Ventas, Inc. (VTR) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Ventas Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I'll now turn the call over to David Smith, Manager of Investor Relations and Capital Markets. 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 and year ended December 31, 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 express 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 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 in the Investor Relations section of our website at www.ventasreit.com. I will now turn the call over to Debra A. Cafaro, Chairman and CEO of the company.

Thanks, David, and good morning to all of our shareholders and other participants. We want to welcome you to Ventas' Year End 2011 Earnings Call. Today, I'm pleased to share an overview of our outstanding 2011 achievements and our outlook for 2012. Ray Lewis will discuss our portfolio and investment activities and Rick Schweinhart will review our financial results for the year and the quarter. After our remarks, we'll be happy to take your questions. The key take away for 2011 are growth, diversification, a fantastic balance sheet and a dedicated team working together to create shareholder value. These have been consistent themes for Ventas and we believe they remain the predicates for our sustained success. In 2011, we closed over $11 billion in accretive acquisitions, including our investment in NHP and Atria. These deals made Ventas a $23 billion enterprise, increased our annualized NOI to over $1.4 billion, expanded our revenue base to over $2.4 billion, deliberately driving private pay revenues to nearly 80% of our business and dramatically improved our tenant mix. Importantly, we improved Kindred Healthcare share of our annualized NOI to only 17% from more than twice that at year end 2010. During 2011, we also become the largest owner of private pay senior living, which is benefiting from excellent supply demand fundamentals and demographics. Even more amazingly, we achieved this growth in 2011 while actually strengthening our already best-in-class balance sheet, liquidity and credit profile. Here are 2 of the most significant tangible results of our 2011 activities: our normalized FFO per share grew 17% for the year to $3.37 and our debt to enterprise value stood at an outstanding 29% at year end. Also, during 2011, all 3 credit rating agencies upgraded our corporate credit rating in recognition of our outstanding credit profile and enhanced reliability. These important actions significantly lowered our cost of debt, giving us the opportunity to increase our liquidity and further stagger and extend our debt maturity. To put this in context, for every $1 billion dollars in debt that we replaced at a 200 basis points savings in rate, our shareholders will enjoy $20 million in improved cash flow. We ended 2011 and entered 2012 with strong positive momentum. And we're energized about our opportunities for the year. First, we announced our agreement to acquire MOB owner, Cogdell Spencer, on December 27. This accretive acquisition of 72 high-quality, 92% occupied medical office buildings will increase Ventas' MOB portfolio to 20 million square feet and the share of our NOI from this large and attractive asset class to 15%. We will be the largest owner of medical office buildings in the U.S., poised to partner with highly rated hospital systems who need capital to grow or consolidate. Second, in February, we raised $600 million in 4.25% tenure unsecured bonds to prefund our Cogdell Spencer acquisition. Third, our Board of Directors declared a first quarter 2012 dividend of $0.62, an increase of 8%. This dividend increase continues our track record of increasing our dividend at consistently above average rates, retaining more cash flow for growth, and maintaining a conservative payout ratio of about 70%. Ventas has a highest compound annual dividend growth rate in the REIT sector over the past 10 years and we view our dividend growth as an important component of the total return proposition we offer to our shareholders. Finally, today, we announced 2012 normalized FFO guidance of $3.63 to $3.69 per share. If achieved, this would represent almost 9% growth in our FFO per share at the midpoint. All of our activities are focused on providing consistent superior total returns to shareholders over the long-term. In 2011, we delivered a 9.8% total return and over the past 10 years, Ventas' total return to shareholders exceeded 720%. In fact, for each of the last 1, 3, 5 and 10-year periods, Ventas' total returns exceeded those of the RMS and the S&P 500. Our most important asset is the dedicated cohesive and highly skilled Ventas management team. With the recent additions of Todd Lillibridge, John Cobb, Lori Wittman and other key players, the Ventas leadership team has been together for a decade and continues to demonstrate our core values of teamwork, transparency, integrity, a work ethic second to none, and an unwavering commitment to stakeholders. With that, I'll turn the call over to Ray to provide a portfolio and investment summary.

Great. Thanks, Debbie. Ventas' diversified portfolio now consists of nearly 1,400 assets balanced across 47 states and 2 Canadian provinces with over 100 tenant operator relationships. Our portfolio derives approximately 70% of its NOI from private pay sources, which is comprised of seniors housing and medical office buildings. The company's diversifying acquisitions over the past couple of years have been primarily focused in these 2 sectors and as a result, Ventas is now the largest owner of private pay seniors housing in the United States, and will also be the largest owner of medical office buildings when the Cogdell Spencer transaction closes. In 2011, our same-store portfolio of 498 assets provided 3.4% cash flow growth over 2010 after adjusting for a $5 million cash payment received from Sunrise for expense overages in the comparison period. So Ventas' portfolio continues to benefit from the stable cash flows of its triple-net lease portfolio, along with a higher growth from its private pay seniors housing operating assets. First, let's review the performance of our triple-net lease portfolio. Triple-net leases account for over 60% of Ventas' total NOI and are diversified across nearly 900 seniors housing, skilled nursing and hospital assets with over 70 different tenant operators. Cash flow coverage for the third quarter of 2011 in our triple-net lease portfolio increased 10 basis points to a strong 1.8x. Same-store cash NOI growth for 2011 in this triple net portfolio was 2.7%, better than our projections at the beginning of the year of greater than 2.5%. For 2012, we expect this part of our portfolio to again provide same-store cash NOI growth in excess of 2.5%. Furthermore, the long-term stable growth is supported by a weighted average maturity of 7 years for our total triple net portfolio. Moving on to our seniors housing operating portfolio, which now represents 25% of our NOI. These communities continue their strong performance trend with positive sequential increases in occupancy, NOI and margin. Like apartments, our portfolio of 197 high-quality private pay seniors housing communities are in a management contract structure where Ventas is the direct recipient of the NOI. We have 6 years of experience with this structure and our strategy is simple and consistent. We target the best assets and the best markets with the best operators like Atria and Sunrise. Those of you who toured our Atria properties in New York with us in October got to see firsthand what we mean by this. NOI for all communities in this portfolio increased 2.4% sequentially in the fourth quarter to $89.5 million, compared to the third quarter of 2011. And stabilized unit occupancy continued its upward trend by increasing 100 basis points to 88.9%. This momentum in occupancy, which normally wanes during the holiday season, has carried into the new year. Our Sunrise portfolio of 79 high-quality, mansion style seniors housing communities finished 2011 with total NOI of $156.7 million, which was at the top end of our guidance range. 2011 NOI for our Sunrise portfolio was up an excellent 5% over 2010, excluding the previously mentioned $5 million cash payment. Furthermore, resident occupancy increased 80 basis points sequentially and finished the fourth quarter at 91.4%, which is the highest total portfolio occupancy since 2007 when Ventas purchased these assets. Similar to our Sunrise portfolio, Ventas' Atria-managed portfolio of 118 private pay seniors housing communities experienced a strong fourth quarter of operations. Total NOI was $48.5 million for the fourth quarter, a sequential increase of 2.1% over the third quarter of 2011 and same-store stable occupancy increased 80 basis points to 89%. NOI for the second half of 2011 was $96 million, which is right in line with the guidance we provided when we announced the transaction. Ventas and Atria continue to execute on our redevelopment strategy as 3 new projects entered the pipeline and one was transitioned to stable during the quarter. Atria on the Hudson, our 122-unit green IL/AL/ALZ building in Westchester County, New York, which opened in April, ended the year at 70% occupancy and our 80-unit ILAL in Glen Cove, Long Island, which opened in October, finished the year at 59% occupancy. So these attractive redevelopment opportunities remain a key thesis for value creation and cash flow growth in our Atria portfolio. For 2012, we expect total NOI for our Atria and Sunrise senior housing portfolio to range between $350 million and $360 million. Our guidance reflects that our Sunrise management fee reverts to 6% of revenues in 2012 resulting in an increase of $12 million in management fee expense for the year. Pre-management fee, our guidance reflects a 5.5% NOI growth rate year-over-year for this portfolio. As you can see from our results again this quarter, trends in the seniors housing industry are positive and the fundamentals remain among the best of all real estate sectors. Now I'd like to discuss Ventas' MOB portfolio. With the expected addition of Cogdell Spencer this year, we will add 4 million square feet of high-quality owned MOBs, another 2 million square feet of property management and another 12 investment grade hospital relationships to our Lillibridge medical office building business. Upon closing, we will own 300 primarily on-campus MOBs coast-to-coast and relationships with over 60 investment grade hospitals and over 3,500 tenants. For the fourth quarter, our same-store pool of 169 owned medical office buildings, including those recently acquired from NHP, provided approximately $34 million of NOI to Ventas and experienced positive sequential increases in occupancy, NOI and margin. Same-store cash flow growth in our consolidated MOB portfolio grew 2.4% in the fourth quarter of 2011 compared to the fourth quarter of 2010. So our medical office portfolio continues to deliver stable growing cash flows, which we expect to continue during 2012. During the quarter, we also continue to realize the benefits of our relationship with Pacific Medical buildings, which came with our NHP acquisition as we began construction of a $28 million on-campus medical office building in California. This building is 100% pre-leased to AA-rated Sutter Health and should be completed by the end of this year. So our MOB portfolio is an important and growing part of our business and we look forward to capitalizing on additional opportunities in 2012. Before I turn the call over to Rick Schweinhart, I'd like to spend a moment on the acquisitions environment. 2011 was a transformational year for Ventas with over $11 billion in acquisitions completed during the year. Of this total, over $940 million was originated by the combined Ventas-NHP regional origination platform. We also made significant investments in building our acquisitions capabilities by adding new resources, processes and systems. In the fourth quarter alone, we invested over $325 million in new deals with expected going in yields over 7%. Looking into 2012, we expect to see a continued flow of attractive investment opportunities in our core senior housing and medical office target markets and with our recently announced agreement to acquire Cogdell Spencer, we are already off to a running start. So with our extensive tenant relationships and investment grade balance sheet, the lowest leverage in our sector, $2 billion of revolver capacity, a competitive cost of capital and a world-class acquisitions platform, we are well-positioned to source and win attractive investment opportunities. With that, I'll turn the call over to Rick Schweinhart who will discuss our financial results. Rick?

Thank you, Ray. The following significant events occurred in the fourth quarter. In October, we closed on a new $2 billion unsecured 4-year revolving credit facility currently priced at 110 basis points over LIBOR. It replaced our prior $1 billion facility, which is priced at 280 basis points over LIBOR that was scheduled to mature in April 2012. Our revolver balance at year end was $456 million and we had $46 million in cash. Currently, we have $270 million in cash and liquid investments and our entire $2 billion revolving credit capacity available. In November, we repaid, at maturity, $230 million on our 3 7/8% convertible senior notes. We also issued a little over 940,000 shares in connection with the convert feature. The effective rate turned out to approximate 5.5%. In November, we received the litigation settlement of $125 million from the HCP. The proceeds, less litigation expenses and a charitable contribution, were used to pay down the revolver. In November, S&P upgraded the company to BBB stable, joining Moody's at Baa2 stable and Fitch at BBB+ stable. In December, we borrowed $500 million on a new unsecured term loan priced at 125 basis points over LIBOR with a weighted average maturity of 4.5 years. This replaced the short-term NHP loan we assumed at the NHP closing. We also collected over $81 million of notes receivable in the fourth quarter. Now let me focus on fourth quarter results. Fourth quarter 2011 normalized FFO was $0.89 per diluted share, an increase of 15.6%, compared to fourth quarter of 2010 per share results of $0.77. Normalized FFO increased 113.5% to $259 million, compared to last year's fourth quarter of $121 million. Normalized FFO in the fourth quarter excludes the net benefit totaling $99.7 million from net litigation proceeds and income tax benefit partially offset by merger-related expenses and deal in integration cost, mark-to-market adjustment for derivatives, loss on extinguishment of debt and amortization of other intangibles. Fourth quarter normalized FFO increased from last year's fourth quarter due to NOI increases in all 3 of our segments, triple net, senior housing operating, and medical office, as well as income from loans and investments. Triple net lease revenues grew to $210 million from $116 million last year, primarily due to NHP and also due to contractual escalations. Senior housing operating NOI increased $47 million, principally due to the Atria acquisition. Fourth quarter medical office building NOI grew to $43.7 million from $18.5 million last year, primarily due to NHP. Both periods include $1.3 million in unconsolidated joint venture earnings. Income from loans and investments increased to $9.9 million this year from $5.1 million last year due to NHP's portfolio. On the expense side, consolidated interest expense increased to $70 million this quarter from $44.6 million last year, reflecting the assumed debt in the Atria and NHP acquisitions, as well as all the debt activity in the last year. Looking at sequential results, normalized FFO increased $4 million to this quarter's $259 million, primarily due to fourth quarter improvements in our senior housing operating business and MOB versus performance in the third quarter. Interest expense decreased by $2 million in the fourth quarter compared to the third quarter, principally due to the repayment of our 3 7/8% convertible senior notes and the reduction on our revolver rate. We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. At December 31, our credit stats were net debt to adjusted pro forma EBITDA at 4.7x, our fixed charge coverage ratio in excess of 4x and debt to enterprise value 29%. The most important takeaway of the year are that we made over $11 billion in acquisitions, yet our credit stats are better at the end of the year than they were at the beginning. And our 2011 FFO per share increased by 17% to $3.37. Weighted average shares outstanding in the quarter were 291 million shares, an increase of 84% over the fourth quarter of last year and fairly flat with the third quarter. Starting off in 2012, we improved our weighted average debt maturity to over 6 years and expanded our current liquidity to over $2 billion. We are initiating our 2012 normalized FFO per diluted share guidance at $3.63 to $3.69. At the midpoint of the range, that's growth of 8.6%. While our projections do assume the closing of Cogdell Spencer in the second quarter consistent with our normal practice, they exclude additional unannounced acquisitions and capital transactions.

Thanks, Rick. Before we turn the call over to Q&A, I know a number of you have questions about the 2013 Kindred lease renewal. So I thought I would address that subject for you now. So as most of you know, this is our third renewal cycle under the Kindred master leases. Kindred has already renewed assets representing $23 million in annual rent, leaving about $99 million in annual rent remaining subject to Kindred's renewal options in 2013 or 7% of Ventas annualized NOI. Kindred has until April 30, 2012, to exercise its renewal options on these assets and at this time, we can't tell you whether or not Kindred will renew its lease on any or all of these assets up for 2013 renewal. The key points that we believe current rents for the 73 health healthcare facilities are at about market level. The facilities are profitable at current rent levels and they would be attractive to a variety of health care providers if they do become available for releasing. So whether it's with Kindred or with new Ventas tenants, we feel confident about the expected outcome of the 2013 renewal process. So operator, we'll be happy to open the call to take our analysts and shareholder questions.

[Operator Instructions] Our first question is from the line of Quentin Velleley from Citi.

It's Michael Bilerman for Quentin. Debbie, how do you -- in the event that Kindred doesn't renew some or all of the 2013 remaining expiries, what would sort of the timing be of -- you mentioned the rents are at market, but what would be the timing of sort of release the CapEx potentially in there so as we start to think about 2013 earnings and cash flow, what sort of down time we would need to sort of bake in, in dealing with that?

Yes, thanks for joining, Michael. I would say that the leases are set up so that we would always have at least one year to release the assets if there isn't a renewal. And so what would happen is we would basically spend that year's time repositioning the assets and as you know or may not know, we own the licenses in the assets and there's very detailed provisions in the leases that would call for an orderly transition of operations. So there really shouldn't be any so-called downtime like you would think about in an office or retail. Really, there would be a transition of operations on -- going concern kind of business level in the assets.

Right. So there would be no loss FFO from that standpoint?

There should be no downtime at all. And if rents are at market and if Kindred doesn't renew and we release the asset at the same level there should be just a continuous rent stream, basically.

And how do you respond? I mean there are certain cynics out there that say all the investment activity that you've done over the last 18 months which has been significant was a way to grow out of this potential issue of Kindred in terms of its size and that maybe you overpaid for, for those acquisitions, and so how do you defend yourself in that way when you hear those things?

Well, I really would make 2 comments. In general, I would say that anytime you can do accretive, diversifying acquisitions that improve your balance sheet and reduce your cost of debt by 100-plus basis points and you really -- that's a signal to say yes, you should go ahead and do those acquisitions. I would also say honestly to those cynics that during my 12 years of tenure here at Ventas, I have consistently tried to position the company, not only to grow, but as you know, to manage risk. And one part of managing risk over the past 10 years has been to continue to manage the balance sheet, but also to continue to manage tenant concentration, because no matter how good a tenant you have and no matter -- you always want to continue to manage risk in your business. So if we can grow cash flows and manage risk I think that, that -- and grow a dividend, that is 8% taker as we have over the past 5 years or so. I think that is a recipe for delivering shareholder value. And I feel very strongly about that. Those are the 2 things that we try to do and the acquisitions that we did in 2011 and the one that we're doing 2012, I think fits squarely within our pattern of growth diversification and risk management.

That's very helpful. And just one last one just in terms of the Kindred stuff this coming June next year, how much unsolicited approaches have you received from other sort of competitors on those assets or how much marketing have you done in the event that they don't release renewal?

Well, because -- well over a year at this point, we would expect that any overtures that we would make relative to unrenewed assets would occur after April 30, because it would be at that point that we would know whether we would have 0 assets or 73 assets to bring to market. So we think that there's a time and place with that, but it would essentially be starting in May of 2012.

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

Let me just make sure I understood. The 73 facilities, are they in 4 what you call bundles?

I can tell you they're divided into 8 renewal groups or what we have typically called bundles. And every bundle has between 6 and 13 assets and at least 1 hospital. And so -- and they're diversified by market and asset type, et cetera. And the renewal options that Kindred has are really by renewal group.

Right. So like it's not going to be all or nothing on the 73, it could be somewhere in between?

It could be something in between, as I said, we could have 73 released to Kindred. We can have 0 released to new tenants or to Kindred and all released to new tenants or something in between.

If you said that before, I apologize.

No, that's okay.

The 5.5% same store NOI growth that you're assuming in your guidance for the operating portfolio, Sunrise and Atria, would you be willing to break that down between what you're expecting from Sunrise and what you're expecting from Atria?

We are providing guidance on a consolidated basis, Rich. I think just to provide you with some flavor though, I think the Atria will grow at a higher growth rate than the average and the Sunrise at a little bit lower than the average.

Okay. I wanted to ask on the Cogdell Spencer transaction, when you announced that you included transaction cost in your return, I guess, you guys being so normalized in the way you talk about things, I'm surprised that you included transaction costs in your return projections for that portfolio. What would it be if you were to take out the transaction cost and just purely on the investment in the entity, what would be the returns then? I think it was low 7s with transaction costs?

We'll give you that. And again, I mean when we look at investments, we take -- we look at them a lot of different ways. And we certainly would want to take investment into account and looking at kind of the going in yield. And if we do that, it would be kind of a -- if we take out the transaction costs, we'd be looking at somewhere in the mid-7% cap rate on expected NOI.

Okay. Getting back to the senior housing portfolio. I'm looking at your disclosure on Page 15 of the supplemental. And obviously you have a cliff down in the report, I guess, inclusive of Atria. Do you ever foresee that cliff kind of becoming less substantial. In other words, is there any upside, meaningful upside, to Atria rents relative to Sunrise that you can see in the future or will it always kind of be that big gap?

Well, Rich, they are, as we've said different operating models. The Sunrise is a smaller, higher, acuity assisted living Alzheimer's focus. The Atria is a larger, lower acuity independent living, assisted-living focus. That being said, as we do redevelopments, we're adding reprogramming for Alzheimer's and other high acuity space into some of the Atria buildings which could continue to push those rates up. And as we redevelop the independent living and assisted living buildings in the higher quality markets, we're also seeing rate increases. So I don't think you'll see that cliff close, but you could see the Atria rate growth go at a faster rate than the Sunrise rate growth near term.

Okay. And then my last question is on the growing exposure to private pay 84% of revenues, 70% of NOI. I guess, just to be a cynical, is there a loss of diversification as you get more and more into private pay or would you, if you could snap your fingers and get to a 100% private pay, would you do it?

There's a lot of cynics on this call. I would say the following: I believe in diversification. I believe in it strongly. And I think that having a balanced portfolio that has a mixture of asset types and operating models is the best way to manage the company as we grow. And so, we have deliberately focused over the past 2 years on driving our private pay revenue and NOI statistics higher and we think it was the right time in the cycle to do that. But obviously, nursing homes are an important part of the post-acute delivery of care to seniors in the United States. And at the right time and at the right price and the right structure, those are appropriate assets to own as a health care REIT, I believe, in a diversified portfolio. So that's how I would answer your question. I think that's how we'd manage the company.

Okay, so it's 70% of NOI be kind of a ceiling for you or do you think you could even go up higher?

I mean, I could see that being 70% to 80% private pay NOI.

Your next question is from the line of Bryan Sekino from Barclays Capital.

I'm sorry if you mentioned already, but can you give us some flavor on the occupancy pricing and maybe even expense growth in the $350 million to $360 million NOI for the operating senior housing assets?

Right. And so just as I mentioned in my opening remarks, the management fee this year will be reverting to the 6% rate. So if you sort of back out that $12 million impact and sort of go 2011 to 2012, I think occupancies up 50-ish basis point, rates up 3%, 3.5%, margins relatively flat, ought to get you that 5.5% growth on the bottom line.

Okay, thanks for the detail. And then I know it's still early but maybe if you could provide some color from your conversations with some of your SNF operators on what they're experiencing in the fourth quarter in terms of handling the rate cuts? Some operators suggest maybe the rate per day has been less -- the impact on the rate per day and maybe cost mitigation has been successful. Any details you could give there would be helpful.

Well, I mean we can discuss some of our private operators. I think that the revenue cuts are really coming in, in line with their expectations. And people are, in general, being successful at starting to mitigate the cuts and are looking to a 25% to 50% ultimate mitigation level. And that some operators will be able to effectuate that mitigation earlier than others, but in general, once they get everything in place, I would expect 25% to 50% mitigation.

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

One of your peers had a big Canadian investment this quarter. I'd love to hear an update on how you're thinking about potential international expansion and whether you see that as a growth driver for you in the future?

Well, we do have our Canadian Sunrise asset that we acquired in 2007 and we like the Canadian market. I would tell you that we believe that if you're looking at big long-term trends, in health care and senior housing and health care REIT, you can see potentially over time expansion into either the kind of Western democracy that are aging and/or countries like India or China where there's a growing middle class that would be paying for infrastructure, private pay hospitals and things like that. But those are really pie in the sky. Those outside of North America at this point are really much longer term kinds of initiatives and so, I think you may see health care REITs go there over time, but we're talking decades kind of, not tomorrow.

Okay. So I guess, in the U.S. then, in terms of other asset types, I know that we've talked about lab space a lot with you in the past. Is that an area you're still interested in or has pricing gone too far for you to be interested in it at this point, or how are you thinking about that?

Well, Jeff, I think turning back to the U.S. is a good segue. I mean the one great thing that we have in the health care real estate space is that we still have huge amounts of opportunities here domestically. And that is unlike some of the other real estate sectors and again, it's because you do have this trillion dollar health care real estate market where the REITs still own less than, say, 10% of it. And that distinguishes us, I think, among real estate sectors in a positive way because you've got a large sector, it's growing and it's sort of under-penetrated in public ownership. So that really does focus us kind of back on the extensive domestic opportunities. And as you mentioned, life sciences is one of them and I'll turn the rest of that over to my partner, Ray, to answer.

Yes. And Jeff, our view on that hasn't really changed. We think it's a great space. We think it fits well within the healthcare REIT portfolio from a diversification and growth standpoint. It is a specialized business. It requires expertise, not unlike when we got in to the medical office building space, we would want to do it either in partnership with that expertise or by acquiring that platform. And so as and when the right opportunity presents itself, we'll certainly work hard on it. There are a number of other, I think, very positive trends going on in the health care world at large, for health care REITs that could drive more business into our wheelhouse. I think, as Debbie mentioned, there's a huge addressable universe, much of which is owned by hospital and health systems who are facing increasing needs for capital and decisions that they have to make about how they're going to allocate their own precious capital. Pressures in the tax code are also making it more difficult for them to raise additional capital. And so over time, we could see a scenario where more hospitals would be monetizing their real estate, both medical office and other hospital-owned real estate, and that could present some really attractive opportunities to us as and when those trends take hold.

Your next question comes is from the line of Tayo Okusanya from Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: In regards to your 2012 guidance, I was wondering if you guys could give a little bit more color over some other drivers. I think you've given the NOI numbers for the senior housing operating platform, but kind of what else is going into that number?

Well, we have improved operations. Obviously, offset with the increase and reversion of the Sunrise management fee. We've got Cogdell Spencer and we've got some improvement on capital cost and escalators in our senior housing leases. And basically, some timing or negative [indiscernible] from prefunding the Cogdell Spencer acquisition. Those are kind of the major drivers to the midpoint. And importantly, I mean, importantly I would say no acquisition, which we always give guidance that way, of course. And just give you one example, I mean we had $81 million of loans pay off in the fourth quarter and they were in the 9-ish percent. So if we end up reinvesting that money that obviously changes the outcome, but right now, we're just assuming that, that pays down debt. So things like that go both ways. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay. I guess, the reason why I'm asking is the Sunrise, the senior housing operating numbers look pretty strong for 2012 and you have a lot of these natural escalators it just doesn't quite sum up, at least in my model, to your $3.63 to $3.69 guidance number. I'm wondering whether it's the classic, under-promise and over-delivered that we've gotten accustomed to with Ventas over the past several years?

Well we certainly try to deliver. I think we also try to sort of call it like we see it and we're giving you sort of the assumptions that we have and I think, a midpoint 9% FFO growth without any acquisitions is pretty outstanding, frankly. So I feel good about that and obviously, to the extent that we work the whole year as we always to do to try to do acquisitions that are smart and do better than that. But I feel good about 9% FFO per share growth and at the midpoint and an 8% dividend increase and, obviously, we'll try to do better if we can. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: There are no lease expirations or anything built into it that we're not aware of?

No. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And just about just kind of given the large amount of the large operating platform now, could you talk just a little bit more about just what CapEx spend could look-- recurring CapEx spend could look like in 2012, both for the senior housing operating portfolio and the MOB portfolio?

Yes. I think if you kind of exclude any kind of new development or things like that, we'll be looking at about in the kind of $50 million to $60 million, if memory serves. I'll confirm that for you. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: $50 million to $60 million. And then just last question, and thanks for indulging me. On the Kindred side of things, if my memory serves correctly, the $99 million number you discussed on the call, that number was closer to about $130 million that will actually meant to come up for reset, it sounds like some of it has already been leased, some of it have already been leased, is that correct?

Yes, exactly. Of the -- let's call it $122 million that's up for 2013 renewal, remember all these goes May of 2013, $23 million of that has already been renewed by Kindred. So that's why we've got the $99 million, that is up, remains up for the 2013 renewal. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Could you talk about the new terms on that, and did you have any red bumps [ph] on that or kind of came in flat versus the old rent or...

Say that again, sorry? Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Could you talk a little bit about the partial, the amount that's actually been released. What the new lease terms were and what pricing, what rents are like on that relative to the old rent?

Yes. Well, the renewals are formulaic. And so the renewal is a 5-year renewal basically with a standard contractual escalations of basically 2.7%. So those are -- those will just carry on and then a couple of them have the ability for us to have kind of a mini reset right or an appraisal process whereby rents could increase to market. So maybe there's some pick up on that potentially in 2013.

Your next question is from the line of Daniel Bernstein from with Stifel, Nicolaus. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I have a question on the Kindred leases that are up for renewal. Can you characterize whether those leases are better or worse lease coverage than the overall number that you're providing in the supplemental? I'm just trying to get a sense of the quality of those assets.

Yes, I can tell you. On the 73 assets that are basically are still up for renewal, they have 2.1x EBITDARM coverage, which is consistent with the whole portfolio. Remember, all of these, the whole structure of the Kindred master leases is that it's a diversified portfolio at the macro level, at the master lease level and at the renewal group level. So they're designed to have consistency across each sort of economic unit, if you will. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: That's very helpful. The other question I have is in terms of the taxable REIT subsidiary, when you think about growing those subsidiaries or growing those operating assets, are you thinking about maybe doing any development, aside from the redevelopment in Atria can you do straight-up development in there? What kind of assets do you want to add to the operating asset portfolio to help that grow?

Dan, I think that we have done some development sort of consistent with a structure that's commonly used by health care REITs and some of those came over from NHP, but I do believe we do those in the REIT itself as opposed to taxable REIT subsidiary where we're doing kind of -- we're kind of financing a ground up development for one of our operator partners who has a good track record. And then that converts into a triple-net lease, but I'm almost sure that, that occurs within the REIT itself.

Yes. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Just kind thinking if you're worried about CapEx at senior housing, the aging of the stock there, you might want newer assets in the TRS does that make sense or...

Well, in general, yes. I mean we like to have newer assets, but those could be in the REIT as well. They don't have to be in the TRS, that's my only point. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Right. The other question I had was on the guidance. Are you making any -- although it doesn't include acquisitions, do you have any kind of goals or assumptions on what you can do in terms of the smaller relationship driven, NHP-driven acquisitions obviously, the big, the large acquisitions will come in chunks but what kind of quarterly acquisitions do you think you can turn just from these smaller portfolios?

Well, our experience is that acquisitions big and small are relatively unpredictable, which is why we don't predict then, we can tell you what the past has been.

Yes, as I've said in my remarks, last year, we originated about $940 million through that combined Ventas-NHP originations platform. We've got, I think, some really strong originators in the marketplace. Very good customer relationships with a number of tenants both Ventas and NHP, legacy tenants that are providing us with a consistent flow of transactions and we would expect that in 2012 we will continue to do a lot of that type of business.

Your next question is from the line of Nicholas Yulico from Macquarie.

I just wanted to see if I heard this correctly. Did you say that all of the facilities in the upcoming Kindred renewal are profitable at current rent levels?

Yes. The 73 assets that are up for renewal have coverage over 2x. Therefore, they are profitable.

Okay. I'm just wondering if there is, perhaps, a situation that could happen here with similar to back in 2007 where you actually sold some of the underperforming SNFs back to Kindred?

Great question. We have done some very favorable transactions for both parties in the past where Kindred acquired some underperforming assets at attractive valuations from our standpoint. We redeployed that capital into other investments and those opportunities will always exist and some of them happened last time in the context of the renewal process. So those kinds of -- thank you for reminding me, those kinds of things can indeed happen.

Okay. And then, Ray, I think you were saying that some of the occupancy gains in the RIDEA portfolio from the fourth quarter have carried into 2012 here. Can you just talk a little bit about how you guys are sort of managing occupancy here in the first quarter and whether you've had to maybe offer some rate concessions to keep occupancy high?

No. I did mention that we sort of buck the seasonal trend where normally, during the holidays, occupancy declines and we've seen our occupancy hold up heading into January. So that's a positive thing and we haven't had to provide any incentives or other discounts to drive that. So we're pleased about the way the year is starting.

And your next question is from the line of James Milam from Sandler O'Neill. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Did you give the portfolio occupancy for the MOB portfolio on a combined basis for the stabilized and non-stabilized?

Yes. James Milam - Sandler O'Neill + Partners, L.P., Research Division: I'm sorry if I missed it, can you just give it to me again.

James, this is Todd Lillibridge. On the stabilized portfolio, which is the 177 facilities that we've got, excluding the 14 non-stabilized, the current occupancy there is 91.9%. And on a combined basis, when we combine both stable and non-stable, at 89.5%. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Great. And I guess I'll just say, I noticed you guys took that column out on the first page of the sub, so to the extent that my opinion matters, I would love to see that back in there. The disclosures are great, we really appreciate it. I'm looking forward to talking to David later this afternoon. Second quick question, can you guys give a little more color on the assets that you sold, just what type of properties those are and how you're thinking about increasing the disposition activity going into 2012?

Sure. So those were independent and assisted living properties in our triple net portfolio. Basically, sold at a 6 3/4-ish cap rate on rent. And as we look forward in our portfolio, obviously, we want to be prudent allocators of capital and where we find opportunities to recycle capital out of assets that are either not long-term strategic or where we think we can sell the assets at a cap rate and invest at a better yield someplace else, we're going to take advantage of those opportunities. And with the portfolio now of almost 1,400 properties, I think there's going to be a lot more opportunities for us to do that in 2012. James Milam - Sandler O'Neill + Partners, L.P., Research Division: On these ones that you did sell, were they newer assets or older assets or just out of sort of the market geography you're looking for, what was kind of the driver behind disposing of these ones?

I think there was a win-win opportunity here. They are, I would say, productive assets, but probably not assets that are central to our strategic objectives. And so there's a chance for us to sell them back and have -- redeploy the capital into perhaps assets that we might want to own longer term. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay. And then my last one just especially since you said you sold those at a 6 3/4, are you guys seeing just as a general trend cap rates continuing to compress and if so, how are you thinking about acquisition opportunities and growth with prices sort of continuing this upward trend? Is that -- are you seeing deals that you're kind of passing on because they're getting expensive or are you still seeing plenty of accretive opportunities and that's not really an issue yet?

I think, James, given the strong fundamentals in our core medical office and seniors housing space, there is a lot of competition for transactions. And as a consequence, cap rates remain very competitive and pricing on transactions remain competitive. We have a number of relationships and as the incumbent in those relationships, I think we have the opportunity to win those transactions at the margins. So that's helpful for us. And then we have to be selective and really look at the deals that we think we want to own for the long term that have the right, either cash flow growth profile from an operating asset perspective or credit structural support and structure from a triple net perspective.

Your next question comes from the line of Rob Mains from Morgan Keegan.

I'm so glad you kind of connected that dot. I was going to follow on to Ray's comments that I decided that we don't want to make the call too long, but I'm very glad you added that. I mean, this is a couple things. One is the reason there's competition for acquisitions is because these are great assets in health care real estate, they provide really good risk-adjusted returns. They performed the best in the downturn of any real estate sector, they've got good supply demand fundamentals, stable cash flows, et cetera. And so it's not surprising that there is a lot of competition for these kind of assets and I know all of you think I'm obsessed with cost of capital because I am, because if we want to buy the best assets and still make money for shareholders, and we really need to have a very competitive cost of capital, which happily, due to all the activities that we've undertaken, we absolutely do. And I think it really is important for our continued success. So that doesn't mean that we throw out all of our kind of underwriting criteria either just because something is accretive doesn't mean it's appropriately valued. So that's really the push and pull and of it. And I would say that we have all of the predicates in place for continuing to drive attractive acquisitions and really, it's just up to us to identify those opportunities that we want to pursue when we think they make good sense. But we, in general, we're happy that people like health care real estate assets and really embrace their profile.

Obviously, other health care REITs as you've seen.

Pension funds, insurance companies.

Private equity firms. There is, through the Fannie and Freddie agency financing, very attractive secured financing available, so there are people who have access to capital and can generate positive spreads over their cost of capital that will compete for transactions with the health care REITs.

And owner operators, as well.

Absolutely.

I hope that's helpful.

Well, there are 2 reasons. One is as we all know in life if people have CapEx budgets, they tend to end up spending most of it in the fourth quarter after they do all the plan -- they get it approved and they do all the planning. So timing is definitely part of it. And that's why you can't ever take kind of the fourth quarter times 4, or the first quarter times 4. But also remember, we added Atria in the middle of the year and so it would be -- that would be the second major reason that it would be disproportionate to the full year.

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

Debbie, a couple of questions. First, regarding medical office building, do you think the longer-term cash flow growth profile is higher, lower or the same as senior housing?

I think it's lower.

And that certainly has an impact over how you think about going in yield, is that a fair statement?

Absolutely. And in fact, we did that exact analysis when we were looking at Cogdell Spencer. We said, okay, you know, this is x 7 whatever low to mid 7s yields and if you bought a senior housing asset, that was of similar quality, sort of if you analogize to the on-campus kind of highly rated hospital system kind of situation, if you bought a senior housing asset at x yield, let's call it low to mid-7s minus some amount, what do the growth rates have to be in order to get a similar return. So yes, we do look at that and so the -- that's why we feel good with the kind of low to mid-7 cap rate on the Cogdell portfolio. I mean is that what you're getting at?

No, that's exactly how I look at it. I just wanted to make sure we're on the same page.

We're on it, yes.

Okay. With respect to Kindred. My understanding is that Ventas and Kindred have historically had a very positive relationship and that you and Paul are always, have been on good terms. So with that in mind, I guess I'm wondering why couldn't the 2 companies come together on a resolution for all of the 2013 assets all at once, rather than what is sort of going on now, which is sort of, yes, we'll renew some now and we'll get back to you later on the rest of them, because that creates uncertainty for both companies. Why couldn't all these been dealt with a couple of months ago?

Well, again, yes, theoretically, that could happen, but basically we talked about this a little bit before and I don't want to get too much into the minutiae of the way the leases work, but there was an incentive for Kindred to renew assets where they thought that the reset rent would go up a little bit earlier and they did that. And then with respect to April 30, there's a lot going on in the reimbursement world and so on, we've got mitigation and so on. So I don't criticize Kindred basically for waiting until they have the most possible information until they decide whether they're going to renew or not. And in the meantime, obviously, we talk all the time and if the companies want to reach a consensual resolution, obviously, we have been able to do so on certain matters in the past and I believe we could do so in the future.

Has there been anything adversarial in the process here or has it been the same mutually friendly relationship that you've had over the years?

I mean, I think it's a very good relationship and it's been very professional in relation to the renewal process. And I would say good, more than professional.

Your next question is from the line of Tom Truxillo from Bank of America.

So on top of any acquisitions that you guys made, do you have some bonds coming due later in the year or the CSA acquisition you have to fund? Can you kind of talk about how you plan on funding those capital needs? Do you see yourself going back to the term loan market which obviously, gave you very attractive pricing? Could you use preferreds or do you kind of plan to stick to the unsecured bond market?

Well, we basically have $2.3 billion in liquidity right now. As you know, we just did the very attractive 4.25% tenure unsecured bonds and that essentially funds, with our cash on hand, more than funds Cogdell Spencer and so we have minimal other maturities in 2012. And so absent additional investment activity, I think we're in great, great shape. And even with incremental investment activity, we have the kind of capacity, so I think we're liquid.

Okay. A quick follow up. You guys called the 6.5% notes. You have 2 additional issues that are kind of approaching new call dates. Can you give us any thoughts on your process, your thought process there, do you see further opportunities kind of reduce that cost of capital you like to talk about?

Yes. And I think that's a great question for bondholders and shareholders alike and because we want to make money for all of our constituents. I mentioned in the outset that if there's $1 billion of debt and we replace it at 200 basis points cheaper, we're making $20 million of additional annual cash flow and if we do that by calling shorter-term bonds and issuing, say, 10-year bonds, we're not only adding to our cash flows, improving our interest coverage and credit stats, making more money for shareholders but we're also managing risk by staggering and lengthening our debt maturity schedule. So as we see opportunities to do that, I think it would make sense for shareholders and bondholders alike for us to continue to execute that kind of plan. So over time, I think we'll try to be smart and optimize those kinds of transactions.

So I don't know if Jerry Doctrow is on the phone or not but I do want to give him a little shout out for his years of following our sector with great intelligence and humor and vigor. Most of you know Jerry is retiring in early March and it is a loss for our industry despite the abilities of his able successor. So I just wanted to say that Jerry helped me a lot 12 years ago when I got to the industry and I'll always be very grateful for that. And I know that all of us at Ventas will really miss his presence and his perspective. So with that, I want to thank everyone for joining today. We sincerely, as always, appreciate your interest in Ventas and your support of the company. And we hope to see everybody in Florida next month. So thanks, again.

Ladies and gentlemen, this concludes your presentation. You may now disconnect, and have a great day.