Ventas, Inc. (VTR) Q4 2007 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Ventas 2007 Year-End Earnings Conference Call. My name is Katie and I will be your coordinator for today. At this time all participants will be in a listen-only mode. After the speakers' remark you will be invited to participate in a question-and-answer session. [Operator Instructions]. I will like to now turn the call over to your host for today Mr. T. Richard Riney, Executive Vice President and General Counsel. Sir, you may now proceed.

Thank you, Katie. Good morning, everyone. Welcome to the Ventas conference call to review the company's announcement yesterday regarding its results for quarter and year ended December 31st, 2007. 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 believes, as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks and certainties 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 31st, 2006. And the company's other reports filed periodically with the SEC were 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 in it's most directly comparable GAAP measure, as well as the company's supplemental disclosure schedule are available in the Investor Relations section of the company's website at www.ventasreit.com. I would now like to turn the call over to Miss. Debra A. Cafaro, Chairman, President and CEO of the company.

Thanks Rick, Good morning, everyone, I want to welcome all of our shareholders and other participants to the Ventas year-end earnings call. 2007 was the productive and transformative year for the company. In 2007, Ventas became a larger more reliable enterprise at lower risk and a higher long-term growth profile. We expanded and diversified our business platform and assets. We delivered our sixth consecutive year of double-digit FFO growth. We provided our shareholders with a 12% total return. We maintain a strong balance sheet and significant liquidity. And we positioned the company to future value creation. And I don't need to tell you that we did our best in a very challenging capital markets environment. 2008 has also started off on two high notes. We recently received our second investment grade ratings from Standard & Poor's. This very important decision by S&P recognized that the improvements we have made to the company and our financial strength and flexibility. It should enhance our access to capital and lower our borrowing costs, both of which are significant competitive advantages, especially in today's environment. I'm sure that many of you feel the best part about our upgrade is that you don't have to listen to me talk about it anymore on our earnings call. Secondly, our board recently increased there dividend by 8% providing our shareholders with above average dividend growth coupled with a still conservative payout ratio. Over the past five years, we've grown the company to $9 billion in value, while maintaining a focus on delivering long-term consistent outperformance to our stakeholders. In fact, Ventas was the only REIT to be in the top five performers of the RMS for all of the one, three, five and 10 year periods ended 12/31/07. And there been a sustainable business, we've been very mindful of risk management. We want to be prudent stewards of your capital. So as we talked about a major focus over the last five years has been a systematic reduction of enterprise risk at Ventas. We have reduced risk through discipline and diversification of our tenant base, our assets classes, and our sources of revenue. Through management of the balance sheet in terms of total leverage, the aggregate maturities and presence in multiple debt and equity linked capital market, and through development and infrastructure and internal control. These attributes are often overlooked or even scorned in a property market. But, are more appreciated when the world changes. We believe that Ventas should continue to deliver good long-term cash flow growth from our high quality diversified portfolio of healthcare and senior housing assets with the protected down side from highly structured triple-net leased assets, and potential upside from the Sunrise portfolio. During the balance of today's call, I want to discuss our excellent 2007 earnings, our portfolio performance, and our outlook for 2008. Then Rick is going to report in detail on our financial results. Following Ricks comments, we will be happy to take your questions. First normalized FFO per share was $0.66 for the fourth quarter, and $2.69 for the year, up 10% over 2006. This favorable outcome was driven by internal growth, accretive acquisitions, and strong performance of our operating portfolio of senior housing assets managed by Sunrise. On the guidance front, we expect full year 2008 normalized FFO to range between $2.75 and $2.82 per share. Rick will discuss the key assumptions embedded in our guidance. You can be assure that we would spend all our effort this year as we have in past years towards driving earnings in cash flows and improving our ultimate performance. Turning to our portfolio review, our triple-net leased asset continued to perform well with excellent coverages and occupancies across the spectrum of independent living, assisted living, skilled nursing facilities and hospitals. We get 55% of our revenue and 79% of our NOI from our strong pooled multi-facility mez [ph] releases. The key take-away here is that operating results in our triple-net portfolio was very stable through Q3 2007. Remember that the pooled multi-facility highly structured mez releases we have with credit tenants, are designed to provide good steady contractual cash flow growth to Ventas. We expect to receive our RENO cash flow streams from triple-net leased assets, while occupancies and EBITDARM to our tenant operators may even flow overtime due to changes in the market and/or reimbursement cycle. The Sunrise and medical office building assets we owned provide the granular highly diversified revenue streams in our portfolio. Here too the results were positive. First to the 79 Sunrise communities, we own in North America, total community NOI for the fourth quarter was a strong $33.7 million. Our share of annualized NOI for the two full quarters, we have owned the portfolio is between $112 million and $113 million, which is at the high-end of the range we predicted when we acquired the portfolio. In the 72 stabilized Sunrise community, fourth quarter total community NOI was $32.6 million ahead of our projections. Importantly, in the stabilized portion of our portfolio revenues were up 2% sequentially from the third quarter and occupancy for the fourth quarter exceeded 93%. The average daily rate per resident and the stabilized portfolio is $171, up 2.3% over third quarter. The six new Sunrise Mansion communities, we currently haven't leased up showed good sequential increases in occupancy improving from 61% in the third quarter to 68% in the fourth. This feels high-end new independent living community in Toronto that we acquired in Q4 averaged 23% occupancies during our ownership period and is already home to almost 80 residents. The community contains resident capacity of 250 sects and should be cash flow positive from operations in the second half of 2008. The Sunrise lease up portfolio as a whole ADRs holding firm. So the key takeaway here is that these seven communities are filling without great pressure. Finally, our MOB portfolio is also performing well. It's growing portion of our business which now exceeds 1 million square feet of mostly on campus product is producing aggregate unlevered yield of about 8%. 150 million of MOB assets be acquired in 2007 other than the two leased up are delivering yields to Ventas between 7% and 7.5%. We remain enthusiastic about the short-term and long-term benefits of owning healthcare and senior housing real estate. Our sector provides steady cash flow and cash flow growth as recession resistant, demand is growing inexorably and it's relatively inelastic, the price under control, and private-pay case senior housing in all of its form, is attaining higher consumer acceptance, which should lead to increase market penetrations by our care providers. The V3 sense I believe the fundamentals in our sector are superior to those in other real estate today and while our healthcare and senior housing assets should continue to gain greater institutional acceptance and ownership. As we begin 2008, we remain cautious yet optimistic. We believe our portfolio will continue to perform well. And you can expect us to remain financially strong and liquid. To that end earlier this month we raise equity capital to fund debt payoff and free up leverage, and revolver capacity. With our strong balance sheet we are well positioned to be opportunistic in 2008. Execute on transactions that are strategic, provide attractive risk adjusted return, and continued to improve our company on your behalf. With that I'll turn the call over to Rick for review of our 2007 financial results.

Thank you, Debbie. Fourth quarter 2007 normalized FFO per diluted share was $0.66 compared to $0.67 last year. Full year normalized FFO per share totaled $2.69 per share, up 10% over last year. Fourth quarter normalized FAD per diluted share was $0.60 versus $0.62 last year. The decreases are primarily due to our strategic diversification program specifically the acquisitions of Sunrise Senior Living REIT in April of 2007. Normalized FFO totaled $88 million compared to $71 million for the fourth quarter last year. Normalized FFO and earnings are reported after deducting minority interest for the Sunrise assets. Normalized FFO excludes the net benefit of $12 million of non-cash income tax benefits, and merger costs. Normalized FFO increased $17 million from last years fourth quarter principally due to acquisitions. Revenues increased $116 million, $11 million of which was rent increases and $107 million due the newly acquired Sunrise REIT properties, resident, rental, and services fees. NOI by segment for the fourth quarter was triple-net $118 million versus $112 million in last year's fourth quarter. Sunrise managed $34 million versus zero last year, and medical office was another $3 million versus $1 million last year. Interest expense increased $17 million from the fourth quarter 2006 due to primarily the acquisition borrowing. Our fourth quarter effective rate, interest rate of 6.7% improved from 7.2% in the fourth quarter of 2006 due to our issuance of convertible senior notes in late 2006, and this year's assumption of Sunrise REITs property debt, which came on at attractive rates. General, administrative, and professional fees including stock-based compensation for the fourth quarter of 2007 totaled $11.5 million compared to $6.7 million last year, and $9.3 million in the third quarter of this year. The quarter was high due to several unusual items as a percentage of revenue these expenses totaled 4.9% versus 5.7% of revenues last year. In 2008, we expect G&A to approximate $36 million to $40 million of that amount $8 million to $10 million would be non -cash stock-based compensation. Weighted average diluted shares grew to 133.7 million in the fourth quarter up from 105.7 million shares in the fourth quarter last year. Sequentially fourth quarter 2007 versus third quarter 2007 normalized FFO per diluted share was flat at $0.66 exceeding our expectations. Sunrise portfolio and MOB asset performed well. On February 1st, 2008, we issued 4.5 million share of common stock producing net proceeds to the company of $192 million. These funds are being used to repay revolver borrowings and secured mortgage debt to fund acquisitions and for other corporate purposes. Unused revolver capacity currently stands at approximately $610 million. Pro forma our net debt-to-total capitalization is 34%. Our guidance for 2008 is between $2.75 and $2.82 per share. Key assumptions are that Sunrise NOI from our 79 assets ranges from $140 million to $145 million that we use our cash balances to repay mortgage debt and/or for acquisitions, and that G&A ranges from $36 million to $40 million. We have not included acquisitions, dispositions, our other capital transactions in our guidance. Remember that for Sunrise operations we expect quarterly NOI fluctuations in the business, and NOI should build certainly throughout the year. In addition, our triple-net leased escalators tick-in at various points throughout the year including the Kindred rent increased that occurs May 1st, 2008. All-in-all the company had a great 2007, and we have started off 2008 with a sizable dividend increase, and an important investment grade rating. We look forward to another excellent year in 2008. Operator, we will take questions now. Question And Answer

[Operator Instructions]. Your first question comes from the line of Jeffery Doctrow [ph] from Stifel Nicolaus. Please proceed. Jerry L. Doctrow - Stifel Nicolaus & Company: Well happy Valentine Day all. I just had a couple of things, one sort of an operating assets, and then just acquisition environment. On the operating assets, I wonder if you can just give us a little bit more color, I think Rick gave us sort of your assumptions in terms of overall NOI, but the rate growth is running and much stronger, and we typically been modeling and I just if you can give us any more color in sort of maybe what your assumptions are? How you see that playing now?

Yes, I think Jerry, if you look at...

This is Ray.

This is Ray, I'm sorry. I think if you look at the guidance that Rick outlined you are talking about sort of 3% to 7% NOI growth on average and you should assume as we did sort of a flat occupancy with 5% to 7% growth in rate and then sort of a constant margin, and you will come up with a range that will get you... get you right there. Jerry L. Doctrow - Stifel Nicolaus & Company: And then... and continued lease up of the other properties as well-

Yes, that's true Jerry, although you know obviously the stable portfolio is much larger than the development portfolio and really drives the performance. Jerry L. Doctrow - Stifel Nicolaus & Company: Okay. And I guess I mean my sense is that there is potential upside above beyond your guidance just given you know the current rate levels. If those would continued you did be well above what you are talking about?

From your lips to god ears. Jerry L. Doctrow - Stifel Nicolaus & Company: Okay. And then just acquisition environment if you could chat a little bit more about that, I think we've heard kind of mix things Debbie I think you can use that at various times, there is still spread between they didn't ask [ph] you talked about being opportunistic, if we can get a little bit more color, your whether you've got continued interest in MOB platform, whether there is anything else out there potentially strategic in Canada specifically or perhaps in the U.S., so just any color on acquisitions will be helpful?

Okay.

Sure Jerry I think you know, as far as the MOB front goes, we continue to focus on that as a core to our acquisition strategy, we are seeing plenty of deal flow in that base in fact our pipeline is very strong and fully loaded with good affected MOB opportunities. So we think that that market continues to yield, I think good... good deal flow to us. The market is a little bit of... in a bit of a price discovery period, and we are certainly watching the data point as is everybody else very closely to try to determine, what if any impact is flowing through to you cap rates, and I'll say that the data is inconsistent and in conclusive that we've seen so far. I think as far as opportunities north of the border, our Canadian portfolio performs extremely well. We like the Canadian market we have had meetings with Canadian operators, and we would like to expand our presence there, what if any investment volume comes out of those activities remains to be seen, but it's certainly an area that we have a great interest in growing. Jerry L. Doctrow - Stifel Nicolaus & Company: And how about just to ramp it out maybe just two things, one is just any color on sort of the North America and the other property types? And then if you can just remind us what you've got in terms of the pipeline from Sunrise that you could buy out of development?

Well I'll take the second half of that first I think on the development front just to remind everybody on the call, we have exclusive rights to first off run on all development that Sunrise does in Canada. We also have exclusive rates to first offer for any development within competitive rings around our U.S. facilities. We continue to see a fairly study flow of development opportunities from Sunrise. We are pretty selective in our approach to those one could find, the properties that we think are in the best markets provide us the best yield. And so I think we feel like there will be good opportunities coming out of that and I have already been working on a number of attracted deals. As far as other property types in North America goes the senior housing market has been relatively quite, I would say over the last quarter not lot of data points to really point to there at all. I think we've seen some opportunities certainly in the... on the debt side and mez side and the hospital sector is also I think starting to provide more opportunities for us. So I think looking out into 2008, I think we are going to see a lot more opportunistic plays in senior's housing and potentially on the debt side and I do think we will see some more opportunities in the hospital space. Jerry L. Doctrow - Stifel Nicolaus & Company: And then just on that's helpful. On Sunrise any just sense because there have been big volumes development actually may begin since result in startup loses in some cases. So is that two properties, five properties, 10 properties and what's kind of our likely ranges in terms of what you are going to buy or in terms of dollars that you better yet?

You know, Jerry why don't we differ that until we actually committed to do anything I mean you know that we don't like to provide guidance about acquisitions of any kind including development. Jerry L. Doctrow - Stifel Nicolaus & Company: Okay.

And so we're actually going to do them, and so if you could just let us refer that answer we would appreciate it. Jerry L. Doctrow - Stifel Nicolaus & Company: All right. Thanks.

Thank you.

Your next question comes from the line of Rich Anderson from BMO Capital Markets. Please proceed.

hanks, and good morning everybody.

Hi, Rich.

Hi Rich.

Hey, Debbie you mentioned reduced enterprise risk as a key over to your company, would you say that from a development standpoint that despite with by raised comments that maybe you are eying [ph] going to be even more selective about entering into new developments at this stage of the game, which his environment in front of us?

Yes I mean look I think that we, we have an option, and options are very good for the option holder. We like the Canadian market, and we like Sunrise's development capabilities, but every opportunity will be examined in light of overall macro market conditions and specific property market conditions. And so as things change you change your delta if you will is to how you look at all of our acquisitions including development, and so I think what you said is a fair statement nonetheless if we have good opportunities or good assets and good properties, and good markets at appropriate returns that are risk embedded then we'll, we are absolutely in a great position to execute on those.

Okay. Then you're building a nice little liquidity basket I guess, lets say and you mentioned Canadian marketplace are some public Canadian REITs on your... in your cross fairs [ph] or is that...

Just because you're a Canadian bank you know go ahead, you won't let me take that.

No Rick I mean look, we've always said that we think that continued industry consolidation in the healthcare REIT makes sense and that is true in the U.S. and in Canada. We are going always agitate for that, we are going to continue to work on things, so you know...

We've got our special agent Lisa Brush up there in Canada who is with here today, so...

Exactly and so you know you should just expect that we are going to continue to work every acquisition angle that we have in Canada.

Okay just a quick one, just on my note here that the 4Q outperformance do I just right it was just Sunrise that better than expected performance and also the MOB portfolio is that right that would guide you $0.02 above your guidance range?

Yes, I mean... we... that's a fair summary.

Okay. Just a more quick ones any comment on the entry fee model and how that might be impacting the independent living model?

Well we it's important to say a couple of things, we don't own any entry fee CCRCs.

Okay.

We owned five rental CCRCs and those are doing fine, and those are in triple-net leases as is virtually all of our independent living and which again is all rental based and that's all in triple-net leases.

Okay, but do you have any sense of the market if they are seeing any pressures on that?

Yes I was just about add to Debbie's comment I think at the margins we are seeing a little bit of pressure in the lifestyle drill in, independent living and certainly more so the entry fee CCRC space driven by sort of the, you know the depression in the housing market. I think if you look at the data that next publishing for instance, you're saying maybe 100 basis point reduction occupancy rates there, and so as Debbie points out all of our independent living is in triple-net leases with good strong operators, good coverages at the property level. So we are well positioned to whether whatever marginal down turn has happened in that space.

Okay. And then lastly what would you say Moody hang up is?

Look we have good dialogue with all the rating agencies, I really want to give a shot out this wine heart here who has worked really tirelessly to build our balance sheet and work with the agencies to get our Q investment grade ratings that, I made a joke, but you all know how long and hard we worked with that rating and I think we will continue with Moody's to demonstrate the strength of our company and the risks, I mean we talked about reducing enterprise risk, I think every year for the last five years because we've always said is we can reduce risk and grow earnings then we win and we are making a better company. So I think its the next step as you point out it to focus on our dialogue with Moody's and continue to talk about how we improved the company and I feel assured that we will get there.

What does that one step into investment grade save you, do you think on a basis point?

Well, by the way there is another point I would like to make is that year or two the Lehman high grade index. The investment grade index change, so that if you have two of the three agencies and investment grade you will be in the high grade index. And that's where we are now. So we should substantial benefit from being in that index. The... if you would ask me the question before I would have said... in the normal market I would have said 25 to 50 basis points on incremental borrowings. The... recently I think our bondholders are more little ahead of the agencies and our bond actually were trading quite well, so right now I think they are trading at about near 10 years and about 6.5%, and so if we could execute in or around that at this point in the market, maybe with a little bit a new issue premium, I think that would be excellent.

Okay. Thank you very much.

Thanks Rich.

Your next question comes from the line of Craig Melcher from Citi. Please proceed.

Hi. Could give us a little more color on the medical office portfolio during the quarter, it looks like occupancy came down a bit on the stabilized in the sub portfolio?

Yes, I will be happy to that. You know as I said I think our MOB portfolio is actually doing well as you point out on the eight assets that are the same-store stabilized occupancy went from 98% to 95% Q4 06 to Q4 '07, and that's essentially 5,000 to 10,000 square feet in a building in Houston, which we expect to be sort of leased up to normal levels that maybe by the end of the summer. And then on the lease up, last quarter we had one MOB and leased up and it was 50% occupied and now we've two assets and leased up and they are 56% occupied. So I think we made good progress there. So our portfolio is actually doing well and I hope that answers your question.

Yes. And on Sunrise I am just trying to give out some more how... how revenues are coming in relative to expectations and expenses, you know, NOI is coming ahead, but it just gets more top line or how the expenses are coming in?

Well, revenue is going up nicely and expenses are increasing probably a little bit more than we would like, but net-net on balance the NOI was coming in ahead.

Yes, Craig, I think we have said in the third quarter was that you should expect the fourth quarter to be a little bit softer because typically people aren't moving there parents into the community during the holidays and there is always sort of year end expense through offset that come through and what we actually ended up seeing was pretty strong occupancy throughout the entire fourth quarter and the expenses that true ups that we expected did come through, so you saw a little bit of margin compression during the fourth quarter, but remember you're going to see some seasonal fluctuations in the portfolio, we'll keep tracking it, but I think that's sort of consistent with what we had expected going in and perhaps the little bit better on the revenue side.

Okay. And what's the rate of debt maturing that was sort of rated [ph] debt maturing in 08 and the timing of that?

It's approximately 7% to 7.4% if you in that kind of break down the maturities its broken down like half and then lot more towards the end.

Okay. Thank you.

Thanks.

And next question comes from the line of Rob Mains from Morgan Keegan. Please proceed.

Thanks. Good morning.

Hey, Rob.

Just a follow-up on the question about the Sunrise stabilize. Do I differ then that in terms of seasonality might see a little bit of a margin that been the winter quarters compared to the summer ones?

Yes. I mean I think seasonally you had tended to see softness in Q1 for the operators.

Great.

And as Rick said in his remarks I mean when you look at 08, you would expect the NOI to sort of ramp through the year.

Right. Well Ray's comments would suggested is that either you get lesser ramp up maybe even a little bit of pressure in the fourth quarter as well because of the moving?

What we looked at historically, when we looked at from the Sunrise results for this particular portfolio what that, we saw some softness in Q4 and Q1, and those are who knows why I mean it could be year-end normal expense throughout, could be a little softness in occupancy and so on. Now what we did see in the fourth quarter was strong occupancy and strong rate growth, so that's why the portfolio really perform better than our fourth quarter expectations. But, you are right to say in Q1 I think most of that analyst and operators who would agree tends to be this soft this seasonally... seasonal quarter.

Great, Okay. Then my only other question Rick, you alluded to one-time items affecting G&A in the quarter. What were some of those please?

We went through and obviously just had to do some of our year-end true- up with compensation and some professional fees, deal cost so, it was kind of one-time in nature and unusual. So we figured that if we end up [ph] kind of tell you what the go forward rate risk, that would be a net go forward.

Right okay, fair enough that's all I needed, thanks.

Thanks Rob.

The next question comes from the line of Karin Ford from KeyBanc. Please proceed.

Good morning, not to beat the expense question to debt, but I know you said in your 08 guidance, you're expecting margins to be flat. We've heard on another call that Sunrise Senior living may not be doing as good a job as some may think they should with expenses. Do you think potential upside if margins could be improved next year?

Well, you must be going to the school as Jerry there. We're giving you our best shot to what we think the Sunrise portfolio NOI is going to be for next year at 142 to 145 total sort of NOI. And we think that those are attainable objectives, which are 3% to 7% NOI growth also of the second half run rate. So I mean that's a good growth rate and it make... there's multiple different rates that you can get there rate occupancy expense, but that's sort of where we're targeting and that's why I would encourage you to focus as well because we don't want to get to on the one hand we will all say well there's a housing thing and then on the other hand we're saying well there's lot of upside in these numbers. So we've really tried to give you our best projection of where we think these assets would stand in 2008.

Okay. I know it's early in the election process, but can you just give your outlook on what the regulatory environment could be doing in an election year?

Yes I mean the short answer is nothing.

Okay.

We expect to... we had some really good legislative and regulatory occurrences for the Kindred SNFs and LTACs that... came up in the fourth quarter and first quarter namely a three plus percent Medicare increase for the SNFs and then good legislative improvement that Kindred was lobbying for regarding the LTAC, and then about 3% proposed increase from CMS for the freestanding LTACs in terms of rate. So we are in a good spot here, and I think it's very difficult to get anything done in an election year. And so I think we have a good visibility on reimbursement looking forward.

Great thanks. Finally you had a nice milestone a nice ruling in the HCP litigation in December, can you just tell us what the next milestone would be and what the timing is in that process?

Sure, I think what Karin is pointing out is that we did prevail in an motion that HCP filed to dismiss our case which is pending in the Federal District Court in Kentucky. The next is not really a milestone, but the next process or phase of the litigation, which were involved in right now is the discovery phase where you sort of examine the fact on each side in separations for the actual trial, that's where we are now.

Okay. Thank you.

Thank you.

Your next question comes from the line of Dustin Pizzo from Banc from America.

Hi, Thank you. Good morning.

Good morning, Dustin.

Hi, Dustin.

Debbie, I just want to follow-up on Richard's earlier question on the balance sheet. I mean it seems as though there was really pressing need for the money from the recent equity raise. So should we further that there is something larger potentially coming down the pipe or is it more of an indication kind of us to review on the current state of capital markets and that you think things may get worst from here and you wanted to just be in a good position?

Well as we said, and as everyone on the call knows what the capital markets have been extremely volatile. And as we look into 2008 I really think that we are... we want to be mindful of that and we want to be strong and opportunistic. And in this environment we believe that it's much better to be liquid and strong, and we are working on a number of things that are very attractive, and we want to be in a position to execute without worrying that this week some... some bank is going to take another $20 billion worth of write-offs and everybody is going to sell the RMS or something. So I love where our position is, as we look into the year, and it's a very deliberate... it's a very deliberate outlook, as we do an upside, downside analysis but we say SG for cautious and we are wrong, we haven't really given up very much maybe a little bit of hold money on the balance sheet. But, if we are right we are going to be really glad that we were right, and the benefits of that for exceed the other side of the equation. So I hope that gives you a little bit of color on our thinking.

Yes, definitely. And then I guess given your strong balancing position and ability to be provide our capital on the current environment. Would you look to potential get involved in any mezzanine situations and specifically the one that comes to mind given your relationship is potentially Sunrise whether that will go private?

Yeah, I think on the mez front that something that we've said now for the last quarter. We would be interested in making investments in that category, I think as we look at that, we really want to find the right risk adjusted returns. We want to make sure that we're doing it in manageable chunks and spreading our exposure across a number of different investments. So I think that would be sort of our strategy there with regard to specific situations, we will deal with those as when they come up.

Okay. And then just lastly you may or may not be able to answer this but, Debbie what's you've taken and what's happening internally on Sunrise I mean if you had any indications to whether or not they may get their financials out on time since one of your other peers think that's a very solid possibility?

Well, as you know Sunrise is said that it expects to file in financial statements filed by March 17, 2008 deadline that it has. we do get very detail property level financial information from Sunrise, and so we feel good about that. We really think that Rick Schweinhart [ph] the new CFO there has been an excellent addition to the company, and we've confidence in him to file the statement, and so if we were to predict we would hope that Sunrise does in fact file the statements by March 17th and I think there's a very good chance that they will, and that would be very positive for them as the company, a big milestone for them.

Great. Thank you.

You're welcome.

Your next question comes from the line of Chris Pike from Merrill Lynch Please proceed..

Hi, good morning, everybody.

Hi, Chris.

Hi.

Back to the whole debt leverage issue, I guess you know looking at the net debt of pro forma EBITDA at 5.4 that does not take into consideration the equity offering, correct?

It does then. Its still...

So, you bring that... so you take out 192 million that brings you down for lets say 5.1, is that a comfort level for you guys. Would you look to perhaps like to be a little lower than that? What do you draw from that?

No, we don't want to be... look we want to be... we think that historically, the healthcare REIT to investment grades have been in the 5 to you know 5.5, 6 times leverage level, and we are comfortable with that, and I think we've got... as you say we've got liquidity and capacity, and we could acquire quite a bit now throughout the balance of the year, just as we are.

Okay.With respect to the equity raise, was there anything that may be stopped you from issuing a bit more equity maybe advised that too much equity would be hard to digest, what your talks on that?

I think on a lot of these issues at the margin you could go either way whether it's a dividend increase, whether it's a... how much debt or equity if you have raised at any given time. I mean we just... it's a, we think the amount we have raised is just about right to deal with our medium term expectations, and again puts us in a good position. So you could go either way on that, but we think it's just about right, it sort of Goldilocks outcome.

And then are there any secured debt opportunities baked into the portfolio at this point in other words adding more secured debt extracting or monetizing some value equity?

Yes, I mean we've got capacity in terms of unlevered and partially levered portfolio to be either top up or put mortgages on them. We don't have any current plans to do so but that capacity absolutely exists.

And how much capacity, how much dry powder do you think would exists if were to start to tap into that that area?

You know several $100 million.

Okay, that's all for now. Maybe we can just catch up little later. Thanks.

Okay, Chris, thanks.

Your next question comes from the line of Kevin Fischbeck from Lehman Brothers.

Hi, great. Thanks. Good morning. Hi Kevin.

You talked about you know stronger occupancy in Q4 to Sunrise assets than you thoughts on the impact of the weak flu season there. Does that contribute or do you believe its just more function of your portfolio that was being living non-entry fee just I am look more insulated from the housing market?

Hi, Kevin, this is Lisa Brush. No, sometimes the flu can give us problem through the winter month, we haven't seen anything like that throughout the portfolio. So actually I mean the occupancy held really strong and you know compared to Q3, we expected a little bit more of a deep and a rate growth continued to grow. So we are not seeing that I mean its that it couldn't happen in Q1. We could feel little bit more of deep due to flu or just poor weather in certain areas, people may not want to move it, if they have that choice. Of course in most of our Mansions we have a much higher acuity [ph] and people often regardless will be moving in. So that certainly helps our occupancies very strong and pretty stable.

Okay, great. Can you tell a little bit more about the CapEx in the quarter I'm used to senior living operators talk about CapEx of kind of 500, 600 per unit annually which would be affectionately your current run rate as even if you see things ramp up and we'll be spending, alright, I got two questions what's driving in the quarter is Q4 good run rate its into the guidance might be assuming it comes down a little bit?

Well on the senior housing assets when we acquired Sunrise given the really high-end nature of these assets we told everyone that we expect between 800 and 1000 per door in annual CapEx and that's what we are looking forward to in 2008.

Okay. So the run rate that you have now is kind of more like 12,000 that would be something closer to 5,6 [ph] 12 million is that because our 5 million to 6 million if it did into 1 million is 1,000 is the rest just MOB or does that number come down a little bit from where your run rate is?

Yes, I think if you look forward if you just put in 1000 a door on Sunrise that should be about right.

Okay, and how much MOB CapEx would there be?

Well on a recurring basis its really going vary, depending on lease roll over and so on. So may be I don't know $0.56, $0.60 a year.

Okay, great that's helpful. And then last question on MOBs can you talk about the MOB market a little bit more it seems that virtually every operator is looking to build that platform out there even some non-healthcare REITs getting involved in the space do you get worry about development in that space over the next few years or what do you think about actual capacity growth?

Yes I think there are two things going out on that question one, there's definitely a lot of institutional demand for medical office buildings, I think other investors as does Ventas look at the space as a very stable investment opportunity. We have very high retention rate, we've got good stable growing cash flows, its the front edge of where the baby boom demographic is going to touch the healthcare system. They will be receiving care and a medical office building before they all need care in a assisted living facility our a nursing home for instance. So all of that and its also relatively recessionary system, which in this environment is particularly attractive institutional investor. So all of that I think is coming together to create good demand for the product on the development front there are natural barriers to entry for medical office building development and that is really driven by the amount of land available around the campuses of the hospitals themselves, as well as the hospitals sort of dictating what development takes place I mean they don't want to have half empty or empty medical office building sitting on their campuses. So we are not seeing a tremendous amount of development in that space. And what we are seeing is being driven by the hospital pursue into pretty well thought out in rational capital plans.

I just want to add one thing which is as Ray mentioned previously there's a really quiet bit of supply, and so while there is a lot of demand I would say that's really being matched by the supply of assets for sale. Hello?

Hello, lost connection...

My god, you'll be killing me.

Next question comes from the line of Kristin Brown [ph]. Ma'am you may proceed.

Katie? Katie?

Yes.

Can you hear us?

Can you hear me?

Yes, I can hear you, I can hear you nice and clear.

Okay, we had a bit of a interruption on our end. So can you just I assume the investors and participants in the call are still connected?

Everyone is still connected, ma'am.

Okay. We'll go ahead then, thanks.

Okay. Kristin Brown.

Hi, Good morning. I just wanted a follow-up on that question on MOB supply on sort of the senior housing side, I mean you kind of mention that supply generally in check on. What you characterize as sort of uniform across markets or the original pockets are concerned?

Just to clarify Kristin are you talking about senior housing supply and new development.

Yes.

Okay. Yes I would say that in general the senior's housing supply remains in check. We've been tracking the net off shore [ph] construction data pretty closely and I think if you look at the number of new units that are projected to be delivered and construction starts. They are sort of well within historical penetration levels given the increase in the aged incomes qualified population that's expected over the next year or two. So on a macro level we look at it and say that the supply that the new supply that's coming out and appears to be very reasonable although at a higher level then it had been in the early 2000 when it essentially nothing was getting built. Market-by-market I think the high barrier entry markets say for instance where our Sunrise portfolio is located. We think we are probably not going to see very much of anything developed that will compete with our products there given the long lead-time and the high cost to development. In some of the secondary markets or Sunbelt states you may see more product delivered in those markets, but again I still think in general, we are not seeing any place that I could point to you where we would be concerned about over building at this point.

Yes I mean the other really its a good and bad things, but clearly from the financing side what banks for financing construction two years ago, one year ago and then product will be delivered and as a result to that. In limited amount as Ray indicated I would tell you that as a forward, if you look forward that the banks are definitely pulling in or not and that actually is a very good, that is a very good thing, because it will limit supply appropriately and I expect that to be very positive for this day.

And my colleague to the right Lisa Brush is holding up her red and white flag with a maple leaf on it indicating that and it's very true Canada is a market we think that is pretty well under supply not a tremendous amount of development going on there and really strong occupancy in performance statistic. So we think there is a some good opportunity there.

Okay, that's really helpful. And I just have one more question just in terms of acquisition have you made any adjustments to your underwriting or hurdle rates in the current environment?

Well every time that we look at acquisitions our methodology is really to make sure that: a) we're getting good risk adjusted return; and b) that it is, it exceed what we believe is a reasonable cost to capital and provides good returns on equity. So methodology is always the same, there maybe we may impute a little bit higher risk premium to assets in this environment, obviously we look at cost to debt as those metrics change overtime. So all of those factors are embedded in our sort of ever evolving underwriting regarding acquisitions.

Okay. Thank you.

Thank you.

Thanks, Kristin.

Your next question comes from the line of Jim Sullivan from Green Street Advisors. Sir you may proceed.

Thanks good morning

Hi, Jim.

Hi, Jim.

Ray when you are talking about cap rates may become and the cap rate data is inconsistent and inclusive, in a context you're talking about mez debt it seems like the pricing of mez debt is perhaps even more inconsistent, and more inclusive how do your price mez debt in the current environment and how do you determine whether the risk adjusted return is better than what you can get in more traditional equity investment?

Yes I think that is the trick Jim, it's... what you really want to make sure you're focused on our loan-to-values and loan-to-sustainable values. So you really sort of look at what you think historical levels should be for a particular asset class and make sure that as you look forward you have an exit scenario in pretty much any normal lending environment and if you can get yourself comfortable that you're in the type of investment, then I think that sort of threshold or getting decision, and then once you past that is really a matter of looking how far up or down stack you are and trying to draw relative comparisons from other transactions that you've seen clear the market and say okay in my more or less, risky and am I getting a better or worst return. But, it is a shifting target, you kind of have to think ahead a little bit and test the market. Clearly this is not a market in which you just want to take what comes to you. You want to be selective. Did that help?

Yes that's helpful. It sounds like you are willing to move up and down the capital stack depending on the parameters of the specific opportunity?

Yes we are and off course it also depends on the asset type where you want to be in the capital stack.

Yes, right.

And when you give loan-to-values obviously, you would generally impose sort of normalized valuation levels and you look at cash flow coverages which I think is really important element of determining your comfort level with a given investment at a given traunch on a capital structure and Ray is obviously an lender and we look... we've originated and we've purchased NASDAQ in the past, and so I feel very interested in doing that again a manageable size as we look at 08.

Look Jim here the deal is when you're making an investment like this is you want to get paid back. Okay, the first and foremost thing is getting your money back. You look at it as if you going to hold it all the way through maturity, and so you have to underwrite what your exit is going to be either on the basis of what you think the loan-to-value is going to be at that point time and what you think that dynamism built into the cash flow is. So ECS situation where cash flow has some pretty dramatic upside potential and you may be more willing to step a little further up the capital stat going into the transaction, if you are a firm belief that cash flow is going to be realized overtime. It's a judgment call, but at the end of the day you got to look at as if you are going to hold this to maturity and...

And there is a refinancing...

Andthere is a refinancing that's going to take you out. And if you can't get comfortable if that's the case then its not a deal you should be doing.

That's helpful. I will be interested in seeing what turns out. Switching to Sunrise, to the sense of Sunrise's ownership structure changes, what's the impact on your management contracts on their minority position in some of your assets, the rights are first, offer that you mention before. What happens, do you have any approval rights that will provide you some leverage into even better deal for yourself or is really a risk if... the ownership structure changes and they for example wanted to sell their real estate interest to somebody you would want them sell it to?

We can answer that. First all the contractual rights and obligations that we have relative to the Sunrise portfolio including right to first offer and so on will remain in place regardless of the ownership structure Sunrise regardless of whether it's public or private. In terms of being partners with them as you would expect, if those partnership interest where sold or in some cases financed we would have consent right there, with that but we do not have and more could a public company give you sort of a change of control right over the top level at Sunrise. So that's where we stand and whether that ultimately creates opportunities there for us, we will be yet to be seen and we were really focused on having them other financial statements and really you know be in good standing and I think that's going to be a big step forward if they can accomplish that.

Okay. And then my last question relates to the earlier CapEx question, it does seem like the CapEx during the second half of the year was striking well above the guidelines you've provided, was there differed maintenance in the portfolio that required you to put additional money in?

No I think as you might imagine in operating assets, people they will only spend their budget in the first of the year and remember we were and so you might see some non-quarterly spending over the course of the year, but we definitely standpoint what we say which is about a 1,000 in 100 to 1,000 a door for the Sunrise stock.

Okay. Thank you.

You're welcome. Thanks for listening.

Your next question comes from the line of Jerry Doctrow from Stifel, Nicolaus. Sir you may proceed. Jerry L. Doctrow - Stifel Nicolaus & Company: I just had a quick follow-up, could you give us the actual occupancy on the stabilize Sunrise stuff to the 93 and 93, you said at one point it was actually north of 93. I am just trying to get a sense of the more specifically at the occupancy?

It was 93.1. Jerry L. Doctrow - Stifel Nicolaus & Company: And what was the prior quarter?

93.3. Jerry L. Doctrow - Stifel Nicolaus & Company: Okay, so it did move down a little bit. Okay there is tenth of percents matter so. All right thanks I just wanted to check

Wait everything matters. I agree, I agree, okay. So operator is there any other questions?

Yes ma'am, you have a final question from the line of Chris Pike from Merrill Lynch.

Hi, Debbie. With respect to your comments regarding resilience in your senior housing, which you would obviously share and perhaps this question is better suited for law be interested in the room there and if I have chance to ask her, but based on your collective experiences is there been a time were you know significant economic shock as kind of entity armors [ph] you will with respect to absorption across the Alphorns [ph] sector.

Yes. Chris this is Debby. Look there is no sector, no business that is immune form large macro trend. And we don't suggest that our sector is but when I look across the real estate state and look I at fundamental. Over a medium term horizon here there would be no sector that I feel better about its owning and investing in, in the healthcare and senior housing space I think it is important and that's why we've given sort of guidance that we have, I think it's important to be realistic that this is going to even flow overtime and we acquired the portfolio, but we see good about the fundamentals we think that demand is going to continue to grow, and market penetration is going to continue to increase and that the combination of our long-term triple-net leases which are provides great cash flow growth with real solid sort, we are going to get those cash flows coupled with its higher potential growth on the Sunrise assets. Its going to provide a really excellent SOX platform for our investors going forward.

Okay.

So if we don't have any additional questions. I want to thank the rest of my partners here at Ventas, and I want to thank our investors and participants in the call. We really appreciate your interest and support to the company, and look forward to speaking to you all again soon. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect.

Thank you, Katie.

You are welcome have a great day.

Katie.

Just one second let me pull you into my headset.

Thank you.