Ventas, Inc. (VTR) Q1 2013 Earnings Report, Transcript and Summary

A very good day to you, ladies and gentlemen. Welcome to the Quarter 1 2013 Ventas Earnings Conference Call. My name is Nancy. I will your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Lori Wittman, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

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 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.

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 S&P 500 indices. More importantly, our 10-year performance is an exceptional 888%, showing our long-term track record of out-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 with $1.03 per diluted share, representing 16% growth from the first quarter of last year, excluding noncash items in both periods. This increase in FFO flows from both internal and external sources. Same-store cash flow growth in 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 fueling our continued 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 toward the finish line, regarding the 89 licensed health care assets whose lease terms expire at the end of this month. We are pleased to report that the lion's share of these transactions and operating transition should be completed by May 1 at the rent and on the terms we previously announced. We expect the remainder be completed, as we said on 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 2 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, noncash 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 are 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 health care 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 investment 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.

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 NIC 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 RUG-IV, which increased 3.2% year-over-year. The same-store portfolio substantially outperformed the NIC top 31 MSA data on both occupancy and RUG-IV growth year-over-year. One of the key drivers of our outstanding performance is our redeveloping 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 RUG-IV. 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 housing, skilled nursing and hospital assets. Same-store cash NOI in our 833-property same-store triple-net portfolio was up 2.4% year-over-year in the first quarter. Cash flow coverage in triple-net lease portfolio for the fourth quarter of 2012, the latest available information, was stable and strong at 1.6x. Kindred coverage in the 173 skilled nursing in LTAC that currently leases from us remain strong at 2x. 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 a 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 of 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 9 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 billings -- 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 Rich Schweinhart who will discuss our financial results. Rick?

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 include a previously capitalized lease. On the capital market side, we issued $500 million of 2.7% 7-year senior notes due 2020, and $258.75 million of 5.45% 30-year senior notes due 2043 in March. If you combine our 2 senior note issues, they have a weighted average interest rate of 3.6% with a 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, issuing over 1.1 million shares under our aftermarket 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 3 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 4 quarters. Looking at sequential results, normalized FFO increased $8 million to this quarter's $302 million, primarily due to an increase in all 3 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 first quarter of 2012. At March 31, our credit stats were outstanding and improved from year end, with a net debt of pro forma EBITDA at 5.3x, our fixed charge coverage ratio in excess of 4x, secured debt-to-enterprise value of 10% and a debt-to-enterprise value at 28%. On April 2, S&P raised our stable outlook to positive. We are currently rated BBB+. Even with a $0.02 per share, per quarter impact from our first quarter capital activities and 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.

[Operator Instructions] We have our first question from the line of Jeff Spector from Bank of America Merrill Lynch.

This is Jana for Jeff. It was good to see your tenant triple-net rent coverages remain strong, they were flat in 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? Because I think we won't really see this show up in numbers until the third quarter reporting.

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 so -- 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.

Okay. And then, any input from your operators on how they're thinking about their budgets with what CMS may announce shortly?

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, is subject to a common [ph] period and then often changes and improves in between these initial publication and finalization.

We have our next one from the line of Michael Bilerman from Citi.

Manny Korchman is on with me as well. Debbie, I just wanted to go -- your comments about the pipeline being robust, acquisition opportunities abound, and you talk 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...

Right. Right. And I think you're right. We obviously we 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'll 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're as busy as we've 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 component.

And how we should we think about the types of deals? Or - I mean, is this 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're 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?

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

Okay. And then just on the loan buybacks and -- or the loan -- I guess you sold off some loans in the quarter. Looking on Page 2 of the supp, so that balance had come down on your mortgage loans from $635 million to $490 million, but the yield went up, and if you just do the data math, it would say that you sold $145 million of loans at 7.6%. I thought I heard you said you sold some high-yielding loans, and I -- but it would appear as though the balance actually is better today than it was before.

Yes. 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've started to do that. And I think the rate ticked up a little bit because we may have had a few loan payoffs of lower-yielding loans. And also, we sold these later in the quarter and so that may have affected the weighted average. So we may see that tick down next quarter, Michael.

We have the next one from the line of Jack Meehan from Barclays.

Just want to start 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 for the first quarter, assuming flu tapered off the beginning of January?

Yes, 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 April, and start to trend back up again in May. And we're starting to see, as we look at flash reports, the stabilization of the occupancy, and it's following historical patterns.

Okay, got you. And 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?

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 a first answer to your question. And 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.

Next question is from the line of Karin Ford.

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

Okay. Well, first of all, we had a great first quarter, obviously, so that helps. And we are very confident about our expectations for the remainder of the year. And 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, a 9% and you also compare that 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.

Was there anything specific in the business? Any particular segment that seems to be ahead of budget today that's offsetting that?

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.

Okay. Next question is, given that, as you pointed out, your balance sheet's 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 imminent acquisition activity coming? Can you just talk about that?

Well, we've been, again, fairly open, I think, about the acquisition and market that we're 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, we will be able to get our fair share of additional investments.

Great. Last question is, are you anticipating any M&A activity in the health care space through the balance of the year? And what are you seeing on the cap rate side?

Well, we -- again, we've been consistent in saying we do expect consolidation in the health care and senior housing business. And we've seen some of that, and I think we'll continue to see that.

And pricing, has pricing changed on either the MOB side or the senior housing side?

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. And I think as cost of capital has continued to improve for us and 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.

We have the next question from the line of Michael Carroll from RBC Capital Markets.

Now that the occupancy in the shop portfolio is above 90%, do you think you'll be able push rental rates to continue to drive the similar case of the revenue growth that you have been able to do?

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 were closer to 2%. So we're already starting to see that benefit materialize in our portfolio. And 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.

Okay, great. And then, have you seen increased development activity in the senior housing space, particularly around your seniors housing operating portfolio?

Well, remember, our senior housing operating portfolio is in high-barrier, infill 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 NIC data in the top 31 MSAs, there's about 13,000 units under construction, which is relatively 2.5% of inventory. Historical averages are closer to 3.2% of inventory. And 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, sort of, the demographics, while new construction is higher than it was in the trough during the recession, it's still well within normal tolerances, and is not, at this point, something that would have an impact on our -- the performance of our portfolio.

And there's -- there continues to be positive absorption as a result of that favorable supply demand.

Okay. And have you seen, I guess, more development projects in the early planning stages that could come to the market, that could increase that CIP [ph] number?

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.

Okay, great. And 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?

We would expect to see some transition expenses and 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 the assets are profitable, and so there may be a changeover impact, but that'll be short-lived.

Which -- and we've underwritten that.

Next question is from the line of Daniel Bernstein from Stifel. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: 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 about your expense controls and how you're seeing operating margin progress throughout the year?

Well, I think you hit it on a couple of things. So you look at sequential margins, and our -- and same-store stabilized portfolio, they're up 60 basis points. One thing that would sort of drive that is the rate increase this year was much more than we've had in the prior years sequentially. 2, I think, if you look at the non-stable portfolio, the lease up that occurred in the non-stable portfolio were 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. And 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 M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then, do you expect rate growth to -- I guess, normally, all of your rate increases are on January 1, is that correct? Or there's anything that's spread out throughout the year with -- between the [indiscernible] of those?

The majority -- yes, the majority of our rate increases occur January 1. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then, I guess, maybe a similar question on MOBs where you had an increase in operating margin Q-over-Q, it looks like even on the same-store. Is there something in the seasonality there or something you're doing on the expense side? I guess you eluded to that earlier in the conference call about your economies of scale. But is there anything that you did 4Q to 1Q to increase the operating margin there?

Well, Dan, there's a couple of things that are going on in the MOB side. One is, we are -- 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. And we're starting to realize real expense savings off of that. And particularly on our gross leases, we'll get the benefit of that immediately. And 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 2 primary drivers there. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. 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?

I mean, I think, overtime, the objective is to drive down expenses and recover those as the rents turn over in the market. So I don't think you'll see it happen quickly this year, but overtime, we want to try to be able to recover more of the expenses. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And I have a follow-up question on cap rates. I think, Debbie, when we were in -- I think it might have been last June's NAREIT, we asked about if you were to buy Atria assets today, how much lower the cap rate would be, and you kind of alluded to maybe being 50 bps. Is that still the case, given capital cost? Do you think seniors housing cap rates have continued to compress since mid-last year? And not to pinpoint what you would you pay for assets today exactly, but is below a 6 cap reasonable for seniors housing in -- for class A major metro portfolios?

I think that, first of all, buying Atria 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 bought it at the right time in the cycle, and Atria is doing a great job running it. So I -- we're very happy about that. I would say that cap rates -- as cost to 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. You have to look at the growth rate, and the quality, and replacement cost 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 profitable 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 M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And are you distinguishing difference in evaluation between assisted living and independent living as well when you think about acquisitions going forward and when you're underwriting asset -- potential asset acquisitions today? The gap between assisted living and independent living cap rates have come down a lot. Should assisted living be more value -- higher cap rate than IL?

Yes. 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're 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 housing market have comeback, 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 the them are good asset classes. I think there is not a big distinction right now in the marketplace between the cap rates for the 2.

Next question is from the line of Tayo Okusanya from Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: A quick question on the Kindred transition of assets. I mean, when those assets re-transit, do you expect a big difference in regards to the rent coverage ratios, new operators versus the current Kindred coverage?

We don't. I mean, there's 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're 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 T. Okusanya - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then just in regards to the CMS fiscal year '14 reimbursement. Any expectations in regards to what could come out with the preliminary numbers?

I think ever since someone let out the fed minutes half an hour earlier or something, they're keeping a close wrap on this. So let's talk about it when it gets published maybe this evening.

Next question is from the line of Rich Anderson from BMO Capital Markets.

So, Ray, can you explain -- to a question earlier, I think it was Karin who asked, how 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? I mean, is there some wiggle room implied in the guidance? Or were some of these transactions contemplated to begin with?

Well, 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. But I mean, yes, the portfolio is doing well.

Okay. And maybe, Debbie, I can ask a question of you on the -- maybe my favorite topic lately, the Atria management state, the 34%?

Absolutely.

I guess, my question is, what would be the status of that organization, that management company, in the absence of your equity investment? In other words, did they need it? Did you want it? Were there other bidders out looking to get that? I mean, how much did their livelihood depend on you making that investment?

Well, they're 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 million, and among other things, we got 3.7 million Ventas shares, which alone, today, are worth about $290 million. So we essentially have 1/3 interest in one of the premier management companies in senior housing. And we -- we're very excited about that. I think it's going to be a great opportunity for us as the sector continues to evolve.

Okay, fair enough. And just a quick question, Ray, on the senior housing portfolio, the reiteration of the same-store outlook at 5% to 8%, would you say -- looking maybe a 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?

I mean, I think it's pretty stable. There's -- as we said, there's 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're probably at a good equilibrium point right now in the marketplace but -- in supply/demand and good spot.

Okay. And then last question, maybe for Debbie or whoever. The remaining assets that haven't closed yet with regard to the Kindred release, how much will be kind of dark or -- not dark, but not paying from May 1 until they ultimately close that? What percentage of the total will be done?

None. 0. 0. The...

Oh, 0?

Yes, 0.

Oh, they'll all be done by May 1?

No, no. There will be some that we expect, as we said, to close by the end of the quarter. But those will continue to earn rent. We're going to try to keep our call to about 1 hour, so we'll take our next caller. Thank you, Rich.

The next question is from the line of Jeff Theiler from Green Street Advisors.

Just a quick one on skilled nursing. The coverages seem to stabilize, but the average occupancies appears to still be trending down. Why do you think that is? And where do you see it going?

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

Okay. And can you provide Q mix progressions from last year to this year? How has that changed?

Yes, 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.

73%.

73% this quarter.

Next question is from the line of Ross Nussbaum from UBS.

Debbie, when I look of the portfolio and I think about the diversification, your exposure to hospitals is clearly smaller than what you have in skilled nursing and 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.

Good. As you know, we've been building our private pay business, and so that has that effect of, of course, shrinking our exposure to hospitals. And 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 health care 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. And with our Lillibridge subsidiary, I think Ventas is really uniquely positioned to, if we choose to do so, devote capital to in and around health -- high-quality health care systems and hospitals. And so, we continue to explore all areas of health care and senior housing as we look at investments. And 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.

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?

I think that, in general, I would say that there's been some adverse selection as far as hospitals go, in 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 more -- a little bit more challenged, I think they would -- they do to consider the 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 health care REITs got 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 classes.

We have a next question on the line of things James Milam from Sandler O'Neill. James Milam - Sandler O'Neill + Partners, L.P., Research Division: I just wanted to clarify a comment that, Debbie, you made earlier on the call. You said you have capacity to do $1 billion of investment 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 should we think about the ATM program in particular.

Could you repeat the question? I'm sorry. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Just how you would -- even though 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.

We -- again, we're super consistent about this. So we target anywhere between 4x and 6x net debt-to-EBITDA. And so at various points in time, you'll -- we're very comfortable in that range, and so that's where we are now. James Milam - Sandler O'Neill + Partners, L.P., Research Division: So, I guess, if you make $1 billion of investments, should we think about $500 million of equity? Or is it...

No, no. What I -- no, I'm 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're very comfortable with that leverage level. So that's -- I would -- so I hope that answers the question. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Yes. I'm just -- I guess I'm 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'm just trying to get kind of a sense of how you're planning to use the ATM, given that comment and then what you guys did so far in the second quarter.

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 an audible-type basis with all facts and circumstances. And the ATM will be no exception to that. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay. 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're mortgages or receivables or are OpCo-type loans, where they are, Mez [ph] loans? And then, I guess, also, is this an opportunistic strategy, given the dislocation you see in the market? Or is this something that you expect to be kind of a recurring business line for an extended period of time? And that's it for me.

Well, we have -- okay. 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 Mez [ph] loans with good loans to value and well-structured, good risk-adjusted return. And 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.

Next question is from the line of Nic Yulico from Macquarie.

Ray, just turning back to the redevelopment program in senior housing. I think you said you had a $200 million pipeline. Does that kind of exhaust your redevelopment opportunities in the assets you have today? And what type of returns, can you remind us, are you retargeting on redevelopment?

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 the specifics.

No. I know what you -- I meant, all to -- since senior housing, if that's all the redevelopment opportunity left?

No. No. And there's a lot of opportunity within our portfolio, both in the seniors housing operating portfolio, Nic, 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 and amenities that could enable you to drive rate. And 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.

Okay, and the type of returns you expect on that?

We're typically in the double digits, so the lower double-digit range, 10% plus.

Okay. And then -- and just one last on senior housing. I mean, you did talk about -- I mean, 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?

So there's a couple of things that 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. 2, as you point out, we are pushing the rates a little bit, so there is some fiction as you start to push rates. And then, I think the third thing to look at in this quarter in particular was it was a fairly nasty flu season. And there was a little bit higher move-out in the portfolio as a result of the flu season. So you kind of put those 3 things together and it paints the picture.

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

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.

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.