Welltower Inc (WELL) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2015 Welltower earnings conference call.

My name is Calea and I will be your conference operator.

(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, Calea.

Good morning, everyone, and thank you for joining us today for Welltower's fourth-quarter 2015 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 Welltower.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 Welltower 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 our CEO, Tom DeRosa.

Tom.

Thanks, Jeff.

I am pleased that we finished 2015 with our strongest quarterly performance of the year.

These results are driven by solid fundamentals, a disciplined investment thesis and the unique operating platform that we have developed and employed at Welltower over many years.

Today I want to highlight three topics that are top of mind: capital allocation, Genesis and senior housing supply.

On to the first topic, capital allocation.

This is the most important exercise of any management team and how I spend most of my time.

We think about this as the framework for how we maximize shareholder returns.

Essentially, every public company has five primary ways to deploy capital: acquisitions, investing in the existing business, paying down debt, paying dividends and buying back stock.

And four ways to raise capital: internal cash flow, issuing debt, issuing equity and disposing of assets.

So when the equity capital markets were favorable we took full advantage and built the industry leading healthcare real estate portfolio.

For us it was not about winning a pie eating contest, but building unmatched local scale in major metro markets with the best operators in the business.

Simply put, we have created a real operating platform, not a passive collection of assets in which success is measured only by year one FFO accretion.

The good news for our shareholders is we don't take access to the capital markets for granted and we don't gamble with our shareholder capital.

Hence, we took advantage of the strong equity market to significantly delever our balance sheet.

Now in a less than accommodating public capital market we are sitting in an enviable position.

We are also proud that in 2015 the Canadian Pension Plan, one of the largest investors in commercial real estate in the world, chose Welltower to be its joint venture partner to make its first investment in healthcare real estate.

Scott Brinker will talk about our most recent venture with CPP as well as our ongoing successful partnership with PSP.

Welltower has always seen targeted dispositions as an important component of our capital allocation strategy and 2015 was no exception.

We sold less strategic assets, such as our last US hospital asset, realizing an 11% unlevered IRR.

And we took advantage of robust pricing and sold our life science portfolio at a 5% yield realizing an unlevered IRR of 15%.

May I remind you that we have sold $4 billion in assets over the last five years for cash and used that cash to buy better quality real estate and delever the balance sheet.

Over the medium-term with the opportunity for targeted acquisitions, to go deeper into markets where we have local scale in our senior housing business and we also see enormous opportunity to grow our outpatient medical business.

But only with the best health systems in this country.

I talked about our desire to develop relationships with the leading academic medical centers on my very first investor call in May 2014.

I told you that this would not happen overnight as institutions like Johns Hopkins and Cleveland Clinic really don't need our capital.

However, increasingly what they do realize they need from Welltower is our expertise in seniors housing, residential Alzheimer's care and, read my lips, post-acute care and the connectivity to the best-in-class operators that we bring to the table.

I am happy to tell you that these discussions are now starting to bear fruit and, for example, we now own three facilities with Johns Hopkins, which is the number one rated health system in the United States.

So let's talk about Genesis.

I want to make it very clear, we believe in Genesis and the value that post-acute operators like Genesis bring to lowering healthcare costs and improving outcomes.

The challenges facing the post-acute industry as it transitions to a value-based care system are well known.

If you sit with the CEOs of the leading nonprofit health systems in the US, like we do at Welltower, they realize that they need to connect to this expertise more than ever as they move to the reality of bundled payments.

Have you seen the performance of the for-profit acute-care hospital sector lately?

After a brief benefit from the HCA that peaked in the second quarter of 2015, the cold reality is that higher co-pays are translating to a drop in hospital visits.

This is why Welltower as of year-end 2015 no longer owns acute-care hospitals in the US.

We believe operating and margin pressures will push acute-care operators to move patients to lower-cost outpatient and post-acute settings.

We are optimistic that operators like Genesis, that are delivering next-generation post-acute care, will become the preferred providers to the top end health systems and as a large inventory of low Q mix SNFs get taken out of service.

We understand the market is a voting machine in the short run and the votes are in.

While the market has implied the destruction of the majority of the equity value in our investment in Genesis, I can assure you that there is significant value in this relationship and in this business investment.

Scott Brinker is going to talk more about that in detail.

Finally to the topic of senior housing supply.

You may recall we had a long discussion about this topic on the third-quarter call.

We continue to believe the fear of supply in the US is overblown, there is no doubt that certain markets are oversupplied.

But, we are primarily in markets where it is difficult to build and hence believe our performance will be resilient.

You can look at the portfolio performance this quarter as evidence of this resiliency as senior housing operating occupancy has rebounded sequentially up 80 basis points and same-store NOI was up 4.3% in the US.

Like most companies in healthcare, and I know you are seeing this in the retail sector as well, we are seeing wage pressure in some parts of the US due to increases in the minimum wage.

And we are seeing it in the UK due to the imposition of the national living wage.

Increased supply where it has impact will most likely exacerbate that problem.

We are working with our operating partners to capture new labor efficiencies and identify opportunities for enhanced pricing power.

In conclusion, we believe we have a superior portfolio in superior markets, best-in-class operating and capital partners, and a seasoned team to execute across all markets.

With the right assets in the right markets we will prove the thesis that healthcare real estate has lower downside and better upside over a cycle.

Now I will turn it over to Scott Brinker.

Okay, thank you, Tom.

We took full advantage of the up cycle.

We now have unmatched scale in the markets where you want to own real estate: 77 properties in Southern California, 47 in greater London, and 281 on the Eastern Seaboard from Boston to DC.

Our history in the business tells us these markets will produce superior results.

We are entering a period of increased separation among companies.

Our realistic quality will stand out more than ever.

Each business segment turned in a strong fourth quarter.

The results show that our capital allocation is paying off.

The operating portfolio trended higher with 3.3% same-store NOI growth.

Fundamentals are solid, occupancy was up 20 basis points and rate increased 3.2%.

Importantly, we are not buying the growth as CapEx remains at very modest levels.

The age of our properties is a material competitive advantage.

Performance in the US continues to be strong with 4.3% same-store NOI growth.

Large metro markets once again outperformed, validating our capital allocation.

Same-store NOI in Canada grew 4.6% despite an economy with near zero inflation, highlighting the resiliency of our business.

The UK portfolio is poised for a rebound this year based on recent revenue trends.

Several Wall Street analysts recently ranked our outpatient medical portfolio as number one in asset quality.

The impact can be seen in our results.

We hit all-time highs in occupancy and tenant retention last year, leading to another solid quarter with 3.1% same-store NOI growth.

Visibility is the key word here and there are three drivers.

One, very little lease rollover.

Two, when leases do roll we typically renew more than 80% of them.

And three, nearly all of our buildings are sponsored by a health system.

That is important because they act as a magnet for other tenants.

The space leased directly to a health system is climbing and now sits at 60%.

We see that number moving even higher as hospitals transition more and more services to outpatient settings.

I will move to triple net, a highly visible income stream that contributes half of our earnings.

Same-store seniors housing NOI increased 3.2%, while post-acute long-term care increased 3.1%.

We've been eagerly anticipating a chance to talk about the next topic which is Genesis.

Dramatic underperformance by ManorCare, who is not in our portfolio, is unfairly implicating Genesis if not an entire industry.

Industry headwinds clearly exist but they are not new.

In fact, we have been preparing for years, including selling nearly $1 billion of last generation skilled nursing assets.

And rather than focusing exclusively on the short-term headwinds, we also consider the bigger picture.

According to Avalere, a highly regarded research firm, the dramatic increase in the Medicare population will more than offset the decline in length of stay and per capita utilization.

As a result the number of skilled nursing Medicare days is expected to increase by more than 10% over the next five years.

That data reminds us that skilled nursing plays an important role in cost-effective healthcare delivery.

There is a reason we haven't suffered any lease rejections or rent reductions like other skilled nursing landlords.

One, strong payment coverage.

The cash flow from the Genesis properties that we own fully supports the rent payment to Genesis -- to Welltower.

Our Genesis properties generate nearly $1.60 of operating income for every $1 of rent.

Given the profitability inside the walls of buildings, the parent guarantee is simply an additional security blanket.

And that guarantee does have value.

Parent Company fixed charge covering increased last year and Genesis expects further improvement this year to north of 1.3 times.

Two, we have been actively managing the portfolio since the day we closed the sale-leaseback five years ago.

That includes selling underperforming buildings, funding new development and acquisitions with strong coverage and facilitating mergers that generate synergies.

And three, Genesis is a superior operator.

Despite the challenging environment our property level Genesis payment coverage is only 1 basis point lower than it was four years ago -- 1 basis point.

Property level EBITDAR increased a healthy 2.5% per year during that period.

And remember that we owned the legacy Genesis portfolio, which is concentrated in the mid Atlantic and new England.

These are hands down their absolute core assets.

Final comment here is that we expect Genesis to refinance our mortgage loans with significant pay downs coming this year in line with the business plan.

Turning to 4Q investments, we closed $1.5 billion at a 6.80% initial yield.

It is fair to say that 2016 investment volume will look much different than previous years.

Capital allocation helped drive our historical outperformance and remains a top priority.

Every day we look at the relationship between cap rates and our cost of capital.

Discrepancies plus or minus provide an opportunity to create value.

We have the luxury of not needing to make any rash decisions, but, if buyers have an aggressive view of asset value, we will be happy to crystallize value in select properties.

By design, our investment pipeline is quite limited today and we can fully fund it with operating cash flow and in-process asset sales.

I want to share color on a new relationship, a superb operator called Discovery Senior Living.

Last quarter we acquired six high performing independent living communities in Florida that Discovery built and will continue to co-own and manage.

The properties are typically 100% full with a waiting list.

Significant renovations are nearly complete which will allow Discovery to market the properties at a higher price point generating strong earnings growth.

To fund the acquisition we partnered with the Canada Pension Plan investment Board, or CPP.

This marks the first investment in US senior housing, again highlighting the confidence in our platform by one of the world's leading investors.

The other major acquisition last quarter was with Revera where we partnered with PSP, a long time and important pension fund partner of ours.

The acquisition deepens our large metro market footprint.

Welltower will receive a 6.1% preferred return that grows by 4% per year through 2020.

We sold our final US inpatient hospital last quarter.

The number of hospital beds has been nearly cut in half the past few decades and there are more closures coming.

The old physical plants require massive CapEx and even then the buildings are often unprepared for advances in technology.

We also see an adverse selection problem, the hospitals looking for sale leasebacks are too often the ones you don't want to do business with.

I will wrap up with our excitement about the current environment.

The last down cycle laid the foundation for what Welltower has become.

The next few years will be the ideal environment to take another leap forward.

Now to Scott Estes.

Thanks, Scott, and good morning, everyone.

My financial message today echoes the capital allocation theme that has been essential to our long-term success as an organization.

Calendar 2015 was an important year for HCN in that we positioned the balance sheet for the current period of volatility by opportunistically raising equity in response to the strength of our investment pipeline.

90% of the investments closed in the fourth quarter of 2015 were negotiated during the first half of the year.

And while there is always an urge to perfectly time the equity market, we are glad that we chose to prefund the majority of this activity, allowing us to end the year with essentially the same conservative leverage ratios that we started with in 2015.

While we are poised to generate another year of solid financial results and dividend growth in 2016, our net asset seller message and public guidance for the upcoming year reflects our current mindset of remaining both disciplined and opportunistic while protecting our downside.

More specifically, our ability to utilize dispositions as a source of capital in the current environment should provide multiple benefits.

It should allow us to maintain or further reduce leverage, we can enhance or asset quality and private pay mix, and we can maintain adequate liquidity and execute our 2016 capital plan within a self-funded framework.

Given the recent uncertainty surrounding the macroeconomic backdrop, our conservative approach leaves us well-positioned to wait out the current storm as we continue to appropriately allocate capital to maximize shareholder value.

I will begin my more detailed remarks with perspective on our fourth-quarter financial performance and changes in our supplemental disclosure.

As Tom said, we had a great fourth quarter as normalized FFO came in at $1.13 per share and normalized FAD was $0.99 per share, representing strong 10% and 9% year-over-year increases respectively.

Results were driven primarily by the solid same-store cash NOI increase averaging 3.1% for the full year and the $3.6 billion of net investments completed over the last 12 months.

I'd note that our FFO and FAD payout ratios for the fourth quarter declined to 73% and 83% respectively.

There were two noteworthy items on our income statement this quarter that I would like to take a moment to explain.

First, we incurred $35.6 million in other expenses this quarter which represented a non-cash charge related to marking the value of our Genesis stock holdings to market at year end.

And as a reminder, we essentially received our initial $58.5 million in stock for free as it represented the amount our purchase option for 9.9% of Genesis was in the money at the time they went public.

Conversely, on the positive side of the ledger, we realized a gain on the sale of assets of $31.4 million in the quarter, which was largely due to the profitable disposition of our final US acute-care hospital during the period.

In terms of dividends, we will pay our 179th consecutive quarterly cash dividend on February 22 of $0.86 per share.

This new annualized rate of $3.44 per share represents a 4.2% increase over our 2015 dividend level at a current yield of 6.1%.

In terms of our supplement this quarter, the only notable change is on page 2 where we did add a table providing detail on the number and dollar value of the individual acquisitions and joint ventures completed each year.

Turning next to our liquidity picture and balance sheet.

The fourth quarter was an active one in terms of capital raising activity for the Company.

In October we completed the sale of $500 million of unsecured debt priced to yield just under 4.3% through a reopening of our 10-year notes due June 2025.

And in November we successfully tapped the Canadian senior note market for the first time in our history completing a sale of CAD300 million of five-year notes priced to yield just over 3.4%.

In terms of equity, we issued 1.1 million common shares under our dividend reinvestment program generating $66 million in proceeds.

And we tapped our ATM program for the first time since 2012 issuing 696,000 shares at an average price of $69.23, raising another $47 million.

We also generated $225 million of proceeds through the sale of nonstrategic assets and loan payoffs.

And finally, we repaid approximately $104 million of secured debt at a blended rate of 5.9% and assumed or issued $674 million of secured debt at a blended 3.3% rate.

So importantly as a result, we have over $2 billion of liquidity entering 2016 with only $350 million of line borrowings net of the $361 million in cash on balance sheet and the $124 million of cash received from CPP's discovery portfolio buy in subsequent to year end.

Our balance sheet and financial metrics at the end of 2015 remain in excellent shape.

As of December 31, our net debt to undepreciated book capitalization was 39.9% and net debt to enterprise value was 32.7%.

Our net debt to a adjusted EBITDA stood at 5.6 times while our adjusted interest and fixed charge coverage for the quarter were strong at 4.3 times and 3.4 times respectively.

Our secured debt level remained at only 12% of total assets at quarter end.

In light of the recent strength of the US dollar against both the pound sterling and the Canadian dollar, I would like to remind you of our hedging strategy entering 2016.

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 87% hedged from a balance sheet perspective and 83% hedged from an earnings perspective.

So as a result, the sensitivity of both currencies moving 10% in relation to the US dollar from current levels would impact our earnings either up or down by only $0.01 per share this year.

Finally, I will conclude my comments today with an overview of the key assumptions driving our 2016 guidance.

In terms of same-store cash NOI growth, we are forecasting blended growth of 2.5% to 3% in 2016 as we continue to project solid predictable internal growth across our portfolio.

To further break down this forecast by asset type: first, for our seniors housing operating portfolio, we are projecting growth in the 2% to 3% range as we remain confident in the operating environment and our operator's relative performance.

For our seniors housing triple net portfolio we anticipate growth of approximately 2.5% to 3%.

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

And last, for our outpatient medical portfolio we project an increase of approximately 2% to 2.5% driven primarily by annual rate increases, continued strong occupancy, very low turnover and a retention rate of approximately 80%.

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 2016 guidance are the approximate $163 million of investments through our Mainstreet partnership at an initial cash yield of approximately 7.5%.

Our 2016 guidance also includes $419 million of development conversions at a blended projected yield of 8.2%.

In terms of dispositions, we've included $1 billion of dispositions in our forecast.

This is comprised of $178 million of proceeds from assets currently held for sale at a blended yield on sale of 7.2%, with the remainder representing loan payoffs and other potential property sales.

Although we prefer to avoid any specifics of what we might sell this year, as Tom said earlier, we have a successful history of selling not only nonstrategic assets but also more opportunistic asset sales to lock in attractive values.

My point here is that we have multiple options in our approach to sales this year and believe there are no pools of assets that are off-limits as we evaluate asset sales to most efficiently allocate capital.

Our capital expenditure forecast this year is $83 million which is comprised of approximately $55 million associated with the seniors housing operating portfolio with the remaining $28 million coming from our medical facilities portfolio.

As Scott mentioned, these amounts continue to represent a relatively modest 7% to 8% of anticipated NOI in both asset categories due to our generally more modern portfolio.

Our G&A forecast is approximately $160 million to $165 million for 2016.

The majority of growth on a year-over-year basis is due to the annualized 2016 impact of hires and infrastructure investments made during 2015.

We remain very comfortable with these spending levels to support the continued growth of the organization.

I would also note that we expect first-quarter G&A to be slightly higher than the average for the year as it typically includes accelerated expensing of stock-based compensation for certain employees and directors.

We anticipate incurring income tax expense of approximately $16 million to $18 million in 2016, based on our latest estimation of taxable income that is largely generated by our seniors housing operating portfolio.

And finally, as a result of all these assumptions we expect to report 2016 FFO in a range of $4.50 to $4.60 per diluted share and FAD in a range of $3.95 to $4.05 per diluted share, both of which represent 3% to 5% growth over normalized 2015 results.

So in conclusion, our focus on capital allocation entering 2016 prioritizes enhancing the quality of our portfolio and private pay mix, maintaining a strong balance sheet and low leverage, and retaining ample liquidity until the broader capital markets environment improves.

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

Thanks, Scott.

I want to leave you with a message that we are confident in our ability to create shareholder value in 2016 and beyond.

Let me remind you that when senior housing was in disarray because of lack of capital post financial crisis or because of the oversupply in the early part of the century, our shareholders benefited tremendously and we grew exponentially by recapitalizing the industry.

Today, we are in the strongest position we have ever been with our leading balance sheet, long-term institutional capital partners like CPP and PSP, our portfolio of best-in-class operators, significant local scale in top markets, and a deep understanding of how all these work together as a real operating platform, not a financially engineered yield portfolio.

I cannot be more excited about what lies ahead for Welltower.

So for the Q&A we have a few other folks in the room here.

We have got to that are well known to you, Paul Nungester and Steve Schroeder, and two that are new on the Q&A but who I think are well-known to lots of people on the phone, Tim Lordon and Shankh Mitra.

So now, Calea, please open up the line for questions.

(Operator Instructions).

Josh Raskin, Barclays.

Appreciate, Tom, you guys hitting all of the hot topics in the prepared remarks.

Want to ask a question just about that shop same-store cash NOI, the 2% to 3% in 2016.

And want to understand what the buildup is there and how you think about that sort of long-term sustainably.

I know you guys have talked about a range maybe slightly higher than that, and obviously you have operated a lot higher than that.

And then I guess as part of that, I know last quarter you talked about these five facilities in the Northeast that had some flu issues that were a 130 basis point drag.

Any update on those specifics?

And I am assuming the flu is a little bit more helpful now.

Yes, that is for sure.

Less flu and less snow this year in the markets.

That kind of crushed us last year with snow removal costs and labor costs because of difficulty in getting to and from the facilities.

Great, so, Josh, I am happy to answer that -- Scott Brinker.

There are a couple of questions; I will try to remember them one at a time.

The first I think was the 2% to 3% growth outlook and how did we get there.

And from where we sit today our same-store occupancy is slightly above last year, so that is a good starting point.

I have said on a number of occasions that 90% plus of NOI in the senior housing space can be explained in three variables: occupancy, rate and labor.

So, I just talked about one of them, occupancy, looks good.

But we have been conservative in our guidance and assumed essentially no change in occupancy through the year just given what is happening in the economy and there is some new supply.

Now hopefully we will do better than that, but that is what is in our guidance.

And then on rate, we have continued to grow in the 3% to 3.5% range and that is generally what we expect in 2016.

And the third component is labor and that is probably the one where I wouldn't say we are worried, but it could be a bit higher this year than it has been recently.

A number of states and cities have increases in the minimum wage and certainly the new supply in certain markets does impact the labor pool.

So we are expecting compensation expense to be a bit higher than rate growth this year in our budget.

And that is what leads into the 2% to 3% projection for the year.

Now longer-term what I would tell you is we projected in the 4% to 5% range when we made our first RIDEA investment more than five years ago.

Obviously we have done better than that.

On average there will be fluctuations.

We also probably didn't expect that inflation would be virtually zero when we made that projection, which is where it is at today in a lot of our core markets and yet we are still growing in the low threes.

So, what we feel confident in is that we will continue to outperform the sector, which we have done year after year after year.

And that we will outperform our peers.

And that is probably a better way to answer the long-term growth outlook, Josh.

It is so hard to say for sure what the overall economy is going to look like.

And the only thing I would add to that is you have to really look at the markets where our assets are located.

These major metro markets are very difficult to bring new supply.

You know we are very focused on major metro markets where we already have assets and where we are looking to bring additional supply.

And I -- if you look at the aging of the population, there is going to be more and more demand and limited options, particularly for people who have dementia and Alzheimer's disease.

So, that is one of the reasons why we are still pretty bullish on at least our portfolio and how it will perform over the long-term.

Got you, that is particularly helpful.

And then just one quick follow up on Genesis.

I think the answer to this is no just based on your prepared comments.

But will you guys think about joint marketing a few assets?

Or I know you talk about dispositions as part of the strategy, I don't know if it is in that $1 billion.

But is that something within the relationship that you guys are talking about?

Yes, we talk a lot about -- we are close with the Genesis management team and also with their financial partner, Formation Capital.

And so, we have lots of discussions about how do we best position Genesis and how we best position Welltower.

So all options are considered, Josh.

Okay, that is fair.

Ross Nussbaum, UBS.

A couple different questions.

The first is Genesis related.

They obviously reported Q4 numbers back on January 25.

Is -- why are you still reporting the September 30 coverage?

Is there any hope that we can get that sort of reported up on a real-time basis?

And is there anything you can say anecdotally I guess about how the coverage change in Q4 based on their results?

Yes, Ross, I am happy to answer that.

It is Scott Brinker.

So they announced their -- or pre-announced their corporate (technical difficulty) a couple of weeks ago, but you will probably remember it was quite limited what they talked about.

And until they announce their full earnings next week, we are just unfortunately not in a position to really say much more.

It is just you have the data, we would like to talk about it, we can't.

Okay, makes sense.

Number two, Scott, can you talk about the loan advances you made in the fourth quarter?

You guys lent out $183 million and it brought the full-year total up to over $700 million.

Can you talk a little bit about what types of loans were these?

Were these construction loans, bridge loans, perm financing?

And then maybe talk about the underwriting.

What were the LTVs, interest coverage?

Can you give us some color on all that?

Thanks.

I'd be happy to, Ross, these are mortgage loans that are very similar to what we did to help them finance the skilled health acquisition in early 2015.

So when they closed on the portfolio acquisition with Revera in the fourth quarter, we provided some short-term fully secured mortgage financing to help them accomplish that transaction.

Now the long-term plan in both cases is that they will bring these properties to HUD and replace our -- I will call it high cost financing at 8% plus with very high escalators with lower cost, in the 4% range, HUD financing that is nonrecourse and has a 30-year term.

So, that is what the majority -- the vast majority of the loan volume in the fourth quarter represents, Ross, is just a mortgage loan to help them finance that Revera acquisition.

And we expect it to be repaid over the next call it 12 months.

Okay, and then last question from me.

Just based on sources and uses of capital, if I look at the remaining development spend, it looks like you have got just a little over maybe $550 million something for 2016 and 2017 to fund the development side.

So if I think about match funding and capital recycling of call it $1 billion, that just in rough numbers would leave another call it around even say $400 million that could be deployed toward acquisitions on a leverage neutral basis.

Is that a wrong way to be thinking about in rough terms what the acquisition volume would be on a leverage neutral basis without returning to the equity markets or increasing dispositions?

I think that is generally right, Ross -- Scott Estes.

We do have a -- one thing you didn't mention is we have $400 million of debt maturing in March.

So the only other item that is contemplated in guidance is that we've replaced that with prevailing rates.

So 10-year debt for us today is probably in the 4.4% or 4.5% range.

But the three pieces for the sources other than that are retained earnings, we obviously get about $300 million from our DRIP and then the $1 billion of dispositions in addition to that.

Okay, so you are going to leave the DRIP on?

Yes, the DRIP, yes.

Not the ATM.

Okay, thank you.

John Kim, BMO Capital Markets.

On your joint venture with CPPIB, can you just discuss if there was any discussions on partnering on your existing assets rather than new acquisitions?

We have many discussions with CPP, they are a close partner of ours now and we -- so you should assume that any and all possibilities are discussed with CPP.

And then what about right of first offers in Florida?

Do they have any as far as new acquisitions for you or dispositions?

Yes, John, it is Scott Brinker.

There are mutual rights of first offer based on defined (inaudible) around the properties that we acquired that is limited to independent living building since that is what we acquired with them.

Okay, and then on your $1 billion of dispositions guidance, can you just elaborate who the buyers in the market are today and how we should be thinking about cap rates -- those 9% in dispositions in the fourth quarter?

But as you mentioned, 7.2% on assets held for sale.

So how should we think about cap rates going forward?

Well, a lot of the $1 billion is loan repayments.

So the buyer is HUD rather than -- HUD you wouldn't ordinarily think about as a buyer.

The others that we have in process, it's for the most part private equity groups.

You'd have to ask them about their return expectations.

I know ours have increased a bit.

But I don't think there has been enough transaction volume, at least in seniors housing, to know where cap rates are going.

I would say medical office is such a liquid market with a lot of buyers that I don't think the impact of the public REIT share prices or the non-traded REITs no longer raising money has much of an impact in that sector.

And we have seen several skilled nursing portfolios very recently transact at cap rates that are really no different than what we've seen for years in that business.

Seniors housing is where it has slowed down a bit.

So I think a lot of people are wondering where cap rates will ultimately head.

Okay and then finally on Genesis, I appreciate that they haven't reported full-year results yet.

But they did try to a sequential decline in EBITDAR in the fourth quarter.

Can you just elaborate why you felt confident that their headwinds are not the same as ManorCare's given the pattern seems like it is very similar?

Yes, I mean there are a long list of things that are different.

Now I know a lot more about Genesis than I do about ManorCare.

So I will -- by the time focus my comments on Genesis.

But it gets back to the comments I made in my script, John.

They clearly are facing some industry headwinds, but those headwinds aren't new.

Medicare advantage has been an issue for years and years, putting pressure on length of stay and rate.

And Genesis has stayed ahead by getting out of certain assets, acquiring assets that are better fits for the current environment, and actively managing their labor costs, which again is the most significant operating expense.

And the other thing I would mention is they have a much lower Medicare mix.

And that probably has an impact on why they have held up better over the past four years, because a lot of the pressure has been on the Medicare side of the business.

And the other distinction I would make is the results at the corporate level.

So I talked about property level cash flow being more than adequate to pay their rent, but there is also a huge difference in terms of the corporate cash flow which provide a significant security blanket for our rent payment.

And they have been able to grow that cash flow through merger synergies and they will grow it going forward through refinancing and probably some asset buybacks.

Can you just remind us what percentage of Genesis equity that you own?

It is just over 4%, John.

Thank you.

Chad Vanacore, Stifel.

So, just looking at the SHOP portfolio, occupancy has actually improved for the past couple quarters.

What are you seeing or expecting that you are factoring in to get to your flat occupancy in 2016?

Chad, we like the market position of our buildings and the vast, vast majority of our locations.

But I just remember just back 12 months ago when it seems like the day after we hung up on our fourth-quarter earnings call, occupancy started to drop pretty quickly because of the flu.

So there is just some things that you can't predict and we are taking a conservative approach here.

I mentioned earlier that occupancy today in the same-store pool is above last year.

So, that implies that we should be in a good position.

And we continue to see positive trends, really in all three countries.

All right.

So speaking of all three countries, I think, Scott, you might have mentioned that you expect a rebound in the UK.

How should we think about that given occupancy starting at a much lower level now and how should we think about that growth?

Yes, it is and it will probably ramp up over the course of the year.

And I'd get back to the comment I made about the three variables that really impact performance.

The first is occupancy and there is clearly a rebuilding that was necessary after the flu season last year, but we have seen it.

Across that portfolio occupancy is coming back very strongly.

The second variable being rate and we have continued to increase rates in the 3% range if not higher this year.

The third variable is more challenging and that is labor because of the impact of the -- of the living wage which is up 7% throughout the country and even higher in other markets.

So unrelated to anything that Sunrise can control, there is just an external factor that is going to be a headwind on NOI growth this year.

All right.

And just one last one.

So you have done several JVs with capital partners now.

Can you talk about your thoughts on what these capital partners are bringing to the table and why don't you just go it alone?

Well, they bring some of the largest pools of capital in the world.

And, Chad, we believe that there is going to be an increasing need for senior housing in the major metro markets.

And if you think about the cost of building in midtown Manhattan or central Washington DC or San Francisco, it is significant.

And it is important that institutions like CPP now understand the investment thesis for deploying capital to seniors housing.

The other piece of this that we, again, very much believe is that it is going to take trillions of dollars to rebuild the acute care hospital system in this country to basically accommodate technology that is with us today or will be developed in the future that will dramatically allow us to lower healthcare costs and improve outcomes.

We have a lot of antiquated acute-care hospital infrastructure in this country.

So while I would like to think we could go it alone and the capital markets will accommodate us to fund every bit of capital need that we will need to build this infrastructure, we are not that big a gambler.

So it has been very important for us to spend time with institutions like PSP and CPPIB.

And we will bring others in because I think they understand we are smart and we can provide them opportunities that they cannot find on their own.

And they will also see interesting opportunities to deploy capital at returns that possibly aren't available in other sectors in the traditional sectors of real estate where they are one of the major owners.

Chad, the other thing I would mention is they give us and a lot of flexibility.

Keep in mind that as a healthcare REIT we can't (technical difficulty) operating companies, at least we can't own more than 35% of them.

So Sunrise is an example, we would love to own the whole thing but we can't.

So this is a company that is worth probably $500 million plus.

Okay, this is a big profitable company.

And the question is, if healthcare REIT Welltower can only own up to 35% of that company who owns the rest?

There are very limited people that could write a check that size; private equity is one, but frankly, generally speaking they don't align with our approach to business.

So PSP, acting through Revera, owns the balance of Sunrise alongside of us.

And that is just one example of how we are I think controlling our own destiny, helping shape the future of the industry through these ownership stakes that without a group like PSP we would not be able to do.

Scott just said it, we are a long-term investor and these are long-term investors, they are not managing to a seven-year fund return.

So we think we are much more aligned with this investor class.

And I think you will see more of that from us.

All right, that is great color.

Thanks.

Vikram Malhotra.

Just going back to the RIDEA growth across the different geographies, can you maybe just give us a range of how that 2% to 3% would pan out in the three different regions?

Yes, I would be happy to, Vik.

The US is 70% of that portfolio and drives the majority of the growth rate.

So you should expect it to be right in the middle of that range.

The UK probably a bit higher but back end weighted in the second half of the year.

And then Canada a bit lower mostly because of the economy there, inflation is zero.

And you obviously talked about the expense of the wage pressures in parts of the US and in the UK.

Anything -- any similar trends in Canada or pressures in Canada?

We haven't seen as much in Canada, Vik, probably driven more just by the health of the overall economy there.

The labor market is much more reasonable.

It is really the UK because of the change in the living wage and then particular markets in the US which have a higher minimum wage.

And the UK has a -- particularly around London has a very tight labor market.

There is a demand particularly for people with nursing skills.

And a lot of that is being -- it is complicated because a lot of that demand is being met through nurses that are coming from other countries.

And then you start to get into a whole immigration discussion.

So it is quite complicated, but that is where a lot of the pressure has been in the UK.

Okay, and then just to understand kind of the methodology you used to kind of come up with your RIDEA growth numbers and kind of what the impact of supply is, I think some of your peers use sort of a 3% absorption number factored into that equation.

I'm just wondering what you guys use.

And can you maybe just give us a little bit more color on how you -- what sort of industry trends you assume in that model?

Yes, Vik, I think the number that you are referring to is in the supplement.

So I will just use the 3-mile radius as an example because we still think that is the most appropriate for our urban locations based on where residents usually come from.

If we had a more suburban or rural market portfolio I think 5 to 10 miles is more appropriate.

But for Welltower I think 3 miles really is the best radius to be looking at.

So in this quarter's supplement we say that 1.7% of our total NOI is impacted by new supply, okay.

And that assumes that all of the NOI from the properties that we own will be impacted 100% by the new supply.

So it is kind of a worst-case scenario, meaning if you take all the properties in our portfolio that are impacted by new supply, that 1.7% assumes that NOI at those properties goes to zero, which is obviously not going to happen.

In fact, our history is that properties in our portfolio that are subject to new supply have actually held up quite well when new supply enters the market.

And we have studied it for years, look at the performance before and after the new competition enters the market.

And on average occupancy is pretty much flat and NOI has been up 4% on average.

So it is not the draconian downside necessarily that people assume.

Okay, that makes sense.

And then just last one on Mainstreet.

Correct me if I am wrong, but I believe you had -- when you had announced this in 2014 you talked about potentially $1 billion worth of acquisitions or at least the option to buy them.

And you baked in, if I am not wrong, about $160 million.

Can you just talk about incremental opportunities from over and above that?

Yes there were two different pipelines, there were 17 buildings that we are committed to acquire.

And we've now closed on 12 of those, so there are 5 more to come.

And then there were 45 additional properties that had yet to be started.

And those are starting to roll out and the structure on those is that we provide a small mezzanine loan, Mainstreet puts in a lot of equity and then obtains a third-party construction loan.

And when those 45 buildings open one at a time we have the option to buy each one at a 7.7% cap rate.

So it is one building at a time, our option.

Okay, thanks, guys.

Vin Chao, Deutsche Bank.

My question has been answered actually, thanks.

Jordan Sadler, KeyBanc.

A question on the proposed acquisition mix.

I mean I know there is nothing embedded in guidance today, but I am curious given sort of the dislocation, at least in the public markets related to the ManorCare news, if you will, if there is any opportunity to get -- any opportunity in post-acute, if you would look to get bigger there, invest incrementally.

And then maybe any other comment of any other vertical within the portfolio you would be interested in sort of deploying incremental capital.

Jordan, let me make sure I understood.

You are saying has there been interest from other parties in our skilled nursing assets, either buying them from us or investing, helping us fund development of skilled nursing?

I am more interested to know what you want to do with your capital as you look forward.

So obviously we saw [PSL], but I'm curious what you do in the post-acute space.

So where we are interested in post-acute is investing in the next generation of post-acute care.

We are not interested in owning lots of low Q mix nursing assets.

And you know we have sold lots of them over the years that Scott mentioned that's been a component of the $4 billion in dispositions we've made.

We believe in the post-acute sector.

We do not think it is going away.

And so we will deploy capital into the next generation of post-acute of which Genesis is one of the operators that is offering that product through its PowerBack facilities.

We think that is a good place to commit capital.

We think -- recently, just this past Monday we were with Cleveland Clinic and they mentioned that they had just formed a relationship with Select Medical where they are actually in a new suburban setting where they have an outpatient and a smaller hospital, they are actually putting Select Medical post-acute beds attached to the hospital that Select Medical will run.

So hospitals more than ever need strong post-acute operators.

And so, that is where we will deploy capital.

We are not looking to acquire skilled nursing beds because the cap rates look attractive.

That is not what we do as a Company.

And I think that is a very important differentiating point about Welltower.

I might answer that question, Jordan, in a little bit of a different way too.

A lot of Tom's comments just focused on post-acute, but really in a time where capital is more precious we really focus on our existing partners.

You all know that we have a partnership-based approach and we have 30 partners that we have been growing with historically.

So if you had to think about asset mix, as Tom said, post-acute may be a part of it.

But I think primarily seniors housing is where we have our largest share of relationships -- we're always going to be I think focused in seniors housing area first and foremost.

Okay, that is helpful.

And then separately on returns and cap rates, Scott Brinker, I think I heard you sort of in response to a question mentioned that you had ratcheted your return expectations higher.

I am curious how much or to what degree, what asset classes?

It is hard to even say what the number would be, because we just think at our current stock price there is no reason to do anything.

It is a ridiculous price to try to raise money at.

I don't think it has any connection to the intrinsic value of the Company let alone the platform.

So, we are not really thinking about acquisitions right now.

There is a pretty large gap between market expectations for cap rates and what would make sense for us.

And that means we are going to keep relationships warm.

And when that discrepancy flips, and at some point it will, we will be active again.

Is there a disconnect between sort of that comment regarding the equity and keeping the DRIP on?

I guess, yes, we would say -- I would say it couldn't hurt to look at it.

Actually we never turn it off and fortunately been a position.

And if we stated what we would argue is a depressed stock price for a period of time we could do it.

So I think it is worth looking at again to the extent we trade it at a lower value for a longer period of time.

Really raising only about $50 million or $60 million-ish per quarter in terms of the number of shares that typically come in.

Okay, thanks for the color.

Tayo Okusanya.

Good results, good to see.

Two quick questions, first of all the JV with Canadian Pension Fund, just kind of given how large some of their other JVs have been in the US, just kind of curious how big do you think that could potentially get or whether this is more just a one-off thing?

Tayo, I don't have that information because they are not a public reporting entity.

But you should assume they own some very large -- for instance, central business district metropolitan office buildings.

You have a better idea of knowing what those are worth than we do.

But just assume that they have billions of dollars allocated to top-end commercial real estate around the world.

So, but is the expectation that this JV gets bigger with you over time?

As we present them opportunities that meet their investment targets, yes, I would assume that will get bigger over time.

Okay.

Tayo, the relationship goes both ways.

Think about PSP who owns Revera, they've brought us $2 billion of opportunities over the past four years that are now in our portfolio.

So this isn't a one-way partnership.

Got it.

And then the $1 billion of dispositions, any sense timing wise as we try to model that?

Should we just go with the (inaudible) convention or -- spread it evenly throughout the entire four quarters?

Just curious because it does make a big difference to the numbers.

It is probably best to spread it evenly throughout the year, Tayo.

I mean what is held for sale on our balance sheet is about a $110 million MOB portfolio and a $60 million senior housing triple net portfolio.

Scott Brinker mentioned loans is clearly a component of that again like using the potential Genesis refinancing as an example, will take time to play out throughout the year, to go through the HUD process and then everything else will be opportunistic.

So I do think it is probably best to blend it throughout the year.

Got it, okay.

Then one last question is UK related.

I know Avery is little bit different because of the amount of residents in most Avery facilities that get assistance from the local authorities is lower than the national average.

But just when we think about the UK as a whole, this combination of wages going up dramatically, this idea that a lot of the local authorities are trying to lower or not increase payment rates as aggressively as it has been in the past few years.

We think about a lot of care home operators in the UK being fairly levered entities.

What do you actually think is the ultimate outcome here in the UK?

Do we go through a round of consolidation?

Or do you kind of somehow think that somehow the other local authorities will be forced (technical difficulty) as is?

Yes, Tayo, there are really two businesses in the UK, 95% plus of what exists there are buildings that we wouldn't want to own because the real estate quality is pretty bad and the payer mix is virtually all government pay.

And I think that business is in a lot of trouble, that is why we did not invest any capital into that space over the past four years when we so aggressively pursued the high-end private pay market.

And I say that because: one, the real estate quality is low; but two, think about the minimum wage impact when government reimbursement rates are increasing maybe 1% a year and your staffing costs are going up 8% to 10%, that is a tough dynamic to manage through.

And I contrast that with the three portfolios that we own in the UK, Sunrise, Signature and Avery, all of which have 90% plus private pay.

They actually increased rates at pretty substantial percentages this year to offset most of that wage increase.

And that is why you really do need to think about two different sectors that are targeting two very different residents.

Tayo, we offer an alternative to either local authority when it comes to eldercare or even on in acute care.

As you know, we own four hospitals in London that are private pay hospitals.

So if you think about a network of -- in London today of over 70 eldercare facilities that are private pay that are networked with four private pay acute-care hospitals, that is a formidable entity that -- because the fact is you have -- in the UK they can't afford to treat their growing elderly population in NHS beds, they just can't do that.

And I think that there is going to be an increasing demand for private pay healthcare options as more and more of the population will not get what they want from the government.

Got it, that is helpful.

Okay, thank you very much.

Michael Carroll, RBC Capital.

Scott, you indicated in your comments that HCN has been preparing for the changing reimbursement environment for the skilled nursing facilities base over the past few years.

Can you quickly highlight what those changes were?

Were those just mainly the sale of lower quality assets and retaining some of the higher quality assets you think that could benefit from these changes?

Yes, exactly, Michael, I talked about Genesis increasing property level NOI by 2.5% per year over the last four years.

The assets that we sold would not have held up that well.

They had very low coverage, older buildings, really no corporate credit and that is important to understand.

In the skilled nursing business generally speaking there is no corporate credit behind these leases (technical difficulty).

Although they may not be AAA they are just substantial entities standing behind (inaudible).

And we are happy to invest more with Genesis, we have been doing that, but we have been focused on the modern post-acute properties that often have higher payment coverage as well so that there is an even bigger cushion.

Do these modern facilities have a higher percentage of Medicare patients that would see more pressure?

Or do you expect that the modern facilities will be able to capitalize because with the bundled payments they can capture more of that volume?

Yes, they will capture more volume without question.

When you think about the healthcare business really transitioning to more of a consumer based industry, where would you rather go given the choice?

If you have been in one of the Mainstreet properties or PowerBack, these are very nice properties in terms of a private room, big rehab space, the amenities in comparison to the typical 50-year-old nursing home, semi-private rooms.

The future is what I mentioned with Cleveland clinic which is in your backyard and/or what we have with Virtua in Voorhees where you have got a PowerBack contiguous to the outpatient and the acute-care hospital.

That is the future, that is what hospital systems have to embrace that they need to partner with the best-in-class post-acute operators and Genesis is one of them.

Okay.

And then do you guys know the breakout of the Medicare mix for Genesis and Mainstreet and if they are being impacted by Medicare Advantage?

And I guess of their Medicare mix, how much of that is Medicare Advantage?

Michael, in the supplement we give the quality mix for Genesis, which would include Medicare, fee-for-service, Medicare Advantage as well as any other private pay or commercial insurance and it is right around 48%, so slightly below half.

We don't disclose the specific breakdown among those different payer classes, the rates are generally in the same range anyway.

I can tell you that of their Medicare revenues roughly two-thirds is traditional fee for service and the rest is Medicare Advantage.

And that is pretty consistent with the national average where, if you look at all Medicare beneficiaries, about two-thirds of them are still in the traditional fee for service business and the other third are in Medicare Advantage business.

Okay, great, thank you.

Smedes Rose, Citi.

I just had a quick question on your loan portfolio.

Are the -- is the interest on that all cash from the borrowers or is there any kind of pay in kind arrangements for some of that or is it all just cash?

It is all cash.

The current rate is 8.1% on the blended loan portfolio, Smedes.

Is there any -- very small part is not cash.

Okay, you covered the rest of my questions, thank you.

Rich Anderson, Mizuho Securities.

So I just wanted to get back to post-acute.

It has been said a few times on the call that this is not a new issue, and I think we can all agree with that.

But now the rubber is kind of meeting the road and operators are having to point out the pressures that they are seeing.

And I would argue that that is not -- or is a new issue.

And so, there is a need for post-acute of course over the long term, but the question is, no one really knows what the ultimately landing point of all this is.

And could there be a significant enough spread versus your rents to their profitability that will ultimately make this okay?

So while the temptation is to maybe goose the rent escalators as much as possible, do you think the endgame here ultimately over the long term will be lower rent growth in the industry so that you are partnering correctly with the post-acute operator Genesis, Genesis and others?

I just want your comment on what the ultimate endgame could be here when you consider the newness of the impact from these not so new events.

Wow, that is a tough question, Rich.

You are asking us to make some predictions which we don't like to do.

It is hard to say.

The way I would answer the question and I would invite anybody in the room here to answer this as well.

I mean the way I would answer it is that you have acute-care hospital providers that are going to be under increasing pressure because of bundled payments.

They are going to need to align with post-acute and senior housing operators.

So, I think if you are focused on working -- oh, and also Scott mentioned a word that you don't often hear with respect to healthcare, which is called consumerism.

As the consumer is forced to have more choices in the future because they are paying more, you're going to --.

There's all these phenomena that to us say, if you are aligned with the leading surviving health systems and you have a post-acute business that helps them manage in a new reimbursement world more effectively, I think that leads to a good outcome for both the acute-care hospital as well as the post-acute provider as well as the consumer.

And that is a new way of talking about healthcare.

Okay, I guess the ultimate question is where does this all end?

And you are saying right now that you are not expecting in the way of rent cuts down the road, no matter how far out you look?

It is hard to say.

I think that this is a complicated area, there will be bumps in the road, it is very hard to answer that.

But we feel we are very well-positioned.

Yes, Rich, rent counts aren't something that we talk about.

I mean think about the facility level payment coverage, which again is the cash from the buildings that we own, it is backstopped by corporate guarantee.

So we feel very comfortable with where we are at from both (technical difficulty).

Okay, and then the comment was just made about your Q mix with Genesis being below 50%.

And I remember having this discussion with you guys about maybe we should be focused more on lower Q mix assets and that concept was kind of pushed aside.

Now you were talking more swimmingly about low Q mix asset classes or assets within the post-acute world.

Do you think that that is the next generation of thought process given all the pressures going on?

No.

And I think there is a huge misunderstanding on that point.

Because the pressure that you are seeing from managed care in the Medicare business will also come from Medicaid.

The states are throwing up their hands and giving their entire programs to commercial insurers who will continue to squeeze this business.

And to me government-funded long-term care is the high cost setting for those residents when you consider the alternatives.

Post-acute is the low-cost setting for those residents.

So you have to think about a market and what it looks like 5 to 10 years from now, not just what the headlines suggest.

So we continue to be a lot more bullish about the sector for post-acute than for long-term residential care, which frankly every state is doing everything they can to keep patients out of long-term care nursing homes.

Yes, okay, fair enough.

Just a quick turn of the topic.

UK, there was a doctor strike a month or so ago for younger doctors, I don't remember specifically where that has gone since then.

But I am just curious if you can give any color on that, how much it concerns you even though it may not have been a direct hit to your business.

I don't think it was something that we have focused a lot of attention on because it didn't affect us.

I guess [there are] longer-term big issues in the UK regarding medical professionals, I think it affects mostly the national health service.

Okay.

Okay, and then last question is a little bit of a brainstormer.

But do have any concern -- you are partnering with large pension funds out of Canada, it is a country that is highly dependent on energy.

Is there any -- have you given that any thought about the longevity of them as partners if we continue to see depressed nature of oil and other commodities?

Rich, CPP and PSP have been around for decades, they are the -- every day they are receiving millions to billions of dollars which have to be invested in safe assets so they can pay out these pensions over time.

They have been around across many cycles whether oil was $100 a gallon or whether it is $20, whatever it is -- we don't worry about that.

They are as stable an institutional partner as you can find in the world.

I was brainstorming, so anyway, appreciate the color.

Rich, we like it when you brainstorm.

We enjoy that.

Okay, thank you.

Come see us and you can brainstorm -- see us in Toledo and we can brainstorm even more.

Okay, sounds good.

Thank you.

Karin Ford, Mitsubishi UFJ Securities.

Recognizing that you can't speak to your specific coverage in 4Q 2015 ahead of Genesis' earnings report, can you just talk generally about what you think the direction of the coverages will be for 2016 given your escalators and the ratcheting interest rates on your loans?

Well fortunately, we can talk about that because they talked about it in their press release a couple of weeks ago.

And the specific comment was at the corporate level, fixed charge coverage is 1.31 times in 2015 and they are projecting 1.35 times in 2016.

Okay, thanks.

And the second question is just a want to ask about your 3% to 3.5% assumption for SHOP rate growth in 2016.

Did Sunrise and your other operators push through rate increases on most of their units on Jan 1?

And given that you have seen occupancy perform pretty well here is that what gives you confidence on that assumption?

Yes, that is a good question, Karin, I am glad you brought it up because of our SHOP portfolio roughly half of the properties do increase rents for existing residents on January 1. But the other half do it on the anniversary date of when the resident moved in.

So it takes some time to impact revenue.

And I'll contrast that with wage pressure, which increases for everybody on January 1. And that is the main reason why we think the second half of the year probably looks a little bit better than the first half this year just given those dynamics.

And when it comes to rates for new residents coming in off the street, we do know what the operators are planning to charge in terms of an increase, but the variable is the timing, right, they come into out the course of the year.

So it doesn't impact revenue on day one.

Thanks for the color.

Kevin Tyler, Green Street Advisors.

Just a quick one on the Genesis side.

I know that there has been some additions to the loan portfolio there.

What is the total balance today stand?

Is it about $450 million on my math or --?

Yes, it is $440 million.

And then is there anything contractually that obligates them?

I get the fact that the loans become more expensive as time goes on, but contractually anything obligating them to pay you back when in HUD funds?

Yes, if HUD funds they clearly have to pay us back.

I mean we have the first mortgage on the property.

So HUD won't close without taking that back from us.

And economically they have a strong incentive to pay us back.

I think the rate escalates by 100 basis points every 90 days and it's at least twice as high as what HUD will charge them.

So the incentives are well aligned here.

Okay, thanks.

And then, Tom, just kind of building on some of the points earlier related to CPP.

In your conversations has there been anything from others -- almost like a follow-on effect from others of the likes of CPP that are now potentially interested more in the medical office, Senior housing, healthcare space in general as they see maybe CCP being -- or CPP being one of the first movers?

Yes, a good question, Kevin.

I think it is early days.

I think that clearly these big institutions that have not invested in the sector before are typically more interested in either urban outpatient medical buildings or -- I would say that would be their prime -- it is easy for them to get their hands around that sector.

But I think this announcement that we made today that now again you have another big global institution partnering with us like PSP in the senior housing space I think raises a flag to others that maybe you should take a look as well.

So I think it is early days, but we are in conversations with a number of them.

Appreciate it, Tom.

Thanks, guys.

Mike Mueller, JPMorgan.

So, thinking about new investments, it sounds like new acquisitions are on hold here.

But that said, how are you thinking about RIDEA senior housing investments compared to triple nets just given the comparable same-store NOI outlooks that you have over the near-term?

And then also, are you still pursuing new development opportunities considering the yields are higher?

On the first question, Mike, triple net versus RIDEA, it is a good question.

And it becomes a bit more nuanced because most of the triple net opportunities that we see recently have been, I'll call them lower quality properties, they are not in our core markets and the payment coverage tends to be quite low, okay, without much corporate credit standing behind the lease.

And if I contrast that opportunity with a RIDEA Class A investment in Los Angeles or New York, I still prefer the risk/reward of RIDEA even though structurally that first triple net investment looks more attractive.

I think that is -- you need to think about it in a little bit more detailed way.

Now if I could get triple net coverages at 2 times a month that may change my opinion, but for the most part the market today is in the 1.1 payment coverage range, which to me you are not really getting as much protection on a triple net lease as the structure may imply.

Got it.

And then development, once you work your way through this part of the pipeline are you refilling that just given the yields are higher or are you pulling back on that as well?

Well, we are very selective when it comes to development.

And again, if you are going to see us develop -- now you know we are developing in London because there is no -- we have already rolled up the existing supply of high end private pay eldercare in the London market.

There still is demand and that is where we are doing some development.

We look very selectively at markets in the US where we know there is no supply or very limited supply of high end private pay senior housing.

And that is where we, on a very selective basis, will allocate capital.

Okay, thank you.

Todd Stender, Wells Fargo.

Just probably for Scott Estes.

You have about $170 million of properties included in the available-for-sale bucket.

Just because dispositions seem high this year, what kind of visibility do you have on the remaining portion of assets and what is in that available-for-sale group?

Again, hey, Todd, the help for sale is two portfolios, again about $170 million, like I said $110 million of medical office buildings and a $60 million senior housing triple net portfolio.

I would say you probably have -- getting us up to our -- from that $170 million up to roughly half of the total disposition number with potential loan payoffs, and there was a little bit of variability again largely to timing of Genesis going through the HUD process.

And then the rest is really probably the most flexible piece.

So I think we really just want to maintain that flexibility.

We have the luxury of time here.

We feel good about where our leverage is.

But do you have a more specific question?

Because, again, we didn't want to identify specific assets.

There is a lot of options and where pricing is in certain markets we can be opportunistic and if we can also do some things that enhance the quality of the portfolio we would look at those too.

Now that you are going into Florida with the CPP deal, any overlap with your existing footprint down there?

No, we don't have much in Florida actually, it hasn't historically been one of our targeted markets.

We just happen to like these assets in particular.

These are big campuses that stay virtually full 100% of the time.

And equally important discovery is as good as we have seen, especially at the marketing side of the business and controlling costs.

So, it is I think a reminder that our business is driven (technical difficulty) by real estate but also by the quality of the operations.

And that is what we found so attractive about this particular portfolio.

Great, thanks, Scott.

(Operator Instructions).

Jonathan Hughes, Raymond James.

Thanks for taking my question.

Long call, I just had one.

I know you laid out your strategy and rationale for exiting US hospitals and that was very helpful.

But wouldn't now be possibly a good time to increase exposure to the asset class given operators better understand the ACA impact and hospital values are probably more attractive than before last year's 2Q peak?

I am just trying to understand your strategy of exposure to that sector while one of your competitors is selling out.

So this is where we -- this is our -- where we come out on that.

The hospitals that we would want to own are not available.

You can only buy hospitals that we would -- today that we consider not good long-term investments.

We believe that much of the hospital supply that exists today in this country will be taken out of service.

It will follow the path of many other sectors of real estate that you have seen taken out of service.

We have got a lot of empty department stores anchoring struggling malls in this country.

Remember there was a day that every city in America had its own unique department stores that were part of the social fabric.

And those don't exist today because most of them are have gone away or they are called Macy's.

And you -- I predict that many of these communities that all have numerous acute-care hospital systems in the next 10, 20 years you will see very few.

And you will see the big non-for-profit brand names in healthcare, so the Cleveland Clinics, the Mayo Clinics, the Johns Hopkins start to proliferate into other markets.

So I think you can look a little bit of history and -- from a real estate perspective to know that a lot of hospital supply that you can buy today is probably going to be -- if you think the cap rates are attractive today, just wait a little while because they are going to be more attractive when you are buying buildings that are being taken out of service.

So this is not an area that we will deploy capital.

We think that is not the right strategy for our shareholders.

Okay, fair enough.

Thanks for the color.

Juan Sanabria, Bank of America Merrill Lynch.

Just on Genesis, could you give us any sense of what the coverage would be at the facility level EBITDAR if you excluded the therapy billings?

And just on that same point, does Genesis have any ability, for whatever reason, if they wanted to sell the therapy business under the master lease is that permissible as the way it is structured?

They cannot sell assets without complying with financial covenants.

And where they sit today there is no chance that they would be able to sell an asset that is valuable like the rehab therapy business without our consent.

So that is easy.

I am not sure I follow your first question though about rehab.

Is there a way to strip out the therapy billings, sorry, from EBITDAR coverage?

What would it be if you exclude that?

I am not even sure what you mean, exclude -- I am not sure, Juan, where you are going with that, the rehab billings?

I mean they own their own therapy company.

Therapy.

Yes, so they charge -- the rehab therapy company charges the facilities for rehab.

And that is what is in our number.

Yes, other companies may not have that therapy billing, so I'm just trying to get an apples-to-apples comparison.

That is because Genesis owns its own therapy company.

Fair enough (multiple speakers).

Just one question -- a follow-up on G&A.

What is driving the 10% increase in guidance and what would you expect that number to grow kind of on a go-forward basis?

Sure, Juan, we have a guidance range that implies about -- again 10% growth like you said.

The majority of it is actually the run rate on existing hires and processes have been put in place in 2015, that is about two-thirds of the growth.

And then we have a pretty limited remaining amount, call it $5 million to $6 million, that is largely what I would call professional services related.

So those would include items like consulting, tax, legal, HR.

And what I would actually give as an example, because we are very focused on lowering our G&A costs, included in that G&A estimate is about $2 million to $3 million of consulting work we are doing in the tax area.

But it is projected to generate savings of $6 million to $7 million on the tax expense line.

So, we actually have a little bit of a shifting that is going on this year where we are incurring a little bit higher G&A, but net we should save the Company actually a good bit of money.

Can you give any color on what those tax savings may be coming from or look like?

Sure, yes, there is a -- well again, like we -- our tax expense guidance of $16 million to $18 million did include the benefit of those saving, so that number is lower in our forecast as a result.

And in example of something like we have a pretty complicated number of structures in terms of the sheer number of TRS' in our idea portfolio.

So if we can consolidate 125 TRS' into one that gets a lot more efficiency on which of them are generating income, the efficiency of it, the tax returns and it reduces your overall tax expense, that is one of the projects that we are working on.

Thanks, guys.

Thank you, ladies and gentlemen, that does conclude today's conference call.

You may now disconnect.