Operator: Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Health Care REIT Earnings Conference Call. My name is Brooke, and I'll be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. As a reminder, this conference is being recorded for replay purposes.
Now, I would like to turn the call over to Jeff Miller, Executive Vice President, Operations and General Counsel. Please go ahead, sir.
Jeffrey H. Miller - EVP, Operations and General Counsel: Thank you, Brooke. Good morning, everyone, and thank you for joining us today for Health Care REIT's fourth quarter 2012 conference call. If you did not receive a copy of the news release distributed this morning, you may access it via the Company's website at hcreit.com. We are holding a live webcast of today's call, which may be accessed through the Company's website as well.
Certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Health Care REIT believes results projected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its projected results will be attained. Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news release and from time to time in the Company's filings with the SEC.
I will now turn the call over to George Chapman, Chairman, CEO and President of Health Care REIT for his opening remarks. George?
George L. Chapman - Chairman, President and CEO: Thanks very much, Jeff. During my more than two decades of involvement in the senior housing and health care industry, I cannot recall a time with greater dynamism or opportunities.
In 2012, Health Care REIT was both a beneficiary and driver of these dynamic markets and Scott Brinker and Scott Estes will provide you a quantitative and qualitative summary of our quarterly and annual investments and performance, but I want to set the stage by touching on some of the most important themes. First, our strategic plan is focused on maximizing total shareholder return by building a portfolio of high quality communities and facilities in the strongest markets operated by the most capable operators and health systems, all else demonstrated by their clinical and operating results.
Our recently completed Sunrise acquisition was a milestone in execution of this strategy, but there are numerous other relationships, developments and acquisitions that also advanced and solidified the strategy. Among the noteworthy investments during the fourth quarter were our major addition of $530 million to our Belmont relationship and the $240 million expansion of our relationship with Brookdale both through RIDEA investments. Underpinning this strategic effort is our belief that this portfolio and network of relationships will deliver consistent and resilient returns over the long-term.
Of the $4.9 billion of investments in 2012, $3.7 billion of them came from existing relationships, and of the $2 billion of fourth quarter investments 94% came from our relationship. So, we really believe in these relationships, I think that real estate is terrific and that our risk adjusted return profile is very, very strong. And Scott will cover in more detail. We think our investment thesis has been worn-out during the last several years.
Second, execution of our strategic plan has involved a thoughtful repositioning of assets. We have purposely invested in high quality facilities and stronger operators with less exposure to government reimbursement. We are particularly focused on private-pay senior housing assets that have proven their resiliency in tough economic times. The measure of each new investment for us as further will achieve solid growing yields and steady appreciation over our long investment horizon.
We have purposely disposed-off assets that did not meet these criteria, including some relatively high yielding, but riskier assets. As all real estate investors know there are always a number of assets that do not perform as well as expected and we are quite aggressive in managing these non-core assets producing large net gains, while driving more internal FFO growth and maximizing long-term value.
Third, we have successfully managed the integration of our operating platform. Practically speaking integration means engaging in a robust budgeting process with our operators, monitoring and evaluating operations against that budget and for that matter industry benchmarks, capitalizing on development and acquisition opportunities with these operators, maximizing operational efficiencies and putting in place a requisite people systems and processes.
Before we ventured in the operating space, we believe we have the industry's most experienced and talented people and the industry's best systems. Those were dramatically strengthened during 2011 and 2012 and the operational results attest to the success of that integration.
Our RIDEA platform portfolio has exceeded our underwritten expectations in every quarter since our first investment in 2010. And there are also a number of qualitative measures that underscore the success for example on various occasions, I have spoken about our facilitation of best practices and group purchasing by some of our RIDEA and triple net operators, while at the same time being mindful of the necessity of competitive independence.
Fourth, our medical office building portfolio had a strikingly successful by any measure. Our acquisition pipeline continues to be strong as we closed $900 million of investments in 2012, our development starts and conversion hit the target that we set and our property management group once again demonstrated its depth and savvy by delivering industry leading occupancy of 94.4%, maximizing revenue and carefully managing expense growth.
Finally, we do not intend to rest on our worlds. The overall market dynamics coupled with the implementation of the Patient Protection and Affordable Care Act have created unique opportunities and risks. Within that opportunity and risk set we intend to chart our tactical force based on our strategic plan. This means that we will continue to aggressively look at opportunities both in the senior housing and health care sectors, continue to comprehensively evaluate domestic and international opportunities and drive resilient, internal and external growth both by increasing NOI in our existing buildings and working with our network of relationships to acquire and develop new facilities. Once again, we will be both a beneficiary and a driver of markets in 2013.
With that, I will now turn the microphone over to Scott Brinker who will give you some perspective on our investment since we last reported to you, and then in turn to Scott Estes who will give you more detailed summary of our financial performance and 2013 outlook. Scott?
Scott Brinker - EVP Investments: Thank you, George and good morning, everyone. We are seeing strong demand across the core portfolio. Same-store NOI continues to grow at a rate that far exceeds inflation including 4% growth in 2012 which follows 4% growth in 2011 and 3.9% growth in 2012. Superior growth and low volatility is exactly the combination we built our portfolio to achieve. Nearly, 80% of our NOI in 2013 is expected to be from private-pay sources. Meanwhile, our government reimbursement portfolio is comprised of triple-net master leases with strong payment coverage in corporate guarantees which results in reliable income to HCN through all reimbursement cycles. We are now the largest owner of private pay senior housing communities in the world and fundamental factors of supply and demand are favorable.
Delivery of new supply tier is just 2% of existing inventory which is less than the growth and demand. Modest improvement in the housing market provides further support for the operating environment. The supply demand fundamentals in the U.K. and Canada are equally attractive.
With that background, I'll turn to fourth quarter performance in our RIDEA portfolio. Same-store NOI increased nearly 9% from one year ago, driven by a 3.2% increase in rental rates and 280 basis point increase in occupancy. We benefit from owning Class A buildings in wealthy markets. The median housing value surrounding our communities is nearly 70% above the national median. As a result, our rental rates and the annual growth in rental rates far exceed industry benchmarks.
Equally important, the NOI from our RIDEA portfolio was consistent and resilient due to the diversification of more than 30,000 residents paying rent each month. Same-store NOI growth is equal or exceeded 7% in every quarter since our first RIDEA investment 2.5 years ago. So, we don't expect this incredible rate of growth to continue indefinitely, we do expect the portfolio to consistently outperform the industry in both NOI growth and asset value appreciation.
Turning to our triple-net senior housing portfolio; same-store NOI grew 3% in the fourth quarter from one year ago. We benefit from contractual rent escalators, strong payment coverage, bundled master leases with corporate guarantees and an average remaining lease turn of more 12 years. Our largest tenants include Brookdale, Brandywine, Capital Senior Living, Emeritus and Senior Lifestyle were among the biggest and best operators in the sector. Payment coverage is stable at 1.16 times after management fees. With respect to skilled nursing, same store NOI grew 3.3% in the fourth quarter from one year ago and we expect reliable growth going forward due to contractual (oscillators), master leases with corporate guarantees and strong payment coverage.
Genesis now accounts for 80% of our skilled nursing portfolio. The fixed charge coverage is approximately 1.3 times and we expect it to improve over time as the company capitalizes on its ancillary services platform and its increased scale from the recent acquisition of Sun Health. Genesis is well positioned as an efficient low cost provider with critical mass and geographic concentration. They are already partnering with managed care providers to reduce re-hospitalizations and they are receiving incentive payments for their success.
Turning to our medical office portfolio, our rental rates and occupancy exceed industry averages and our peer group, highlighting the quality and desirability of our large outpatient centers that are affiliated with leading health systems. These buildings are well positioned in the evolving health care landscape that rewards health system sponsorship, efficiency and convenience. Same-store NOI in our medical office portfolio grew just under 2% in the fourth quarter from one year ago. Our hospital and life science portfolios continued to produce strong and consistent results. Same-store NOI grew 2.5% and 4.8% respectively in the fourth quarter versus one year ago, in line with historical results.
With respect to investment activity, we invested nearly $5 billion last year with private pay senior housing and medical office comprising virtually all of the activity. The highlights include the initiation of relationships with Sunrise, the premier brand in the industry; Chartwell, the largest provider in Canada; and Senior Lifestyles, one of the 10 largest providers in the U.S. We also expanded our existing relationships with Brookdale, the largest provider in the U.S.; and with Belmont Village, an operator of five star senior housing communities in major metro markets. These investments are immediately accretive and should produce resilient and outsized growth in NOI and asset value. We've already completed an additional 2.5 billion of acquisitions in 2013. Thanks to closing the Sunrise transaction ahead of expectations in buying out several joint venture partners at favorable prices. To-date, we've acquired 3.5 billion of Sunrise real estate and renegotiated favorable fixed price options on additional Sunrise real estate that we expect to acquire by mid-2013. At which point our investment in Sunrise will be 4.3 billion with an initial yield of 6.5%. The return is particularly attractive given the quality and growth prospects of the portfolio and is the result of sophisticated structuring around the management fees and joint venture buyouts.
We also acquired a 20% interest in the Sunrise management company which should prove strategic as the sector evolves. We spent much of the past two months with our partners at Sunrise and the integration is on track. We've integrated six RIDEA partnerships to-date, outperformance relative to budget coupled with follow-on investments with our partners is evidence that integration is an area of expertise for HCN.
As to external growth, we are well positioned due to our strong balance sheet and most importantly our relationship investment platform, which now expands to U.S., Canada and U.K. Our relationships throughout the industry are unmatched and represent a competitive advantage for external growth.
Finally, turning to dispositions; we sold more than $500 million of non-core assets last year generating gains on sale of $100 million and unlevered IRRs averaging nearly 11%. The dispositions were primarily skilled nursing facilities and LTACs and we reinvested the proceeds in the core assets that match our strategy of owning a portfolio that combines superior growth with low-volatility.
Our CFO, Scott Estes will now discuss our financial results and 2013 guidance.
Scott A. Estes - EVP and CFO: Thanks Scott. Good morning, everybody. During 2012, we generated an 18% total return for our shareholders, and George and Scott discussed, we are excited about our platform, our relationships and growth prospects heading into 2013.
From a financial perspective, during the latter half of 2012, we raised a capital through two successful equity offerings and a large unsecured note offering to preemptively (condo) recent investments. During the fourth quarter, we also generated over $330 million from dispositions of non-strategic assets.
Thus far in 2013, we've increased both the size of our line of credit through a new $2.25 billion revolver at a lower cost, funded a $500 million term loan and completed an additional $2.5 billion of Sunrise related investments. Finally, our balance sheet remains strong and we have ample liquidity with $1.8 billion of line capacity, pro forma for the Sunrise transactions that have closed 2013 to-date.
Turning now to financial results of the quarter; we reported normalized fourth quarter FFO per share of $0.85 to normalized FAD per share of $0.74. Year-over-year growth was impacted by our decision to preemptively raise a significant amount of equity and debt capital during the third and fourth quarter used primarily to fund the Sunrise transactions in early 2013. We recently paid 167 consecutive quarterly cash dividend for the quarter ended December 31, of $0.765 per share, or $3.06 annually representing a 3.4% increase over the dividends paid in 2012.
Next, I'd like to take minute to explain several of the extraordinary items on the income statement, which are primarily related to our recent acquisition and disposition activities. First we incurred $19 million of transaction cost associated with our significant level of acquisitions in the fourth quarter. We generated $54.5 million in gains on property sales in the quarter beyond the $277 million book value of asset sold.
Finally, we took $22 million of impairments associated with assets held of sale at year-end which included several non-core nursing homes, hospital and medical office building expected to be built during 2013. In terms of fourth quarter capital activity, we successful raised $1.2 billion of senior notes through a multi-tranche offering of 5-year, 10-year and 30-year notes which had a blended maturity in excess of 12 years and average interest rate of 3.5%. As a result our current blended debt maturity of nine-years is well matched with our average fleet maturity of 11 years.
We also issued 651,000 shares under our dividend reinvestment program generating $38 million in proceeds. As a result, we ended 2012 with full availability on our line of credit and had over 1 billion of cash and cash equivalents. Subsequent to quarter-end, we put in place a new $2.2 billion line of credit and a wholly funded $500 million term loan. After closing our new line and funding the term loan, we completed Sunrise transaction of approximately $2.5 billion which included the assumption of about $445 million of debt after payoffs. As a result, pro forma for the approximate 2 billion in cash require to fund these early first quarter '13 Sunrise transactions. We had about 500 million borrowed on our new line of credit leaving ample liquidity with approximately 1.8 million of available credit and 500 million of projected disposition proceeds in 2013.
These significant capital raise towards the end of 2012 allowed us to prefund our early 2013 Sunrise related closings, while maintaining solid credit metrics. At the end of December, our debt to undepreciated book capitalization stood at 41.4%, while debt to adjusted EBITDA was 6.1 times both of which exclude any benefit of the 1 billion in cash on the balance sheet at that time.
Our trailing 12 month interest and fixed charge coverage at year end remained solid at 3.3 times and 2.6 times, respectively. After completion of the early 2013 Sunrise transactions debt to undepreciated book cap and debt to adjusted EBITDA increased only slightly from year end levels, while our longer term target of 40% debt to undepreciated book cap and net debt to EBITDA of six times or below remain unchanged.
Finally, I'll review our 2013 guidance and assumptions. We expect to report 2013 FFO in the range of $3.70 to $3.80 per diluted share representing 5% to 8% growth. Our 2013 FAD expectation is a range of $3.25 to $3.35 per diluted share which also represents a 5% to 8% increase over normalized 2012 results. As George and Scott mentioned, our core portfolio and largest operators are performing very well and are achieving attractive internal growth. We're again forecasting 3% same-store cash NOI growth in 2013, which is headlined by 5% growth in our seniors housing operating portfolio which we hope could prove conservative given the favorable current outlook for the senior housing sector. Although, we don't include an assumption for additional investments beyond those already announced, you should expect us to continue to invest with our relationship partners and look to capitalize on attractive investment opportunities. We will develop selectively to further enhance the quality of our portfolio and believe we will complete the majority of non-strategic assets sales by the end of 2013.
I'd like to spend a minute now comparing our initial 2013 earnings guidance to their '13 consensus forecast. I believe the difference between our initial guidance and the current consensus forecast boils down to three main factors. First, consistent with past practice, we did not include any additional acquisitions in our guidance. Second, our guidance does include the disposition of $500 million of largely non-strategic assets this year. Third, our guidance reflects the $0.07 to $0.08 impact from our decision to aggressively reposition our remaining entrance fee portfolio at the end of last year.
To translate the impact of the $0.07 to $0.08 into economic terms, the 14 original entrance fee properties which have a book value of approximately $760 million generated a blended yield slightly over 6% in 2012 and they are now projected to generate a blended yield of approximately 3.5% in 2013.
I would like to provide some more specific color regarding the repositioning of our entrance fee portfolio. I think consistent with our past comments occupancy in the entrance fee portfolio has gradually continued to improve through mid-February to the current 76% level. Despite the steady progress, entrance fee investments remain non-core to our investment strategy. For that reason during the fourth quarter, we capitalized on an opportunity to convert three entrance fee communities to a rental structure by moving the lease to another operator in our portfolio who has a proven track record with rental CCRCs. This effectively eliminated 25% of the company's entrance fee risk, while providing for significant potential lease increases in subsequent years as the properties fell.
Further, we converted an existing rental CCRC to RIDEA structure which will allow us to directly participate in all of the (indiscernible) specific property. And finally these moves served as a catalyst to reevaluate and lower rank that eight of the remaining entrance fee communities remaining in our portfolio to provide some near term liquidity and operational flexibility to the current operator. We believe these recent moves put us in best position to maximize value of these non-core assets which now represent less than 1% of the total properties in our portfolio.
Finally regarding the timing of our repositioning efforts, we very likely could have kicked the proverbial can down the road under the existing structure for several years, instead, we made the decision to move to a better structure now, minimizes our entrance fee exposure, with lower risk and has potential for more meaningful upside over the next few years given the favorable current outlook for the seniors housing sector.
Moving now to our 2013 investment forecast, our acquisition guidance only includes the $2.5 billion of Sunrise related closings which have occurred to-date plus the addition of $745 million of Sunrise related closings anticipated in July. We expect approximately $500 million of dispositions and a book yield of 10% but forecast the yield on total sales proceeds closer than 9%. These projected dispositions consist primarily of a combination of non-core skilled nursing and MOB assets which will allow us to drive our private pay percentage towards the 85% range towards the end of this year.
Finally, we're projecting development conversions for project currently under construction of approximately $249 million this year to an average initial yield of 8.3%.
Regarding our 2013 same-store cash NOI forecasts, we believe that our current portfolio mix is in excellent balance of higher growth opportunities and stable long-term investments. More specifically, we anticipate blended 5% growth out of our operating and life science portfolios that as I previously mentioned hope it prove to be conservative supported by a 2% to 3% blended rent increase out of our triple-net lease portfolio in medical office buildings. Taken together we believe our portfolio will generate same-store cash NOI growth of approximately 3% in 2013.
Our capital expenditures forecast of $73 million for 2013 is comprised of approximately 54 million associated with the seniors housing operating portfolio or an average of approximately $1700 per unit with the remaining 19 million from our medical office building portfolio representing approximately $1.50 per square foot.
Our G&A forecast is approximately $150 million for 2013, which includes approximately $8.5 million of accelerated expensing of stock-based comp which will be recorded during the first quarter. As a result, we anticipate first quarter G&A of approximately 31 million.
Finally, as I mentioned previously, we will continue to manage the balance sheet to a debt to undepreciated book capitalization target of approximately 40% over the long term. However, we don't have any specific plans to raise equity in the immediate term to meet this objective given our significant current liquidity position.
With that my prepared remarks are concluded and I'll turn it back to you George to give some closing comments.
George L. Chapman - Chairman, President and CEO: Thanks very much, Scott. During the past several years, we have built a world-class organization and portfolio design to deliver strong earnings growth and long-term value to our shareholders.
It's clear that healthcare delivery will continue its rapid pace of change and we believe that Health Care REIT is best positioned to capture the many opportunities presented by that change. We look forward to continuing success in delivering substantial value to our shareholders.
With that operator, we'll open for questions.
Operator: James Milam, Sandler O'Neill.
James Milam - Sandler O'Neill: Scott, thank you for all of the color on the balance sheet. I guess, would you mind giving us some metrics as you look out to the year and obviously you said and I agree you have a good liquidity position now, but over the course of the year, and assuming that there are some partners who want some that you do acquisitions with. How would you like us to think about your funding whether it's the line of credit an unsecured offering or a potential equity offering over the course of the year?
Scott A. Estes - EVP and CFO: I think there would be no (viewing) from our traditional strategy which would be to use the line of credit to some extent, part of the reason to have a larger line in place, is to have a little bit higher utilization and also provide us some additional flexibility. So, I feel good about that combined with the level of dispositions this year also being a potential source of capital for us. But again I would presume that to your model once you got up to $1 billion level or so you could put permanent capital in place and it's up to you to how you want to model getting to 40% that's undepreciated book over time, but debt and equity would be on the table.
James Milam - Sandler O'Neill: Then, George, maybe for you. Obviously, a very successful partnership with Belmont Village so far, I guess, I'm curious as these operators expand rapidly with you guys, how – what is their ability to successfully scale their operating platform to take on all these additional assets that they are now managing.
George L. Chapman - Chairman, President and CEO: Well in the case of Belmont, they were already managing operating those facilities and we're doing very, very well with them. But James I think here you are asking a very good question. One of the things that I want to do and all of our team wants to do in the next two or three years is to help put the right people, systems in place for all of these operators, so that in fact they have a scalable infrastructure and all of them are working very hard with us to do that. One of the real point of emphasis in our best practices sections which are held three times a year is to talk about what we all need to do make senior housing even stronger in the next two or three years take it from a really good to great, because it's already being acknowledged as a critical part of the property sector. So, I think that Patricia and here team are just doing a great job out there, but again we want to have a major influence on all of our operators and trying to help them be even better. But lots of progress is being made.
Operator: Richard Anderson, BMO Capital Markets.
Richard Anderson - BMO Capital Markets: Just quickly on the CapEx number that you mentioned, is it about 11,000 units Sunrise that you are adding, is that right?
Scott Brinker - EVP Investments: That's about right.
Richard Anderson - BMO Capital Markets: So, if you have 25,000 as of the fourth quarter and you add another 11,000, I don't see how you get to $54 million at a 1,700 per unit run rate for average for the portfolio. Can you just reconcile that for me; 1700 times 36 is a bigger number?
Scott Brinker - EVP Investments: Maybe we will follow up with you after this call, but there may be a timing issue as well not all of the Sunrise assets are being acquired as of January 1.
Scott A. Estes - EVP and CFO: We've also articulated that Sunrise – that we are actually spending probably closer to what, Scott, $2,000 per unit on. We've talked about that, so we can work on the math…
Richard Anderson - BMO Capital Markets: That will make it even more of a disconnect. And then when I think about RIDEA and the risks associated with RIDEA you guys continued down that path, but what are the other risks besides the just volatility in earnings which I can acknowledge over the long-term we are going to do better RIDEA than you might do in triple-net, but what about litigation issues, state regulatory environment those types of things how do you balance those types of risks when you consider what you are getting into of taking on such a large RIDEA exposure at this point?
George L. Chapman - Chairman, President and CEO: We don't think that there are significant additional litigation risks at all. The company that is actually operating the facility is the manager and we have just given them opportunity to benefit from some of the operating results through a taxable REIT subsidiary. I don't know Scott Brinker if you want to comment on that further, but we don't see – we think the returns more than outweigh any minimal additional risks, Rich.
Richard Anderson - BMO Capital Markets: Somebody doesn't like how they were treated they are going to sue everyone it doesn't matter if it make sense or not you have to protect yourself, I guess, that's the way I would think about it. But anyway we can move on…
George L. Chapman - Chairman, President and CEO: Rich, let me just comment on that because every now and then all of us in the Health Care REIT sector get sued if something happens to a resident and usually we spend a month or two or maybe as long as a year just getting dismissed from the case, so I wouldn't – and duly focused on that.
Richard Anderson - BMO Capital Markets: Then last question for me is, when I was looking back at your 2012 guidance a year ago, it was $3.68 to $3.78 and you reported $3.52. Your new guidance is $3.73. I know you have that entrance fee issue. So, at a minimum you've reported a number much below what your guidance was and I understand, George, to your point that you have a long-term focus, but I guess when will the long-term be now? I mean, how long do we have to wait for these enormous investments and associated capital raising activities to actually grow earnings?
George L. Chapman - Chairman, President and CEO: Rich, we have grown earnings. We haven't grown earnings as much as we would have if we wouldn't have had to fund absolutely terrific investments. I think we've been trying to lead you to the point where gradually we are going to be at a steady state, where we'll do $2 billion a year from our existing operators. Therefore, the capital raising will have less impact on the movement off of our earnings. Okay, but we have been very surprised and very appreciative by the way of the opportunity to take some of the best portfolios in senior housing off the table and put them into our camps. It was quite a competition for Sunrise and we've done well there. We'll continue to do well there, but it's pretty clear to us that we are moving in the direction of a more steady state of investing, but as long as great opportunities come up and we can really create value for our shareholders, we'll probably take advantage. There are just many fewer, Rich.
Richard Anderson - BMO Capital Markets: Is the $3.70, $3.80 is your guidance, would you expect that to go up with investments or go down in 2013?
Scott A. Estes - EVP and CFO: I would think as we would have the opportunity to add investments, we would hope that they would be accretive, although usually if you model financing in relatively similar timing, it's marginally accretive to that level. But I would hope they would be accretive for sure.
Operator: Jorel Guilloty, Morgan Stanley.
Jorel Guilloty - Morgan Stanley: You've stated that on year-over-year you can potentially acquire $1.5 billion to $2 billion in assets from existing relationships. However, given your company's current size and geographic scope, you say that target still stands?
Scott A. Estes - EVP and CFO: You're breaking up a little bit, George he was asking is the $1.5 billion and $2 billion investment pace changing given our larger size now as we think about investment opportunities?
George L. Chapman - Chairman, President and CEO: I think that the fact that we have added other operators like Belmont and Sunrise and others over the last two to three years, there is a chance than in certain areas we might get more opportunities than the $1.5 billion to $2 billion. We haven't done a lot of thinking about it, but I still think that I'd keep it in that range for now.
Jorel Guilloty - Morgan Stanley: We were to think where we are in the cycle right now would you say that perhaps that number is a bit low. I mean if you look at what you have done the last two years, it's definitely north of that?
George L. Chapman - Chairman, President and CEO: There is chance as well, but actually these – we talk about $1.5 billion to $2 billion of investments on a steady state more from an ongoing stream of opportunities from existing operators. We did 94% of our investments in the fourth quarter with our existing operators. So, that's how what we think of as our strength now whether in the next two or three years when we have seen folks essentially take advantage of a liquidity event whether or not that drives higher level of growth during the next couple of three years I think that's a possibility.
Jorel Guilloty - Morgan Stanley: And then following with the $500 million in asset dispositions you have targeted for 2013, do you think you are largely done disposing of non-core assets?
George L. Chapman - Chairman, President and CEO: We have certainly made a lot of progress in doing that. And we have been focusing in on smaller medical office buildings as you talked about the need to have larger MOBs that are really medical facilities themselves with outpatient surgery centers and a really good complementary mix of doctors and we made a lot of progress there and got a whole lot more to do. And then if you look at SNFs, already Genesis is at 80% of our SNF portfolio so we are gradually getting our portfolio in most of these disposition categories where we want it. But we've been averaging what, Scott, about 200 million a year or.
Scott A. Estes - EVP and CFO: Yeah, until last year, obviously…
George L. Chapman - Chairman, President and CEO: 500 million so. I think we will always do some just because we don't want to spend a lot of time and incur an opportunity (indiscernible) for operators that aren't performing that well, but I think it is definitely starting to ebb a bit.
Scott A. Estes - EVP and CFO: Yeah, I think that's right, I would just add that we feel, as you said, George, very good about where the skilled nursing portfolio is about half of the disposition is scheduled in 2013. Our skilled nursing assets, so upon completion of that, we should really have only about a $3 billion portfolio that Genesis represents about $2.6 billion of it and another handful of three or four other operators, so really four or five core operators then I think we mentioned on a previous call that are all projected to cover rents in excess of 1.2 times and as you mentioned on the medical office building side, George, the portfolio is doing very well with aggregate occupancy at 94.4%. Now 93% of the building is affiliated with health systems and average square footage increasing to over 60,000 square feet, so even some of the recent MOBs dispositions have actually been fairly high occupancy buildings, so they are much strategic in nature, so I think we've done really well on that front too.
George L. Chapman - Chairman, President and CEO: Just to add one other piece of the color, I guess is, every element especially on the reimbursement arena, for example in the SNF area, you'll find a state that it gets really tough on reimbursement, so you can never tell when that might occur and at that point we probably allow one of our SNF operators to take some of its facilities to (indiscernible) or reduce the cost just to make it work better within our reimbursement systems. So, there are always those issues that all of our assets managers have to look at when they come back to management to make a recommendation for a disposition strategy in a particular year.
Operator: Joshua Raskin, Barclays.
Joshua Raskin - Barclays: I'm here with Jack as well. Just first question on the RIDEA portfolio, the same-store growth I think was 8.6%, obviously a strong number there, and I apologize if I missed it, but could talk a little about the underlying occupancy, it maybe rent increases that you see in that portfolio in that growth?
Scott Brinker - EVP Investments: Sure, this is Scott Brinker. Last year it was 3.2% growth in rate and 280 basis points increase in census and for 2013 we're expecting closer to 2% to 3% increase in rate and about 2% increase in census.
Joshua Raskin - Barclays: Then I think you said 5% would be the total, so just looking at that it just seems like now there is a little bit of wiggle room in there. Is it sort of fair to say that '13 starting off a little more conservative?
Scott Brinker - EVP Investments: We would hope to exceed the budget. Like I said in the prepared remarks for 10 quarters now of performance within our RIDEA, our growth has been above 7% in every quarter. So, hopefully 5% ends us being conservative.
Joshua Raskin - Barclays: Then I know (Jack) had a question on the guidance…
Jack - Barclays: So I guess just playing off that, how much of a factor is the unstabalized portfolio in RIDEA?
Scott Brinker - EVP Investments: It's not that big. This is Scott Brinker again. Our growth in the fourth quarter was just under 9% and the growth in the stabilized portfolio was just under 8%. So, most of what you are seeing is still the stabilized portfolio.
Jack - Barclays: Then as you look out over 2013, do you see any additional opportunities to convert senior housing triple-net over to RIDEA?
Scott Brinker - EVP Investments: No, we continue to think triple net is a great business. We invested over $3 billion that way over the last two years with yields over 7%. We've got some of the best operators in the country under a triple net structure and we'll continue to pursue investment that way as well.
Operator: Jeff Theiler, Green Street Advisors, Inc.
Jeff Theiler - Green Street Advisors, Inc: Just quickly a follow-up on that last guidance, you know it seems like you are projecting a lower rate growth next year even as your occupancy continues to climb I would think that as you get more stabilized occupancy you can really push rate. Is there something different in that portfolio or are we reaching rent ceiling or are you just being conservative?
Scott Brinker - EVP Investments: Jeff, I don't think there is a ceiling. In these markets we increased rates at a level that was 50% above what the industry achieved. So, we expect these communities to continue to outperform the sector. Hopefully, the guidance does end up being conservative but there is of course always a little uncertainty with the state of the economy. The good news is there is very little new supply in these markets and the housing market is at least starting to improve generally.
Jeff Theiler - Green Street Advisors, Inc: And then going to your entrance fee portfolio that you repositioned, talk a little bit about who the operator is that you transferred your assets to, why you elected to just see those three and I guess be the operator in place for the remaining. And what kind of restructure did you implement that's going to allow you to capture upside as this transferred assets continue to lease up?
Scott A. Estes - EVP and CFO: Do you want to cover the operator and I'll cover the numbers part?
Scott Brinker - EVP Investments: Yeah, the operator is a group called (company care) that we have an existing triple-net lease portfolio with of about 10 billion. They've been in the business for several decades and have outperformed on rental CCRCs in our experience with them. In terms of the economics because we are converting from an entry fee model to a rental model, you don't have the big sort of first generation entry fees coming in you otherwise would have which impacts their ability to pay rents in 2013. Over time the NOI will be substantially higher than it would be in an entry fee model, so the NOI growth is in the neighborhood of 20% per year on average over five years.
George L. Chapman - Chairman, President and CEO: I think you had mentioned too that we're going to reset the rate after three years to look at the market with suitable coverages too. So, we see substantial upside here, Jeff.
Jeff Theiler - Green Street Advisors, Inc: So, you have a rate reset built-in after year three, and that's okay. That makes sense. Then lastly, going forward, just how are you thinking about development and in light of this restructuring as you go forward, obviously, you're keeping it as a much smaller percent of your overall portfolio and percentage of assets. But what else are you thinking about in terms of how to keep from getting into the situation again?
George L. Chapman - Chairman, President and CEO: You are saying, how are we going to avoid having undue amounts of developments. Is that your question?
Jeff Theiler - Green Street Advisors, Inc: I guess, the question is, how are you thinking about the relative risks of development going forward?
George L. Chapman - Chairman, President and CEO: We always have thought that doing a certain amount of development both in senior housing with the demographics becoming even more compelling makes a lot of sense for existing operators within the context of a master lease okay; and then two for MOBs, given the relatively small size and the fact that many of the older MOBs do not have health patient surgery centers, et cetera, and haven't really been as well-positioned vis-a-vis complementary services from docs, we think there is a very strong reason rationale for doing some development. But except for a period back when we were the leader in assisted living years ago, and then when the capital markets crashed, okay, and we have to finish certain development, I think, we've always been within a very reasonable range of development and we're not going to go above what 3% or 4% or so going forward. There is sure a need for it Jeff, so we're not concerned about it especially when we're dealing with existing operators who are already covering very well within our master lease.
Scott A. Estes - EVP and CFO: I'd point out Jeff too, our policy on not breaking ground on our medical office building development until we reach 75% pre-leased and you know the ones we have under construction currently are 89% on average pre-leased. So, it's clearly an appropriate risk-adjusted return and I think we pretty consistently would say we have 150 basis point higher returns on a relative development opportunity versus and acquisition.
Operator: Michael Carroll, RBC Capital Markets.
Michael Carroll - RBC Capital Markets: With regards to your long-term leverage target, how soon do you want to achieve that level? It appears the Company has been running above this range for a little while now?
Scott A. Estes - EVP and CFO: I'd say it's an intermediate term goal. I mean my goal is looking at it as capital markets opportunity and balancing that with our investment opportunity, and like I said, it's nice that we have I think all the tools in place and fortunately we've had access to the different components of the capital market even including the DRIP and ATM option as well. So, the honest answer is I would say it's over a period of year generally, but there is no immediate need. As long on we're within a relative range, we'll look to be opportunistic as we think about capital raises.
Michael Carroll - RBC Capital Markets: Then how many assets do you expect to sell here, is that $500 million in the guidance for 2013 a good annual run rate?
Scott A. Estes - EVP and CFO: My guess to that is, that that's' a little bit higher than normal. As a reminder of everyone's benefit, we were actually projecting about $700 million of dispositions last year and we ended up I think at $534 million, so actually there is some call it spillover effect if few of those dispositions are happening in 2013. So, you are probably moving to call it a more normalized rate we will always look at some level of assets, but it should be lower other than, I mean, it is always a decision to look at anything opportunistically but I would think lower than that as general run rate.
Michael Carroll - RBC Capital Markets: And then last question from me is with reposition the entrance fee portfolio why was one community putting the RIDEA structure and not lease like the other one which are something different with that one community?
Scott Brinker - EVP Investments: It is a separate portfolio really the three assets that were transitioned to rental with one operating partner this other building had been converted to rental before it opened two years ago and has been operated by a third-party operator since the date had open and we just made the decision that given its current performance and future expectations that RIDEA structure was the right way to align incentives and capture the improvement in economics over time.
Scott A. Estes - EVP and CFO: Yeah, that building is actually just starting to gain some nice momentum. If you look at it the assisted living Alzheimer's and skilled nursing components are all essentially 90% plus full, but they are fairly small piece of the aggregate building and then the independent living had been filling about seven net units per month last year. So, occupancy is actually on the cusp of having some meaningful growth we hope they are about 40% full now. So, making the transition, albeit from just a short-term earnings guidance we really do have some nice upside there that we should hopefully capture a lot of the 2013 earnings impact if that building fills over the next couple of years.
George L. Chapman - Chairman, President and CEO: And I think, Scott, just to add a little color that being able to convert certain floors of that from (IL to AL) will give more certainty to our fill up as well. So, we are feeling pretty good about that.
Michael Carroll - RBC Capital Markets: Is that a new operator in that building too? Did you change the operator?
George L. Chapman - Chairman, President and CEO: No, we did not.
Operator: Nick Yulico, Macquarie.
Nicholas Yulico - Macquarie: Turning to the Brooke Dale investment in the quarter, was that – I mean, I'm assuming that which of those, the 11 assets were the ones that they had purchase options on. Is that right?
Scott Brinker - EVP Investments: No, they had done – this is Scott Brinker, joint ventures with various third-party private equity companies over the years and Brooke Dale already managed these properties and had a joint venture interest in them and we essentially just replaced the private equity company which is a model that we've used on a number of occasions in our portfolio.
Nicholas Yulico - Macquarie: Can you talk about what the cap rate was on that?
Scott Brinker - EVP Investments: Yeah, our investments in the fourth quarter for the RIDEA portfolio were about 6.5% on average, if Brooke Dale portfolio was at high-end of that.
Nicholas Yulico - Macquarie: That 6.5% that you gave there that's from my memory that's essentially pre-CapEx and looking like forward by years. Is that the right way to think of that?
Scott Brinker - EVP Investments: That's right.
Nicholas Yulico - Macquarie: Then just turning to Genesis, did they participate – I mean, you talked a little bit about the work that they have done with the managed care (office), but did they not participate in the bundled care program that CMS is doing, it didn't look like they did, just I was curious what you are hearing from them on that process. And then also if you have any update on the expense you're having on the manage care side?
Scott Brinker - EVP Investments: They didn't participate in the initial sort of test cases for some of the payments but they are certainly well set up to participate once it becomes more formalized. It's still very early stages. What they are doing though is participating with various managed care plans where they have a geographic concentration with the goal of reducing re-hospitalizations, which is really the key point in the bundle care anyway, and we're already receiving economic benefits for reducing those re-hospitalizations over time.
Nicholas Yulico - Macquarie: So, I mean as Genesis, is there an opportunity to do more investment with them over the next year as they are trying to capture some more of that business?
George L. Chapman - Chairman, President and CEO: We think there is an opportunity to do that and we think their model is very good. We're pleased to seeing Andy become the CEO and we think they are a great entity. We'd really welcome the opportunity to do more business with them.
Nicholas Yulico - Macquarie: Were you referring to Brookdale there?
George L. Chapman - Chairman, President and CEO: What we're doing with Genesis. The Genesis deal is a different story. What we like to do with George and Chuck and people have been very active in that is that we are encouraging them to refinance some of their older Medicaid facilities and put our money into the new post-acute facilities connected with or close to some of the hospitals for more of the post-acute provision.
Operator: Omotayo Okusanya, Jefferies & Company, Inc.
Omotayo Okusanya - Jefferies & Company, Inc.: Just a couple of questions the same-store NOI growth forecast the new 3% number in 2013 versus 4% in 2012 is that entirely – that decline is that entirely being driven by the lower same-store assumptions for the senior housing operating portfolio or the some of the CCRC restructuring also factoring that if that's part of the same-store pool?
Scott A. Estes - EVP and CFO: Tayo, I think, it is probably being driven by conservative outlook. As a reminder for everybody, we actually came out with 3% guidance in 2012 as well. So, the general components really again with the RIDEA again we would hope to prove conservative 5% as we've already discussed and the majority of the other triple-net components blends as usual to somewhere between 2% and 3% that's where we went out with 3% overall guidance.
Omotayo Okusanya - Jefferies & Company, Inc.: But the CCRC restructuring does not impact that number. Is that part of the same store pool or no?
Scott A. Estes - EVP and CFO: No, it is not. We are excluding that in the same-store pool because the restructurings are vastly different models than we've provided. I think more than that it was disclosure about the entrance fee community.
Omotayo Okusanya - Jefferies & Company, Inc.: And then let's kind of focus just on genesis and skilled nursing for a bit. Coverage ratios came down a bit again this quarter, we are probably going to end up having sequestration at the end of the week. We saw with part of the tax relief act additional impact to the world of therapy services. Just kind of curious what you are hearing from George at this point in regards to managing some of that continued pressure on reimbursement rates?
Scott Brinker - EVP Investments: Tayo, this is Scott. Fixed charge coverage remains at about 1.3 and we would expect it to stabilize at that level. We're now a full year of the new reimbursement system and we actually think that coverage will start to pick up over the next one to two years. The acquisition of Sun Health should be particularly helpful to payment coverages. They realize synergies. That's going very well to-date, but again we see it stabilizing at 1.3 today and improving over time.
Omotayo Okusanya - Jefferies & Company, Inc.: Even if you end up with the combination of this cut to therapy services at the beginning of the year, sequestration cut March 1 and you end up in a world where we don't a get a market basket update this year, you still think that coverage is going to go up?
George L. Chapman - Chairman, President and CEO: Yeah, the 1.3 times assumes sort of all these worst case reimbursement scenarios. Now they'd be something on top of what they're talking about today which we don't expect, but I guess it's possible then we'd have to revisit our expectations, but the 1.3 improving over time does assume that sequestration happens and therapy reimbursement continues to be challenged.
Omotayo Okusanya - Jefferies & Company, Inc.: Then just a last question for me. In regards to the acquisitions' outlook, although nothing is built into your numbers, could you talk specifically about areas of strong interest where you would like to build the portfolio and specifically any comments on increase in the size of the life science pool just given how strong the Cambridge market is right now?
George L. Chapman - Chairman, President and CEO: We've continued to look. We have not had much luck in finding up other additional investments in life sciences. They give us a type of returns we think we need, but we are very, very pleased still with Cambridge.
Omotayo Okusanya - Jefferies & Company, Inc.: Other property types, that you have a very strong interest in building your portfolio in?
George L. Chapman - Chairman, President and CEO: We're mainly focused on modern larger MOBs and if it's a development with at least 75% to 80% pre-leased with great systems and especially senior housing and both triple-net and RIDEA with the best operators in country in the best markets. That's our focus.
Omotayo Okusanya - Jefferies & Company, Inc.: That's very helpful and I look forward to you guys raising guidance in 2013.
George L. Chapman - Chairman, President and CEO: Thank you.
Operator: Robert Mains, Stifel Nicolaus.
Robert Mains - Stifel Nicolaus: If I can follow-up on the Brookdale discussion, the 11 assets those were joint ventures with the private equity and you bought out the private equity partner, is that how it worked?
George L. Chapman - Chairman, President and CEO: That's right Rob.
Robert Mains - Stifel Nicolaus: Seeing Brookdale's has rolled us in chains, it's just that you are the partner now?
George L. Chapman - Chairman, President and CEO: That's right.
Robert Mains - Stifel Nicolaus: The 5% guidance that you gave for RIDEA and life science as you discussed how that could be conservative, triple-net and medical office building 2% to 3%, I know that you know it's just kind of just math to figure out what NOI growth you get on triple-net, could the MOB, because you describe ways at MOBs might be able to do better than that or do you think that's probably the range that they would be in?
Scott A. Estes - EVP and CFO: Rob this is Scott Estes. The MOB growth is probably little bit below that average that we traditionally done in the last few years and next year is pretty similar at about 1% plus type range, so we hope to do a little bit better than that. It's probably going to be a little bit less than the 2% or 3% average as you think about it.
Scott Brinker - EVP Investments: One thing that makes is both challenging, but also in a good way there is very little rollover in our MOB portfolio. It's only about 20% of our leases expiring over the next four to five years, so it's a highly stable source of income in our portfolio. It just doesn't produce extraordinary NOI growth.
Scott A. Estes - EVP and CFO: 94.4% occupancy, the team is about maximizing the occupancy there. So, maybe unlike some others that have some assets that are underutilized or trying to get – then we're successfully getting, I think, as much as we can out of that and it results in about 1% plus growth over the last couple of years.
Robert Mains - Stifel Nicolaus: When we look at the entry fee assets are being repositioned, Scott, when you described the new leases that you said 20% NOI growth over five years, that's over the course of five years, that's not the CAGR right?
Scott Brinker - EVP Investments: No, that's on average, Rob.
Robert Mains - Stifel Nicolaus: When you spoke of those, were you describing the three that were transitioned through a new operators at the three plus the eight that lowering the rent?
Scott Brinker - EVP Investments: Yeah, Rob, the NOI growth that I referenced just for the three properties that are transitioned to the rental model. There is NOI growth built into the entry fee assets as well, but it's certainly not 20% per year.
Scott A. Estes - EVP and CFO: Rob, maybe I'll provide for you and everyone else just a little more color. If you look at that portfolio today, you can see in our supplement there has been $480 million of entrance fee assets that are probably at about 4.5% to 5% in 2013, the three assets that were moved to the rental model are probably in the $175 million range and the one RIDEA is building probably about $100 million facility. So, the $175 million and the $100 million components of those four buildings under the new structure basically have breakeven to slight income currently, so again I think it's taking a lot of the impact now with having very good upside as those buildings fill over the next three years.
Robert Mains - Stifel Nicolaus: Then the remaining eight that the rents being lowered are those ones where you know sort of like followed the pattern of the others above average bumps at a lower rent?
Scott A. Estes - EVP and CFO: It will depend on the fill progress in years, but yeah, they would actually still have reasonably good increases to the extent the building fill. There again I think they are probably on average on about 75% occupied.
Robert Mains - Stifel Nicolaus: Within the rental, so you say depends on fill prices, is there kind of participation in the fill that determines the rent?
George L. Chapman - Chairman, President and CEO: Just the ability to reset the rates based on the NOI.
Operator: Richard Anderson, BMO Capital Markets.
Richard Anderson - BMO Capital Markets: Just a couple more quick questions. In the fourth quarter, Sunrise exercised a purchase option with NHI, how does that play a role? I mean, is there any more that – were there a management entity or an (leasee) and they have purchase options is there any of that that in the portfolio that's not a part of the bigger 125?
Scott Brinker - EVP Investments: No there aren't, Rich. We own 125 Sunrise communities. The Sunrise management company of which we're 20% owner is a (leasee) several portfolios and they of course manage the 300 assets. I am not aware of any third-party purchase options in that leased or managed portfolio.
Richard Anderson - BMO Capital Markets: Okay, so check the transcript, but in NHI they sold an asset for $23 million to Sunrise in in the fourth quarter, what they described them as their tenant, so I was just curious how that all worked into the boarder scheme of things?
Scott Brinker - EVP Investments: So Rich just to make sure we are clear, we were certainly participating in that decision because we now own that asset. So, there is nothing beyond that.
Richard Anderson - BMO Capital Markets: Nothing beyond that, that's the point. Then George, if I could ask kind of a conceptual question for you, there are two kind of camps as they think about RIDEA and the returns required to compensate for the risk. I'm curious if you have a thought – if your thought process is where you think about as a premium to a triple-net execution or do you think about a return relative to a conventional multi-family transaction, just wondering how you think about being compensated for risk and what mass is behind it for you?
George L. Chapman - Chairman, President and CEO: Rich right now we tend to think of it comparing to a triple-net in the senior housing area and usually we're talking 100 to 150 basis point increase. And like – so when my colleagues in the Health Care REIT feel all of us really look at the operator first and try to determine if we can do either a triple-net or RIDEA structure with a great operator and a great market and a very good facility. Ultimately, I suppose as we begin to get some of the credit vis-a-vis a better multiple compared to multi-family, we'll get back and talk about it later.
Operator: At this time, there are no further questions Thank you for joining today fourth quarter 2012 Health Care REIT earnings conference call. This concludes the conference. You may now disconnect.