Ventas, Inc. (VTR) Q1 2008 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2008 Ventas earnings conference call. My name is Heather and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. T. Richard Riney, Executive Vice President and General Counsel of Ventas. Please proceed, sir.

Thank you, Heather. Good morning, everyone. Welcome to the Ventas conference call to review the company's announcement yesterday regarding its results for the quarter-ended March 31, 2008. As we start, let me express that all projections and predictions, and certain other statements to be made during this conference call, may be considered forward-looking statements within the meaning of the federal securities laws. These projections, predictions and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, 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 31, 2007, and the company's other reports filed periodically with the SEC for a discussion of these forward-looking statements, and other factors that could affect these forward-looking statements. Many of these factors are beyond the control of the company and its management. The information being provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure, as well as the company's supplemental disclosure schedule are available on the Investor Relations section of our website at www.ventasreit.com. I will now turn the call over to Debra A. Cafaro, Chairman, President and CEO of the company.

Thanks Rick and good morning to all of our shareholders and other participants and welcome to our first quarter 2008 earnings call. We are very pleased with our first quarter results and the strong condition of our company. Overall, our normalized FFO per share of $0.68 for the quarter is slightly ahead of where we expected to be. Our Sunrise portfolio NOI is in line with our projection. Our liquidity position and balance sheet at 34% debt-to-enterprise value are exceptional, and our deal pipeline is very active, with strategic and accretive opportunities. When we spoke to you in February about our outlook for 2008, I said that we were cautiously optimistic about the year. Now, I would say that we are optimistically cautious. This improvement in our outlook is based upon the opening of the debt market, albeit at widespread, and the sense that some buyers and sellers are narrowing the bid/ask gap that has postponed transition activity so far this year. Today, we will discuss our earnings portfolio performance and expectations for the balance of the year. After our CFO Rick Schweinhart reports in our financial results, we will be happy to take your questions. First, normalized FFO per share grew 3% versus Q4 of 2007 at $0.68 this quarter. As I mentioned, this result was slightly ahead of our expectations. We have also today reaffirmed our 2008 guidance of between $2.75 and $2.82 per share. As we always have, we intend to dedicate our efforts for the rest of 2008 to driving earnings and cash flows for the benefit of our shareholders, while we continue to build an excellent high performing enterprise. In the second half of 2007 and the first quarter of this year, we built liquidity and financial strength by expanding our revolving credit facility to $850 million and by raising almost $200 million in equity. And recently, we sold $68 million in healthcare assets, generating a $24 million gain. All of these actions put us in a great position to ride out the problems in the credit market to get a head start on upcoming debt maturity and to invest opportunistically. Turning to our portfolio review, our triple-net lease assets continue to perform well, with stable occupancies and solid cash flow to rent coverages across the spectrum of independent living, assisted living, skilled nursing facilities and hospitals through December 31, 2007. A key takeaway here is that our triple-net tenants continue to perform well. In fact, Kindred just yesterday reported an excellent first quarter, which should strengthen our healthcare asset triple-net lease metric when we report next quarter. It is important to remember that these triple-net lease investments are designed to provide our shareholders with good, steady, predictable cash flow growth, as well as significant cash flow coverage, credit and security. We expect to see changes in occupancies and operator cash flows at properties and to receive our rents irrespective of ebbs and flows in asset level occupancies and EBITDARM experienced by our tenant operators from economic or reimbursement changes. Touching quickly on Medicare reimbursement, the headline here is that we have good visibility into Medicare rate for skilled nursing facilities and long-term acute care hospitals through the fourth quarter of 2009. On the SNF side, SNFs will receive a 3.1% "market basket" increase offset by a 3.3% decrease due to administrative changes in their Medicare rate effective October 1, 2008. This would result in essentially flat year-over-year Medicare reimbursement for SNF, if adopted, as proposed. These rules are subject to a 60-day comment period and maybe improved as a result of industry efforts. At Ventas, we have been projecting a zero percent increase in SNFs Medicare rate and the corresponding compressions in operator EBITDARM. So, as the landlord at the top of the capital structure, we are quite comfortable with the CMS proposal and are pleased with the forward certainty it provides. For the LTAC, net Medicare rates were increased about 2.5% for the 15 months period, beginning July 1, 2008 and ending September 30, 2009. We expect the LTAC to be in a period of improved reimbursement tone for several forward reimbursement cycles. As I have stated countless times, Ventas shareholders benefit enormously from the strength of our pooled multi-facility master leases with Kindred. We have a built-in structural hedge in our master leases, because they contain both SNFs and LTACs which are on different Medicare reimbursement cycles. The important point is that the ups and downs in SNF and LTAC cash flows and reimbursement rates have balanced each other over time. The combination of these two different asset types, coupled with their strong cash flow coverage and Kindred credit support, provide incredibly reliable future revenue stream to Ventas. Now I want to turn to our operating portfolio, our 79 Sunrise communities and our medical office building portfolio provide the granular, highly diversified revenue streams in our business. First, Sunrise, for the 79 high-end, private-pay communities we own in North America, total community NOI for the quarter was $33.4 million. This is a definite win, flat versus the fourth quarter despite the typical softness we expected from first quarter results, as well as the anticipated lease-up losses been incurred as we fill the new 229 unit Steeles, independent living community we acquired in mid-December 2007. In the 73 stabilized Sunrise communities, first quarter total community NOI was $32.7 million. Note that in this quarter, we reclassified one asset to the stabilized pool from lease-up. Average daily rate was up 2% sequentially from the fourth quarter and occupancy in the pool was 92%. Expenses in the quarter were relatively controlled, and when coupled with rate increases, accounted for the positive NOI result. We also have fixed new Sunrise Mansion communities in lease-up including Steeles. Importantly, the five lease-up communities we owned for the full fourth quarter of 2007, showed excellent first quarter 2008 results. Occupancy increased by 6 percentage point sequentially improving to 72%, and NOI for these five communities rose from $600,000 to $1 million sequentially, a 57% increase. Our new Steeles asset continues to lease up nicely and currently is 43% occupied. We expect Steeles to reach positive NOI from operations toward the end of this year. Our 14 stabilized medical office buildings mostly on campus delivered $3 million in NOI during Q1 2008, which is consistent with our Q4 2007 result. Within this pool of 14 assets, we own one building that we're actively repositioning in its market and it accounts for virtually all of the incremental MOB vacancy you see this quarter. In the aggregate, these 14 MOBs are producing unlevered yield to Ventas of over 7.5%. Looking forward, I have to say that I am as excited as I have ever been about the multiple prospects we have in front of us and about the Ventas team we have in place to convert those prospects into reality. The opportunities we see are varied and have potential to provide additional dimension, diversification, growth and accretion to our company. We now have the financial capacity scale and organizational experience to execute on transactions and initiatives we believe presents strategic advantages and superior risk adjusted returns. We believe that one or more of these opportunities will come to fruition before year-end and we are eager to update you on additional developments, as they occur. All in all, we're very happy with where we are at this point in the year, we are confident we can move our business forward in a difficult economic and capital markets environment and we are excited about the opportunities we have to continue building long-term value for our shareholders. With that, I'm happy to turn the call over to Rick for review of our financial results.

Thank you, Debbie. First quarter 2008 normalized FFO per diluted share was $0.68, compared to $0.68 in last year's first quarter and $0.66 in the fourth quarter of 2007. First quarter results were better than the fourth quarter, mainly due to less interest expense, lower G&A and flat triple-net lease revenue and operating portfolio NOI, offset slightly by increased share count due to our February equity raise. First quarter FAD per diluted share was $0.64, compared to $0.64 in last year's first quarter and $0.60 in the fourth quarter of 2007. Our acquisition of Sunrise Senior Living REIT occurred in April of 2007. Normalized FFO this quarter totaled $92.4 million, compared to $72.1 million in the first quarter of last year and $87.7 million in the fourth quarter of last year. Normalized FFO and earnings are reported after deducting minority interest for the Sunrise assets. Normalized FFO for the first and the fourth quarter excludes the net benefit of $10 million and $13 million respectively of income tax benefits and merger-related items. Normalized FFO increased $20 million from last year's first quarter, principally due to acquisitions. Revenues increased to $114 million, versus the comparable period a year ago. Of that, $6 million was due to rent increases and $108 million to the Sunrise REIT properties resident rental and service fees. Interest expense increased $14 million from the first quarter of 2007, due primarily to acquisition borrowings. Interest expense decreased $2 million from the fourth quarter of 2007, due to repayment of debt from a portion of the proceeds of our equity offering. On February 1, 2008 we issued 4.5 million shares of common stock, producing net proceeds to the company of a $192 million. Our first quarter effective interest rate of 6.6%, improved from 7% in the first quarter of 2007, due to last year's assumption of Sunrise REIT property debt, which came on at attractive rates. The rates also slightly -- improved slightly from the fourth quarter rate of 6.7% due to the decrease in LIBOR on variable rate loans. General, administrative and professional fees, including stock-based compensation, for the first quarter of 2008, totaled of $8.3 million, compared to $7.6 million last year and $11.5 million in the fourth quarter of 2007. As a percentage of revenue, these expenses improved to 3.6% from 6.5% of revenues last year and 5% in the fourth quarter of 2007. Weighted average diluted shares grew to 136.7 million in the first quarter, up from 133.7 million shares in the fourth quarter of 2007, reflecting the effect of our February 1st equity issuance. On April 18th, the company sold seven facilities for approximately $68 million and we expect to report a gain of $24 million in the second quarter. We currently have a $124 million of cash and marketable securities and unused revolver capacity of $785 million. Our debt-to-total capitalization is 34% at quarter-end. Our guidance for 2008 remains between $2.75 and $2.82 per share. Our key assumptions remain the same that total Sunrise NOI from our 79 assets ranges from a $140 million to $145 million that we use our cash balances to repay mortgage debt and/or for acquisitions and the G&A ranges from $36 million to $40 million. It does not include other announced acquisitions or divestiture activity. In sum, our first quarter results show good improvements sequentially and should continue to ramp up during the balance of 2008. Operator, we will now take questions. Question And Answer

[Operator Instructions]. Your first question comes from the line of Karin Ford with KeyBanc Capital Markets. Please proceed.

Hi, good morning. A question for you on the $68 million of assets sale. It looks like given the NOI number that was about a 10.5% cap rate on that sale. Can you just talk about, that cap rate seemed a little high, why was at that level and where you see cap rates trending from here?

Yes, I think, good morning, Karin, and thanks for joining.

Thanks.

The sale of those assets was tremendously good outcome for Ventas. Basically, it was a strategic disposition that we thought was an excellent opportunity to recycle capital, realize the very significant gain, and frankly, dispose of asset that had been under managed. And so, we feel that the outcome and the price for that that we received were quite good and appropriate.

Okay. And where are you seeing cap rates moving, you mentioned that buyer and seller, the bid/ask spread was narrowing, can you just talk about where you see cap rates moving?

Yeah, I think, Karin, this is Ray. That's our general sense, although market data right now remains relatively spotty. Most of the market data indicates that rates are generally holding. And so even though the risk premium is widening on cap rates, that is being mostly offset by the drop in the base rate. I think what we're seeing with regard to pricing is the bigger change in the way that buyers are underwriting the cash flow. And specifically, they are really looking at in place income and generally not giving credit to future lease-up or rent bumps, and that I think is probably the bigger impact in the way that yields are being priced and valued in the market today. So, it's kind of hard to peg a cap rate trend, but the underwriting is definitely more conservative.

Helpful. It sounded like in your comments about the Steeles, positive cash flow mark pushed a little bit later in the year, is that the case, and if so, what's driving that?

No, I mean, we think Steeles is generally on track, we haven't materially changed our expectations for that asset. I may have changed the word a little bit to keep myself from being bored, but I don't think there was any -- you shouldn't read anything more into it than that.

Okay. Final question, the joint venture -- the medical office development joint venture, can you just talk about what the economics are on that?

Yeah, I mean, basically, Karin, we've got a joint venture in place, with a nationally recognized MOB to developer, with excellent hospital relations and the great reputation on 10 to be built medical office buildings that will accumulated somewhere in the neighborhood of about $150 million in total. The buildings are generally on campus and hospital sponsored. We got the opportunity to basically invest in these assets at sort of wholesale pricing and share the upside in value creation between development cost and retail with the developer.

And do you guys actually fund the development or you take out on stabilization?

We'll be funding the development subject to minimum pre-leasing standards upfront.

Okay. And what's the time frame for these 10 buildings?

Yes, they will be coming in over the next 12 to 18 months.

Great, thank you very much.

Your next question comes from the line of Rob Mains with Morgan Keegan. Please proceed. Robert Mains - Morgan, Keegan & Company: Good morning.

Hey, Rob. Robert Mains - Morgan, Keegan & Company: One follow-up on the MOB quarter there, are anything in progress currently, any of the projects?

The developer has been awarded these projects by the hospitals and they are in various states of planning and development. We have not made any investment at this point. Robert Mains - Morgan, Keegan & Company: And it doesn't sound like any grounds being broken either?

Well, one or two of these projects maybe relatively near-term, and so as we make our initial investments in grounds broken will report to you presumably in a quarter or two. Robert Mains - Morgan, Keegan & Company: Okay. On the topic then MOBs, your same-store stabilized numbers in the supplemental showed a year-over-year decline and a quarter-to-quarter decline, do I assume that's because of the one asset which has been repositioned?

Exactly. Robert Mains - Morgan, Keegan & Company: And could you kind of describe what the repositioning is there?

Yes, I can, and basically, we have decided in order to maximize NOI of that asset, to reposition it with different hospital and physician relationship and we are in the process of getting that on track right now and look forward to having some positive news to report when we speak next. Robert Mains - Morgan, Keegan & Company: Got you. Sunrise, that's not a non-campus building?

Exactly, not a non-campus building, that's correct. Robert Mains - Morgan, Keegan & Company: Okay. And then last question on the Sunrise portfolio, you had a decline in occupancy on the stabilized assets from the fourth quarter to the first. Did you get -- can you attribute anything particularly to aspects like the economy or particularly this year the flu, did you see any -- either of those factors playing a role?

Let me give you one comment and then Ray will address it Rob. The one comment is that we do expect the first quarter essentially to be the worst quarter, as you who cover the operators understand. Robert Mains - Morgan, Keegan & Company: Right.

And so, the results were in line with our expectations, and Ray will talk, I think, in a little bit more detail about the next layer of analysis.

Yes, I think Rob just to address a couple of the points in your question. We did see more move outs due to debt and some of that can be attributed to the flu season, which is normally more active in the first quarter. The good news is that the decrease in occupancy was offset largely by the 2% increase in average daily rate, and so NOI was good. Second and third quarters are typically stronger and that's what we are looking forward to as we move out in the year. Robert Mains - Morgan, Keegan & Company: Thanks. And then just one follow-up to that, can you refresh my memory, the Sunrise buildings, do they raise rents on the first of the year as at the time of the residency anniversary?

It's on the anniversary. Robert Mains - Morgan, Keegan & Company: Okay. So it's throughout the year we expect it to be?

Yeah, although some buildings have gone to a first of the year convention, so it's a mix, Rob. Robert Mains - Morgan, Keegan & Company: Okay. Thanks a lot.

Thank you.

Your next question comes from the line of Jerry Doctrow with Stifel Nicolaus. Please proceed. Jerry Doctrow - Stifel Nicolaus & Company: Good morning.

Hi, Jerry. Jerry Doctrow - Stifel Nicolaus & Company: I just had a couple of things. Just going back to the JV, what's your ownership share, is it, I think you are majority owner, and can you give us the sense what the percent will be?

It's going to depend upon the economy of the individual transaction, Jerry, but you should think that we're going be the majority owner of the real estate itself, so we'll own between 95% and 99% of the venture that owns the real estate, what will probably end up doing and sharing around 50% of the value creation that comes through the development of the asset and lease-up of the asset. Jerry Doctrow - Stifel Nicolaus & Company: Okay. Would you own a development entity then or you'll just build economic stability into the real estate?

It would be the economics of the single project. Jerry Doctrow - Stifel Nicolaus & Company: Okay, okay, that's helpful. There was a little thing on the supplement on the return on the last couple Sunrise development deals had dropped down from like 9.5% to kind of an 8%, 8.75% range at the low end. So, was there -- has sort of a contractual change been made or just the economics of these deals changed. I'm just really interested what all we should expect go forward on additional development deals?

Hey, Jerry, this is Debbie. I'm not certain that those impacts have changed and we'll take a look at it, but our expectations about those developments from, when we originally disclosed the effective stabilized deals are consistent. The Steeles return is lower because it's [inaudible]. Jerry Doctrow - Stifel Nicolaus & Company: Okay, get, it's, Steeles and Sunrise of Brooklyn were just lower for some reason.

Okay -- Jerry Doctrow - Stifel Nicolaus & Company: Okay. You didn't get back to it. That's fine.

Okay, thanks. Jerry Doctrow - Stifel Nicolaus & Company: Okay. And then, I was just -- on the acquisition environment, I'm sure, you don't want to reveal trade secrets, but I was wondering if we can get a little color, you talked about it being sort of a very pool of stuff, I mean, any sense of property types, I think, you talked about strategic. So, is it M&A, is it, or are we talking about large Steeles, are we talking about sot of singles, any more color on acquisitions or how we should be thinking about the acquisition or potential acquisition volumes in the second half?

Well, the one thing I want to emphasize, this is just really across the Board and if you shouldn't think about it solely as acquisition that these are dimensional opportunities for our business to really drive growth and strategy going forward, and within the acquisition bucket, if you will. Ray, if you want to comment?

Yeah, I mean, I think, we are seeing pretty strong deal flow across the spectrum, certainly the medical office building portfolio continues to gain traction as we've been working on that now for about 24 months and have developed the number of very good strategic relationships that are providing a nice deal flow for us. There is also, I think, a market opportunity for us with a number of the developers and operators in the market who are looking to line up with an experienced and committed capital partner like Ventas. So, we are seeing more interest in strategic partnerships. And then, I think, on the seniors housing side, there continues to be a good flow of opportunities and we are also seeing an increase in the number of inquires we are getting about the ability to provide debt financing to those operators and we think that as the year plays out that could be an increasing opportunity set for us. Jerry Doctrow - Stifel Nicolaus & Company: Okay. And Debbie, I'm not sure that I meet, I know what dimensional opportunities mean. So, just, I mean, so we could do - we could up M&A, we could do things like more Sunrise REIT kinds of things, other strategic, I'm just trying to understand what you are detailing me?

Right, I think we're going to have to let you speculate here. But, we look forward to telling you more as these things develop and I would hope that over the course of the year, as I said, one or more of these things come to fruition. Jerry Doctrow - Stifel Nicolaus & Company: Okay. I will use my imagination. Thanks.

Hey, excellent. Thanks for joining.

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

Good morning. Thanks for taking my question.

Hi, Chris.

I guess back to the MOB joint venture, is this the same relationship that you have been building on over the last 24 months, or is this a new players so to speak, a new relationships that you are bringing forth?

This is a new relationship that we have entered into, although it's a group that we have been having discussion with for a long period of time and have been courting through quite sometime.

Okay. And, I guess, my other questions for the most part have been answered. I guess, I will just follow up with Rick offline, just got a couple of housekeeping questions, but thanks a lot.

Thank you.

Your next question comes from the line Michael Bilerman with Citi. Please proceed.

Good morning. Craig Melcher is on the phone with me as well. Debbie in your opening comment, you said the active pipeline was strategic and accretive, are those mutually exclusive or--?

Sometimes they are, but hopefully they are not.

And sort of size-wise, what are you hoping to land one or two of these, give us a sense, I know you don't want to dive too much into what are these, but can you give us sense of size?

Well, again, it's really a broad range of opportunities and they range from a singles, as, I think, Jerry put it to larger size opportunities that would be very meaningful even on our $10 billion base.

And how are you thinking when you think about accretion, how are you thinking about the financing side of the equation?

Well, that's something we spend a little bit of time on because we look at unlevered yields, we look at where we are now on our balance sheet because we have a very, very strong balance sheet, a lot of liquidity. And if we can use that liquidity for, to finance a strategic opportunity, that is accretive, then that would be really terrific. We do assume generally in most normal environments that we fund things 50-50 debt and equity. But at the present time where we are with a $124 million of cash and securities on hand plus virtually all of our line of credit available, we are in a great position I think to do things that are strategic and accretive.

That's helpful. Maybe going back to the $68 million of sales, which we're 10.5 cap.

Yeah.

And you talk about having a $10 billion balance sheet. You talk about these deals being a strategic exit. I mean how much of the portfolio you classify into this higher cap rates, strategic disposition sort of help the company going forward?

I would say we classify very little into this category and strategic is probably an overstatement to be honest. It's a more of a tactical exit from a specific investment that actually went extremely well for Ventas. Part of this investment going back five years or more was almost $20 million net loan that we got, 18% interest and principal on, we had a remaining net investment in this of about $42 million. And frankly, the assets were significantly undermanaged and we thought sometimes it's great to take your profits and move on, and that's what we did.

And on the medical office development deals, what is your return on your cost expected to be, considering you'll get the 50% of the development profit?

Yeah, I mean, we would expect net to Ventas that our returns on an unlevered basis will be in 7.5% give or take range.

And what type of pre-leasing is necessary for you to move forward on deals trying to gauge the risk that is involved in this?

Well, of course, we'll look at a number of factors. As Ray said, these are virtually all on campus and they have strong hospital sponsorship. We would really be looking at least 50% pre-leasing and hopefully more in order to invest in the project.

Okay. And on the Sunrise results, sequentially from here, what should we expect from first quarter to second quarter?

Yeah, I think that the major point we want to make is that we said that we expect Sunrise total NOI this year, total community to be between a $140 million and $145 million, and that that will ramp in the year as the lease-up asset continue to lease up as in the stabilized, hopefully continue to grow their NOI and as deals become switches over from a net negative to a positive.

How was the -- you know how the market is generally doing with the overhangs due to the economy and/or just that was going on in the housing market, how is it performing?

I mean it is need based business, I think the fundamentals is this business are as good as in any real estate asset class and probably better. So because they are need based, I think we're continuing to see very good performance across our triple-net and our Sunrise portfolio. That said when there are huge macro trends, rather they are economic in terms of the slower economy or housing slum, I would tell you that at the margin that has to tamper your expectation.

Thank you.

You are welcome. Thank you for joining.

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

Thanks and good morning.

Hi, Rich.

Hey, just to understand this joint venture, you are putting 100% of the dollars to finance the development, is it correct?

Not a 100%, but it is the lion share.

Okay. So the partner got a little bit of skin in the game.

They are cutting back things [ph] and putting a little bit of skin in a game, that's correct.

Okay. And just curious, you are not mentioning who the partner is, is there reason why they don't want to be out? So, you are not going to answer?

No, Rich, let me answer it, it's just that we are not going to talk about who our partner is at this point in time.

Okay. In terms of Sunrise and the things going on in the Sunrise, the management company, maybe you could talk a little about what you see the progress going there from your advantage point?

Well, one important aspect is that Sunrise filed its 2006 financial statement and maintained with its New York Stock Exchange listing which was a really, really positive development. The other positive developments, I would point to you are really addition of the new CFO, whom we talked about, so that is a super new development but that was a real plus for Sunrise on a corporate level and recently the addition of Mark Ordan as the Chief Administrative Officer and Chief Investment Officer, as well as some of the corporate governance changes that are being made at Sunrise. We view the moves that Sunrise Board -- that the moves that they are making as very positive and may we believe that Sunrise is really taking step to continue to improve itself over the course of the year.

What do you think the worse case scenario is with them and you?

With?

I mean in terms of your relationship with them and--?

Well, right now, I mean.

With corporate co-investments [ph].

Right now what we asked Sunrise, what we asked of Sunrise is really to be a property manager for us and do a good job, taking care of the senior residents and driving NOI on our mutual behalf and that's really what we'll continue to ask them, whether they are public or private or whomever running the firm or what have you. So that's the basic relationship that we have and one that we expect to continue.

Okay. Now besides the management of the properties, they are co-investor in many of the facilities, am I right that, say if you were to sort of had to take out their interest, someone bought them and didn't want to be a co-investment partner, is the number or something like three or five -- $350 million something like that would require for a take out of their interest in the partnerships?

Well, the first point, that's a good question, is a 15% to 25% partner and I think 18 of the assets with us which we first I had to reverse, I'm sorry with 66 or 67.

Right.

And we actually like the partnership structure, because it does create additional alignments for them as the property manager, it's not essential, but it's kind of a nice aspect of the overall relationship. If Sunrise were bought, there is no option for them to put those partnerships interest to us. So we would essentially, if it's such a new person or Sunrise itself wanted to sell those interest to us, then we would have a discussion. But no one has a put of those interests to us nor do we have a call in them. We are partners.

Understood. Last question. You mentioned the Sunrise expenses were relatively controlled your words. So would -- is that a bit of a hedge whether sort of bigger cost pressures this quarter than you thought, and if so, what would form that they come in?

Rich, can I just circle back for one second. There are 61 jointly owned assets in the portfolio.

Okay.

On the expense side, I think we always work with Sunrise to manage expenses which has not being as much of a focus of theirs as it is of ours. And we like it and prefer to compliment them, win expenses sequentially we think are recently controlled as they were in this quarter.

Okay. Thank you.

Thank you.

[Operator Instructions]. And your next question is from the line of Tayo Okusanya with UBS. Please proceed.

Good morning.

Hi, Tayo.

Hi, Tayo.

Hi, just a follow with regards to the JV, I apologize if you have answered this already because if I'm juggling two calls at the same time. But just from trying to understand the economics going to be better, understand you put up majority of the development costs. But in regards to the actual income stream coming from this portfolio, could you talk a little bit about what that sharing is, both theoretically and at the same time if you kind of use some numbers to walk me through it? That would also be helpful.

Tayo, the income stream and the cash flows coming off of the property will be shared [inaudible] in accordance with the ownership positions of the partners.

Okay.

And as I said previously, there is also a monetization of some of the development profit to the developer which will occur upon stabilization of the asset.

Are you saying monetize, you are going to sell the property to a third party and split the difference between what was bought?

No, that's a term of our, Tayo, I'm sorry. It's basically a one-time payment that is made based on value creation in the asset.

Right. I mean you can think of it basically as the paying wholesale which is the difference between the development cost and the profit embedded in the development activity.

Let's say you -- the some type of payment you will make to developer, so that you could own the property out right?

Generally.

Okay. All right. I think it might be helpful, Rick and Deb, maybe if I just give you a call to trying to get, try to understand it a little bit better for modeling purposes. So I'll give you a shot.

Yes. We will be happy to do that. And I am glad actually we are getting questions on this, because we do think this a very positive and important new relationship in the MOB areas that we have developed.

Great. Good quarter.

Thank you.

Thank you.

And there are no further questions in queue at this time. I would like to turn the presentation back over to Ms. Debra Cafaro for closing remarks.

Thank you, Heather. Well everyone, I just want to thank you all for joining on today's call and we, as always, very much appreciate your interest in Ventas and we look forward to seeing everyone then. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day