Ventas, Inc. (VTR) Q2 2011 Earnings Report, Transcript and Summary

Thank you for your patience, and welcome to the Second Quarter 2011 Ventas Inc. Earnings Teleconference. [Operator Instructions] I'll now turn the presentation over to your host for today's conference, Manager, Investor Relations and Capital Markets, Mr. David Smith. Sir, you may proceed.

Good morning, and welcome to the Ventas' conference call to review the company's announcement today, regarding its results for the quarter ended June 30, 2011. As we start, let me express that all projections and predictions, and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the federal securities laws. These projections, predictions and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the company's expectations, whether expressed or implied. We refer you to the company's reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended December 31, 2010, 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 obligations to release publicly any updates or revisions to any forward-looking statement 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 supplementary disclosed 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, our Chairman and CEO of the company.

Thanks, David, and good morning to all of our shareholders and other participants, and welcome to this morning's call. Today's call is to report on our results and activities for the quarter ended June 30, but we'll also discuss the impact of our NHP acquisition, which closed July 1, as you know. Ventas has been in an intense period of growth and portfolio construction to create a strong and balanced enterprise. With the recent closing of our Atria and NHP acquisitions, we're now a highly diversified enterprise with scale and over 1,300 healthcare and senior housing assets. We derived almost 70% of our projected annualized NOI from private pay sources, we own or manage a coast-to-coast $14 million square foot medical office building business and we enjoy a combination of high-quality tenant operators, asset mix, operating models and geographic reach. Our aim with all these activities is to deliver consistent superior risk-adjusted returns to stakeholders. At this point in the year, we are at or slightly ahead of where we expected to be. We believe that consistent superior risk-adjusted return, followed from owning a balanced and diversified portfolio of high-quality senior housing and healthcare assets weighted heavily towards private pay revenue sources, a meaningful exposure to senior housing operating assets located in major metropolitan markets designed to provide lift in a growing economy and limited downside in a slower one, well-covered triple-net leases that should deliver reliable cash flow growth from contractual escalations year-in and year-out and outstanding balance sheet with improving ratings, low debt cost and excellent access to a variety of debt markets, scale to absorb large acquisitions and attract global investment capital, relationships with customers and an investment team that can grow earnings and assets, across this array of sizes, asset types and structures, a cohesive leadership team with continuity and a conservative well-covered dividend with opportunity for future increases. At the same time, we recognize the imperative of delivering positive near-term results and as such, we're pleased to announced 13% normalized FFO per share growth to $0.80 a share in the second quarter and to increase our full-year guidance to a range of $3.17 to $3.23 per fully diluted share. If achieved, these results would represent double-digit year-over-year growth. As all of you know, we continue, consistent with our history, to be focused on managing risk in our balance sheet as we grow. We believe the winning combination for shareholders is coupling earnings growth with reduced risk through continued diversification, financial strength and flexibility. Since the closing of the NHP acquisition, we have obtained 2 ratings upgrades, to high to middle BBB and the endorsement from the bond market of our strategy. Continuing to lower our cost of debt and increase our assets to multiple capital markets is a significant predicate for success in our business. Today, I'd like to describe what Ventas looks like now and our prospects for the future, my colleagues Ray Lewis, will discuss our portfolio performance and investment outlook; Rich Schweinhart will provide a detailed review of our quarterly financial results and Rick Riney will update you on the pending HCP litigation. Following our remarks, we'll be happy to take your questions. So here are some of the highlights of how we see the Ventas business now pro forma for NHP, and our views of macro-trends. As a result of our deliberate strategy, we now derive almost 70% of our NOI from private pay sources. Our private pay business includes 117 high-quality private pay seniors housing assets managed by Atria we acquired in May, as well as our 79 Sunrise managed assets. This private pay component has increased from about 55% only 2 years ago. We are a highly diversified healthcare REIT by tenant manager, asset class, operating model and geography. Our portfolio consists of over 1,300 properties across 47 states and 2 Canadian provinces. Our largest tenant, Kindred Healthcare, which now represents only 19% of our net operating income, is the largest, most diversified provider of post acute-care in the United States, with a business model that includes long-term acute care hospitals, in-patient rehab hospitals and skilled nursing facilities. We have also worked to intentionally diversify our business by operating segments. We derived about 1/4 of our NOI from our high-quality private pay seniors housing assets located in major metropolitan areas managed by Sunrise and Atria. These assets, best quality, best market and great managers are in a management structure rather than a lease because they should provide lift in a growing economy. We also derive strength from a stable and reliable triple net lease portfolio that represents approximately 62% of our NOI and also includes private pay seniors housing and should provide consistent contractual cash flow growth. Through our investment strategy, we have significantly reduced the portion of our business derived from skilled nursing assets to about 1/4 of our NOI. Medical Office Buildings round out the diversification picture with 11% of our NOI coming from Medical Office Buildings, 90% of which are on the campus of well-regarded hospitals and health systems around the country. As the largest owner of seniors housing in the United States, we do business with the leaders of the industry including, Sunrise Senior Living, the only globally recognized brand in seniors housing; Atria, the fourth largest assisted-living operator in the U.S; and Brookdale, the largest provider of senior care in the country. The senior living business continues to be characterized by constrained supply, with construction starts declining sequentially to 1.1% of inventory, and demand from the over 85 demographic that is growing at 3x the rate of the total population. We believe this positive supply-demand fundamentals in senior housing will provide benefits to Ventas. As one of the largest publicly traded REITs, our enterprise should generate over $1.3 billion of annualized NOI. Our feel for diversification private pay focus and strong balance sheet have resulted in 2 credit upgrades. Specifically in July, Fitch upgraded Ventas to BBB+ and Moody's upgraded us to Baa2. Bondholders also understand that we are reducing risk as we grow and rewarded our activities in May, when we closed a successful $700 million 10-year unsecured bond yield priced at 165 over treasury. We intend to continue along this path of moving up the credit curve and driving down our debt cost. Our pro forma credit profile remains outstanding with net debt to EBITDA at approximately 5x and fixed charge coverage exceeding 3x, both pro forma for NHP. With our recent acquisitions, we have increased our customer relationships by 6x, and we believe that those customers will be a continuing source of investment activity going forward. Our new relationship with Atria, provides another source of potential growth. Ventas' large deal capabilities and track record, its relationships with tenants and operators and the addition of NHP's regional investment platform all should position Ventas to capitalize on any opportunity in the $1 trillion healthcare and senior housing real estate market. Regarding skilled nursing assets and recent changes to Medicare reimbursement. After being involved in the healthcare real estate industry for over 12 years, there are few things that I can say with certainty. First, skilled nursing facilities represent an integral component of our nation's healthcare delivery system, particularly for the elderly. Skilled nursing also tends to be a low cost provider of care, which will be a benefit to the asset class over the long term. And finally, reimbursement goes in cycles and changes every single year. As a result, we have taken a consistent, and I believe realistic view, of skilled nursing investments over the years. That is, at the right time, right price with the right operator and right structure, these assets can provide very good risk-adjusted return to real estate investors and should be a part of a diversified healthy real estate portfolio. But there are periods of volatility for the operators that occur apathetically, such as the one we saw on Friday and Monday. Remember that as a landlord, we are in a super senior secured position in tenants capital structure. Our earnings are not affected by changes in Medicare reimbursement, and we have well-covered skilled nursing assets, primarily in highly structured master leases. As reimbursement changes year-to-year, and particularly when large changes are adopted, it generally takes time for the full effect of the new rules and rates to become clear. The key point is that Ventas is in a very sound position with this portfolio with both increased diversification of our tenant base and well-covered leases. In conclusion, we have built a business that is designed to prosper in any economic reimbursement and capital markets environment. We have enunciated and executed a differentiated strategy that was designed to make the company more private pay, more diverse, larger and stronger. So we should do well starting with internal growth from our diversified portfolio of productive healthcare and senior housing assets, external growth from investments, opportunities to refinance our debt at lower rates and the prospect of a growing well-covered dividend. Our job is to execute this business plan and realize on the benefits of our platform with the same focus and commitment to stakeholders we have demonstrated in the past. Ray?

Thank you, Debbie. As Debbie mentioned, with the closing of Atria in the second quarter and now NHP at the beginning of the third quarter, Ventas' portfolio is diversified across 1,300 high-quality healthcare seniors housing assets in 47 states and 2 Canadian provinces. With nearly 70% of our NOI coming from private pay assets, the majority of our income coming from long-term triple-net leases with contractual escalations and the growth that comes from our seniors housing operating portfolio, Ventas is well positioned to provide reliable and growing cash flows to our investors. During the second quarter 2011, our same-store portfolio of 499 properties delivered another strong quarter of internal growth with NOI increasing 2.6% over 2010. Adjusting for $3 million of cash payments received from Sunrise in the 2010 comparison period, our cash NOI growth would rise to 4.5% year-over-year. So our portfolio continues to deliver strong cash flow growth. Today, I'd like to share some of the second quarter portfolio performance highlights and finish with a few comments on acquisitions and the external environment. Let's start with our triple-net lease portfolio, which is diversified across the seniors housing and post-acute asset classes and accounted for 53% of Ventas' NOI during the second quarter of 2011. This percentage increases to approximately 62% with the closing of NHP. Cash NOI to Ventas in the second quarter on the 393 same-store triple-net lease portfolio grew 2.7% over the prior year, benefiting from our annual rent escalations. This performance is consistent with our guidance at the beginning of the year, which projected triple-net same-store cash NOI growth in excess of 2.5%. Coverage has remained strong and stable across the whole triple-net portfolio with EBITDARM covering rent at approximately 1.7x in the first quarter of 2011, the latest date available. Notably, our seniors housing triple-net portfolio coverage was strong and stable during the first quarter at 1.3x. And coverage increased 10 basis points sequentially in each of our skilled nursing and hospital triple-net portfolio to 1.9x and 2.3x, respectively. As you know, most of our skilled nursing and hospital assets are leased to Kindred Healthcare, the largest post-acute provider in the U.S, with over $6 billion in annual revenues and equity market capitalization of over $500 million and strong corporate credit. On July 29, the Center for Medicare & Medicaid Services are now on its final ruling on reimbursements for skilled nursing providers in the 2012 fiscal year, which take effect beginning in October of 2011. These new rates result in a reduction of Medicare reimbursement for skilled nursing of 11.1% on average. On a positive note, on August 1, CMS released its final rule for 2012 long-term acute-care hospital reimbursement. Under this new rule, LTAC reimbursement is projected to increase 2.5% beginning in October of this year, a significant improvement over the 1.9% increase that CMS recommended in May. Each of our 4 pooled multi-facility master leases with Kindred, contain both skilled nursing and LTACs, approximately 37% of Ventas' current Kindred rent is attributed to the LTACs. It's important to note that when estimating the potential impact of the new Medicare reimbursements, it's necessary to isolate your analysis to the period after October of 2010, when RUG-IV was implemented. After giving effect to the new rates and not considering any mitigation or other impacts, we estimate the EBITDARM coverage on Ventas' entire Kindred post-acute portfolio would be reduced by approximately 20 basis points to a still very healthy 1.9x during the period that RUG-IV was in effect. This demonstrates the power of our pooled multi-facility master leases with Kindred, which are structured to withstand the ebbs and flows of reimbursements over time. So as you can see, Ventas' well-seasoned Kindred leases provide ample coverage and remain very secure. Subsequent to the closing of NHP, Ventas announced that it has leased 32 assets formerly operated by Hearthstone Senior Living to Senior Care. Senior Care, which is headquartered in Louisville, Kentucky has been a tenant of Ventas since 2006, and is a top 20 operator of seniors housing with a national footprint and an excellent operating track record. Since 2006, Senior Care has simultaneously increased occupancy into Ventas assisted-living portfolio by 1,200 basis points, an average monthly rate by 32%, in spite of one of the worst economic environments in U.S. history. Under the new 15-year lease, Senior Care will pay $28.5 million of rent in the first lease year rising to $30 million in the second lease year, which is consistent with our underwritten expectations when we acquired NHP. So the triple-net lease portfolio continues to perform well and provide a stable and growing cash flow base to our portfolio. And with NHP, the majority of our leased properties are structured in pooled multi-facility master leases with credit support and have a weighted average remaining lease term of nearly 7 years. So we expect to be able to continue to deliver reliable and growing cash flows from this portfolio, as we have in the past. Now let's turn to our private pay seniors housing operating portfolio, which included 196 assets at quarter's end. During the second quarter, we completed the Atria acquisition, which added 117 high-quality seniors housing communities, located primarily in affluent, high barrier-to-entry coastal markets to our existing portfolio of 79 assisted-living mansion communities managed by Sunrise. Our seniors housing operating assets accounted for 39% of our annualized NOI for the second quarter, and are expected to be about 25% of our annualized NOI going forward, with the closing of NHP in July. Starting with the Sunrise portfolio. Our 79 high-quality mansion-style properties turned in another solid quarter, generating $39.5 million of NOI, the second highest quarterly figure since we acquired the portfolio in 2007. This represents year-over-year growth of 5.3%, after adjusting for $3 million of cash payments received in the second quarter of 2010 and equalizing the management fees during the comparison period. In addition, average occupancy for the entire portfolio during the second quarter was 89.4% and spot occupancy for the entire portfolio as of the end of July was 90%. Sequential performance of the Sunrise assets was also quite strong, as NOI increased 8.8% and margin was up 220 basis points from the first quarter of this year. Performance was driven by a combination of a 1.2% increase in average daily rate and lower expenses. For the 78 properties in our same-store stabilized portfolio during the second quarter, occupancy was up 80 basis points, average daily rate was up 4.3% and NOI, including the previously mentioned adjustments for cash payments in management fees was up 4.7% year-over-year. So our Sunrise portfolio continues to perform well as we move into the third quarter, and we are reaffirming our full-year guidance of $152 million to $157 million. Now let's turn to the Atria portfolio, which we closed on May 12. Looking at June, our first full month of operation, average occupancy in the total portfolio, including the 7 redevelopment properties was 86.8% and trending positively through July. Total portfolio NOI for June was $16.1 million. Occupancy in the 110 property stabilized portfolio was 87% and NOI was $15.3 million. The 7 properties in our redevelopment portfolio continue to lease up nicely, and we're at 83.4% in the month of June. NOI for June in the redevelopment portfolio was about $800,000. One of the key value drivers in the Atria portfolio is the pipeline of opportunities to refurbish and reprogram older buildings in high barrier-to-entry, high-end continental locations. As I mentioned, trends on the 7 redevelopment assets that are currently in lease of are quite positive with strong leasing momentum and NOI growth. For example, our high-end independent and assisted-living redevelopment on West 86th street in New York reached 93% occupancy in June. Also, Atria of Hudson, our 122 unit green assisted living building in Westchester County, which opened in April achieved 50% spot occupancy in July. So performance in our Atria portfolio is tracking our expectations and now that the transaction is closed, we are reaffirming our guidance for the second half of the year at $93 million to $98 million, consistent with the full-year range that we provided in March. Now I'd like to touch on our Medical Office Building portfolio. Ventas own portfolio of Medical Office Building, included 127 properties standing $7.6 million square feet and accounted for 7% of our NOI during the second quarter. Approximately 90% of our MOBs are on campus and affiliated with investment grade health systems. Our 63 property consolidated MOB portfolio turned in another consistent quarter of performance. Occupancy was at 93.4%, was down 80 basis points and NOI at $13.5 million was even on a sequential basis. The 6 properties in our consolidated nonstabilized portfolio told a similar story in the second quarter. Occupancy at 74.7% was up 50 basis points and there's continued positive leasing momentum heading into the third quarter. NOI at $2.0 million was level sequentially. With the closing of NHP, we now have ownership in over 230 MOBs and manage approximately 14 million square feet accounting for 10% of our portfolio NOI. This makes Ventas the largest fully integrated medical office owner, manager and developer in the country. And with the strategic relationship with specific medical building and the $1 billion proprietary development pipeline that comes with it, we have a coast-to-coast footprint and deep relationships with over 50 investor-owned and not for profit health systems. So MOB has continued to be an important and growing part of our business. Before turning the call over to Rich Schweinhart, I'd like to briefly discuss the acquisitions environment. With the closing of NHP at the beginning of July, Ventas has closed approximately $11 billion of acquisitions in the first half of 2011. And while we are laser-focused on a smooth integration of this important transactions, we also remain active on the acquisitions front. Our pipeline remains active across the asset classes we invest in, particularly in seniors housing and medical office. We are seeing particularly strong deal flow in the small and midsized transaction, which plays well into our regional acquisitions capability that we acquired as part of the NHP transaction. Year-to-date, the NHP originations platform has closed over $600 million of transactions and yield an excess of 8%. Importantly, these transactions were mostly with local and regional operators that represent new relationships for Ventas. As we have said in the past the combination of Ventas' large transaction capability and NHP's regional origination network enable Ventas to compete on both large and small transactions, and deliver consistent and accretive transaction volume for our shareholders. With that, I'll turn the call over to Rich Schweinhart, who will provide you with an overview of the second quarter financial. Rick?

Thank you, Ray. Major events for the quarter were on May 12, we purchased Atria Senior Living, by paying 25 million shares and assumed net debt of $1.6 billion. We also borrowed funds on our revolver to pay the remaining $150 million of the purchase price. Atria's results are included in our consolidated statements of income for the period from May 12 to June 30. On May 17, the company issued $700 million of 4.75% senior notes due June 1, 2021. That same day, $600 million of the proceeds was loaned to Nationwide Health at 5%. On July 1, with the acquisition of NHP, the loan and the associated interest income terminated. In April, we received proceeds from repayment of one of our mortgage loans receivable totaling $112.4 million. We recognized income of $3.3 million on debt repayment and the income from loans and investment plan. Net income was scheduled to be recognized over the remainder of 2011, and was in our 2011 guidance. Second quarter 2011 normalized FFO was $0.80 per diluted share, an increase of 13% compared to the second quarter of 2010, per share results of $0.71. Normalized FFO increased 26.5% to $142 million compared to last year's second quarter of $112 million. Normalized FFO in the second quarter excludes $41 million, composed primarily of margin related expenses and deal cost, partially offset by a $6 million income tax benefit and $9 million change in fair value of interest rate swaps. Second quarter normalized FFO increased from last year's second quarter due to NOI increases in all 3 of our segments: triple-net, seniors housing, operating and medical office, as well as income from loans and investments. Triple-net lease revenues grew to $120.1 million from $117.4 million last year, primarily due to contractual escalations. Seniors housing operating NOI increased $26.9 million, $26.2 million due to the Atria acquisition, and the balance due to our Sunrise managed portfolio. The Sunrise managed portfolio grew to $39.5 million this quarter from $38.8 million last year. Due to the Lillibridge acquisition on July 1 of 2010, second quarter medical office property group NOI grew to $18.7 million, including $1.4 million in unconsolidated joint ventures from $8 million last year. Looking at sequential results, normalized FFO increased $21 million to this quarter's $141.5 million from the first quarter's $121 million. The principal reason for the increase is the Atria acquisition, whose partial quarter NOI for May 12 to June 30 totaled $26.2 million. There was sequential improvement in the triple-net segment of $1.5 million and Sunrise managed portfolio of $3.2 million and an income from loans and investments of $2.3 million. Medical office NOI in the second quarter of 2011 of $18.7 million was up slightly compared to first quarter of $18.4 million. Interest expense increased by $11.2 million from the second quarter compared to the first quarter, primarily due to the Atria-related assumed mortgages, borrowings for that acquisition and our newly issued senior notes. We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. At June 30, our cash balance was $26.7 million, and we had $139.5 million outstanding on our $1 billion revolving credit facility, for a net liquidity exceeding $875 million. Our credit stands at June 30, were net debt to adjusted pro forma EBITDA at 5.6x, our fixed charge coverage ratio at 3x, and debt-to-enterprise value 34%. More importantly, because of the large equity component of the NHP acquisition on July 1, net debt to adjusted pro forma EBITDA is anticipated to be approximately 5x, Our fixed charge coverage ratio better than 3x and our debt to enterprise value approximately 29%. Because of this credit improvement in July, Fitch Ratings upgraded Ventas to BBB+ stable, Moody's has upgraded Ventas to Baa2 stable and S&P affirmed Ventas at BBB- with a positive outlook. Weighted average shares outstanding in the quarter at 178 million shares increased 13% over the second quarter of last year and 10% over the 162 million in the first quarter. At June 30, shares outstanding were 188 million. Let me also mention several events that occurred after quarter end. In June, we called $200 million of our 6.5% senior notes due June 1, 2016. The transaction closed in July. Also in June, we declared a pro rata dividend in connection with the NHP acquisition, totaling $23.8 million. These financial statements include the accrual of that dividend, the payment was made in July. On July 1, we acquired Nationwide Health Properties, which will be included in our third quarter financial statements. Also in July, we repaid NHP's 6.5% senior notes due July 15, 2011, in the amount of $339 million. We are increasing our 2011 normalized FFO per diluted share guidance to $3.17 to $3.23 from $3.06 to $3.14. This increase reflects affirming our Sunrise managed portfolio guidance and from $152 million to $157 million, affirming our Atria NOI projection at an annualized rate from $186 million to $196 million, which equates to second half 2011 NOI to be between $93 million to $98 million, and our initial NHP projection. Normalized FFO per share guidance includes the acquisition of Atria Senior Living and Nationwide Health Properties, but does not include among other things, the acquisition of unannounced acquisitions or divestiture activities deal costs, capital transactions, losses on extinguishment of debt, FX gains and losses, noncash mark-to-market derivative income and expense, noncash income tax expense or benefit, litigation expense or proceeds are the reversal of or incurrence of contingent consideration and liabilities. Because of the increase in the FFO and weighted share count, it is possible that the full-year computation of FFO per diluted share could be as much as $0.03 higher than the sum of the 4 reported quarters. And now, I'll turn the call to Rick Riney, our Executive Vice President and General Counsel.

Thanks, Rick. Good morning, everyone. We know investors have an interest in the existing HCP litigation. So I want to take a few moments to explain the current posture of the case and provide an update on the facts to date. We have an existing $102 million judgment and pending punitive damages filed against HCP. The punitive damage trial is scheduled for February 21, 2012, in the United States District Court here in Louisville. Our claims against HCP concerned towards its interference with our 2007 acquisition of Sunrise REIT. Each court and jury that has considered the case, 5 in total, have ruled in Ventas' favor, 2 Canadian courts, the United States District Court, the Federal Jury Verdicts, and the Sixth Circuit Federal Court of Appeals had all ruled in Ventas' favor. At the end of the quarter, the Sixth Circuit Federal Court of Appeals denied HCP's request for a rehearing. The latest decision in the Sixth Circuit federal Court of Appeals provided 2 favorable rulings. First, the Court of Appeals affirmed our jury verdict against HCP for $102 million, which is secured by a letter of credit. Secondly, the Court of Appeals remanded the case to the United States District Court for trial on the single issue of punitive damages. In his opinion the court stated that, and I quote, "the record is replete with evidence of intentional misrepresentations, deceit and/or concealment of material facts by HCP." The court also stated and again I quote, "We, the Court, also believe that a reasonable jury could conclude that HCP engaged in its fraudulent conduct with the intention of inflicting harm on Ventas." The Commonwealth of Kentucky does not have a statutory cap on the amount of punitive damages that a jury may award. We will continue to act as a fiduciary for our stakeholders as we have in the past and make sound business decisions about the litigation. Operator, we will now open the call for questions. Thank you.

[Operator Instructions] Our first question will come from the line of James Milam of Sandler O'Neill. James Milam - Sandler O'Neill + Partners, L.P.: My first question, you guys talked a little bit about the balance sheet activity, I was just wondering if you could give us a little color on where you guys stand in terms of cash in line of credit and if there are any needs to extend the duration of some of the debt that's outstanding now post-quarter close.

Yes. Dave, we have over $1 billion in liquidity under our line credit facility, and it's our intention, at some point in the second half of the year, to increase and extend our existing revolving credit facility. Hopefully on very favorable terms. James Milam - Sandler O'Neill + Partners, L.P.: Okay. So with the repayment of the NHP debt and the calling of your notes, there wasn't an increase in -- I mean I guess there is no -- I guess what you just said there's $1 billion of available in your line of credit, so there isn't a substantial need to extend rates on any other outstanding debt line now? So...

Right. Remember, that we -- NHP got an $800 million term loan prior to the closing that we have the benefit of, at LIBOR plus 150, so that we have expanded capacity now. So that's why we have over $1 billion of availability. James Milam - Sandler O'Neill + Partners, L.P.: Got it. Okay. The second question is just on the guidance. Is the increase primarily related to the timing of the NHP acquisition and the deal that the regional team there has done prior to closing? Or is there anything else that is pushing that mid point up for you guys?

Yes. I mean there are a variety of things, and they would include those that you mentioned, which are the timing of the deal, more investment activity than we had projected and the overall lower capital costs. James Milam - Sandler O'Neill + Partners, L.P.: Okay. And then just my last one on the senior housing portfolio. You guys, obviously, your expectation remains sort of 5% growth out of that portfolio, I was wondering if you could just break down for me, how that splits out in terms of stabilized assets, where you just expect better rate versus the growth you expect from some of the assets that need to stabilize, so to fill up the redevelopment portfolio.

James, as we said before, the fill-up in redevelopment portfolio is providing about $5 million to $10 million of annual income in the Atria portfolio. So that's an important driver of the margin, but the bulk of the growth continues to come through the stabilized portfolios in Sunrise and Atria.

Our next question will come from the line of Jerry Doctrow of Stifel, Nicolaus. Jerry Doctrow - Stifel, Nicolaus & Co., Inc.: Just a handful of things. Have you had any conversations yet with the rating agencies as to their views on the whole Medicare thing? And have you seen any risk that there's a change to negative outlook of that, just because they're -- by Medicare?

I mean we have talked with them and in fact, one of the rating agencies put out a piece on this really when the rule was originally proposed, and the overall view is really the right view for bondholders, which is that if you're a bondholder of Ventas basically you have 3 layers of protection to your bond and all the credits of Ventas are extraordinary, and I think are an important component of the ratings as well. And so, while I think no one would characterize the rule as a positive credit event. I think the rating agencies obviously knew about the proposal and are comfortable with the ratings for Ventas. Jerry Doctrow - Stifel, Nicolaus & Co., Inc.: Okay. And are there any -- sort of to add thinking of the NHP acquired portfolio that we may know a little less well, are there any weak links in there, like operators that are below 1, 2 that could -- I mean while the whole portfolio may be perfectly strong, is there an operator or 2 or some properties that are likely to be put into real distress because of the rate that Medicare changed?

Yes. Thank you for asking that. I mean, Jerry, we have really been fired up about all the different things that we've been doing at Ventas over the last couple of years and over the last 10 years, really to build this stake, strong business, very diversified, try to stay focused, we have great well-covered leases and good diversification even within now the skilled nursing portfolio. So I would tell you that if you look at NHP's last quarter supplemental, which they published, you could see the top 15 tenants there, and you can see that's the EBITDARM coverages for the skilled nursing tenants are quite high. And we've given a composite view of the coverages in the supplemental and it may read so on with a significant cut, and that looks really good. I would tell you in any situation, in any portfolio, you're always going to have a bottom group of stragglers but the key point about everything that we've done with the diversification and so on, is that anything that could happen would be wildly immaterial for the company. And so we feel good about where we are. Jerry Doctrow - Stifel, Nicolaus & Co., Inc.: And Debbie at NAREIT you talked about maybe being sort of more active asset manager, could we see more divestitures? Is that -- where do you stand sort of in that process?

Yes good. I think that is a good question as well. And by the way, in the event that we do expect that there could be market opportunities as well, and we'd be very well positioned to take advantage of those, if they do occur in the skilled nursing business. If you go to your next question.

So, Jerry, with 1,300 properties, I think there's going to be a much larger number of opportunities to strategically recycle capital in our portfolio, and so we're putting together an active plan right now to sort of go through all of our assets and identify those where we think it's the right time to be selling and monetizing and recycling that capital onto different asset classes. So we think that's another opportunity for us to continue to drive performance in our portfolio over time. Jerry Doctrow - Stifel, Nicolaus & Co., Inc.: Does the guidance assume any level of divestitures? Or really, really not?

No, it doesn't. As a typical it wouldn't include capital transactions or acquisitions or divestitures. Jerry Doctrow - Stifel, Nicolaus & Co., Inc.: And last thing for me, and I'll jump off. Just pricing, like if you were doing a skilled deal today or even senior housing deal, does these -- or even MOBs for that matter, does, specifically the Medicare stuff but also just what the market's generally less happy feeling about the healthcare in general here. Are you expecting cap rates to be moving higher?

As I checked the market, it didn't seem to like anyone this last week or so. I'll let Ray answer that.

Yes. So, Jerry, I think consistent with what you've been hearing this week, I think the market is still digesting the information from CMS, with respect to how that's going to impact pricing on skilled nursing transactions. And we, like others, are going to wait and see how that plays out and see what sort of opportunities that present. So I couldn't really tell you what the ultimate impact on pricing is going to be of that development. With respect to general market conditions, it's always been our view and we've stated very consistently that over time, cap rates adjust to changes and cost of capital but there's often a lag and so, depending upon how long conditions persist. It may take some time for the market to adjust to the new cost of capital should they remain in place.

Our next question will come from the line of Jeff Specter of Bank of America Merrill Lynch.

Here's the first question, Debbie, just maybe to focus on stock. I'm sure that you're a little disappointed today. The quarter was great, the ratings upgrade, you've executed on the deals, what are investors saying to you? What do you think the markets are missing here?

I hadn't been looking at the screen this morning, so maybe I'll be disappointed when I get off the call. But look, I mean I think that people are really missing the size, strength, feel and diversification of the business here, all the things that we've been talking about, the positioning of the dividend. Again, if you look back over time and as I mentioned, there are these episodic periods of volatility that investors react to. And at the end of the day, we always cycle through them, and this is one of the reasons we like to have a bulletproof balance sheet. And we like to stay strong and diverse. But this has happened before, and we always kind of weather through it and our job is to execute. Our job is to deliver cash flows, to make good decisions, to really deliver for investors. And I think in the end, if we do that, as we have over the past 10 years, then the stock will follow. And so that's our job.

Okay. And can you maybe just reiterate your thoughts on the dividend and the growth potential there over the next year or so?

Well I believe that over the past -- since 2004 or so we've grown the dividend by about 8% on occasion basis. And as you know, NHP had one of the lowest payout ratios in the sector. We've actually reduced that somewhat by virtue due to the fact that our dividend was even lower on adjusted basis, and our dividend payout ratio has been the lowest. And therefore, again, if we deliver the cash flows and we continue to grow the business and we have room to increase the dividend and make it continue to grow in a reliable and secure way, I would say that, that certainly is a good investment attribute of Ventas that will be particularly attractive, I would say, in relatively low growth environment that we have with low returns on people's invested capital and money market funds of bonds and the like.

Okay. And then just a last question. Risks in the housing market seem skewed to the downside. Can you just I guess tell us how we should think about that? And the senior housing operating metrics and demand you're seeing?

Yes. And I think if you look back over the last several years, where the housing market has been struggling mightily, you'll see that our primarily need driven assisted living and all-timers portfolio in Sunrise has performed and held up quite well on a relative basis to other real estate asset classes and we would expect that to continue going forward. It has proven, I think, through the last cycle to be fairly resilient in the face of challenging housing conditions. We don't see that changing.

Our next question will come from the line of Michael Bilerman of Citi.

Debbie, don't get too worried. Your stock is only down 2.2%, the REITs are down 3% and the broad market is down 3.3%. So...

Okay. Well, thanks for that update. I was wondering if I was going to have to go check the Bloomberg, but thank you.

In your opening comments, you mentioned one of the things about Ventas and its position today, there was acquisition opportunities, and you said having the ability to do anything in sizes, asset types or structures and combinations thereof. And I'm just curious as you think about your deal activity today, and obviously, the last 18 months of positioning the company through the deals that you have done, I'm just curious where you sort of see that trending over the next 12 months in terms of what your desires of what you want to be doing in terms of size, asset types and structures.

I'll let Ray start and then maybe...

Yes, I'll start that and yes, Debbie will jump in. So, Michael I think one of the key investment theses in NHP was the regional acquisitions platform, which allows us to hit higher yielding transactions that are basically singles and keep making accretive acquisitions and growing our cash flow externally through all environments. We can't really predict how many or when large transactions are going to emerge. We've certainly been very successful at winning our fair share of those. But the ability to work these 70 relationships that we have and target these local and regional operators and create a consistent flow of attractive yielding investment, I think, is something that we're really excited about with NHP, and something that has proven to be correct in terms of investment thesis so far in our 10 years.

And I guess, what sort of...

Sorry to interrupt, Michael. But also I think we're seeing good acquisition activity potentially on the medical assets building side, which is, again, a very good stable business that -- Todd is here with us. We're seeing some nice smaller size transactions in that business. And I think we'll continue to grow there as well. So that's, I think the best visibility we have really on what the deal flow is likely to look like over the coming quarter or so.

And then thinking about that for a second. As you go into the back half of the year, is there anything in the back half that sort of gets accelerated as you move into 2012? And just when we look at the back half of guidance adjusting for the share count and the FFO, your back half is about $1.60 to $1.66 per share. And I think you said, yes, the quarter is not going to add to the year because you have a different weighted average share count for the year relative to the back half. So using the $290 million for the back half of the year, you get to this $1.60, $1.66 type range. And so I'm just curious, as then we start to think about 2012, what other sort of drivers are already in place that continue that growth going forward, absent new investment activity?

Right. Well obviously we'll have the benefit of a full year of the second half of accretion. We'll have hopefully growth in the Atria and Sunrise businesses, and then we'll have growth in the NHP businesses. And then obviously added to that any potential refinancing activity, any additional synergies that we're able to capture from NHP and then any back half accretive investment activity. So that would be the menu, if you will, of things that could accelerate into 2012.

And on the G&A front is there -- what sort of volume or what type of amount is that heading into next year versus what you're have in the back half? I think you talked about $15 million of G&A savings. I don't know how much of that is baked in to the back half of the year versus next year.

Yes. I mean I'd say most of it is baked into the back half, and then maybe we can tick up some more going in to 2012.

Okay. And then just last question. Debbie, you're part of Rahm's World Business Chicago. It's a group of 50 people that are pretty extraordinary in their own right, in terms of their diverse business experience and governmental experience that they have. And so I'm just curious if whether you've been together as a group, and what you've learned and what you're hearing from -- pull yourself out of the healthcare and real estate industry for a second, What you sort of hear on the broad economy in the market.

Okay. I was a holdover from Mayor Daley's administration, I think. But anyway, it is really important I think. It's really helpful in my job to get a broader picture of things and that group has a very broad picture of the economy. There was also a group that recently met with the Governor of Illinois to talk about business and wide range manufacture, financial services and things like that. So I would say in my conversations with people that the tone has really shifted broadly from really a bull-iant one in, say, February of this year to obviously one where people have much lower growth expectations, much higher probabilities on the potential for a double dip. And generally are definitely seeing their businesses affected by a slowing economy. And that is more consistent, frankly, with what our view has been for the whole year. And why we think that Ventas really is an attractive investment opportunity, and you could apply that potentially to REITs generally, but if you can really continue to deliver steady reliable growth of growing dividend, low risk, strong balance sheet, not a lot of kind of internal volatility, I think that in the environment that I think we're in and that seems to be the environment that my compatriots outside of healthcare and outside of real estate seem to think we're in, that is going to be a pretty scarce commodity, in my opinion. And so that's where we're positioning the business, and I think it will be attractive to investors. But I do think the macro-trends are soft, is I think probably a good word for that.

Our next question will come from the line of Rich Anderson with BMO Capital.

I just wanted -- I'm lost a little bit on the accretion from NHP. I always thought that the $600 million of year-to-date acquisitions was the number that we have been talking about. Is that -- and you said that a part of the accretion is a function of them doing more than you thought or in some...

A little bit more, yes.

Okay. So then maybe the primary improvement is better or lower cost of capital, can you kind of a quantify and break that down what exactly we're talking about there?

Yes. I mean basically, we have the term loan at L-plus 150. We did the $700 million of bonds at lower rates than we expected. And overall, since our capital costs are lower than we had projected initially.

So the majority of the upside was from capital costs and non-NHP activity, is that fair?

Well not from acquisition, but the portfolio continues to perform, for example.

Okay. Ray, you were talking about the acquisition environment. You're mentioning kind of portfolios in the hundreds of millions. Are there any deals out there that you're looking at that are in the billions still? Or they're kind of scarce at this point?

There are still a number of large portfolios in private hands that we expect to transact. Obviously, as the market becomes a little less clear and a little more uncertain, people may hold on to those a little longer. So things that we might have thought we would see in the third quarter may be postponed until there's a little bit more clarity around the direction of cost of capital. Right now, we've been continuing to hit the singles in NHP, and that's a good deal flow for us. Debbie mentioned our Medical Office Building pipeline, which also has a number of $100 million or so transactions in it. So that's going to keep us busy until some of these other larger portfolios come to market. But...

Okay. So are there any held in public hands?

Well we've always been a believer, Rich, that public-to-public consolidation in our space makes sense. And we certainly have been an active player in that. But outside of that, there's not a lot of that I'm aware of.

Okay. Regarding NHP, are there any adjustments, vis-a-vis the Hearthstone deal that you did that you could see kind of more perfecting the business of NHP now that you own it? Or do you think that was kind of the primary one, and you like most of the rest of the way things are structured?

Yes. I would say generally that was the primary one and we like the way the rest of the business is structured.

Okay. And just a couple of really quick ones. You talked about EBITDARM with an M coverages. If we're to look at EBITDAR, is it fair to say maybe like a 3 points lower type coverages? Or is something like that from 1.9 to 1.6? Or is it more than that?

No. We do talk about EBITDARM for a couple of reasons. One is that we really believe when operators, tenant operators who look at their portfolios, it's that what they look at because it's really what their cash flow to them. But also, various people apply different management fee to the EBITDARM. And so you might see on hospitals, a 2% to 3%. You might see on skilled nursing 4% to 5%. And so we like to let people kind of put their own included number in there. But in general, big picture, it would be in the 0.35%, 0.4%-ish adjustment to a portfolio when you go from EBITDAR to EBITDARM on a kind of averaging kind of basis.

And then last question for me is, one thing we're not talking about on this call yet in terms of the numbers is the impact of cost efficiencies at the -- on the case of Kindred or other operators level. What could be the impact on the upside to coverages as they become more efficient in the face of the CMS news on the nursing home side?

Yes. I mean you're making a very important point. I mean when these rules take effect, as I've said, it takes a while for the full impact of them, both on the positive and the negative side to be really fully understood. And so, sort of everybody in the market right now particularly in the real estate market is sort of trying to take this mathematical sensitivity, and that's a good place that they need to start. But people need to understand that these are complex businesses, the rules are complex in general. And frankly, the impact to different operators even on the top line is going to be a much wider range and is going to be different by operator. It's not going to be 11.1%, for example, to every operator on the top line. So there will be a range. For example, some of NHP's tenants may not be in the super high acuity or whatever. They may have a much lesser impact to begin with. Then you go to the expense side -- well not just expense side but you go to mitigation, and the operators, there are lots of things that they do, do and they can do to change their mix, to change their expense and cost structure, to manage -- to care for that mix and so on. And the good operators, as I said, manage through these changes every single year. This is a larger change, and so they've already started their mitigation plans and efforts. And I think started them actually sometime ago when the perspective rule came out. And so I think you will see mitigation reduce the impact of the rule, which frankly, may be smaller or greater on any given operator depending on where they kind of went into this. So if I hope that's helpful.

So it's kind of a cathartic experience right now, I guess.

It's always fun.

Our next question will come from the line of Karin Ford with Keybanc Capital Markets.

Debbie, I wanted to just get your perspective across the industry whether or not you see any additional shoes to drop either in the sort of the near or medium-term? I guess the CMS ruling for LTAC was positive as you pointed out, but are there -- do you see any other targets either in the budget process or coming down in the pike at all that gives you any concern?

So, no. But let's make a broader kind of discussion and that is, it is important for, especially real estate investors, to understand there's a broad sort of health-care world, the hospitals recently got an increase, the in-patients regular hospitals, the LTACs have gotten an increase, in-patient rehab has gotten an increase as well, and so there are these sort of cycles within the business. I would say that Medicaid expectations are generally plus or minus kind of 1% growth on average throughout the portfolio, and again that's where being in multiple states can really help you. And there will be again continued sort of cost containment efforts at the federal level and at the state level. And that as we have talked about for a while, I think those produce cost pressures on providers. But overall, this is part of kind of a long history of healthcare and is part of the normal expected cycle. And that's again, why we've tried to both go a lot more private pay at our business and also to have well-covered leases that are designed really to anticipate these changes in government reimbursement. So no other Jimmy Choo to drop, but we certainly are in a period where budget issues will be in the forefront. So, I hope everybody understood the Jimmy Choo reference.

I certainly did. Second question, just sort of, Ray, relates to the operating senior housing portfolio. It sounded like you had some nice trends in the Sunrise side of things with 1.2% sequential increase in rate. And it sounded like occupancy ticked up 60 basis points through July. Now that you've own Atria for a month, are you seeing better or worse rate in occupancy trends in Atria between the 2 portfolios?

I think between the 2 portfolios -- let me just touch on Atria, first. I think what we're seeing there is pretty much what we expected going in. You pointed out, we've got a month so you can't draw a lot out of that, but it's performing as we expected. Between the 2 portfolios, I think it's important to note a couple of differences. One, and this is an important one, Sunrise has a higher percentage of double occupancy rooms in its portfolio, and so those will actually drive a higher average rate because you're getting the benefit of having 2 people paying for one unit for full care. And it works in the higher acuity models like Sunrise. And you also get a little bit better margin off of those units because your leveraging your fixed costs across those 2 residents. So you'll see a little bit higher rate and a little bit better margin coming out of the Sunrise portfolio. And I think that will be consistent over time.

Our next question will come from the line of Ross Nussbaum of UBS.

Here with Derek Bower. Couple of questions. First, regarding the HCP litigation. I think on their conference call, Jay had expressed some willingness or desire to settle. Is that something that you are currently pursuing?

Ross, I'm sitting right here next to my dear friend and General Counsel, Rick Riney. And what I would say is that we're very limited in the comments and responses we can give at this point because of the pending punitive damage trial. And I apologize for that, but we think that's really the right course of action.

Understood. Second question, with respect to the Hearthstone assets that were given to Senior Care, why wasn't that structured in a RIDEA deal? And why was it Senior Care and not maybe given to Atria or Sunrise?

Okay, good questions. We believe in general that using a lease structure -- or using a management structure versus a lease structure really in our mind has been for a kind of the prime of the prime, which is kind of best asset, best operator, best market, because in a growing economy you really should get that lift. In a softer economy these are still your primo assets. And as we know from just old-fashioned real estate that tends to be kind of where you want to be. And Hearthstone are very good assets. They are decent market, and I think they'll do well. We think Senior Care is the right kind of operator for those assets, and Ray will elaborate on that. But, we just think a lease structure for the asset is really the way we wanted to go on this. And I'll let Ray kind of elaborate on that.

Sure. So Ross, you may recall the transaction we did with Senior Care in 2006, and they were the first people that came to mind when we started to really get into the Hearthstone situation and think about how to optimize these assets going forward. Because they basically ran the same playbook against the, what used to be called, the balance care portfolio. Those are newer assets, secondary markets, a little bit higher percentage of double occupancy and had generally been undermanaged. And they were able to come in. They increased occupancy 1,200 basis points. They increased rates over 30% over that time period. And I think the one thing that they did that distinguished themselves is they turned around the culture of these buildings. And they're recognized now as one of the top 100 places to work in the U.S. by Modern Healthcare. They really have a great operating model. And so we felt very comfortable bringing them into this portfolio because we saw there's a perfect corollary. And using the lease structure as an alignment tool enables both of us to do well over time as they turn around this portfolio. And so for all those reasons, we thought this was the right operator in the right structure for this circumstance.

Okay. Switching gears. On your guidance, I may have missed this earlier, does the new FFO guidance include a resetting of the straight line rents and the FAS 141 mark-to-market with respect to NHP?

That sounded very, very proficient. Exactly. NHP had very limited kind of straight line rents, and so there's very limited impact. We do have the rent straight line that we have but there's very limited impact in the new guidance. And so does that answer your question?

Mostly. How would one define limited? Like the overwhelming majority of the increase in your FFO guidance was due to cash items not gimmicky noncash FFO stuff?

Of course. I think that the answer is that the straight lining rules that they follow and we follow are exactly the same. Everything that was straight line will be straight line. We will do the same thing that NHP did, which is we will determine whether reserves should be put on certain straight line items, and we believe that the change in the straight lining effect will be very minimal to a quarter.

But there's no merger accounting reset that's causing that to jump up that's causing, that's contributing to the accretion to the FFO guidance?

Yes. I mean, look, there's a zillion different puts and takes of cash and noncash items as you're pointing out, as when you do your merger accounting. And there maybe net effects of couple pennies or whatever one way or another when all get said and done. And so there maybe some but it won't be anything -- it's not anything wildly material, again.

Our next question will come from the line of Bryan Sekino of Barclays Capital.

Just quick question here on the Atria and the Sunrise operating assets. Is there any Medicare SNFs in those facility? Reimbursement from Medicare for the SNFs?

No.

Okay. And then on the liquidity position that you have now, how should we think about I guess your appetite to address some of the assumed mortgage debt from Atria and maybe some of the senior notes inherited from NHP?

Some of the? I'm sorry.

Senior notes from NHP.

Well, it's the same answer for all of them. I think we will refinance them as they become due hopefully at lower rates. And in general, NHP had virtually no secured debt, so we have really good credit profile on the secured debt front. But we would hopefully continue to do more unsecured as the bond market is agreeable to the same. So those are our plans for the maturities.

Okay, great. And one more for me. Just the $70 million of leases in the SNFs coming due in 2013, given that the Medicare cuts impacts are kind of uncertain right now, can we expect that you'll kind of hold off on addressing those until Kindred has a full year under its belt? Or is that something that you can square away in the near-term?

In 2013, we have certain of the master lease renewals coming up, as we do sort of consistently. And we would expect Kindred to continue to renew those. Those are all bundle -- those are all mixes together as multi-facility master leases with long-term acute-care hospitals as well. That's for 2013.

Our next question will come from the line of Jeff Theiler of Green Street Advisors.

Just a really quick follow-up question on the Sunrise rate. you guys have really good rate, the 4.5% or so. I was wondering is some of that coming from an increased average level of services? And if so, is there a limit to that rate growth going forward where you'd expect it to kind of moderate as you reach the upper end?

Jeff, this is Ray. There's a little acuity in that rate but not a lot of it. A lot of it is just an increase in rate that was passed through to residents in the second quarter.

Okay. So it's not like this is a near-term bump that can't be repeated that you feel pretty confident that this 4% rate of growth is kind of reasonable going forward?

Well on a quarter-over-quarter basis, no. I wouldn't say that's likely to be something we'd see every quarter.

But on an annual basis, do you have any thoughts about -- on the run rate? Do you have any thoughts about what the right rate growth would be?

Well I mean I think a 4% year-over-year rate growth is in the range.

That's what I'm talking about. Okay great.

Yes, I think -- I'm sorry I misunderstood your question.

Our next question will come from the line of Suzanne Kim with Credit Suisse. Suzanne Kim - Crédit Suisse AG: Regarding -- I know you talked to earlier about the punitive ruling. But just to clarify is that just simply the difference between what you could have paid and what you did pay? And is there -- is that what the $100 million represents? Is there an opportunity to push it up for the litigation expenses that have been incurred as a result of this as well? What does the, I guess, $100 million represent at this point?

Well, Suzanne, we have a judgment for $102 million, which was the difference between what the contract was that we had to buy Sunrise REIT and what we ended up paying. And that's the judgment that we have. And as Rick said, the single issue that's going to be addressed in the punitive damage trial is really separate and sort of on top of that for punitive damages. And punitive damages are really just to discourage similar behavior. That's what the punitive damages trial is about. Suzanne Kim - Crédit Suisse AG: Okay, great. And then also have -- historically, have you ever reset rents for an operator? And would you prefer to reset the rent? Or would you prefer to just kind of take these assets and get a different operator? What's your preference there? And what sort of been your examples in the past in those?

Well I can tell you in 2006 we did reset the rent under our Kindred leases by $33 million a year upward. We increased rent in the reset. We've had various reset rights and other leases that have enabled us to increase rent to market, and we've done that as well. So...

And the way that we structure our leases, Suzanne, is that upon renewal there's either a contractual escalation or a right to reset rents to market. And to the extent there's a right to reset rents to market is typically the greater of fair market or a contractual escalation. So that's the process that we go through when we structure our leases. Suzanne Kim - Crédit Suisse AG: Have you reset them downward? Historically?

Not in general, no. Suzanne Kim - Crédit Suisse AG: Okay. So if an operator looks distressed are you more inclined to find a different operator versus resetting the rent at a lower rate?

That would all depend on whatever the facts and circumstances are at the time. In general, we like to get increase rents, so that was what our focus on when you asked the question. So, okay?

Our next question will come from the line of Philip Martin with Morningstar.

A couple of questions. My first one, I wanted to see if I could get an update from you on the role and opportunities for LTAC was in the integrated healthcare delivery system and even a bit more specifically, the potential competitive threat in LTAC may have less skilled nursing facility, especially as the skilled nursing is in many cases being repositioned to handle shorter length of stay, more rehab to an extent higher acuity, et cetera.

We're going to lose all the REIT guys on the phone but I'll try to take that one. There is a post-acute continuing of care. As we know, when you get out of the regular hospital, there's whole variety of settings where people can go, in-patient rehab, long-term acute-care hospitals, skilled nursing facilities, et cetera. Long-term acute-care hospitals also are an important part of the healthcare delivery system albeit it being a smaller one than skilled nursing facilities, they take care of much sicker, more clinically complex patients and get a higher Medicare rate, which of course we just mentioned is increasing in the fiscal year 2012. So I feel good that obviously, CMS and others are recognizing the merits of LTACs and in-patient rehab hospitals in the healthcare setting. And I don't know if you know so, there's actually is a patient certification that was introduced in Congress this week, which further kind of validates the LTAC model, particularly the one that's really high acuity, medically complex patients, medically fragile patients like the ones that Kindred cared for. And so hopefully that answers your question.

Yes. It's always done in an interesting sector. And it's, I think, becoming a more important cog in the overall healthcare delivery wheel, so to speak. My next question is given Ventas' broad reach and just the knowledge and relationships across the healthcare acuity spectrum, can you get us some feel for the trend in patient outcomes across your operator and tenant base? I know we all sometimes focus too much on coverage, which I know of course is very important but patient outcomes are obviously central and a critical component to healthcare delivery, the efficiencies, reimbursements, et cetera. And I'm just wondering how you track patient outcomes? If you do that? Or if you have any anecdotal thoughts on that?

Yes. It is true that at the end of the day, it still is all about the patient and healthcare. And I would tell you that we don't really discuss our patient outcomes by operator. I mean that's really for them to do. I would tell you that Paul Diaz and the team at Kindred have initiated some years ago a quality initiative and they really have done a fantastic job in getting to a point, where I think they could be #1 in quality among nursing home operators nationally, and that of course does lead to better patient outcomes. And so, I think we do track that. And I would encourage you to really talk to Kindred about some of the particulars around patient outcomes and quality.

Our next question will come from the line of Todd Stender with Wells Fargo Securities.

I'll keep mine brief. Just looking at the Medical Office Building portfolio, just the occupancies have been trickling down last couple quarters, you seem to be holding rate okay, can you just comment on the occupancy trends?

Yes. This is Ray. With respect to the Medical Office Building portfolio, our stabilized portfolio at 93.4% is still very well occupied by any relative standard. So we're really happy about that, you know that the occupancy has declined slightly but there's nothing to really attribute it to other than sort of normal frictional turnover within the buildings.

If you layer in just increased uncertainty to just general healthcare and reimbursements environment, any lowering in the lease durations? Are folks willing or not willing to sign a 5-year lease? And maybe you're seeing more of a 3-year lease?

Yes. I mean that is an observation we're seeing in our portfolio, Todd, that people are signing shorter-term leases as they try to figure out what's going to end up happening with reimbursements and other things long term. I think the other trend that is sort of feeding into that is consolidation among physician groups and by hospitals acquiring physician groups. So with that trend accelerating a lot of physician groups are taking shorter term leases to give them more flexibility to either align with each other or with hospital systems. So those 2 driving factors, I think are causing our tenants generally to favor shorter term leases at the moment.

Our next question will come from the line of Tayo Okusanya with Jefferies. Omotayo Okusanya - Jefferies & Company, Inc.: So a couple of questions. Just on Karin's line of questioning about where you might see a shoe drop. Just curious, on the whole doc fix issue and any kind of potential impact from Medical Office Buildings that you could see?

Yes. I'm actually glad you mentioned that because when Ray was talking about trends, that was one of the things that I think is a positive trend, which is it does appear that this year Congress, again for these people, there's going to -- so-called cliff for physician payment that is every single year gets pushed out another year. It never occurs. And just keeps getting pushed out and people talk about the "docs fix" for that gets permanently fixed so there's not an appending cliff or cut in reimbursements for physicians going forward. And this year, there is a belief that the docs fix will take effect therefore physicians will have a known kind of visibility into their reimbursement rates, and they won't have this annual thing hanging over their heads anymore. And so I do think that will be positive if that occurs for the Medical Office Building business. To the extent that that's a paid for i.e., somewhere else, and somebody has to pay for that there may be kind of reductions to the Medicare gross rate that are from other healthcare sectors. It could be home health, could be hospitals, could be who knows what. And so I think that it's out there but I don't view that as -- I think the nursing home guys have really given up the office. And so I think it's really less likely to affect them although it may in some small measure. Omotayo Okusanya - Jefferies & Company, Inc.: So you actually think they're going to rob Peter to pay Paul rather than just smash the physician by the 20% difference that's hanging out there right now?

I think, there's a general believe that they will do this "do the docs fix," but again time will tell. Omotayo Okusanya - Jefferies & Company, Inc.: Okay. That's helpful. And then again, over the next 6 to 9 months as things start to shake out in the world of skilled nursing. Could you actually see a scenario where you would actually find that sector more attractive for you to invest in going forward?

Yes. I think what we have found in life generally and as a company is that in every challenge there's also an opportunity. And what we challenge ourselves with is to say, whatever happens we have the kind of business that can really get -- kind of have the staying power and the strength to deal with it. The management expertise and skill and the insight to really kind of do well for our shareholders, in light of changes. And so I think that you always have to be understanding of that. And as we've said before, if there are challenges in the marketplace, and we think we have good visibility, it may prove to be an opportunity. I think obviously it's too early to say that, but we do believe the sector is an important sector. And so that could happen. As for now, I would say that we're continuing on our private pay focus. We do like the seniors housing and MOB sector, and we'll continue to invest there. And as the situation evolves and clarifies, we will consider, hopefully seeing and using opportunities for the benefit of our shareholders in others spaces.

Our final question will come from the line of Tom Truxillo with BAML.

Quick follow-up question on the refinancing activity you mentioned earlier. Obviously you guys have an unsecured note coming due later in the year, but can you update us just on your thoughts about the ideal split between your unsecured and secured debt? And how much of that debt can you refi without really commutative prepayment penalties? And then just kind of given today's market, does it make sense to do that? Or are you kind of happy with your secured debt, where it is?

Okay. Well the secured debt level will be quite low, and we can get you a specific on that pro forma for NHP. But again, in terms of the maturity, we do have a convert due in November, $230 million, that's an unsecured piece of paper and that's really our only material -- that's really our only maturity this year. We are constantly evaluating. David Smith works on this. And Rick Schweinhart and I are constantly evaluating what's the new issuance rate is compared to the all-in investment that we would incur, where we can pay off existing debt and incur prepayment penalties. We have done some of that. And obviously, where we can call notes at any time and extend the maturity at lower rates, I mean that generally, I would say a good thing to do. And we've benefited from having a staggard maturity schedule. And again, hedging into different levels, different spreads different base rates and that's really helped the company. And I do think we have more opportunities there over time. So, wow, this was a long call. Thank you, all for participating. We very much appreciate your attention and your support. I do want to point out that something that got lost in the shuffle, which is that we have, I think enhanced our supplemental disclosure. We try to put some more information in there regarding our seniors housing portfolio, in terms of markets and different kinds of occupancies, statistics and so on. So we hope that, that additional enhanced disclosure will be something that you'll all appreciate. And we did correct Page 9 of the supplemental this morning about 10:30 or so. So if you pulled one earlier, you might want to take a look at that. So thank you again, and we look forward to speaking with you soon after I hope you have a good August after earnings season, and we look forward to getting back on the conference circuit starting in September. So, thanks again.

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