Good day, ladies and gentlemen, and welcome to the Q1 2016 Ventas Earnings Conference Call. My name is Whitley and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now turn the conference over to your host for today, Ryan Shannon, Investor Relations. Please proceed.

Thanks, Whitley. 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, 2016. 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. The projections, predictions and statements are based on management's current beliefs as well as on a number of assumptions concerning future events. These 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, 2015 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 referenced on this conference call 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, Ryan and good morning to all of our shareholders and other participants. Welcome to the Ventas first quarter 2016 earnings call. We are delighted to be here with our colleagues to discuss large trends fueling our business and report on our strong first quarter results from our diverse high quality portfolio. Following my remarks, Bob Probst will review our segment performance and financial results before we welcome your questions. On the heels of a productive and value creating 2015, we started our year off strong. Building off our advantaged properties, platforms, and people, we extended our long track record of excellence this quarter. We generated normalized FFO per share of $1.04, representing comparable growth of 7%, versus the fourth quarter 2015. And we are right on track to deliver our full-year expectations of 3% to 5% comparable normalized FFO per share growth, despite projected net asset sales and resultant modest deleveraging in the back half of the year. We are well positioned over the short-term and long-term to capture opportunities and continue to grow cash flow and value for our investors. Our strong positioning is based on the decisions we made and actions we took in 2015, particularly the CCP spinoff and our acquisition of Ardent, large macro trends that favor our business, our financial strength and flexibility and our well covered dividend with room to grow. Let me address some of these factors. We are excited to do business at the intersection of two large and dynamic industry with powerful fundamentals and growth prospects. Both healthcare and real estate represent nearly 20% of our nation's GDP. Our $1 trillion healthcare real estate market is fragmented and continues to be ripe for consolidation. We are still in the early stages of asset migration from private to public [indiscernible], given…

Thanks, Debbie. I'm pleased to report a strong first quarter for Ventas, which included solid same-store growth, 7% comparable normalized FFO per share growth, and even stronger balance sheet. I'm equally pleased to reaffirm our full-year guidance for 2016 of 3% to 5% comparable normalized FFO per share growth. On that note, let me first discuss the performance of our highly productive portfolio of nearly 1,300 diversified healthcare and senior housing properties. Same-store cash NOI growth for the company's total portfolio for the first quarter was 2.9%, excluding certain items in the respective 2016 and 2015 periods, and 1.7% on a reported basis. Turning to our first quarter 2016 segment level performance, starting with SHOP. Our SHOP business performed well in Q1. Our reported same-store SHOP portfolio increased 2.9% for the first quarter of 2016 over 2015, which is at the high-end of our 1% to 3% full-year guidance. This reported performance was delivered, despite incurring unanticipated real estate tax expenses of $1.2 million in the current quarter, relating to prior-years. Without these expenses, same-store SHOP NOI growth would have been 3.8%. Our intentional rate-driven strategy, as well as the quality of our portfolio was visible in the quarter with same-store REVPOR growth of 4.7% in Q1 2016 versus prior-year. The aggressive rate increases had an impact on occupancy, but resulted in overall strong revenue growth of nearly 4% in the quarter. Adjusting for the aforementioned property tax charge, operating expenses grew in line with revenue and margins held steady. Consistent with our full-year guidance, our Q1 performance was led by the engines of growth in our high barrier-to-entry coastal infill locations. Our core markets represent more than 70% of our SHOP portfolio NOI. NOI in these markets increased at a mid-single-digit rate in the first quarter. Within these key…

Our first question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed.

Yeah. Thank you. Hey, Bob, can you talk a little bit about the 30% of senior housing assets in the SHOP that's going to be impacted by supply? And has that competition already come online or is that weighted in the back half of this year?

Good morning, Mike.

Good morning.

Hi, Mike. Thanks for the question. The framework you referred to, just as a reminder, is the one we laid out in February, which attempted to quantify the impact of supply where we talked about 70% of our portfolio, which is in equilibrium or better in terms of supply/demand and 30%, which potentially has a supply surplus. To answer your question, the first quarter really, we think proved out that framework very much in line. As I mentioned, the 70% engine grew mid-single-digits, very much in line with our expectation. The 30% did have an impact, it declined at a low single-digit rate. Again, very much in line with guidance provided in February. So, performing very much as expected and that is with units coming online. So, we are seeing units coming online. That began about Q3 of last year and will continue basically through the year, as per the NIC data. So, very much consistent with what we told you.

Okay. And then does that unit coming online, is that going to ramp up throughout the year? Is it going to remain consistent kind of just stable pressure?

Well based on the NIC data, our observation is things tend to get pushed out, as you look at the openings. It looks to be fairly steady over the balance of the year. But also continuing into the first two quarters of 2017 based on that data.

Okay. Great.

But no big...

And then Debbie, can you...

Go ahead.

Okay. Great. And then, Debbie, can you talk a little bit about the life science investments? I know that this is property type that you've wanted to get into for a little while now. Is this just a single opportunity or do you see other opportunities in the future?

Yeah. Thanks for asking. We think our life science investment is a great investment on a standalone basis. A great sponsor in Blackstone and this was the core kind of best of the biomed real estate, this tranche of the financing. So, regarding life science, I think we've been very consistent for five years in our thoughts, which are that it is a good asset class, it's only 5% of the pie. And so, under the right circumstances like we found here, if there is an opportunity to make a really good investment we'll do so. But, it's not a must-have like we articulated about the MOB back in 2008, 2009, which is almost 40% of the $1 trillion pie.

Great. Thank you guys.

Thank you.

Thanks, Mike.

Your next question comes from the line of Juan Sanabria with Bank of America. Please proceed.

Hi, Good morning.

Hi, Juan.

Hi, Juan.

Just wanted to ask around the same-store guidance. So, you bumped to triple net and I think you said that's about 40% of the portfolio. Is there any message there with expectations for the rest of the portfolio maybe skewed to the lower end of the guidance or should we not read into that anything?

Yeah. Juan, I wouldn't read anything into that. We called out the key driver of that triple net increase was really the Kindred LTAC deal that Debbie referred to, which for the triple net segment has an impact to raise. But, overall it doesn't materially raise the range. So, the guidance stays as is therefore.

Okay. Great.

Go ahead.

And then the second question just – you kind of hit on in, in your prepared remarks, Debbie. What do you think the impacts will be for the industry of the RAC audits? I know there is a history in the hospital business where you are now more involved in, kind of what are your expectations? How this could evolve and impact coverage levels and/or the operators?

Okay. So, the RAC audits were recently announced, they are called recovery audit contractors, who come in and sort of look at the billings under Medicare. And as you mentioned, that process has occurred over time with hospitals who are well through that including inpatient rehab, but it's new to post-acute. And I think that you may see some impact either from operators, perhaps more conservatively coding and you may see some impact as you saw in [indiscernible] some years ago, where there are some objections to billings either past or present and that can have some impact on cash flows or EBITDAR. From our standpoint, we believe that Kindred, who is our principal post-acute partner, is very well positioned. The services that Kindred provides are clinically mandated and approved and it has a really good infrastructure to – that is ready – because obviously, it's been in the [indiscernible] business as well, that's ready to deal with the RAC audit, so we feel good about that.

Great. Thank you.

You're welcome.

Your next question comes from the line of Smedes Rose with Citi. Please proceed.

Hey, it's Michael Bilerman. Good morning. Debbie, I was wondering, if you can just spend a little bit more time on the biomed investment, in terms of, did you do that by just buying it directly from the banks? Were you sort of involved with Blackstone in taking a slice or making that investment at a 10% yield? And then I had some [indiscernible] I just want to understand the – where you came in, at what level and where your sort of partners are at effectively?

Yeah. Well, we have a great relationship with Blackstone, who we admire greatly. And we also have a good relationship with your firm that was involved in the financing. And so, this was really an opportunity that was presented to us that we think is a great risk-adjusted return in a pool of assets that were very, very prime as a segment of the biomed business and about which we had a lot of knowledge and information to begin with.

And so, where are you within the capital stack? The 10% is a little bit higher, so I don't know if you bought the bonds at a discount or if you're just at a higher tranche in the cap stack?

We're at a – I would call it a lower tranche, we're in the high-70%s kind of loan to cost, so very attractive there. But at the lower end it was bought at par.

And then have you had any discussions with Blackstone at all? And clearly, you mentioned you had a lot of information. I can't remember if you're company A, B or C. But at some point, has there been any discussion about, is this a potential entry to buy assets, buy a portfolio and maybe a swop and do a larger transaction at some point?

Wow, you have an overactive imagination. But I like it. I would say that, this is a good standalone investment that we made with a lot of expertise that my partner John Cobb has in the debt market and with our friends at both those firms. So, you should just think of it as a great standalone investment.

Okay. And then just one last one just on SHOP same-store, it was up 3% in the first quarter. You really didn't change the outlook for the year. And so, I don't know, if you just expect decelerating or is it just more conservatism or is there something that we should think about within the SHOP portfolio going forward that would impact those numbers?

Well, Bob will answer. But again, the guidance is on a reported basis, and so – Bob?

Right. And on that basis, we delivered 2.9% in the quarter, Michael.

Yeah.

Therefore at the high end of the range, we're holding the range at 1% to 3%. So, certainly you could see consistent growth across the quarters to achieve that high end. The range is really dictated by the impact of supply, which we talk a lot about. And should those trends continue as we saw in the first quarter, we would be pushing towards that higher end, but the range is there for a reason.

Thank you.

Thank you, Michael.

Your next question comes from the line of Nick Yulico with UBS. Please proceed.

You talked about private equity institutional investors having strong demand for seniors housing. What are your thoughts about potentially selling some of your non-primary senior housing assets which seem to be underperforming? And would you be interested in that? What type of pricing you think you might be able to get on that?

Well, first of all, we do believe in having a high quality portfolio, and having diversification and balance in that portfolio. And that includes markets, asset types, et cetera. So, as we look at our normal capital recycling in terms of dispositions, I think senior housing is one of the areas that we would consider having in that pool and we've said that. And we're constantly checking the market and constantly reviewing our portfolio for the best candidate for capital recycling.

Okay. And then just one other question I had was on Holiday Retirement. When you made that investment back in – what was it, 2013 – there were some, I think pretty big initial escalations in the rents I think close to sort of 4% or 5% for several years. Can you talk about your comfort in being able to still get those escalations? I recognize it's not a gigantic time for you, about 3% of NOI. But still there has been some management turnover at Holiday, there has been declines in coverage as reported by one of your competitors out there who has a portfolio with them. And so, what I'm wondering is, if we should be confident that you can continue to get that extra straight-line rent benefit in your FFO there?

So, yes, we did buy a Holiday portfolio. It's a high quality one. It was one of the earlier more curated portfolios that Fortress put out there. We did structure it well in, in a way to get 4.5% escalators in the early years, the last one of those is in 2016. And we would expect over time that portfolio to, A, on the rent side go back to more normalized level, and over time to grow into normalized coverage. So, the new CEO I think has some great ideas. I think the portfolio in general in the company at Holiday had a good start to the year. And so, we feel fine about our rent and feel good about it.

Okay. Thanks.

Thank you.

Your next question comes from the line of Chad Vanacore of Stifel. Please proceed.

Hey, good morning, all.

Hi.

Just think about your MOB portfolio and the $2.3 million lease termination fee. What percent of NOI was the tenant that terminated their contract? And has that tenant been replaced or you're going to have to work back through it sounds like?

What percent of total MOB NOI was that tenant?

Yeah.

It was about 1%, roughly of the total. I think it's a little bit of a complex story, just from a timing point of view. And then in the quarter, we had the lease termination fee benefit, which drove the 4.2%. But obviously that tenant left and we need to therefore replace that tenant to see the timing issue of having to replace that tenant. And the occupancy decline you saw sequentially was really described by that tenant in total. So...

Just like office.

Yeah. Just like in office. So, you'll see that, and we highlighted that second quarter impact of that. And then as we fill that back up, you'll see the benefit in the back half.

Okay. And does that lease termination fee cover what you would have gotten until the end of the year and that's why you haven't accurately changed your MOB same-store growth profile?

We quoted the net benefit, net of the rent, we would have received in the period. I think the lease would have expired prior to the end of this year.

Okay.

And it was in our budget when we came into the year. So, therefore, in our guidance.

All right. And then, how should we think about changes in your portfolio pro forma for the changes in the Kindred leases? Like what's going to happen to Kindred rent coverage post the transactions?

Okay. Good. So, thanks for asking about that, because we were trying to count here how many good deals that we and Kindred have done together over the last, however, many years, and I think it was eight years or nine years. And this most recent one is a good example of how both the companies have elevated and improved their portfolios through – over time as we've engaged in these transactions. So, what we've said is, we have strong coverage now at [indiscernible] times in our post-acute portfolio. When you look forward, we've kept all the rent, we would expect to exit seven of those LTACs. And of course, we have changes in reimbursement in the LTAC sector starting to come into play in 2016 in September for Kindred. And so, when you look at all that net-net-net, we would expect a temporary 10 basis points to 20 basis point impact on coverage as we work through and then normalizing as we come out of LTAC patient criteria.

Okay.

So, that's the net effect of a whole series of things. But this single transaction I think is a great way for both of us to position that LTAC portfolio to succeed.

And, Deb, what percentage of NOI do LTACs represent for you? And how does that change pro forma?

It's about 6%. And since the rents is – we're keeping all the rents, plus we are getting $6.5 million, it stays 6%.

All right. And then just one last question on the SHOP portfolio. It looked like occupancy was down quite a bit, 100 basis points sequentially or so. Is that from the new pressure that you're seeing or what's driving that?

Yeah. There is an element of seasonality, but year-over-year we highlighted that, it's really driven by the rate increase, so very intentional desire to drive rate, this is a wonderful business, needs driven, and we believe a real opportunity to continue to drive rate recognizing the value proposition of senior housing. So, we've very intentionally been putting our foot to the accelerator on that, knowing there would be an occupancy impact; but net-net-net, we highlighted a 4% revenue growth in the quarter and a strong underlying profit as a consequence. So, we think a good move.

But again, sequentially, you would typically see this pattern separate...

Seasonality...

Yeah.

...when you look sequentially.

All right. That's it for me. Thanks.

Thank you.

Thank you.

Your next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed.

Hey. Good morning, everyone. Just sticking with the SHOP commentary here. Understanding there is typical seasonality here in the first quarter and it did drive rate, but I guess I would have thought there would have been some benefit from the milder flu season this year. And also just curious, the decision to push rate so hard this quarter, what was driving that ahead of pending supply and that kind of thing?

Yeah. We think we push rate appropriately, that's again very intentional. And I always talk about the value proposition, whereby if you try to replicate the services at home of senior housing, it would be twice as expensive as on average it is within the senior housing community. So, there is clearly opportunity to drive pricing, and the operators have seen that and embraced that in our SHOP portfolio. So, that's strategic in my mind. What was the other part of the question?

Oh, just I guess I would have expected a little bit of a tailwind year-over-year, just given the milder flu season this year.

Right.

And I was just wondering if that showed up or if there was some other offset?

Right. We said ceteris paribus, all else equal, that would be a benefit is certainly true. But the world is never ceteris paribus. There's lots of things that were going on. So, it was helpful.

Yeah.

But, it wasn't something that would drive outsize performance. And net-net, when you step back from the adjustment for tax, we grew nearly 4%. So, clearly a strong quarter.

Yeah.

Got it. Okay. And then just maybe a follow-up on the guidance just for disposition proceeds. I think it was $350 million last quarter, $200 million this quarter; I think that's just maybe because you've already spent some of that money. But also it seems like the wording did change a little bit, and I'm probably parsing this too much, but specifically calling out debt repayment this time as opposed to sort of redevelopment and development spend. Anything to read into that?

No. I think it's – I'm glad you asked the question, because what has not changed, if we look full-year is $500 million of dispositions and $350 million of acquisitions that is the same from our last guidance. We expressed the acquisitions in the press release as $200 million incremental which is from here, as we did $150 million in the first quarter. And so, that $350 million is just kind of a timing issue when that money is being spent. The balance is fungible in that we can talk about either redevelopment or we can talk about debt reduction, it's simple to understand that we have approximately a $300 million of gross debt reduction inherent in that forecast, if we have $500 million of dispose, $200 million of incremental acquisition the balance will be debt reduction. So that's the math, but redevelopment hasn't changed either, so.

Yeah. And the key point is that we also generate cash flow, which is fungible, as is source as well and so.

Right, which is a partner to that.

You should feel we're very consistent with what we said before.

Absolutely.

Okay. Thanks for that clarification. And I think that is it. Thanks.

Thank you.

Your next question comes from the line of Kevin Tyler with Green Street Advisors. Please proceed.

Yeah, good morning. On SHOP on the expense side, does your NOI guidance forecast 4% plus or minus increases over the balance of the year? And I was just curious how much of the 4% that we saw, or 4.5% this quarter was related to minimum wage versus executive director retention?

Right. Well, first off all, it's important to highlight that that real estate tax charge, which I identified is in the reported results through the expense line in the quarter. And therefore, you need to adjust that out, if you're looking at a more underlying performance, and that's in line with revenue and roughly in that 4% range as you highlight. Within that clearly, there have been wage pressures, whether of minimum wage or as we have shortages of nurses or whatever else, but that comes right back to the need to drive our rate in part and parcel.

Yeah. And it's consistent with the guidance that we gave at the beginning of the year.

And so, holding margins through rate, covering that expense pressure and at the same time driving cost productivity importantly as part of that through operational excellence, is inherent in that holding net margin for the full-year.

Okay. Thanks. And then on the development side, you've got a quite a bit going on in the senior housing front in desirable and somewhat dense markets, Foster City, Fort Lauderdale. But the densest urban cores, are they currently attractive for you just as we've seen some of your competitors move in? In Manhattan, for example, if you could get land what reservations might you have about developing in a more dense setting like a Manhattan, Chicago, San Francisco, for example?

Well, it's nice that we were able to acquire the Atria portfolio, when we did, which had as its largest component, the New York MSA, which has been a great market for us. And as you point out, we do have two high quality developments ongoing. Both would be operated by Atria; one in Foster City in the San Francisco MSA and one in Palm Beach County. Obviously, both attractive areas. And we continue to look at development and redevelopment opportunities with Atria and others in all these markets. And would feel positive, frankly, about if we found a good site in any of these dense markets to do a development that we had confidence in. Our bar on ground up development, however, is very high. And so, we want to make sure that we're really underwriting it carefully and have confidence in the outcomes. And that's why, we have just kind of the MOB in downtown San Francisco with Sutter and these two senior housing developments in these great areas with Atria ongoing right now.

Okay. Thanks. And then, Debbie, just talking a little bit about your deal making track record in the past, certainly has been one that's very – looked fondly upon, has been fantastic. And as you look to turn around tough situations you've done so effectively many times in the past and in the skilled nursing space. But today with some dislocation in the markets and then maybe sporadically throughout healthcare is too strong. But, there has been a little bit more dislocation than in the past. What gets you excited or where do you see opportunities to apply your turnaround expertise?

Well, thank you for the compliment. It didn't always feel like it at the time, but hopefully in retrospect it is a very good track record of disciplined capital allocation by our team. Look, I mean, what gets us excited at Ventas is making money for our stakeholders. And that has come and will come in many different forms, but that's what gets us excited. And that's that we are going to continue to drive toward.

Okay. Thank you.

Thank you.

Your next question comes from the line of Rich Anderson with Mizuho Securities. Please proceed.

Thanks, and good morning.

Hi.

So, just when I think about the three buckets – triple net, you have RIDEA and you have post-acute – those by which we kind of debate the good and the bad. In RIDEA, we can get into the whole bundling and how that's going to work itself out from a REIT perspective and same with post-acute. But the one thing I want to point out and kind of isolate is the senior housing triple net, which we have for a long time been willing to sit on relatively thin rent coverage. I know you have 1.3 times in an EBITDARM basis, but on EBITDAR it might be closer to 1.1 times. And then when you factor in the capital expenditures which are borne on the operator, do you get below one times on average? And if so, what's your comment about that from a long-term perspective as from your – from a REIT standpoint?

Well, we think we have a high quality diverse portfolio with leading operators in our industry, the Brookdales, the Holidays and so on. And the portfolios are well underwritten with credit support and the assets, as Bob said, are growing, EBITDARM. And so, we feel we're at a good level of coverage that's market-based or above market base. And with a reasonable CapEx imputed, we're above 1.0 times...

Okay.

...probably closer to 1.1 times. And so we feel good about it.

But, and you're not – I'm not directing this at you, because everyone is kind of in the same boat senior housing triple net. I mean do you think that there is a day where we'll have to kind of do a refocus on rent escalators and think more in terms of what – making sure those escalators aren't in excess of the EBITDAR growth of the underlying organization?

Yes. Yep. I think that's a really very good comment, because over the years, there has been I think a lot of misperception amongst investors that one type of investment, call it SHOP has risk, and one, call it, triple net doesn't have risk and so on and so forth. When we do underwriting of any asset that we're acquiring – at the end of the day, those assets have to produce cash flow. And so that is what we are focused on always first and foremost. And then along with it, in all these areas, is it a leading operators, what's the asset, and the management team's position in the marketplace, can we provide additional structural support in the case of triple net and like guarantees and security deposits and so on? But at the end of the day, we are looking for good assets that are going to perform through good operating partners and that's true regardless of structure. So, you make a good point. And I think we've done that successfully.

Great. Thanks very much.

Thank you, Rich.

Your next question comes from the line of John Kim with BMO Capital Markets. Please proceed.

Thanks. Good morning. Debbie, can we get your updated views.

Hi.

Hello. Can we get your updated views on the impact of bundled payments implementation and how significant this changes the landscape for demand across the spectrum? Specifically, there has been some early evidence of home health potentially gaining market share. And I was just wondering if you could address that as well?

Yes. Good question. Look, I think bundled payments are going to help hospitals, let's start there. And that was, of course, one underpinning of our hospital thesis and investment as hospitals control more of these dollars and patients. And so far, again, these just started in the 67 markets on hips and knees in April of this year. Kindred has said that as far as this project goes, it's going to have minimal impact they believe and impart I think they're using this new project to prove out that they are the best positioned post-acute provider in the country, who can deliver really good post-acute care, limit readmissions and do so for a reasonable cost. And that's, of course, the providers in post-acute, who are going to thrive in the future. But, there can be as part of these trends, some evidence that some patients will go directly from the hospital, either to senior living frankly, or to home health. And that's a trend that has been going on for some time, and will continue. But again, the skilled nursing guys have a role to play in the post-acute delivery of care and there are plenty of these patients, believe me. Plenty of people are having hips and knees replaced. And so, hopefully, there are enough patients for everyone.

So, hospitals are managing the process, but they are not necessarily the lowest cost setting. So, how concerned are you about this and will there be some losers and winners in the hospital world?

Yes. I think, there will be winners and thrivers and consolidators, like Ardent and others, like HCA. But again, they're sort of getting the payments in the bundled payment, and they are paying the post-acute providers. And so, we believe that the hospitals will do well, and the post-acute providers who can deliver quality and do so at a low cost, and limit readmissions are going to get more market share.

Okay. And a question for Bob on your cash flow statement. Free cash flow from operations historically has mirrored normalized FFO, but this quarter it fell well short of that. From what I can see this is...

I am so – thank you for asking that, because that's something we talked about and we are happy to answer.

Which I'm assuming is, why is it lower? And it's really timing, if you look at it. We had a number of things, particularly in the accounts payable line that in prior year – if you compare to prior year, we had the Kindred fee and other fees we've referred to in the first quarter, which benefited cash flow in the first quarter of roughly $40 million.

Of last year.

Of last year. To bring it back, typically Q1, is an outflow just seasonally from a timing point of view on the payable line. So, last year was really more of an anomaly as far as that goes. And the other one is really timing around interest payments on bonds that are flowing through interest payables. So, they're really timing issues, John, but it's a good catch, absolutely. So, you should see that turnaround to the balance of the year.

We always pay attention to cash flow.

Great. Thank you.

Thanks a lot.

Thank you.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets. Please proceed.

Good morning. I guess, I might be accused here...

Hi.

...of having an active imagination possibly. But maybe you can help me understand what's going on with the SHOP portfolio. I guess same-store occupancy is down 90 basis points, right, despite a mild flu season. But last year it was up 60 basis points in what seemed to be a more difficult flu season. So, I am just – what seems to be going on here?

Yeah. I don't think, you should be so focused on flu solely, right? Because there's a number of factors, clearly that as we've said all else equal is a tailwind. You have a number of factors that are impacting occupancy this quarter, we talked a lot about rates, certainly the rate is intentional and is driving majority of that. There is also an impact of the new units coming on line and affecting occupancy as I said in my prepared remarks. So, that is coming through that line as well. And again, in line with our expectation. So, it's really a combination of factors, where it's really hard to pull out anyone.

Okay. And then in terms of free rent just in the senior housing world, are you or any of your triple net tenants currently offering free rent upfront as an inducement?

Well...

Is that changing at all?

I would say that obviously when we look at rents, we're looking at it on an effective rent basis, there are targeted markets, for example, Brookdale has talked about it, where they're providing concessions in some cases that they use that after the Emeritus merger. And a lot of those Brookdale has said are – they expect to burn off and not be replaced during 2016. So that would be one example.

Okay. And are you guys using concessions as well or you're not seeing the same thing per se?

No. Quite the contrary. We're going the other way as I said, we're driving rate, not discounting. And the NIC data would suggest in terms of rate growth that similarly across the industry, there is good rate growth. So hopefully, others are seeing the same, which is a great value proposition in senior housing.

Okay. Great. Thank you.

Thank you.

Your next question comes from the line of Todd Stender with Wells Fargo. Please proceed.

Hi, just a quick one for me. Bob, you highlighted the drop in new senior housing construction earlier. I just wanted to get a sense of your – what you're hearing from your operating partners, maybe your updated thoughts on the trajectory of new starts, at least over the near-term?

Right. I would describe it as a modest sequential decline. We talked about 10 basis points in terms of units under construction. So, we're certainly not doing the touchdown dance yet on that. I think, where is it headed from here? It's a good question. We don't have a lot more information than you do. I think everybody is starting to understand without there, there's been a lot of talk about supply clearly. And so, lenders and developers and everybody else taking note, we hope is what's going to happen, but only time will tell. We have no evidence to suggest that's true.

Okay. Thank you, Bob.

Thanks.

You're welcome.

Your next question comes from the line of Tayo Okusanya with Jefferies. Please proceed.

Hi, good morning, everyone.

Thanks for being patient with us, Tayo. Good morning.

Of course, not a problem at all, Debbie. I know everyone is always interested in what you have to say. A couple from my end. First of all, skilled nursing; again, you have a very small portfolio, but it's heavily focused on the national operators. And I'm just curious what you're seeing on that end just given when we look at your rent coverage, it has been coming down about 10 bps for the past two quarters or three quarters?

Okay. So, most of the change in coverage is due to the fact that rent went up significantly in the fourth quarter of last year. So, we think that's a good thing. You want to have a good coverage, but you don't want to have excess good coverage. You want to hit that optimal point. And so – and yes, most of our 4% of skilled nursing is with Kindred, we have some with Genesis as well. And look, I think, what you're going to see, as we've talked about over time is, we have very strong coverage at two times. You are going to see I think some continued pressures on the SNFs business and we are in a great spot with our partners, who have credit and who are leading operators to work through those changes and we deliberately retain this portfolio because we believe in it.

Great. Okay. That's helpful. Then the second thing, medical office buildings, I know we've kind of gone through the tenant vacating and the impact on numbers for the quarter. But when I take a look at rent growth for the quarter, it still seemed like it wasn't much. And again, I guess one thing I always struggle with on the MOB side is same-store NOI growth tends to be 2%, 3% consistently, but yet everyone is kind of paying these very low cap rates for these assets. So, I'm just trying to understand why it continues to make sense to pay these very low cap rates kind of industry wide?

Yeah. Good observation. And again, happy that we acquired our MOB portfolio, which is very high quality again in that 2010, 2011 time period. I think what drives people to really like MOB is that they are a low cost setting. You see the demographics and the utilization statistics with the baby boomers and again the 10,000 turning 65 every day. You see the Affordable Care Act, which is improving the insured population in many states. And then what you're getting as an investor is you're really getting above – even at relatively low cap rate, you're getting above core returns with core like characteristics, very reliable, consistent, steady, financeable asset. And in this global thirst for yield, where we've talked about why people like U.S. real estate assets, that is a very attractive value proposition, and I think that's why you're seeing all these new entrants and a lot of interest in this asset class.

Okay. That's helpful. And then lastly, again, I appreciate you indulging me. Can you just talk a little bit about what you're seeing at this point in the UK? Four Seasons put out some pretty weak results a few days ago; but again, I know their portfolio is very heavily focused on getting funding from the local authorities. But overall, what you're kind of seeing whether on that end or on the private-pay end would be helpful?

Well, in the UK, I think what we're – we have a small senior living portfolio, and then a very nice public partner in Spire, who is in the hospital business, where we have a triple net lease. And we have triple net leases frankly on both segments in the UK. I think what we're seeing there in the private-pay as well as the more long-term care business is that there are changes in rules and regulations that affect staffing. And that is in fact, putting some pressures on the operators there. Our portfolio has been doing well. It's a small portfolio that we've grown, and we like, but I think on a larger scale basis for both the government reimbursed and the private-pay, there are some trends there that are compressing margins.

Okay. Great. Thank you very much. And again, overall I thought the quarter was pretty good. So, well done.

Yeah. So, thank you very much. I will thank all my colleagues at Ventas for contributing to delivering great results. And I thank all of you for your interest in our company and your support of our company, which we appreciate greatly. And we look forward to seeing everybody at NAREIT in June. Thank you.

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.