Canadian dollar earlier this year is only expected to negatively impact our 2015 earnings results by $0.02 per share, and is already reflected in the earnings guidance provided today.

In terms of future sensitivity, it would take a meaningful 10% move in both currencies from current levels, versus the US dollar, to move our annual earnings either up or down by an additional $0.02 per share.

I will conclude my comments today with an overview of the key assumptions driving our 2015 guidance.

In terms of same-store cash NOI growth, we're forecasting a blended growth rate of 3% to 3.5% in 2015.

This is again based on the combination of higher growth expected out of our operating portfolio, and the more stable growth predicted for our longer-term net lease portfolio.

To break down this forecast by asset type, for our seniors housing operating portfolio, we are projecting growth of approximately 5%, as we remain confident in the operating environment and our operators' performance.

This forecast includes projected revenue growth in the mid-4% range and operating expense increases of roughly 4%.

Due to the more severe flu season and harsh winter conditions experienced in much of the Northeast and Midwest this year, we are anticipating that our first-quarter growth is likely to be slightly lower than the average for the year.

For our seniors housing triple-net portfolio we are anticipating growth of approximately 2.5%.

For our long-term care post-acute portfolio we are projecting an increase of 2.5% to 3%.

For our MOBs, we project an increase of approximately 2.25%, which is driven primarily by annual rate increases, stable occupancy, low turnover, and a retention rate of approximately 80%.

And last, for our life science portfolio, we expect overall growth for the year of approximately positive 10%, which is driven by more significant increases during the second half of the year, as signed leases to backfill the vacancy at our 88 Sidney property take occupancy during the first half of the year, which should bring aggregate portfolio occupancy to over 97%.

In terms of our investment expectations, there are no acquisitions beyond what we have announced to date in our formal guidance.

As a result, the only acquisitions included in our guidance are the approximate $250 million of investments through our Mainstreet partnership at an initial cash yield of approximately 7.5%.

Our 2015 guidance also includes $196 million of development conversions at a blended projected yield of 8.4%; and approximately $400 million of dispositions at a blended yield on sale, based on book value, of 10%.

When potential gains on sale are included, we believe that the blended yield on sale, based on total proceeds, will be closer to 8.5%.

All of these asset sales are expected to occur during the first half of the year, and are primarily composed of the final government reimbursed acute care hospital in our portfolio, a long-term care portfolio in Texas that we've held for over 12 years, and a non-strategic seniors housing portfolio.

In terms of CapEx, our capital expenditure forecast is about $63 million for 2015, comprised of approximately $40 million associated with the seniors housing operating portfolio, with the remaining $23 million coming from our medical facilities portfolio.

These amounts continue to represent a relatively modest 6% to 7% of anticipated NOI in both asset categories, as we have a newer portfolio that has almost entirely been acquired within the last five years.

Our G&A forecast is approximately $145 million for 2015.

We continue to build our organization into a global healthcare leader, and will continue to invest in the appropriate people and infrastructure to support our premier portfolio.

During 2015, we will enhance our efforts on the marketing and branding fronts, improve our information technology platform, and continue to invest in the training and education of our employees.

We have expanded our sector-leading presence in the UK with an office that is staffed with seven professionals, and are excited to be opening a new office in Toronto, Canada, around the middle of the year.

We are confident these expenditures will protect and expand our market-leading franchise; while, longer-term, we remain focused on running the organization with expense ratios that are in line with the best-in-class REITs in our industry.

So, finally, as a result of these assumptions, we expect to report 2015 FFO in a range of $4.25 to $4.35 per diluted share, representing 3% to 5% growth over normalized 2014 results; while our 2015 FAD expectation is a range of $3.83 to $3.93 per diluted share, representing a solid increase of 5% to 7%.

So I will conclude my prepared remarks by saying that we remain focused on maintaining the access to capital and consistent financial performance that you've come to expect from us in supporting our market-leading platform.

So at this point, I will turn it back to you, Tom, for some closing remarks.

Thanks, Scott.

I think as you've heard from both Scotts, we're quite optimistic about where we sit at this point in 2015.

And we're looking forward to a great year, this year and beyond.

And with that, I'm going to ask Espalonnie to please open up the line for Q&A.

(Operator Instructions).

Juan Sanabria, Bank of America.

Just wondering if you guys could give some color on the acquisition pipeline in terms of the makeup of the asset types you're looking at.

Is there any change in mix?

Had a few of your peers talk maybe a little bit more about going towards the skilled nursing assets, either the old model or the new short-term post-acute.

And what you are seeing on a cap rate front by asset classes.

We've seen some anecdotal evidence that senior housing assets trading sort of sub-6.

Are you seeing that, or do you expect to transact with those types of price points?

Yes, Juan.

This is Scott Brinker.

I think it's fair to say senior housing cap rates are in the mid-5s to mid-6s.

Medical office is probably a bit below that, and then post-acute is more in the 7% to 8% range.

There is a lot of activity.

A number of large, medium, and small size auctions.

I don't think we'll be very active in any of those, yet our pipeline is as full as it's ever been.

We're growing with so many of our existing partners; they bring us deals.

So it's seniors housing; it's medical office; it's a select number of post-acute; it's Canada, it's US, it's UK.

The investment team is as busy as ever.

Thanks.

And if you maybe you could sure just a little bit of color on the expectations by geography on the RIDEA platform.

Yes, Juan.

We made a very purposeful decision four or five years ago, when we first started doing RIDEA, to really only put Class A assets, Class A operators into that portfolio.

And there's a heavy concentration in the major metros.

So we don't have any major concentration in any one market, but where we do have some concentration, it's exactly where you'd want to be in terms of affluence and growth; so, cities like London, New York, Los Angeles.

And they have continued, quarter after quarter, to outperform the other markets in our portfolio.

Juan, let me just add to that.

We look at healthcare real estate like many of the other REITs look at healthcare real estate.

We want to be in the best markets, and we're very focused on markets like a New York, like a London, where there is a concentration of global wealth and where there is a trend towards increasing urbanization, people moving in from the outer rings towards the urban core.

We like those markets.

And, frankly, many of those markets are underserved in senior housing assets and modern outpatient medical.

You're probably aware, we're in the process of developing an outpatient medical facility adjacent to Maimonides Hospital in Brooklyn, New York, which is one of the most vibrant, urban markets in the country.

So we feel that we want to always manage our portfolio to be in the best markets.

And when we think about adding new assets, we'll also be in the best markets around the US, Canada, and the UK.

But do you still expect the UK number to be a 2X number, or whatever it is, of the US growth, particularly on the RIDEA portfolio?

Not indefinitely, but it continues to outperform.

And our expectations for 2015 are that it will still be at the high end, but by a small amount, not twice as high like it has been the last two years.

Yes, what's happening in the UK is you have a growing affluent population that will opt out of NHS senior housing and opt into private-pay senior housing assets.

And so that market has been, at the upper end, has been supply-constrained.

And we're focused on meeting the natural demand we see growing in that market.

Great.

And just one last question.

You mentioned 5% expense growth on RIDEA.

Could you just comment on what's driving that?

Are you seeing any increased level of competition for employees, given the labor market and the new supply that has to staff up?

Yes, Juan, it was just over 5% in the fourth quarter.

That's higher than our expectations in 2015.

I think low 4s is more in line with what we expect.

The primary driver is staffing, of course; and wage growth continues to be in the 2% to 3% range.

Food and electric is in the 2% to 3% range as well.

And then a bit higher would be things like insurance, workers' comp, and things like that.

So, blended, about 4% is our expectation.

Okay, great.

Thanks.

Stay warm, guys.

Vikram Malhotra, Morgan Stanley.

Just sticking to the RIDEA portfolio, maybe can you just talk about -- within the same-store revenue growth, what are you baking in for occupancy?

And just maybe longer term, given the locations of your assets, what do you view as the structure of peak occupancy?

Yes, Vik, it's Scott Brinker.

Our occupancy today is in the low 90s, so we do think there is maybe 100 to 200 basis points of upside, best case.

And it's trending in that direction, so I think you could in the see us get in the 92%, 93% range over the next 12 to 24 months.

In terms of the mix of revenue growth between occupancy and rental rates, it's always hard to predict, but our expectation for total revenue growth next year is in the 5% range.

And that's a blend of rate growth and occupancy growth, is probably the fairest way to break it down.

Okay.

And then just on the CapEx in the SHOP portfolio, I'm assuming most of that is general maintenance, given the age of the portfolio.

But just wanted to clarify, is there any kind of revenue-enhancing, any investments within the portfolio that you're making?

Or it's all just maintenance stuff?

It's mostly maintenance.

Five and 10 or 15 years from now, we might be having a different discussion, but our assets are extremely young, modern.

They don't need major structural enhancements or renovations.

That's an important distinction when you look at the NOI growth.

We're generating that performance without pouring money into the buildings, and I think people really need to think about that.

Okay.

Thanks, guys.

Vincent Chao.

Scott, you did a nice job talking about the limited FX impact at the FFO level.

I was just curious for your same-store NOI guidance for the full year, is there much of an impact at that level since you don't have the natural hedging in place with the debt?

And just curious what the SHOP same-store NOI outlook would be -- I guess, absent FX impacts.

The same-store NOI growth forecast is on a constant currency basis.

And if you did look back, I think we're not going to predict forward; but if you think about maybe what happened last year, what was the impact -- I think it was like 50 or 60 basis points.

Or same-store NOI growth would have been a little bit lower by about that level, due to the currency changes that occurred last year.

So we're generally, again, we're trying to minimize taking any currency risk, as much as we can.

Okay, thanks.

And then in terms of guidance, specifically calling it out as NAREIT guidance, and I know there's a big push from NAREIT to have everybody report on that basis.

Is that the idea going forward, is that that will be the way you present guidance?

Or will we still get the normalizing items, and normalized guidance, going forward?

We have always, in our financials, had the NAREIT FFO.

But we will be giving guidance on a normalized basis.

We think it provides a clearer picture of the performance of the Company.

Okay, thanks.

Josh Raskin, Barclays.

On the theme today of the RIDEA portfolio, the 5.7% in the fourth quarter, obviously very healthy, above what you're expecting in the future, and above the normalized portfolio, the triple-net portfolio.

You guys have outperformed that number pretty significantly, last couple of years.

I guess there's been a little bit of a slowdown in the growth more recently.

So I'm just trying to understand what drove that excess growth historically, and what's not included going forward.

Yes, we've had four years of outperformance, so the treadmill keeps spinning faster.

But yes, the 5% is something to be excited about.

So we're very pleased with it.

Our expectation next year is for the 5% range, which is still outstanding.

I think a couple things drove the -- if you want to call it a slowdown.

One, the occupancy growth this year was a little bit less than in prior years, and the rate growth was at more the lower end of what we've been able to achieve.

And at least in the fourth quarter, you had higher expenses, so it's a combination of all those things.

Okay.

Okay, that's helpful.

And then you mentioned, first quarter, you'd expect a little bit of weakness relative to the full-year number, based on weather and flu.

Any sense in the magnitude?

Is that 100 basis points lower, or is this going to be a more significant impact, understanding that we're only halfway through the quarter?

I think you're talking about the magnitude that we would see.

You're right; we're only halfway through the quarter, but we're not seeing a major change.

I think some of the early results, yes; there's been some occupancy pressure in January as a result of those factors.

So we just wanted to alert people.

We're comfortable with the 5% range for the year.

But it looks like -- I would probably say 100 basis points is about a fair estimate, best case, at this point.

So call it 4-ish in the first quarter, if we had to peg a number right now.

Okay.

Thanks, Scott.

And then just last question on post-acute.

You talked about cap rates coming down a little bit there.

Should we think of -- I guess I'm curious to get your perspective on external new partners, et cetera, versus just continuing to grow with your existing partners.

Has that dynamic changed, as cap rates have come down?

Or do you still think that there's opportunities with new partners in post-acute?

Josh, most of the growth will continue to be with Genesis.

We think the most about their platform and their position in the evolving healthcare landscape.

But we did pick up a number of new partners through the Mainstreet partnership, and we'd expect to continue to grow with them as well.

So there's a list of 3 to 5, like Ensign and Trilogy, that we expect to be growth partners going forward.

Okay.

Perfect.

Thanks, Scott.

Smedes Rose, Citigroup.

I was wondering if you could talk a little bit about supply in the US for senior housing overall.

It sounds like you are pretty protected in the MSAs, where the bulk of your portfolio is.

But do you see an uptick in supply nationwide?

No, the new supply continues to be at really a local level.

So some markets do have a high amount of new supply, like Houston, and there are a number of markets that have virtually none.

Now, if you look at it at a national level, we think supply and demand are roughly in line.

If anything, demand is growing faster than supply, which is why you see our occupancy increasing year-over-year.

The NIC national occupancy is increasing year-over-year, and is predicted to do so again in 2015.

So we still feel like the dynamics are positive for occupancy; but, for sure, there's certain markets where you should be more concerned than others.

In terms of the change, if anything it's slowing down, so there certainly is still projects, or new projects being put under construction, but there isn't an uptick from what we've seen over the past few years.

And Smedes, we're very focused on working with our national and top-quality regional operators to bring supply into markets where there is very little supply.

Think about a market like Washington, DC, and central Washington, DC.

We have a Sunrise asset on Connecticut Avenue, very close to the National Zoo, which is a great example of an urban senior housing property where there needs to be more of.

This is in a market that is very densely populated.

The population is getting older.

And people want to stay where they lived prior to entering senior housing.

So, that's an area that we are very focused on, and working with our operators to be able to bring that supply to the market, and we're very optimistic that that will be very well received.

Thanks.

And the other thing that I just wanted to ask you, it looks like you've pretty much exited your investment in hospitals.

And I was just wondering, is that an area that you would see returning to at some point?

With respect to hospitals, historically our hospital portfolio did not mirror the quality of our seniors housing and post-acute portfolio.

If in the future there were opportunities to buy high-quality hospitals, we would consider that.

Okay.

Thank you.

Rich Anderson, Mizuho Securities.

So, to anybody in the room there, would you be as comfortable being twice the size the company you are now, or less comfortable?

Or are you neutral on that topic?

Rich, this is Tom.

Scott mentioned the investment we're making in people and infrastructure.

We are attracting very talented people from the industry to come work with us, because they see we're an outstanding company that really invests in its people.

And as you think about growing our business, think about how we've grown in the last five years.

It's all about people.

So, we are always thinking about where we will be in the future and -- do we have the right team?

Do we have the right infrastructure?

And so I'm confident that we have the right human capital strategy in place to take this Company wherever opportunities may take us in the future.

Do you think the issue with HCP, HCR ManorCare, and that whole subpoena issue, is that something we should be worried about, generally?

Or what is your thought about just looking at the post-acute business, and how it might be exposed to issues like that as a general rule of thumb?

I can't comment on HCP and ManorCare.

What I can comment on is Genesis.

And we are very -- and Mainstreet, as Scott was discussing, as well.

We're very bullish about the future of post-acute in this country.

And we are investing with Genesis, and we're investing with Mainstreet.

We are very excited that Genesis is now public.

We are big believers in George Hager.

We think it's terrific that there is a public post-acute company now.

And we have every confidence in George and the Genesis team that they are going to take that business to where it needs to go.

We need a strong, vibrant, post-acute product in the healthcare delivery system in this country.

And we are betting that Genesis is going to bring that product -- continue to bring that product to the market.

Okay.

Turning to the SHOP, or the Senior Housing Operating Portfolio, so in 2013 -- I think I have these numbers right -- you produced 6.2% same-store NOI growth.

In 2014, I did the average, I think it was 7.3%.

I don't think you disclose that number in your supplemental, the full year, do you?

No, but we get the same, just averaging the quarter.

Okay, so averaging the quarter, that's 7.3%.

And it trended down from 8.1% in the first quarter to 5.7% in the fourth quarter; but compared well to your original guidance, which was 7% or -- or, excuse me, 5% or better for 2014.

That's what you said a year ago.

And now you're saying 5%.

You took out the or better comment, not to be nitpicky.

So, it went from 6% to 7.3% to now expectation of 5%.

Do you think that we're in that other side of the bell-shaped curve?

Or is it flattening out?

Or what is your view about the business, vis-a-vis its history -- historical same-store growth pattern?

I'm not sure about the bell-shaped curve.

But we think a lot about the portfolio and operators that we've put together, and think that the 5% for next year is achievable, despite some very difficult comps and a relatively slow economy.

And longer-term, our expectation -- our guidance has always been 4% to 5% is our best guess.

So if that changes materially, we'll definitely let everybody know.

But we're always looking for ways to improve on that.

That's one of the things that differentiates us, Rich, is that we have a lot more oars in the water than a typical owner of healthcare real estate, to try and move that number forward.

And we talk about that, and we actually see real results from that.

So, I think we're as well positioned as anybody to drive same-store sales growth from our RIDEA portfolio.

(multiple speakers) back, Rich, just a quick comment from Scott Estes here.

We initially went into RIDEA and we're talking about 4% to 5% long-term growth.

And we had a lot of debate about you're going to outpace inflation.

And we put out probably, like you said, 6%, 7%, 8% numbers for four years now.

So, I think we just need to get perceptions -- if we can generate outpaced growth and we're adding value at the property level, and we're outperforming our sector, that's really the things we can control.

Okay.

How often do you look at your ownership in the Sunrise OpCo, vis-a-vis how you book it and what's valued on your financials right now?

In terms of potential -- I don't know, impairment; I'm not suggesting that's coming.

But is that an annual event, or ongoing?

Or how does that take place?

We look at it.

We have a 24% approximate ownership in the management company, and that investment has been our investments in unconsolidated entities, and we haven't really talked more about it.

I don't think it's meaningful from an aggregate balance sheet perspective.

It's a small investment.

Smaller, more canary in the coal mine type stuff, but just curious.

And then the last question for me is, what would you say -- how would you compare -- or how would you think the history would look like if you were to compare the share count -- the growth in your share count versus the growth in your FFO, over an extended period of time?

What do you think that would look like?

Would it be greater share count, or greater FFO growth?

We could probably sit here and think about that.

I think the most important thing you need to think of is looking at what type of total return and shareholder value creation we've had by -- the reason why FFO everywhere is slower because of the dramatic portfolio enhancements we've made over the last five years.

We had about $5 billion of assets five or six years ago, and we've sold $2.5 billion to $3 billion of those.

And we've bought the best assets in the industry, and now we're trading at the highest multiple and have great returns.

So, you can focus on a little bit of the tinkering about how we financed it, and what it results.

But we've been able to grow our dividend nicely and get great total shareholder returns, so I think that's we're supposed to do.

Yes, I can't underscore enough what Scott just said about the fact that we've disposed of $2.5 billion in assets over the last five years.

That is difficult when you're trying to grow FFO, when you're selling assets at that magnitude.

But that's why we feel so good about the future.

And that's what you should be expecting any company in the real estate sector should be doing.

And you know what?

They don't do it.

So, look across the real estate sector, and the companies that have active asset disposition and asset management programs should be trading at a premium; and those that continue to hold on to assets, because they don't want to jeopardize their FFO growth, should be trading at a discount.

Okay, I've taken too long.

Thank you very much.

Appreciate it.

Ross Nussbaum, UBS.

(technical difficulty) clarify the same-store NOI guidance.

So I think your guidance for 2015 is 3% to 3.5%.

And I think I heard you say that the SHOP portfolio, the RIDEA portfolio, is going to do -- 5% is your guidance.

Do I have those two facts correct?

Yes.

So that would imply for the medical office -- the triple-net, the life science -- it would imply, I think, 2% to 2.5% same-store NOI growth.

Is that about right?

That's the way the math works.

We already gave you the guidance for each of the subcomponents.

The MOBs was 2.25%.

The rest were around 2.5%.

Long-term care (multiple speakers).

Wondering why -- maybe I missed this -- but why the slowdown on the triple-net side, at least from where it was in the fourth quarter?

It may be a couple of basis points below the fourth quarter, but it's in line with historical averages.

The triple-net business is a 2.5%, plus or minus, growth business.

And it's all contractual rent increase there, so there are no one-time fees in that number or anything like that.

So it's very predictable, but it's not a super high growth part of the business.

Right.

I can follow up with you guys afterwards.

That is sort of where I was going, which is when I saw the 3.1% number for the fourth quarter, I said, wow, that looked good.

But it felt like there might be something one-time-ish in there.

Yes, there may be.

The 3.1% was for the post-acute long-term care portfolio, and that's still primarily Genesis, is two-thirds of that category.

And our increasers, of course, are still in the 3.3% range, so that drives it.

And we do have the CPI catch-up language on a number of these leases, where the escalators are not fixed.

And that can create some noise from quarter to quarter.

Okay, that's helpful.

On the disposition front -- I might have missed this earlier -- the $400 million of sales that you guys have planned for the first half of this year, at 10 caps, what do you guys have in the portfolio that would sell at double-digit caps?

I did mention that, Ross, in the comments, but just to say it again.

One, there's one acute care hospital in there, and a nursing portfolio that we've had in our overall portfolio for over 12 years that are more than half of that aggregate total.

And a big part of it is that yield is based on the book value.

And we've owned these assets for quite a while.

So if you do the yield on the actual sale proceeds, the cap rate is a lot lower than 10%.

Yes, I mentioned that, too.

It should be more closer to 8.5%, roughly, dependent upon how the final prices come in.

Okay.

Last question.

Can you talk a little bit strategically about the life science business?

It feels like it hasn't been much of a focus for you guys.

There have been some assets that have been coming up for sale that the Alexandrias and BioMeds of the world have bought.

Where are you guys with respect to strategically expanding the portfolio in that segment?

Ross, we made a very good investment when we bought this -- the Cambridge portfolio with Forest City.

It's turned out to be an outstanding asset for us to own.

We've looked around; we see things in that space; there's been nothing to date that has really captured our attention.

We have found that we have better places to invest our capital.

Does it make sense to monetize the seven properties you have in that segment?

Ross, to my point earlier, we are active portfolio managers, and we look at any asset.

We're not in love with any asset over the long-term; in a way, if there's a good opportunity that makes sense to sell an asset.

So we will always evaluate it, reevaluate the assets in our portfolio, and that's one of them.

Okay.

If I could sneak in one last one.

What are you guys thinking, at this point, in terms of [field nursing] reimbursement on Medicare front, in terms of what CMS is going to come out with this year?

For the first time in a while, it's pretty steady, so we're not expecting any big news.

I guess the biggest question mark would be whether Congress or CMS does anything with the physician reimbursement system.

That seems unlikely.

They haven't done anything for 10 years now, other than do a temporary extension.

So I guess our best guess is more of the same.

But that would be the only uncertainty on the horizon.

But we're expecting flat to slightly positive reimbursement increases for the foreseeable future.

Thank you.

George Hoglund, Jefferies.

Just wanted to get a little more color behind the thought process of combining the hospital portfolio with the SNF portfolio from a reporting perspective; given, at 3Q, there's still -- there was pretty much a significant difference between occupancy levels, EBITDAR coverage levels, and then also facility revenue mix.

Yes, there are a couple of factors.

The ones I mentioned on the call I think are the most relevant.

When you look at the actual buildings and the patients that are served, those three product types look a lot alike -- skilled nursing, rehab hospitals, and LTACs.

They don't look like hospitals.

The fact that we are now selling out of our remaining inpatient hospitals, we just thought it made more sense to have this post-acute category.

Because over time, we really feel like these artificial distinctions will become even less important.

So that was really the driver.

We are thinking about maybe, going forward, providing specific information on the Genesis portfolio, which is the lion's share of the skilled nursing business anyway.

And then you can have very detailed information on payment coverage, and payer mix and occupancy.

So hopefully -- the goal here is to make things more transparent and give you better data.

So if that's not the case, definitely let us know.

But I think that's the direction we're heading.

Okay, thanks.

And all my other questions were answered.

Thanks.

Michael Carroll, RBC.

Can you guys give us some color on the potential coverage improvement at Genesis?

Does this improvement mainly stem from the corporate fixed charge coverage ratio?

Or do you also expect this facility coverage to improve?

Yes, Michael, it's Scott Brinker.

I think most of the improvement will be at the corporate level.

The facility-level coverage fluctuates in the 1.2 to 1.3 times range, after management fee.

And there may be some slight improvement there, as they bring on new development with better coverage, the expense initiatives that they're working on.

But the real movement is going to be at the corporate level with a better balance sheet, debt refinancing, corporate synergies.

So I think that's where you're going to see the material 10 to 20 basis point type improvement.

Okay, great.

And then Scott, do you also find large portfolio transactions attractive in today's market, or has pricing gotten a little too ahead of itself?

Well, we still look at everything.

And at least the deals that we've been able to execute, there's still a material spread between our cost of capital and our return on capital, so it still feels like a good time to be in the marketplace.

That being said, there are some bigger portfolios that are being shopped and looked at by a lot of people, and I think it does become a bit more challenging to grow the Company that way.

The spreads get tighter.

The execution risk increases.

So, say we're more likely to pass on the vast majority of those, unless, for some reason, we find them really strategic.

Okay, great.

Thanks.

Michael Mueller, JPMorgan.

Just skipping the 2014 disposition volumes and the comments you made about 2015, what should we be expecting if we're looking out to 2016 and beyond for normalized disposition volumes?

Would it be significantly below this $400 million for this year?

Tough to say.

My gut would be, yes it would be, other than if you would see something that would be strategic that would make sense.

It feels like we have great assets.

I think the portfolio quality is the best it's ever been.

So if you're just talking about a general sense for incremental dispositions, it feels good about where we're at.

But like Tom said, we'll always do something.

Right.

Because there's something that looks really good today in the portfolio that in three years there may be something that's happened beyond our control that may make us not like that asset as much.

And we will -- I think we've demonstrated we will take a very proactive approach towards making sure our portfolio is always in the best position that it can be.

And even some of the dynamics around those, [you call] strategic.

We sold $900-plus million of assets this year and still had 9% FAD per share growth.

So that was an example of being opportunistic and generating some capital that I think is prudent.

And that's the type of thing we'll do.

So I still think we're focused -- we are focused on earnings, dividend growth, the whole (multiple speakers).

Okay.

So a base case of 250 to 500 a year may not be unreasonable just to assume, because (multiple speakers) something going on.

That's as good a guess as ours, Mike.

Got it, okay.

And then going back to life science just for one second.

The building that's vacant that was hitting the same-store NOI comps, can you talk about the leasing prospects for that?

Yes, so it's been fully released, so occupancy is temporarily down.

But we'll be back at 97% by mid-year, and potentially 100% by the end of the year.

But just because of the timing of that releasing report negative NOI growth again in the first quarter.

Then it will be roughly flat in the second quarter, and then a huge increase in the third and fourth quarter.

Okay.

That was it, thank you.

Daniel Bernstein, Stifel.

On the SHOP portfolio, I think some of your operators are starting to develop a little bit more.

Are they coming to you for financing, or are they going elsewhere?

And then also if you could remind us, what right do you have to buy assets that they develop?

Yes, Dan, it's Scott Brinker.

There are 10, maybe as many as 15 operators in our portfolio that are active developers.

And we participate, in one form or another, in virtually all of their development.

And it takes a range of structures.

Sometimes we partner with them 100% from day one.

So we're doing that with Sunrise in the UK.

We're doing that with Merrill Gardens.

Sometimes we do a triple-net lease development.

Examples of that would be Brandywine on the East Coast, and then Avery in the UK, or Silverado on the West Coast.

And then sometimes we have purchase options when the building stabilizes.

So, in all events, the assets end up in the healthcare REIT joint venture.

It's just a matter of timing.

Dan, whether it's contractual or not contractual, I think if you polled the top operators, they'd say they like working with us, and will continue to direct their -- look to us to direct their -- to work with them on their growth programs.

So it's just the way we've organized the business.

It's the quality of the relationships.

It's the value-add that we provide that keeps them coming back to us.

Okay, okay.

And then in terms of overall development of your portfolio, just given some of the previous comments on the call about maybe pricing competition getting a little bit tough, do you see yourselves increasing development over the next couple of years, relative to where you are now?

Thinking like CIP to book, our overall development to book.

Do you see a little bit of a maybe shift at some point into more development versus acquisitions?

As it relates to the on-balance sheet development, I think you'll still see it be a relatively small number.

We're a bigger company but it's still a meaningful number and we're growing across different asset classes; and as Scott said, programs with all of our best operators.

So, you can also look at that as just from the -- if I have to think about what percentage of our growth roughly each year could come from developments or acquiring assets as they're stabilized, I think it's a nice supplement that's meaningful.

Could be 20%, 30% of the total growth could be brand-new assets at attractive yields.

And I might have missed this earlier.

You have your generator out; we had a false fire alarm here in Baltimore (laughter).

Not quite as cold as you guys, though.

No.

But on Genesis, what was the fixed charge coverage for the quarter, if you gave that out?

And then also, is that normalized in any way for any -- or has there been any impact from, say, non-normal costs of the integration between Genesis and Skilled in that fixed charge number, so that it -- if I think about how it might progress through 2015, those integration costs come out.

I'm just trying to understand, what are the drivers that are going to move the fixed charge coverage up?

Yes, and it will be a little confusing, because Genesis is now publicly traded, of course, and reports their results in real-time.

And we always report one quarter in arrears, so they are never going to perfectly match up.

It's fair to say that Genesis ended the year, at the corporate and facility level, in the low to mid 1.2s.

And our expectation is that at the corporate level, they'll be in the high 1.3s by the end of 2015.

Okay, okay.

Was there any -- again, was there any integration costs, or unusual costs that might be in that?

Or is that a normalized number, that 1.2s?

I wouldn't call it normalized.

They did have a number of expenses in the fourth quarter that were unusual by their standards, and that drives much of the improvement -- or some of the improvement next year, is just adjusting those expenses that were outsized in the fourth quarter.

Okay, okay.

We're getting late in the call.

I'll hop off, and take anything else off-line.

(Operator Instructions).

Todd Stender, Wells Fargo.

That cap rate you acquired, the four senior housing operating properties in Q4, was definitely done at a pretty compelling cap rate of 7.9%.

What's represented in those properties?

What kind of growth rate is baked into that?

Yes, Todd, those are all brand-new properties.

One is with Silverado that they developed in Texas.

And then we had essentially a purchase option on that building, so that drives a very favorable cap rate than what would be paid in, say, an auction.

And then we did three acquisitions of essentially brand-new private-pay homes in the UK yet compelling cap rates.

So all four of those buildings are with existing partners, brand-new buildings, major metros, off-market.

It's all the things that you would want to do to drive a premium yield.

It's not like we bought low-quality government reimbursement homes.

These are premier, brand-new assets with our best operators.

And a market cap rate would be closer to 6. Is that fair?

It's pretty good value creation.

Yes, exactly, if not lower.

But exactly; that's how we like to do investments.

So, they bring us those deals, and we're more than happy to help them grow their business by being their capital partner.

Yes, you don't get that from a broadly marketed auction, Todd.

And then just sticking in the development theme.

Memory care is represented in all of your senior housing triple-net development projects, but only a handful have independent living.

You really should have exposure to memory care, insulate these projects from any threat of new supply.

Is that how you think about weighing the risk and reward about building at this point in the cycle?

Memory care is a distinct competence of a number of our operators, most notably Silverado.

Todd, you know that dementia and Alzheimer's is going to be an epidemic in this country, and we need to have a greater supply of memory care communities to house people who cannot live in their traditional homes.

So, we see that as a market that is undersupplied, with a growing demand that is going to be a challenge for our country, and some of the other countries where we operate, and countries where we don't operate.

Managing that growing population is probably the biggest challenge to healthcare delivery.

And so we feel very well positioned there, and are focused more in the senior housing with memory care space than we are in independent living.

That's helpful.

Thanks, Tom.

And just quickly, last questions for Scott Estes.

Thanks for the details on your CapEx budget.

As we look out for the next couple of years, what are some good numbers to use for CapEx per unit, for your senior housing operating units, and then when you look at medical office on a price per square foot basis?

Yes, Todd, medical office is in the $1.50 per square foot range, which reflects the young age of our properties.

It's about 12 years average age.

The same is true in senior housing (multiple speakers).

Yes, probably.

We really look at it, and I think everyone should look at it, more on a percentage of NOI basis.

Because that's where you really benefit from having properties in the major metros that have really high NOI per unit.

Because it ends up being a very small percentage of your NOI.

And that's ultimately what you care about, is the cash returns.

So if you got a low-quality independent living building that generates very little NOI, $1,000 of unit of CapEx is a huge (technical difficulty).

If you've got a Sunrise building in London that's charging $10,000 a month, $1,000 per unit of CapEx is nothing.

So that's how we look at it is as a percentage of NOI.

That number tends to be in the 6% to 7% range for our operating portfolio.

Very helpful.

Thanks, Scott.

Michael Knott, Green Street Advisors.

A question for you.

Given how mega is valued in the public market, have you thought about spinning out your skilled nursing post-acute portfolio?

We like our skilled nursing post-acute portfolio, Michael.

We see it's an important part of our business, and we think we're clearly aligned in the right piece of that sector.

And one of the areas that we are seeing is the increasing connectivity between seniors housing, post-acute, and acute care.

We as a company are driving that connectivity.

So it's very important for us to be in that space.

It's not important for us to be in low-quality mix skilled nursing homes.

And we have kind of spun that out [far easily] over the last five years, via selling, I think, a lot of the older skilled nursing assets in our portfolio.

I bet if you aggregated that, what would it be, guys?

$1 billion plus, at least; $1 billion, $1.5 billion would be my guess.

Okay.

And then from an investment standpoint, I don't think you guys talked about investments you've done so far this year.

And there's been some media reports and such about a large deal you did with Benchmark.

Just curious what you guys have done so far this year, and may be what -- any color on that.

Well, we don't talk about investments until quarter-end.

But given that the Benchmark news was public, I'll go ahead and comment on it.

That wasn't our decision, but we're more than happy to talk about it because it's exactly the type of portfolio that we want to own, and that you would want us to own.

So, Benchmark has been a partner of ours since 2010.

They've done a fantastic job.

They have outperformed, quarter after quarter after quarter.

Based completely in New England, so primarily Massachusetts and Connecticut, which is where this portfolio is, particularly in Boston.

And they have managed it for a long time.

Their joint venture partner was at the end of its life, and was looking to exit, and we were more than happy to step in.

So, Benchmark will continue to operate.

They will be our 5% JV partner.

The cap rate's in the high 5s, which for these assets in this market feels like a really good deal, especially given what I'm seeing for much lower-quality buildings in rural markets throughout the US.

Okay, thanks for that color.

And then last one for me, I'm just curious -- maybe any color you guys have on how crowded auction tents are today.

I know you said you look at everything, even though you're not necessarily always winning auctions.

But just curious how crowded those might be, and if you are seeing any new types of capital with interest, or even preliminary interest in healthcare real estate.

It least in the auction tent, it is dominated by the REITs -- the public REITs, the non-traded REITs.

We're not seeing any new sources of capital, at least in the auction tent.

But what we are seeing is the major pension funds wanting to partner with us on particular portfolios or asset classes.

So, at least in our experience, they're not bidding on their own for this stuff, but they see the value of healthcare real estate, and they want to partner with us to enter this space.

You know, Michael, it kind of fits with something we've talked a bit about on this call today, which is our growing concentration in the key urban markets in the US, Canada, and the UK.

That is where the global pension funds like to invest across real estate classes.

If they're going to make an investment in healthcare, it's going to be in one of those markets.

So I will echo something that Scott just said: we know all these players; they want to work with us, because they understand the quality of the real estate that we own.

And they have historically not invested in this sector, so they need a partner.

And we continue to look at opportunities that may be of interest to that new group of capital providers.

Thanks for the color.

And just how recent is that change that you're seeing, or those expressions of interest?

I think this has happened over the last nine months.

Okay.

All right, thanks a lot.

And there are no further questions.

This does conclude today's call.

You may now disconnect.

Thank you.