Ventas Inc VTR
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/26/2013

Operator: A very good day to you, ladies and gentlemen. Welcome to the Quarter One 2013 Ventas Earnings Conference Call. My name is Nancy. I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. As a reminder this call is being recorded for replay purposes.

I would now like to turn the call over to Ms. Lori Wittman, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

Lori Wittman - VP, Capital Markets: Thank you, Nancy. Good morning, and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter ended March 31, 2013. As we start, let me express that all projections and predictions and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the Federal Securities laws.

These projections, predictions and statements are based on management's current beliefs as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the Company's expectations, whether expressed or implied.

We refer you to the Company's reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2012, and the Company's other reports filed periodically with the SEC for a discussion of these forward-looking statements and other factors that could affect these forward-looking statements. Many of these factors are beyond the control of the Company and its management. The information being provided is as of this date only, and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations.

Please note that the quantitative reconciliation between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure, as well as the Company's supplemental disclosure schedule are available in the Investor Relations section of our website at www.ventasreit.com.

I will now turn the call over to Debra A. Cafaro, Chairman and CEO of the Company.

Debra A. Cafaro - Chairman and CEO: Thanks, Lori, and good morning to all of our shareholders and other participants. Thank you so much for joining Ventas' first quarter 2013 earnings call. I'm pleased to discuss the results of another excellent quarter. This morning Ray Lewis will also discuss our portfolio performance, and our CFO, Rich Schweinhart will review our financial results. Following our remarks we'll be pleased to answer your questions.

Consistent with our management team's commitment to achieve and sustain excellence for all our stakeholders, Ventas began the year with outstanding growth and property cash flow, normalized FFO per share and dividends. Ventas' balanced consistent approach of driving growth, while staying strong, diverse and secure continues to produce outstanding returns for shareholders.

Year-to-date, Ventas' total returns exceed 22% well in excess of both the RMZ and the S&P 500 indices. More importantly our 10-year performance is an exceptional 888% showing our long term track record about performance. In short, our strategy is working. Our team is executing and Ventas' business is great.

Some of the highlights of the quarter were; first, normalized FFO was $1.03 per diluted share, representing 16% growth from the first quarter of last year, excluding non-cash items in both periods. This increase in FFO flows from both internal and external sources. Same store cash flow growth and our high quality diverse portfolio, exceeded 4% in the quarter, and we derived significant benefit from last year's $2.7 billion in accretive investments.

Our cash flow growth enabled us to increase our dividend by 8%, in the first quarter to an annual rate of $2.68 a share. With a secure payout ratio of 67%, we are well positioned to continue our record of increasing the dividend at above average levels, a competitive advantage in delivering superior total shareholder return.

We successfully completed $200 million of investments during the quarter at initial cash yields approximating 6.5% in high quality Medical Office Buildings and senior housing assets. We continue to maintain a robust pipeline of attractive additional investment opportunities. At the same time as we are fuelling our continuing growth, we are also consistent in managing our business with discipline.

During the quarter we took advantage of historically low interest rates to extend our debt maturities by raising $759 million in senior notes with a 15-year weighted average maturity and a fixed rate of 3.6%. By using the proceeds to pay down our revolver, we also created significant liquidity and shifted more of our capital structure into fixed rate versus floating. At the end of the quarter, our debt to enterprise value was an astonishingly good 28%. Recognizing our outstanding credit metrics, scale of $31 billion, consistency, private pay focus, and diverse business model, S&P improved its outlook on our corporate credit to positive at the end of March, following similar action by Moody's in December.

As planned and consistent with our risk management approach, we sold portions of the higher yielding loans we originated in the fourth quarter, at par to sophisticated partners. We expect to complete another $100 million of this activity going forward, to manage our aggregate loan investments, and our single borrower exposure.

Finally, our asset management and legal teams are pushing towards the finish line, regarding the 89 licensed healthcare assets whose lease term expires at the end of this month. We are pleased to report that the lion's share of these transactions and operating transitions should be completed by May 1, at the rent and on the terms we previously announced. We expect the remainder to be completed, as we said in our last call, by the end of this quarter. We believe that this process is a great example of the proactive, collaborative team execution capabilities at Ventas, resulting in an excellent outcome.

Consistent with our expectations when we spoke with you two months ago, we are confirming our full year normalized FFO guidance of $3.99 to $4.07 per diluted share. If achieved, the midpoint of our range represents 9% growth per share including, not excluding, non-cash items. We remain comfortable with our full year guidance range even though we replaced almost $800 million of floating rate debt with fixed rate debt and completed over half of our ongoing loan and asset dispositions late in the first quarter. While these actions will reduce normalized FFO in subsequent quarters we're incredibly well set up to capture the many investment opportunities we see before us.

As I said in February, acquisition opportunities abound in our large, fragmented healthcare and senior housing investment market. We see opportunities to add to our best-in-class senior housing operating portfolio, our Medical Office Building business and a range of triple net investments across the continuum of care. Our existing liquidity, balance sheet and diversification are highly supportive of continued external growth.

While we can never predict the timing or amount of our investment activities, we are excited about continuing to expand our portfolio in a balanced, forward thinking way to create value for stakeholders. Our team is definitely leaning in as we look to the balance of 2013.

Raymond J. Lewis - President: Thank you, Debbie. Our diverse, balanced and productive portfolio of 1,433 seniors housing, Medical Office and post-acute properties turned in another strong performance in the first quarter. Same-store cash NOI in our total portfolio grew by 4.2% year-over-year and 3.5% sequentially; once again demonstrating the sustained excellence that our strategy of growth and defense delivers.

Let me briefly run through some of the quarterly highlights of each of our key business segments. Let me start with our best-in-class private pay seniors housing operating portfolio, which accounts for 27% of our NOI. The portfolio now stands at 220 properties and delivered another outstanding quarter. The total seniors housing operating portfolio produced $108.1 million of NOI representing growth of 20.2% versus the prior year. Occupancy in the total portfolio finished the quarter at a very strong 91%. This is 190 basis points higher than the average senior housing occupancy reported by NEC in the first quarter for the Top 31 MSAs. NOI after management fees for the 195 property same-store portfolio was $96.3 million in the first quarter, a 7.3% increase over the prior year. Performance was driven by same-store occupancy which increased 270 basis points and RevPOR which increased 3.2% year-over-year.

The same-store portfolio substantially outperformed the NEC Top 31 MSA data on both occupancy and RevPOR growth year-over-year. One of the key drivers of our outstanding performance is our redevelopment portfolio. As a reminder we have a number of assets in our senior housing operating portfolio where we can add new units, amenities and programming to drive occupancy and rate. We currently have about $75 million of these projects underway and a $200 million pipeline that we are evaluating.

Looking at sequential performance, NOI for the 212 property same-store portfolio increased 5% from the fourth quarter of 2012 to the first quarter of 2013 driven primarily by a 2.9% increase in RevPOR. Occupancy in the same-store portfolio declined sequentially, reflecting a normal seasonal pattern and stood at a very strong 91%. As occupancy has stayed high we have been able to increase rates, which is, driving our strong performance. Our 2013 full year guidance expectations for the seniors housing operating portfolio remain unchanged with NOI guidance between $430 million and $440 million and same-store NOI growth in the 5% to 8% range.

Next, I'll turn to the performance of our consolidated triple-net lease portfolio, which accounts for 53% of our NOI and is diversified across 856 seniors housings, skilled nursing and hospital assets. Same-store cash NOI in our 833 properties, same-store triple-net portfolio was up 2.4% year-over-year in the first quarter. Cash flow, coverage and triple-net lease portfolio for the fourth quarter, of 2012, the latest available information, was stable and strong at 1.6 times.

Kindred coverage in the 173 skilled nursing and LTACs had currently leases from us, remain strong at two times. Finally, we opened one building which is 100% leased to a joint venture affiliated with the Cleveland Clinic and which was another benefit we acquired as part of the Cogdell acquisition. So the triple-net lease portfolio continues to deliver stable, reliable and growing cash flows for our shareholders.

Lastly, I'd like to briefly discuss our 302 property consolidated MOB portfolio, which stands over 16 million square feet and accounts for 17% of our annualized NOI. I'd like to remind you that over the last year we have added nearly 7 million square feet to our portfolio nearly doubling in size. Here are few of the MOB segment highlights for the first quarter.

Total portfolio NOI grew to $74.6 million in the first quarter, up from $43.3 million in the first quarter 2012, due primarily to approximately $1.2 billion in acquisitions, including Cogdell Spencer, as well as internal cash flow growth. Occupancy across the entire portfolio increased to 90.5% from 89.7% in the first quarter of 2012, again due primarily to the high-quality acquisitions completed last year.

Cash NOI in the 185 same-store consolidated MOB portfolio, increased 4.6% year-over-year, driven primarily by increases in rate and margin. Occupancy was down slightly in the same-store portfolio due to some anticipated vacancies. The nine properties in the same-store lease up portfolio increased occupancy by 230 basis points, year-over-year. So, we continue to make good progress in filling our non-stable buildings.

As we have built out our MOB portfolio, we have begun to realize the benefits of scale by identifying best practices in leasing, expense management and capital investment and driving their implementation across our entire portfolio. We expect this to drive above average internal growth in our MOB business as these initiatives are rolled out over time.

So, once again this quarter's very positive results demonstrate the merits of building a high-quality balanced and diversified portfolio that we actively manage to provide our investors with growth and capital preservation.

With that I'll turn the call over to Rick Schweinhart, who will discuss our financial results. Rick?

Richard A. Schweinhart - EVP and CFO: Thank you, Ray. In the first quarter, we invested approximately $200 million and received proceeds of $156 million from assets, dispositions, loan syndications and loan repayments. The $200 million in investments includes a previously capitalized lease.

On the capital markets side we issued $500 million of 2.7% seven-year senior notes due 2020 and $258.75 million of 5.45% 30-year senior notes due 2043 in March. If you combine our two senior note issues they have a weighted average interest rate of 3.6% with the 15-year life, which has a favorable effect on our scheduled maturities.

We also repaid $270 million of 6.25% NHP senior notes, which were booked for GAAP purposes at an interest rate of approximately 1.75%. Our revolver balance at quarter end was $165 million.

Year-to-date we have raised $83.7 million by issuing over 1.1 million shares under our At-the-Market program. Over 1 million of these shares were issued in the second quarter. As a result we currently have unrestricted cash of approximately $58 million in virtually all of our $2 billion in borrowing capacity available on the revolver.

Now let me focus on first quarter results; first quarter 2013 normalized FFO was $1.03 per diluted share an increase of 13%, compared to the first quarter of 2012 per share results of $0.91. Normalized FFO increased 14% to $302 million compared to last year's first quarter of $264 million. First quarter 2013 normalized FFO increased from last year's first quarter due to our 2012 investments of over $2.7 billion and NOI increases in all three of our segments, offset somewhat by higher interest expense due to higher debt balances from our acquisition activity and to a lesser extent, G&A expenses.

Average cash interest rate improved 80 basis points to 4.1% at March 31, 2013, compared to March 31, 2012. In total consolidated interest expense increased to $80 million this quarter from $68 million last year, reflecting all the debt activity in the last four quarters.

Looking at sequential results, normalized FFO increased $8 million to this quarter's $302 million, primarily due to an increase in all three segments' operating results and fourth and first-quarter investments, partially offset by an increase in interest expense to fund our investments and higher G&A expenses.

Weighted average shares outstanding for the first quarter were 294 million shares, up a slight 1% compared to the first quarter of 2012. At March 31st, our credit stats were outstanding and improved from year end, with the net debt to pro forma EBITDA at 5.3 times, our fixed charge coverage ratio in excess of 4 times, secured debt to enterprise value of 10%, and a debt to enterprise value at 28%.

On April 2nd, S&P raised our stable outlook to positive. We are currently rated BBB positive. Even with the $0.02 per share per quarter impact from our first quarter capital activities in dispositions, we are affirming our 2013 normalized FFO per diluted share guidance at $3.99 to $4.07. The guidance does not include the impact of additional capital transactions or unannounced acquisitions.

Operator, if you would please open the call to questions.

Transcript Call Date 04/26/2013

Operator: Jeff Spector, Bank of America Merrill Lynch.

Jana Galan - Bank of America Merrill Lynch: This is Jana for Jeff. It is good to see your tenant triple-net rent coverages remain strong and (they are reflecting) the fourth quarter. I was curious that in your conversations with Kindred, or some of your hospital operators, have they seen any impact from the sequester in April? So you think we won't really see this show up in numbers, until the third quarter reporting?

Debra A. Cafaro - Chairman and CEO: Good question. Yes. Our coverages were good and ticked up a little bit in some cases in the triple-net portfolio. I would say just talking about the government reimbursed portion of our business, I would say that, remember that the operators got an almost 2% Medicare rate increase in the fourth quarter of 2012 and sequestration doesn't really take effect until April 1. So those are essentially a push, if you want to think about it that way.

Jana Galan - Bank of America Merrill Lynch: Then any input from your operators on how they are thinking about their budget with what CMS may announce shortly?

Debra A. Cafaro - Chairman and CEO: We would expect the CMS preliminary rules regarding fiscal year 2014 rates to be coming out really any day now and be finalized later in the summer and we should know very shortly what that preliminary rule is, which again, I want to remind everyone it's subject to a (comment) period and then often changes and improves in between these initial publication and finalization.

Operator: Michael Bilerman, Citi.

Michael Bilerman - Citi: Good morning. Manny Korchman is on with me as well. Debbie just wanted to go – your comments about the pipeline being robust, acquisition opportunities abound and you talked about the balance sheet being astonishingly good and being in great shape. I'm just curious, as you think about your capacity to acquire today. Arguably you have access to capital markets when you need it depending on what transaction you do. But how should we think about what volume of transactions you could do prior to either selling assets or selling new equity in terms of how much you would be able to bring on balance sheet today as you look at the (cost)?

Debra A. Cafaro - Chairman and CEO: I think you are right. We obviously have fantastic access to the capital markets. I think one of the Company's hallmarks is that we are aggressive and drive growth but we also make sure that we always have great liquidity. So if the markets are there we will use them, but we know that we have a good safety net in our existing liquidity. When we look at our acquisition opportunities they are really plentiful and we are as busy as we have ever been. I would say that when we look at the numbers we could easily acquire over $1 billion really and be very comfortable with our balance sheet without the need of any additional equity components.

Michael Bilerman - Citi: How should we think about the types of deal, I mean if there is elephant hunting in terms of large transactions that's getting you excited about opportunities or is it a lot of singles and doubles either from the existing portfolio where you are buying out partners or smaller type portfolios in the couple of hundred million dollar range? How should we think about your excitement about transactions today?

Debra A. Cafaro - Chairman and CEO: Well in a word, yes, to all of those. I mean we are seeing great kind of follow on transactions with existing partners. We are seeing great follow on with our current tenants, some of whom came from NHP. We are seeing regional deals and we are seeing large, very large portfolio transactions. So I think the strategy of putting our various legacy companies together, whether it's the Lillibridge, Cogdell, NHP, Atria, all of those are channels for continued internal and external growth and that's when I say the strategy is working, and we're executing, that's really what I mean.

Michael Bilerman - Citi: Then just on the loan buybacks or the loan – I guess you sold off some loans in the quarter. Looking on Page 2 of the Supp, so that balance it comes down on your mortgage loans from 635 to 490, but the yield went up and if just do the potato math, it would say that you sold a $145 million of loans at 7.6%. I thought I heard you said you sold some high yielding loans, but it appears that the balance actually is better today than it was before?

Debra A. Cafaro - Chairman and CEO: Yeah. I mean basically we're – as I said, we're making sure to manage – we made some high quality, well-structured, very attractive, risk adjusted return loans in the fourth quarter and our plan has been to syndicate or sell off parts of those and we have started to do that. I think the rate ticked up a little bit, because we may have had a few loan payoffs of lower yielding loans. Also we sold these later in the quarter, so that may have affected the weighted average, so we may see that tick down next quarter, Michael.

Operator: Jack Meehan, Barclays Capital.

Jack Meehan - Barclays Capital: Just wanted to start out with the shop portfolio; you give average occupancy in the supplement. Could you talk a little bit how the metric trended throughout the quarter, as in – did you exit March higher than the average first quarter assuming (food) tapered off at the beginning of January?

Raymond J. Lewis - President: Jack, this is Ray. So the typical seasonal pattern, which was followed by our portfolio this year is that, your occupancy will decline throughout the first quarter and typically into the April and start to trend back up again in May and we're starting to see, as we look at our flash reports, a stabilization of the occupancy and it's following historical patterns.

Jack Meehan - Barclays Capital: Then just really the Kindred, the company is trying to reposition itself around these 21 integrated care markets. So just yesterday we saw the sale of 17 facilities to Vibra. Do you own any of those assets and then as they continue to restructure, how do you protect yourself if the asset moves to another operator?

Debra A. Cafaro - Chairman and CEO: Well, first of all, none of the assets that were announced yesterday, none of the 17 are, Ventas related in any way, so that's first the answer to your question. Again our leases do not permit the sale or assignment of any of the operations without our consent. We have master leases that are very protective of Ventas.

Operator: Karin Ford, KeyBanc.

Karin Ford - KeyBanc: A question on Rick's comments at the end there, that guidance, you had $0.02 impact from doing more debt issuance in the first quarter than you had previously incorporated into guidance. Just wondering, what if anything was the offset on the positive side that you had to keep guidance the same despite that?

Debra A. Cafaro - Chairman and CEO: Okay. Well, first of all, we had a great first quarter. Obviously, so that helps and we're very confident about our expectations for the remainder of the year. Again, just to do the math for you, if you do $759 million at a 3.6 versus your 1.4 on your revolver and you sell let's call it 156 million at say, 9 and you also compare that to your revolver, that's how you get your 2 plus – a little $0.02 a quarter a share going forward. Just to make that very transparent for everyone. But I think we expect a good continued performance for the rest of the year and we feel really good about our business.

Karin Ford - KeyBanc: Was there anything specific in the business, any particular segment that seems to be ahead of budget today that's offsetting that?

Raymond J. Lewis - President: No. I mean I think if you look at our portfolio our seniors housing operating portfolio and MOBs are performing in line with our expectations and so I think our portfolio is right on track.

Karin Ford - KeyBanc: Next question is, given that as you pointed out your balance sheet is in great shape, your debt to EBITDA is very low, can you just talk about your decision to issue 1 million shares under the ATM in April, was it the stock price, was it eminent acquisition activity coming, can you just talk about that?

Debra A. Cafaro - Chairman and CEO: Well we have been again fairly open I think about the acquisition in the markets that we are seeing which we think is quite robust and so, we really want to continue to be in a position to take advantage of those opportunities and at the same time continue to move up the credit curve. So we would expect over the course of the year, although our guidance does not include any acquisitions, we would be hopeful that over the course of the year that we will be able to get our fair share of additional investments.

Karin Ford - KeyBanc: Last question is, are you anticipating any M&A activity in the healthcare space through the balance of the year and what are you seeing on the cap rate side?

Debra A. Cafaro - Chairman and CEO: Well we – again, we have been consistent in saying we do expect consolidation in the healthcare and senior housing business and we've seen some of that and I think we'll continue to see that.

Karin Ford - KeyBanc: Has pricing changed on either the MOB side or the senior housing side?

Debra A. Cafaro - Chairman and CEO: Well we were very fortunate with the accretive investments that we made the last couple of years, which were at very, very good yields for very high quality assets. I think as cost of capital has continued to improve or as in others that, has had an impact on cap rates. But we can still – I think we're still in that excellent quadrant of being able to create value for shareholders, while we acquire and that's our strategy.

Operator: Michael Carroll, RBC Capital Markets.

Michael Carroll - RBC Capital Markets: Now that the occupancy in the shop portfolio is above 90%, do you think you will be able to push rental rates to continue to drive the similar pace of revenue growth that you have been able to do?

Raymond J. Lewis - President: Yes. Michael, this is Ray. So as you correctly point out, we do have well above average occupancy in our portfolio and if you look at the rental rate increases in the first quarter of this year versus the first quarter of last year, we're nearly 3% this year and last year we're closer to 2%. So we're already starting to see that benefit materialize in our portfolio. So, yes, I think we are pushing and obviously in the economy there's going to be limits to how far you can push, but we're seeing the benefits of the higher occupancy in our pricing.

Michael Carroll - RBC Capital Markets: Then have you seen increased development activity in the senior housing space particularly around your senior housing operating portfolio?

Raymond J. Lewis - President: Well remember, our senior housing operating portfolio is in high barrier in-fill locations in Major Metropolitan Areas, which are typically very difficult to develop in and have long lead times and quite frankly are expensive to put new buildings up. If you look at the NEC data in the Top 31 MSAs, there is about 13,000 units under construction, which is relatively 2.5% of inventory. Historical averages are closer to 3.2% of inventory. Another way to sort of look at it is, the total inventory increase year-over-year was up about 1.2%, so if you overlay that against the demographics. While new construction is higher than it was it in the trough during the recession, it's still well within normal tolerances and it's not at this point something that would have an impact on our – the performance of our portfolio.

Debra A. Cafaro - Chairman and CEO: There continues to be positive absorption as a result of that favorable supply demand.

Michael Carroll - RBC Capital Markets: Have you seen I guess more development projects in the early planning stages that could come to the market that could increase that CIP number?

Raymond J. Lewis - President: We're not seeing a tremendous amount of development. Now remember we're not a Company that does a lot of development, but I think there just aren't, a tremendous amount of financing sources right now for new development in the marketplace. So there are pockets in memory care and other areas where I think there has been more new development, but independent living in particular is still running well below historical levels. We're not really seeing a tremendous flow of development.

Michael Carroll - RBC Capital Markets: Then my last question is with regard to the transitioning (old) Kindred assets. Is there typically any weakness with the transitioning operators from the properties?

Debra A. Cafaro - Chairman and CEO: We would expect to see some transition expenses in friction as the new operators set up operations, change systems and hire the new employees. But that's obviously all baked into their expectations and as such are profitable and so there may be a changeover impact that that will be short lived.

Raymond J. Lewis - President: We have underwritten that.

Operator: Daniel Bernstein, Stifel Nicolaus.

Daniel Bernstein - Stifel Nicolaus: I just wanted to go into the senior housing operating margins that were up sequentially, I think I would have expected those to have gone down seasonally with the Canadian utilities? I know there was one less day in the quarter, so maybe if you could just talk about your expense controls and how you are seeing operating margin progress throughout the year?

Richard A. Schweinhart - EVP and CFO: Well I think you hit it on a couple of things. So you look at sequential margins, in our same-store stabilized portfolio they are up 60 basis points. One thing that would sort of drive that is the rate increase this year was much more than we have had in prior years sequentially. Two, I think if you look at the non-stable portfolio the lease up that occurred in the non-stable portfolio where we pushed 190 basis points of increase sequentially in the lease up there and the margins went up 820 basis points, that's another big driver. Then there was as you point out some additional expense savings I guess because of the fewer days in the quarter. So those are the big contributing factors.

Daniel Bernstein - Stifel Nicolaus: Then did you expect rate growth to – I guess normally all of your rate increases are in January 1, is that correct or is there anything that's spread out throughout the year between the maturities?

Richard A. Schweinhart - EVP and CFO: The majority of our rate increases occur January 1.

Daniel Bernstein - Stifel Nicolaus: Then I guess maybe a similar question on MOBs, where you have an increase in operating margin q-over-q. It looks like even on the same store. If there's something in the seasonality, there is something that you're doing on the expense side. I guess you alluded to that earlier in the conference call about the economies of scale, but is there anything that you did 4Q to 1Q to increase the operating margin there?

Raymond J. Lewis - President: Dan, there's a couple of things that are going on in the MOB side. One is, we have a very active best practice program going on in our Medical Office Building portfolio right now, where we're going through basically building by building, identifying the buildings that are doing the best on each expense line and trying to take those practices across the entire portfolio. We're starting to realize, real expense savings off of that and particularly in our gross leases we'll get the benefit of that, immediately. Then there's also just some timing issues from quarter-to-quarter as you know in the Medical Office Buildings, you've got your billings and your recoveries that will as you look sort of from quarter-to-quarter create some variation in margins. So those are the two primary drivers there.

Daniel Bernstein - Stifel Nicolaus: So would you expect operating margins in the MOBs to continue to ramp up throughout the year as you continue to go ahead and evaluate expenses at the individual properties?

Raymond J. Lewis - President: I think over time, the objective is to drive down expenses and recover those as the rents turnover in the market. So I don't think you'll see it happen quickly this year, but over time we want to try to be able to recover more of the expenses.

Daniel Bernstein - Stifel Nicolaus: I have a follow-up question on cap rates. I think Debbie when we were I think it might have been last June's NAREIT we asked about if you were to buy (age free) assets today how much lower the cap rate and you kind of alluded to maybe being 50 bps. Is that still the case given capital costs, do you think seniors housing cap rates have continued to compress since mid-last year and not to pinpoint what you would pay for assets today exactly but is below a 6 cap reasonable for seniors housing for Class A major metro portfolios?

Debra A. Cafaro - Chairman and CEO: I think first of all by nature it was a great decision, it's a great company and the assets have done incredibly well with high kind of single-digit NOI growth and we really brought it at the right time in the cycle and Atria is doing a great job branding it. So, we're very happy about that. I would say that cap rate as the cost of capital has come down, cap rates have also come down and so the cap rate though as you know is only one part of the story. If you have to look at the growth rate and the quality and replacement costs and all the other normal investment metrics that we do look at, as well as what the capital structure of the asset is and how profitably ultimately it's going to be. So, there are a lot of factors that go into it, but I think your general direction is correct.

Daniel Bernstein - Stifel Nicolaus: Are you distinguishing difference of valuation between Assisted Living and Independent Living as well when you think about acquisitions going forward and when you're underwriting potential asset acquisitions today. The gap between Assisted Living and Independent Living cap rates have come down a lot. Should Assisted Living be more valued higher cap rate than IL?

Debra A. Cafaro - Chairman and CEO: There are different arguments on both side of the equation, historically AL has had a bit of a higher cap rate or even more than a bit, you are right it has compressed. I would say the need driven AL product did the best during the recession because it is need driven, but IL has been performing incredibly well as the economy and the housing market have come back and we really are in this goldilocks environment with moderate GDP growth and that's been very supportive of the IL continuing to do well. So I think, IL is even more like multifamily than AL so that would argue for a lower cap rate. But yet AL performed very well under the stress test of the financial crisis. So both of them are good asset classes, I think there is not a big distinction right now in the marketplace between the cap rates for the two.

Operator: Tayo Okusanya, Jefferies.

Omotayo Okusanya - Jefferies: A quick question on the Kindred transition of assets, when those assets are transitioned do you expect a big difference in regards to the rent coverage ratios, new operators versus the current Kindred coverage?

Debra A. Cafaro - Chairman and CEO: We don’t. I mean there is a possibility that after this initial transition period that we just talked about that if the operators are more efficient, if they are low cost providers that coverage will go up. But in general these are profitable assets to begin with. They are profitable when they go to the new operators and a lot will depend on what the reimbursement environment is ultimately. But we do expect the new operators to be very hands-on and efficient operators.

Omotayo Okusanya - Jefferies: Then just in regards to the CMS fiscal year for seeing reimbursement any expectations in regards to what could come out with their preliminary numbers?

Debra A. Cafaro - Chairman and CEO: I think ever since someone read out the Fed minutes, half an hour early or something, they are keeping a closed mouth on this. So let's talk about it when it gets published maybe this evening.

Operator: Rich Anderson, BMO Capital Markets.

Richard Anderson - BMO Capital Markets: Ray, can you explain to a question earlier? I think it was Karin who asked, how do you take on some of these dilutive events during the quarter that were positive events? The senior notes issuance and the dispositions and say that operating performance is in line with your expectations, but guidance was affirmed. Is there legal room implied in guidance or were some of these transactions contemplated to begin with?

Debra A. Cafaro - Chairman and CEO: Some were contemplated, and it's a range obviously. So I think if you kind of do the math and you'll get to the answer. Yes. The portfolio is doing well.

Richard Anderson - BMO Capital Markets: Maybe Debbie I can ask a question of you on the – maybe my favorite topic lately, the Atria management state, the 34%. I guess my question is, what would be the status of that organization and management company in the absence of your equity investment? In other words, did they need it, did you wanted, were there other bidders that are looking to get that I mean how much did their livelihood depend on you making that investment?

Debra A. Cafaro - Chairman and CEO: Well, they are very viable company. Remember we bought the funds from Lazard. So, the price that we paid if you will, really was not an equity infusion to Atria because they had $20 million $30 million cash on hand anyway. It was really a – we bought it from the owner which really was Lazard and it's a great transaction if you think about it. We paid let's call it 240 and among other things we got 3.7 million Ventas shares which alone today are worth of about $290 million. So, we essentially have a third interest in one of the premier management companies in senior housing and we're very excited about that. I think it's going to be a great opportunity for us as sector continues to evolve.

Richard Anderson - BMO Capital Markets: Just a quick question. Ray on the senior housing portfolio the reiteration of the same-store outlook of 5% to 8%. Would you say looking maybe little bit longer term would you say that growth – the growth pattern of the space is accelerating, decelerating or sort of stable at this point?

Raymond J. Lewis - President: I think it's pretty stable. There is – as we said there is sort of limited new supply coming online, although there is some. Our portfolio is at a good point where we can start to push on the pricing a little bit and afford to have occupancy remain relatively stable, so I would look at it and say we are probably at a good equilibrium point right now in the marketplace in supply demand and a good spot.

Richard Anderson - BMO Capital Markets: Then last question maybe for Debbie or whoever, the remaining assets that haven't closed yet with regards to the Kindred release, how much will be kind of dark, or not dark, but not paying from May 1st until they ultimately close? What percent of the total is it then?

Debra A. Cafaro - Chairman and CEO: They are zero. They are all zero.

Richard Anderson - BMO Capital Markets: Zero?

Debra A. Cafaro - Chairman and CEO: Yes, zero.

Richard Anderson - BMO Capital Markets: They will all be done by May 1st?

Debra A. Cafaro - Chairman and CEO: There will be some that we expect as we said that close by the end of the quarter but those will continue to earn rent.

Operator: Jeff Theiler, Green Street Advisors.

Jeff Theiler - Green Street Advisors: Just a quick one on Skilled Nursing. The coverages seemed to have stabilized but the average occupancies appears to still be trending down. Why do you think that is and where do you see it going?

Debra A. Cafaro - Chairman and CEO: Yes. I think as the assets have become really more post-acute, more shorter stay across the industry, you will continue to see shorter lengths of stay which in turn lead to lower average occupancy. So that's the reason.

Jeff Theiler - Green Street Advisors: Can you provide (Q mix) progressions from last year to this year, how has that changed?

Debra A. Cafaro - Chairman and CEO: We do put (Q mix) in the supplemental and we have it for this quarter and I believe it's pretty stable maybe slightly improved from last quarter. But it was – I think for Kindred it was about 72%. I can confirm that.

Richard A. Schweinhart - EVP and CFO: 73%.

Debra A. Cafaro - Chairman and CEO: 73% this quarter.

Operator: Ross Nussbaum, UBS.

Ross Nussbaum - UBS: Debbie, when I look at the portfolio and I think about the diversification, your exposure to hospitals is clearly smaller than what you have in Skilled Nursing, Medical Office and Assisted Living? Can you talk about where your appetite for hospitals is at the moment and maybe also the same question on the life science side, as you think about diversifying the portfolio further?

Debra A. Cafaro - Chairman and CEO: As you know, we've been building our private pay business and so that has the effect of, of course shrinking our exposure to hospitals. The part of the pie that we currently have in the hospital business is all long-term acute care hospitals, so a specialized segment. I think that – we've had a vision in the healthcare and senior housing business that over time assets will flow to the most efficient owners and that's really across senior housing, Skilled Nursing, and really all across the continuum of care. With our Lillibridge subsidiary, I think Ventas is really uniquely positioned to – if we chose to do so, devote capital to, in and around high quality healthcare systems and hospitals. So, we continue to explore all areas of healthcare and senior housing as we look at investments. As I said, Todd's been visiting CEOs of these systems for 25 years and we have great expertise and a great window into that business. So we continue to explore opportunities really in all segments of our business.

Ross Nussbaum - UBS: Why do you think hospitals have not migrated into the public REIT hands to the extent that senior housing and medical office has to this point?

Debra A. Cafaro - Chairman and CEO: I think that in general I would say that there's been adverse selection as far as hospitals go and so far as the better hospital companies have really wanted to and have – are temperamentally suited to kind of holding on to all their assets. But again over time as their capital needs increase and their costs and sources of capital become a little bit more challenged I think they do consider possibility of divesting of higher quality assets and until that happens We really wouldn't be willing to play because it's got if we were to make an investment it would have to be in higher quality systems and operators. So all these trends are big secular trends that take time to develop and have developed obviously since REITs sort of – healthcare REITs gotten into the RMZ I mean you can see the growth in assets that have come into public hands and I do see that trend continuing across asset process.

Operator: James Milam, Sandler O'Neill.

James Milam - Sandler O'Neill: I just wanted to clarify a comment that Debbie you made earlier on the call, you said you have capacity to do a $1 billion of investments this year without raising equity, but what's kind of your target capital structure as you make those investments particularly given your comments about moving up the rating scale? It's really kind of directed at how we should think about the ATM program in particular?

Debra A. Cafaro - Chairman and CEO: Could you repeat the question, I am sorry?

James Milam - Sandler O'Neill: Just how you would – even when you have capacity to do $1 billion of investments without raising equity, what is sort of your target funding if you are to, able to close that many new deals this year, equity versus debt?

Debra A. Cafaro - Chairman and CEO: Again, we are super consistent about this. So we target anywhere between 4 and 6 times net debt to EBITDA. So at various points in time we are very comfortable in that range and so that's where we are now.

James Milam - Sandler O'Neill: So I guess if you make $1 billion of investments should we think about $500 million of equity or is it?

Debra A. Cafaro - Chairman and CEO: No. I am sorry. Let me repeat. We believe we could easily make over $1 billion of investments without raising any additional capital, equity capital that is and we are very comfortable with that leverage level. So that's I would – so I hope that answers the question.

James Milam - Sandler O'Neill: Yes. I am just – I guess I am just trying to marry that with the fact that you guys felt like it was a good opportunity to raise $85 million of equity with the ATM in April. So I am just trying to get kind of a sense of how you are planning to use the ATM given that comment and then what you guys did in so far the second quarter?

Debra A. Cafaro - Chairman and CEO: Well with all of our capital markets again we try to make a decision based on all the facts and circumstances at the time including our perception of market volatility, our perception of our capital needs, and timing in terms of blackout periods and so on. So we look at all capital transactions on a (auditable) type basis with all facts and circumstances and the ATM would be no exception to that.

James Milam - Sandler O'Neill: Let me move on, I guess, I just wanted to ask for a little bit more detail on the loan investment program and I guess what I'm really curious is, if you could give us a little more detail in terms of the types of loans you're making, whether they are mortgages or receivables or OpCo type loans and where they are, mezz loans? Then I guess also, is this an opportunistic strategy given a dislocation you see in the market or is there something you expect to be kind of recurring business line for an extended period of time?

Debra A. Cafaro - Chairman and CEO: Yes, because we need to carry on. So we have historically with – as did NHP, kind of 2% to 5% of our business in loans. A lot of that continues to pay off and recycle. The loans that we've made are very high quality, either senior secured loans and/or mezz loans with good loans to value and well structured, good risk adjusted return. Again, if you think about it, we're getting proceeds in from loan repayments, proceeds in from the syndication of parts of these loans and then we expect to keep that overall book in balance if you will in that 2% to 5% range, which is exactly where we are.

Operator: Nick Yulico, Macquarie.

Nicholas Yulico - Macquarie: Ray, just turning back to the redevelopment program in senior housing. I think you said you had $200 million pipeline. Is that kind of exhaust your redevelopment opportunities in the assets you have today and what type of returns can you just remind us are you targeting on redevelopment?

Debra A. Cafaro - Chairman and CEO: Just before Ray answers, we have like 1,433 assets. So, I'm hopeful that the $200 million doesn't exhaust our opportunities, but I'll let Ray answer specifically…

Nicholas Yulico - Macquarie: I know what you – I know relative to senior housing if that's all the redevelopment opportunity you have?

Raymond J. Lewis - President: No, no and there is a lot of opportunity within our portfolio both in the seniors housing operating portfolio NEC and our triple-net lease portfolio. I mean the playbook is to go find assets where you've got good occupancy, strong markets and at/or below market rents where you can go in and add some additional programming, add some additional units or add some upgrades to the building in amenities that could enable you to drive rate. We've got a lot of opportunities across our portfolio either in the operating side or the triple-net side to go do that, so, no we're – $200 million is just a snapshot in time. There's plenty of opportunity for us to go mine in our portfolio.

Nicholas Yulico - Macquarie: The type of returns you expect on that?

Raymond J. Lewis - President: We're typically in the double-digit, so the lower double-digit range, 10% plus.

Nicholas Yulico - Macquarie: Just one last one on senior housing; you did talk about there was the q-over-q sequential occupancy decline, clearly some seasonality, cold weather probably in the Northeast, but a year ago, you didn't have that sequential decline, and so you also mentioned that you pushed rates a little harder this first quarter. How much did pushing rates attribute to the occupancy decline?

Raymond J. Lewis - President: So, there's a couple of things that you sort of explain that. Obviously, we look at the same trends and – so, one is, I think the higher quality, higher income properties performed better during the downturn and coming out of the downturn outperformed the market. So I think we saw our portfolio grow ahead of the rest of the market. So that's one thing. Two, as you point out we are pushing rates a little bit, so there is some friction as you start to push rates. Then I think the third thing to look at in this quarter in particular was, it was a fairly nasty flu season. There was a little bit higher move out in the portfolio as a result of the flu season. So you kind of put those three things together and it paints the picture.

Operator: Thank you very much ladies and gentlemen for your questions. I am afraid that's all the time we have today. I would now like to turn the call over to Debra Cafaro for closing remarks. Thank you.

Debra A. Cafaro - Chairman and CEO: Thanks, Nancy and thanks to everyone for your participation. We sincerely appreciate your continued interest in Ventas and we are looking forward to seeing you in Chicago our hometown in June. So thanks again and have a great day.

Operator: Thank you, Debra. Thank you all for joining. Ladies and gentlemen that concludes your call for today. You may now disconnect. Have a good day.