Ventas, Inc. (VTR) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Ventas Earnings Conference Call. My name is Erin, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today's conference, Ms. Lori Wittman, Vice President, Capital Markets. Please proceed, ma'am.

Thank you. Good morning, and welcome to the Ventas conference call to review the company's announcement today regarding its results for the quarter and year ended December 31, 2012. 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 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, 2011, 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 today 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 quantitative reconciliations 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.

Thanks, Lori, and good morning to everyone. Welcome to our year-end 2012 earnings call. I'm delighted to discuss the highlights of our successful year and our expectations for a strong 2013. This morning, Ray Lewis will also discuss our portfolio performance and Rich Schweinhart will review our financial results in detail. Following those remarks, we'll be happy to take your questions. 2012 was a year of successfully executing our strategy and harnessing the power of the diverse assets, platforms and people we acquired over the past several years to deliver outstanding results for our stakeholders. Our total return to investors for the year was over 22%, and over the last 13 years Ventas has delivered 32% compound annual return to shareholders. As you know, we have built a balanced business model to provide consistent superior returns in a variety of economic, reimbursement and capital market environment, and our performance demonstrates the success of that approach. Ventas total return has exceeded the U.S. REIT index and the S&P 500 in each of the trailing 1, 3, 5 and 10-year time periods. Our strategy is simple and consistent: increase diversification and private pay assets in our portfolio, grow cash flows, maintain financial strength and flexibility, improve our cost of capital, make disciplined investments and actively manage our portfolio and enterprise risks. At Ventas, we strive to achieve and sustain excellence so that we can provide consistent superior total returns to investors. Our drive for excellence is supported by 3 key activities: allocating capital, raising capital and asset management. Here are a few of our 2012 highlights. Our full-year financial results were outstanding. Normalized FFO for the year was $3.80 a share, up 13% from last year and total FFO grew 44%. Importantly, excluding non-cash items, our normalized FFO per share grew 10%. We completed $2.7 billion of investments, which were generated from all parts of our business, including existing NHP, Lillibridge, Cogdell Spencer and Ventas relationships as well as new customers. 97% of these investments were in private pay assets. Our cash unlevered yield on our 2012 real estate investment approaches 8%. We also improved our cost of capital during the year. We raised $2.6 billion in debt capital in 2012 at an interest rate of just over 3%. And our balance sheet remains pristine with debt to total capitalization a strong 31% at year-end. Our Asset Management Group and our quality tenant operators continued to drive portfolio performance this year. Same-store cash NOI in our portfolio grew 4.4% year-over-year, normalizing for the scheduled increase in the Sunrise management fee during 2012. And that doesn't even include the outstanding high-single-digit NOI growth in our Atria-managed assets, which we acquired mid-2011. As expected, we have completed signed agreements for all 89 licensed healthcare assets whose lease term comes up for renewal on May 1, 2013. This is a great example of our disciplined approach, our active portfolio management and our team's execution capabilities. We project that rent and reinvested sale proceeds on these assets should approximate $125 million in 2013. Notably, in 2012, the company generated $1 billion of cash flow from operations, a real milestone for us. Excluding litigation proceeds we received in 2011, cash flow from operations grew 74% in 2012 while our share count grew only 28% year-over-year. Even after paying dividends to our shareholders and funding recurring CapEx, retained cash flow approximated $200 million in 2012 that we redeployed toward income producing activity. Finally, at the end of the year, we made a strategic investments in Atria Senior Living, the nation's best largest senior living provider. As the senior living business continues to evolve, grow and consolidate, Ventas is poised to enjoy a meaningful role through both our real estate ownership and senior housing assets, our relationship with multiple leading care providers and our strategic investments in Atria. Today, we announced our 2013 normalized FFO guidance of $3.99 to $4.07 per share. At the midpoint of our -- of the range, our normalized FFO guidance represents 9% growth per share, excluding non-cash items. We expect net operating income or NOI to exceed $1.6 billion in 2013. As a result of our successful performance in 2012 and our confidence in cash flow growth in our business, we are pleased to announce an 8% increase in our dividend to $0.67 in the first quarter. Ventas' compound annual growth rate for dividends has been 8% for the last 8 years, and yet we retained one of the best, safest payout ratios in our sector with room for future dividend growth. We believe that our dividend is an important part of the total return proposition we offer to our shareholders. The healthcare and senior housing investment market remains very active, and we continue to see significant opportunities from this $1 trillion market that is growing, highly fragmented, rapidly changing and consolidating. It is also supported by significant demographic demand. Opportunities for external growth abound, yet we can never predict with certainty the timing or volume of our investments. We do know that our investment professionals will bring home more than our fair share of good deals that create value for Ventas and offer our sellers a reliable, customized capital solution that meets their needs. Finally, I want to publicly thank and recognize the Ventas team, which is a deep, experienced, skilled and cohesive group. Working together, they produce outstanding outcomes for our constituents year-after-year and 2012 was no exception. We will continue to raise the bar in 2013.

Thank you, Debbie. Our diversified and productive portfolio of 1,442 seniors housing, medical office and post-acute properties turned in another year of very strong performance. For the full year, our same-store cash NOI grew by 4.4% normalizing for the 2012 scheduled increase in our Sunrise management fee so our portfolio continues to deliver consistent, reliable cash flow growth, and I'd like to take a few moments to share the highlights by segment. Let me start with our portfolio of 220 high-quality, private pay, seniors' housing operating assets. The total seniors' housing operating portfolio delivered $386.6 million of NOI after management fees in 2012 and $455.8 million before management fees, growth of 38.6% and 44.1% respectively versus the prior year. Excluding properties acquired in the fourth quarter and not included in our previous 2012 guidance, NOI totaled $386.2 million compared to our most recent range of $383 million to $385 million. Our results outperformed the top end of the range due to better-than-expected occupancy in our Atria portfolio and better-than-expected RUG-IV in Sunrise. Expenses in the fourth quarter increased in line with our expectations. Occupancy in the 212 stabilized properties finished the quarter at a very strong 92.1%. If we include a full year of results for Atria in 2011, average occupancy in the 194 same-store communities increased by 255 basis points to 90.1% in 2012. NOI before management fees was up 8.8% to $427.7 million. Importantly, each of our same-store Atria and Sunrise portfolios had both occupancy and RUG-IV growth in 2012 versus 2011. NOI before management fees for the 194 property same-store portfolio increased 6.2% in the fourth quarter of 2012 to $107.3 million compared to $101 million in the fourth quarter of 2011. Occupancy increased 360 basis points and RUG-IV increased 2.6% in the fourth quarter of 2012 versus the fourth quarter of 2011. Occupancy in the 200 property same-store stable portfolio grew 130 basis points sequentially from the third to the fourth quarter of 2012 and RUG-IV was essentially unchanged. For 2013, we expect total NOI for our Atria and Sunrise senior housing portfolio to range between $430 million and $440 million, representing a same-store NOI growth rate of between 5% and 8% year-over-year. As you can see from our results again this quarter, trends in the seniors housing industry remain positive and the fundamentals are among the best of all real estate sectors. Next I'll turn to the performance of our triple net lease portfolio, which is diversified across 842 seniors housing, skilled nursing and hospital assets. Same-store cash NOI was up 3% for the year. Cash flow coverage in the 374 properties in our same-store triple net lease portfolio for the third quarter of 2012, the latest available information, was strong at 1.6x, and our Kindred coverage remains strong at 1.9x. We are extremely pleased with the results of the releasing process for the 89 healthcare facilities up for renewal May 1, 2013. Kindred renewed or entered into a new lease for 35 of these facilities. Of the remaining 54 assets, 49 have been leased to 7 qualified nursing operators and 5 are under contract for sale. All 7 of the operators are well-respected, private regional companies. Three are existing Ventas customers, which came through the NHP merger and 4 are new relationships. The rent and reinvestment proceeds on these assets should total $125 million in 2013. Six of these assets have already been transitioned successfully to their new operators. The remaining assets are on schedule. Post-transaction, we expect Kindred revenues to represent about 8% of our total. As you can imagine, a lot of work went into this process, and the expected successful outcome is a great testament to the abilities of our asset management and legal teams who worked tirelessly to get us to this point. Lastly, I'd like to briefly discuss Ventas' MOB portfolio of 300 consolidated properties, spanning over 16 million square feet and accounting for 17% of our annualized NOI. Here are a few of the MOB segment highlights for the fourth quarter. Total portfolio NOI grew to $227 million, up from $106 million in 2011 due primarily to a full year of NHP results, approximately $1.2 billion of MOB acquisitions and internal cash flow growth during 2012. Cash NOI in the 69 same-store consolidated MOB portfolio increased 2.2% year-over-year and the 173 assets that we owned in the second half of both 2011 and 2012 increased 2.5% year-over-year. Occupancy in our 285 stable MOBs was a very strong 91.9% in the fourth quarter. Importantly, we continue to make progress in our lease-up portfolio with the same-store occupancy improving sequentially by 200 basis points in the 13 properties owned in both the third and fourth quarters of 2012. Finally, our consolidated MOB portfolio has grown from 9.3 million square feet at the end of 2011 to 16.1 million square feet at the end of 2012. Our MOB team has done an outstanding job of integrating Cogdell Spencer and the other acquisitions completed last year in optimizing our portfolio operations. With that, I'll turn the call over to Rich Schweinhart, who will discuss our financial results. Rick?

Thank you, Ray. In the fourth quarter, we invested over $1 billion in senior housing communities, medical office buildings and secured loans. We also extinguished our $44 million obligation related to the earn-out arising out of our 2011 acquisition of the portfolio of Atria-managed senior living communities. To fund our investments, we entered into a 5-year $180 million term loan at LIBOR plus 120 bps and issued $925 million of senior notes, $700 million 5-year at 2% and $225 million, 10-year at 3.25%. For the full year, including development, redevelopment and CapEx, we invested almost $3 billion. To fund this investment, we issued a little over $340 million of equity and $2.6 billion of debt at a stated rate of 3.2%, with a weighted maturity of 7.7 years. Our revolver balance at year-end was $541 million. Now let me focus on fourth-quarter results. Fourth quarter 2012 normalized FFO was $0.99 per diluted share, an increase of 11% compared to the fourth quarter of 2011 per share results of $0.89. Normalized FFO increased 13% to $294 million compared to last year's fourth quarter of $259 million. Fourth quarter 2012 normalized FFO increased from last year's fourth quarter due to our $2.7 billion in 2012 investments, NOI increases in all 3 of our segments, offset somewhat by higher interest expense due to higher debt balances from our acquisition activity. On the expense side, our average cash interest rate improved 70 basis points to 4.1% at December 31, 2012, compared to December 31, 2011. In total, consolidated interest expense increased to $77 million this quarter from $67 million last year, reflecting all of the debt activity in the last 4 quarters. Looking at sequential results, normalized FFO increased $8.7 million to this quarter's $293.6 million, primarily due to third and fourth quarter investments and an increase in interest income on loans due to a note repayment in excess of carrying value and lower G&A expenses partially offset by an increase in interest expense to fund our investments. In September, we have closed or collected about $120 million due to asset sales, proceeds and investment and loan repayments. The weighted average cash yield on these dispositions and loans was 7.7%. Comparing full year 2012 to 2011, normalized FFO increased 44% to $1.1 billion compared to last year's $777 million. Normalized FFO was $3.80 per diluted share, an increase of 13% compared to 2011 per share results of $3.37. Non-cash items totaled $0.20 a share in 2012, as detailed on Page 12 of the press release. Weighted average shares outstanding for 2012 were 295 million shares, up 28% compared to 2011. 2012 normalized FFO increased from last year due to our $2.7 billion of investments in 2012, the full year effect of our 2011 investments and portfolio NOI increases, partially offset by higher interest expense, increases in G&A and the Sunrise management fee and income reductions from our asset sales and loan repayments. We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. Net cash provided by operating activities increased 28% to $1 billion for 2012 from $773 million in 2011 and 74% if you exclude the 2011 litigation proceeds. At December 31, our credit stats were outstanding, with net debt to pro forma EBITDA at 5.4x, our fixed charge coverage ratio in excess of 4x and debt to enterprise value at 31%. In December, Moody's raised our stable outlook to positive. We are currently rated Baa2+. We are initiating our 2013 normalized FFO per diluted share guidance at $3.99 to $4.07. At the midpoint of the range, that is growth of 6% and 9% excluding non-cash items. 2013 non-cash items are currently estimated to total $0.12 per share, as detailed on Page 12 of our press release. Our 2013 guidance assumes about $100 million of acquisitions under contract, about $300 million of dispositions and loan repayments and $400 million of debt financing. The guidance does not include the impact of additional capital transactions or unannounced acquisitions. Operator, if you would, please open the call to questions.

[Operator Instructions] Your first question comes from the line of Jeff Spector from Banc of America Merrill Lynch.

This is Jana for Jeff Spector. I was curious, Ray, in your expectations for 2013 guidance, what are you thinking about same-store NOI growth for the MOB portfolio and the triple net portfolio?

So for the MOB portfolio, it will be plus or minus 3% and then in the triple net portfolio, 2% to 3%.

And it looks like you have some MOB leases rolling over. I was just curious if you could provide an update on those.

So yes, if you look in the supplemental at our lease maturity schedule and you look at what we got coming up in 2013, it's about 11% of the total MOB rent, which is pretty consistent with historical levels there, so it's just normal ordinary course.

And your next question comes from the line of Michael Carroll of RBC Capital Markets.

Now that your Kindred 2013 expirations are done, congratulations on that by the way, when does the next pool of Kindred leases expire and when do you expect to approach them about a potential renewal?

We are very pleased with our efforts to re-lease the 2013s as we expected, and those transitions, as Ray said, have begun and will be continued, and we expect to complete that process for the 2013s in the coming months. The next pool of assets that are subject to renewal would be in mid-2015.

So when do you typically approach the tenants about a renewal or when does those discussions start?

Well, the important point to remember about the Kindred master leases is that those master leases and the structured master leases is set up to protect Ventas. Relative to the 2015s, Kindred has 5-year renewal option, and that option rate has to be exercised no later than April of 2014. And if Kindred chooses to renew, the leases would carry on at an escalated basis starting in 2015, and if they do not, then, of course, our team will get back to work and re-lease those assets as we're doing right now for the 2013s.

Okay. And then with your skilled nursing coverage ratios down to 1.7x right now, where do you -- or do you have a sense where those ratios will stabilize after the mitigation efforts are fully reflected in the coverage ratios?

As you know, this quarter in the supplemental represents the first quarter where the trailing 12 months fully reflects the loss of the RUG-IV revenues that the nursing home operators got in the prior calendar year. And so this is a level where at least relative to prior sequestration or prior any other changes, we think it's a stable level of EBITDARM coverage at the 1.7x.

So you think that going forward the next few quarter or the next few quarters, once the mitigation efforts are beginning to be fully reflected, you're not going to see too much improvement from the 1.7x mark?

That will depend again on what changes positive or negative you see in the forward reimbursement environment and what the cost structure of the operators is and how those interrelate with each other, but we think this is a relatively stable level for the time being.

And your next question comes from the line of Jack Meehan from Barclays.

Could you talk about the types of things you're doing around expense management in the shop portfolio? It looks like expense for the same-store stabilized assets increased a little under 9% year-over-year. How much of that was tied to the growth in occupancy, and I'm guessing only about 200 bps is the higher management fees?

Yes, the management fees do account for a big chunk of those expense increases. We work very closely with our operators to manage the expenses. You would also expect to see, as occupancy increases by 360 basis points, that your labor, which accounts for about 60% of the expenses, would increase as well. So I think when you factor in the labor increases and the management fee increases and look at the balance of the expenses, they would be within normal tolerances.

Got you. So it would be fair to say maybe 300 bps of that is related to maybe performance incentives or improving occupancy in the fourth quarter?

Well, remember, the change in the management fee is -- has to do with the scheduled increase that took effect in 2012 because we had a 3.75% benefit in 2011. So that was a significant portion of it when it reverted to a contractual 6% level in 2012. And then there was some amount of incentive management fee because the Sunrise assets obviously did exceptionally well.

Got you. Okay, and then I guess more of a strategy question, we've seen some really good growth metrics in the RIDEA portfolio and the outlook for 2013 is positive. Would you ever look to convert some of the triple net leases over to operating assets? Or will you look to grow shop more through new investments?

That's an important question. We've had a very defined strategy around senior housing operating assets, which the market often refers to as RIDEA, and our strategy there has been to get the highest and best-quality asset with the highest growth potential in the best markets with the best operators that has, simply stated, the most growth potential with the most protected downside. And that's really been our Atria and Sunrise portfolio, and that strategy is working with those high-single-digit growth NOI levels that we're seeing. So the most important part of our strategy is really when we acquire things, what assets and what operators we're having in the management structure.

And, Jack, I would just add a little color to that. We've got a lot of those similar types of assets in our triple-net lease portfolio as well, although because they're high-growing assets that have a lot of NOI growth, the operators generally prefer to keep them in that lease structure so that they can receive the benefit of that cash flow growth.

And your next question comes from the line of James Milam from Sandler O'Neil. James Milam - Sandler O'Neill + Partners, L.P., Research Division: I just want to ask the first one on the balance sheet. I guess, can you talk about your expectations for the maturity that you may pursue with the $400 million debt offering that you talked about, and then also with the line of credit balance at $540,000 does that include -- or actually, I assume that doesn't include the first quarter maturity being repaid so I'm curious if there are any other sources of capital that you guys are looking at for 2013?

Right, we're -- as you mentioned, we're forecasting, assuming no additional unannounced acquisitions, about $400 million of debt financing and, of course, the most important thing to think about when you think about Ventas is that despite our above-average dividend increase of 8%, we also would expect to generate after dividends almost $300 million of free cash flow in 2013. So that's also a very significant and important source of capital for us. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay. So that effectively $500 million on the line plus $250 million of the maturity, and then you basically outlined $700 million of sources, is that the way we should think about it?

That's a great way to think about it, yes. That's essentially the way we'd forecast. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay. And then just bigger picture, you guys have done more 5- and 7-year maturities than 10-year maturities, at least in 2012. I'm just curious if in 2013 your intent would be to lengthen maturities or I know there's another hole in the maturity schedule around 2020, if you would maybe look to fill that first.

Are you turning into a bond guy? James Milam - Sandler O'Neill + Partners, L.P., Research Division: I'm just curious, 10-year bonds costs a little bit more than 7-year bonds, and that affects free cash flow to equity. That's all I'm after.

Yes, no, one of the things that we really feel is a core competency and is one of the most important things that we have to be excellent at is raising capital. And so our team is constantly looking at different types of capital, different tenures on debt maturities, different structures, and we're trying to get a staggered debt maturity schedule, a balanced capital structure, and we're also trying to pick the right spot at the right time in the market. And all those things affect our decisions about how we go to market, when we go to market and what product or tenure we're choosing. So we will hopefully make the right decisions for the capital structure and for the shareholders when we raise that this year. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay, fair enough. And then so I just want to ask one on the re-leasing, it looks like the rents based upon the numbers that you provided for the 54 skilled nursing facilities are down about 10% over where they were with Kindred. So I guess, a, am I correct in that thinking; b, what is the coverage on the new leases; and then, c, how does that affect your thoughts? I know 2015 is still a couple of years out, but as you look at the re-leased assets coming up then and then that's it for me.

Yes, well, thanks, James. First of all, we're very pleased with the outcome on the 2013s. It's very consistent with our expectations. And we believe that this is a real great opportunity for us to achieve greater diversification and the same amount of rent. As we look forward, we think Kindred is going to be about 8% of revenues for Ventas in 2013, and so we feel good about where we are. You have to think about these -- again, I said the master lease of the bundle structure protects Ventas, and that's because this is really a pool of cash flow and a pool of rent. So if you think about it, basically, you got more rent on some and a little bit less rent on others, but at the end of the day, the same NOI level obtains. And as I was thinking about it this morning, if we were David Simon and we had 20 malls and we had Saks in 20 stores at a $1 a rent a year, and Saks decided not to continue and we went out and we re-leased 10 of the stores for $1 and 5 of them for $1.25 and 5 of them for $0.75, then we're in the same spot, and that's what good real estate companies do and that's part of our business, and we're just applying that same level of kind of re-tenanting expertise to the healthcare business. So you have to think about it as a pool of cash flow and a pool of assets and what those assets in total are going to generate in rent. And we've we thought that we could replace the current rent levels, and that's exactly what we're doing. James Milam - Sandler O'Neill + Partners, L.P., Research Division: And I'm sorry, can you give the coverage for the new leases?

Well, if you think about what the coverage is now and you assume the rent is the same, you would imagine that the coverage would be about the same. Now if the operators turn out to have lower cost structures, it could go up a little bit. If reimbursement changes, if it goes up or down, that could obviously affect it, but you would imagine if rent is the same, the coverage would be the same. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Right, but for the 54, if I -- it sounds like the rent is a little bit lower on the 54. That's the reason for the question.

Well, remember, that the LTACs went up, $6 million, $5 million, $6 million, and so that's the offsetting -- those are offsetting, and that's why you come back again to the pool concept and the same amount of rent.

And your next question comes from the line of Tayo Okusanya from Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Just wanted to focus on the Atria Senior Living acquisition that was done at the end of last year, and the minorities that you guys now have in the management company. Would like a little bit more color in regards to why exactly you decided to do that, what kind of returns are you generally expecting from that business?

Okay, well, let's recap. Thank you for asking, because we're actually very excited about the transaction and because we announced it on December 24, I think we haven't gotten to talk about it as much as we would like. I mean, the fundamental transaction is this: We paid $242 million, and we bought the fund, which owned 3.7 million shares of Ventas, which at that time was worth maybe $230-something million, and we bought a third stake in the Atria management company, which as I mentioned is the fifth-largest provider of senior care in the United States. And so that investment is really a strategic investment for us. The management team now owns the other 2/3 of the business. So it provides great alignment and Atria is in a great, great spot really to continue to grow and we hope to grow with them. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: I guess, I could we talk a little just about what kind of return you expect and what the overall profitability of that business is? I'd also...

I mean, we expect to make money on that investment, and the business is very stable. It has about $30 million of cash on hand, and we expect to make a profit on the investment, but the real reason that we're doing it is to have alignment with our provider and to help them grow. I mean, the investment itself is very, very small. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay. That's helpful then. I guess for me, it's just, again, I would like a bit more of a defensive move kind of given what had happened at Sunrise, more so than anything else or...

Well, as you know, we're all about offense and defense, and this is a great -- again, Atria is well-positioned and so are we, as I mentioned in my opening remarks, to really take advantage of this operator consolidation craze and the changes in the senior housing business. And so Atria is in a good spot, and we are in a great spot with our third investment to have a lot of options going forward in the senior housing business. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay, that's helpful. Just second question -- one more question, I'm sorry. On the -- in regards to acquisitions on a going-forward basis, specifically life sciences, I know we've brought this up with you at different times, but right now that entire sector is going gangbusters. And I was just very curious if your thoughts towards an investment in life sciences had changed or had evolved since the last time we talked about it.

I think we felt the same for a while. So there's no change in our position.

And your next question comes from the line of Quentin Velleley from Citi.

Just in terms of the acquisitions pipeline, in the prepared remarks, you said that opportunities are down. Can you just give us a sense of sort of the size of the pipeline that you're looking at and where some of the better opportunities might be within seniors housing operating assets and just having triple-net assets, medical office or even potentially skilled nursing again?

I would say that the pipeline is very active and very large, as it has been for the past multiple years. And again, we are in a great sector for external growth, and I think we're very well-positioned with all of our relationships. And it's really across the sector: senior housing, medical office and the government reimburse sectors as well as others, and so we feel really good about the forward environment.

Okay. And then just given the strong fundamentals in the seniors housing side of the business, how should we think about Page 18 of your supplemental with development pipeline? You've currently got about $60 million of projects under construction. Are you and the Atria team seeing more opportunity and a more development feasibility starting to stack up, given rent and occupancy growth?

We are seeing significant redevelopment opportunities in particular, and Ray can add to that comment. And then we would expect at any given time to have $100 million to $200 million of development, redevelopment projects kind of in progress. _

But, Quentin, as we've seen in the time period that we've owned the Atria assets, the redevelopment projects have been a great addition to the growth of the NOI of the portfolio, and so we're going back through the portfolio, combing it, trying to find more and more of those opportunities and accelerate that activity. So you might see us do a little bit more of that in the near term.

And you also might see some income-returning investments in our triple-net portfolio as well, where we can get above-average risk-adjusted return on existing assets.

Debbie, it's Michael Bilerman speaking. Just thinking about just the opportunities abound, which Quentin mentioned, how does that translate relative to sort of U.S. versus other potential markets? I mean, do you have stuff that you're looking at expanding in Canada at all and adding to those investments, after you had done Sunrise a number of years ago or other global markets or is it -- or is the main focus continuing to be U.S.?

I mean, the domestic opportunities, given the fragmentation in the market and the need for capital and the consolidation in the market as well as just all the change within the healthcare and senior housing business, we have a ton of opportunities domestically. We certainly have talked about and from time to time, look at international opportunities in Canada and elsewhere. And if we found something that worked for us, we would attempt to see if it works for our shareholders, so -- but the focus continues to be on the domestic opportunities.

And is there anything in terms -- in the loan book right now that we should be aware of that converting into real estate into fee at all?

In general, when we make loans, we consider them for repayment rather than loan-to-own so that's how you should think about it.

And what's the maturity of -- in terms of that $700 million obviously you're earning a pretty good rate. Does any of that mature this year or next?

No. I mean, we have small amount, obviously, that paid off last year and that's in our disposition and loan repayments kind of section that we talk about. It was about $420 million last year and then this year we're modeling about $300 million of -- it's mostly asset sales, but it also is a little bit of loan repayments, but very little in the loan book in 2013.

Is there anything on the hospitals that, I guess, obviously, is in a size of investment relative to the company is the smallest piece. Is there anything changing on that end where some of that real estate can be unlocked?

I think that we have made the case over time that real estate assets will ultimately flow to the most sufficient owners. And I think the capital, the capital needs in the hospital business and the hospital business is enormous. The capital needs are great, and the sources of capital available to hospitals continue to be constrained and a little bit more expensive. And so over time, I would imagine that opportunities will present themselves that are perhaps higher quality than the kinds of hospital opportunities that have been available in the past.

And how would you think about -- if you were to own those assets, about the security of that income, but also the growth underlying that income of owning hospital assets?

Right. I mean, it would really be just like any other underwriting that we do in, in any of our sectors, which is to understand what the sustainable cash flow and cash flow growth is, what the volatility is, and then what the risk-adjusted return and coverage should be. So it's just a different analysis depending on which subsector, but it's the same principle.

And then just one last question, just in terms of the dividend, the dividend went up 8%, cash flow growth is 9%, is there any reason why you just didn't match them completely?

We like to be -- we like the 8 in 8 years, but I think that we have a really good record of increasing dividends at above average cash flow level at about average rates, but also retaining more cash flow every year to reinvest and continue and grow. And that's how we think about it, and hopefully, we'll be able to continue that trend in the future.

And your next question comes from the line of Daniel Bernstein from Stifel, Nicolaus. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Yes, I want to return to the senior housing portfolio and what's embedded in the guidance for 2013. Given that the portfolio's over 90% occupancy, are you looking at, say, improved rate growth into 2013, 4% or 5% margin expansion? Just want to understand what's embedded in that senior housing guidance?

Sure, let me just give you the basic assumptions, and perhaps, that will answer your question. I think, just to go back to the basics, we've given a range of $430 million to $440 million, which represents 5% to 8% growth year-over-year. Embedded in that, at the midpoint, we're sort of looking at occupancy going up around 200 basis points, rate going up around 3% and then your margins would expand slightly, maybe 30 basis points or so, and that's the basic assumption that we're using going into the modeling.

And that's a comparison versus a full year 2012...

Yes, those are averages, yes, against -- thank you, Debbie, those are against the averages for the year. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: So if I was to go 4Q to 4Q, I guess, the average would -- the occupancy increase would be a lot less than that, but I imagine it's -- what you're expecting is something close to what the industry might be, 100 basis points of occupancy, would that be the right way to think about it?

I mean, more or less. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then also maybe I missed something prior to the press release or earlier in the call, but your secured loan balance on the balance sheet jumped $400 million. I don't know if you could just talk about what that is and make sure I understand what that secured loan was?

Right, when we put out our press release at the end of the year in terms of our year-end investments, we did -- we made about $400 million of senior secured loans. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Is that all seniors housing then?

Yes, it's in the healthcare space, yes. It's not all senior housing. It's a mixture. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then also just thinking of that in terms of the acquisition environment and pricing, obviously, the 10-year has gone up over 2%. Debbie, you were on a panel at ASHA where, I think, Noah Levy of Prudential indicated he thought assisted-living cap rates could back up given how close those cap rates were to IL. Given where interest rates are, given what your capital structure is, how are you thinking about what you are willing to pay for acquisitions in 2013 versus 2012? Is it about the same level? Or you think you're going to be a little bit more cautious on how you bid for assets?

Well, I mean, I think what's been great about Ventas is we have been able to acquire $14 billion or more of assets over the past couple of years, and our unlevered returns are quite high. This year, the 2.7 was the cash on levered yields approaching 8%. So that's been outstanding, and one of the ways that we think about acquisitions is to try to be kind of ahead of the herd as we acquire things. And I think we can still acquire assets in our core sectors at attractive risk-adjusted returns, depending on the growth profile for those assets. We'll continue to watch replacement cost levels as we make acquisitions, as we always do. And we'll be a disciplined acquirer, but I do think the environment continues to be good for us to be able to add value through our acquisition activity. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. But do you think cap rates are about the same as 2012? Or do you think they can compress further and back up, I mean, just...

I mean, I think they're about the same. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And are you seeing any additional competition from, say, private equity or other investors getting excited about seniors housing and MOBs? Or do you expect the REITs to continue to be probably the highest bidder, lowest cost of capital in the healthcare space?

Well, we're always glad when other people discover the benefits of our asset base as the largest owner of some of these sectors, and I'd say it's always been competitive, and it still is competitive. But as I said, we have a great team, great relationship, and I think we'll get more than our fair share.

And your next question comes from the line of Jeff Theiler from Green Street Advisors.

Hey, I just wanted to follow-up on the question that James was asking about the coverage on the re-leased Kindred assets. For those re-leased assets, I understand that different operators can have different cost structures and maybe produce different results, but if you just assumed it was the same run rate that Kindred was doing, what would the coverage be, I guess, over all on those re-leased assets?

Well, if you look at the supplemental, you see that the Kindred EBITDARM coverages on SNFs are about 1.5x now, so you guess in the kind of 1.5x plus or minus range, assuming...

Okay. So 1.5x EBITDARM coverage on those re-leased assets. And what are the -- just the escalators on those on average?

The new leases are about 11 years, and the average escalation is about 2.5%.

2.5%?

Yes.

Okay, great. And then just lastly, how are you thinking about skilled nursing these days? You're not really going out and actively acquiring the asset, but you only sold a few of them. Do you think that the risk is being overpriced in the private market, i.e., cap rates are too high so they're not a great sale target right now? Or how do you view that property sector in general?

I mean, we have taken a deliberately private-pay approach to most of our investment activity. We've always been a supporter of the skilled nursing and post-acute business. It is a low-cost provider, and it has a place in a healthcare REIT portfolio. It has a place in the delivery of healthcare in the United States, but we have, since probably 2010 been very active in building the private pay part of our business, and that's kind of where we are now.

And your next question comes from the line of Tom Truxillo from Bank of America Merrill Lynch.

Appreciate all the comments from James earlier on the balance sheet and source in uses of cash. You also have about $283 million of secured debt coming due in 2013, how should we think about that and your attempts to kind of reduce your secured average?

Whenever we have a chance to pay off secured debt in our consolidated portfolio, we will do it.

Okay, easy enough. And then the second question is, you talked about continuing to buy the best and the highest quality assets and being interested in doing that in kind of an operating senior housing portfolio, obviously, that adds some risks to your income statement even though the outlook is very positive now. Can you talk about maybe your willingness to continue to grow that portion of your portfolio as a percentage of total portfolio, and then do you think that changes the way you need to manage the balance sheet in any way to offset some of that income statement risk?

I totally disagree with the statement and the premise. These are the best assets in our industry with very, very stable operating histories. They had positive -- this industry had positive NOI growth through the financial crisis and recession, which is the only real estate asset class to deliver that kind of performance, and that's because the assets are need-based. They're supported by strong demographic growth in the over-85 population, and we have the data that supports that performance through basically a depression in the United States. And so I think these assets are our best assets, and ones that actually improve the reliability of our cash flow. And if you look at our total NOI of, let's call it, $1.6 billion next year and this is a quarter of that, if it goes up or down 2% or whatever, that is an absolute immaterial impact on our cash flow and our debt coverages. So I think this portfolio improves the reliability of Ventas as a company and as a debt issuer. And we believe it's going to grow, as Ray said, 5% to 8% same-store as we look into 2013.

I should have asked it a different way because I agree with all your points there. Have you had any luck in convincing rating agencies that that's the way they should look at it, given that HCP has been kind of given higher credit ratings than you? And how do you...

Yes, I mean, Moody's moved us to positive in December, and I think that as the assets continue to perform and the facts become known, you can't fight the facts. And the performance has been very strong and reliable, and the most important thing is that we have a huge business with scale that's balanced and diversified. And that is the best possible thing for bondholders and equity holders alike. So, Tom, we're going to have to move on to the next question.

And your next question comes from the line of Nic Yulico from Macquarie.

For the 5 assets that were sold to Kindred SNFs, can you just talk about why they were sold and not re-leased?

Yes, I mean, we -- as we looked through the portfolio, we thought that these were assets that we would like to sell, and so we put them in the sale bucket as opposed to the re-leasing bucket.

And what was the cap rate on these assets?

The cap rate is -- the total proceeds are maybe about $9 million or $10 million.

That's the total cash proceeds?

Yes.

Okay. And then just lastly, just going back to the coverage question, I mean, Kindred, if you go back to the fall, they gave a 2013 coverage pro forma for the 54 SNFs they weren't renewing, and it was 1.15x EBITDAR. And so I guess I'm wondering you said there could be a different cost structure, a new operator, but I mean is that a coverage that you ended up writing these new rents at that level of coverage?

Well, again, if you look at all the portfolio right now in the supplemental, basically, after all the RUGs has -- the RUGs removal has washed its way through the system and then before perhaps all the mitigation has taken effect, you're right about somewhere in our portfolio for skilled nursing between 1.5x and a 1.7x EBITDARM coverage. And then depending on what the overhead you want to allocate as a percentage of revenues, you get down to, let's call it, a 1.3x, 1.2x EBITDARM coverage, and we're perfectly comfortable with that.

So I mean, it's fair to assume that you wrote rents at a similar coverage set, 1.2x-type EBITDARM coverage?

Yes, which again makes sense because the assets are profitable, and will continue to be profitable to the new tenants.

And your next question comes from the line of Rich Anderson with BMO Capital Markets.

Just quickly, real quick for, Ray, the same store for Atria, Sunrise, 5% to 8%, is that before or after management or doesn't matter?

That's after management fee, and it doesn't really matter...

It doesn't really matter because you have the full 2012?

That's exactly right.

You got it.

Okay. Debbie, I guess, just rebutting a little bit on the RIDEA strategy and all that, do you ever wonder what the other side of the table was thinking in the sense that different views on the same subject or what make transactions happen, so maybe they know something that others don't, and that's why they're so willing maybe to do an operating lease as opposed to a triple-net lease. Is there any -- what would you say to that comment?

I mean, I would say that I love our portfolio, and it's delivering single-digit, high-single-digit growth, and it's really just a little bit of a strategic matter relative to the operators and how they're going to organize their business. You see that in the hotel sector as well.

And sellers sell for different reasons, Rich. I mean, if you look at the Lazard situation, they've been in the investment for a long time. Sunrise REIT was an M&A opportunity, so you have different reasons.

What would you say the RIDEA premium you require versus a comparable triple-net execution would be?

So we look at every deal to judge whether on many, many different metrics, it will create value and it is a good risk-adjusted return for that investment. And then, well, how it fits into the overall Ventas balance that we want to have in our portfolio. So I think it's really just a case-by-case basis, depending on the quality of the assets, the growth we expect, the markets, the operator, is it a new relationship with someone, is it a pool, et cetera? And all of those factors really go into how we price our investments and how we decide whether to go forward or not. And I would say that, again, our strategy that we've put in place with a balanced portfolio, the percentage of our portfolio that's in these high-quality senior housing assets, coupled with the stability of the triple nets and the MOBs, has been working very, very well.

What is the premium for the Atria RIDEA structure? Could you comment on that?

I really don't even understand the question in terms of premium or not. We look at it and we say, "Would we be happy to own these assets at a pick a number, 6.5 cap rate with a high-single-digits growth rate" and the answer, in these primary markets with barriers to entry, the answer is a resounding yes.

Okay. So it's mutually exclusive. Last question, what is the risk of owning 34% of the management company, I mean, knowing the bogey is 35%, what could happen to trip that number and then what would happen in that circumstance?

Well, we have, I've been walking around glued to our tax guy, who's kept us on good stead in the REIT compliance area for 13 years. And I would say we're well in compliance, and we expect to stay so, and we have lots of protections to make sure that's the case as we always would do.

Is there a cure period?

The REIT statute itself does have cure provisions in it, but we would not expect to need to rely upon that.

Rich, thanks for hanging out with us till the end. We really appreciate it, and we want to close the call with appreciation to all of you for listening, and we look forward to seeing many of you in Florida in the next couple of weeks. Thanks again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.