Ventas, Inc. (VTR) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Ventas Earnings Conference Call. My name is Derek and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Lori Wittman, Vice President, Capital Market. Please proceed.

Thank you. 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, 2012. 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, 2011, 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 the quantitative reconciliation 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, Lori, and good morning to all of our shareholders and other participants, and welcome to Ventas' Second Quarter 2012 Earnings Call. Today, I'm pleased to share an overview of our excellent second quarter results. Ray Lewis, will discuss our portfolio and investment activities, and Rick Schweinhart, will review our financial results in details. After our remarks, we'll be happy to take your questions. The Ventas investment thesis continues to be a very positive story of growth and defense. There are extremely limited opportunities that provide investors with good internal and external growth and also, significant defensive characteristics. The value of that optionality cannot be overstated in today's global environment with significant sale risk and upside. Our second quarter results and outlook for the year provide an outstanding example of these valuable qualities working in tandem for our constituents. Normalized FFO this quarter was excellent at $0.95 per share, up 19% from last year. And we maintain an outstanding balance sheet with 28% debt-to-enterprise value. We have also increased our guidance to $3.70 to $3.74 per share for the full year. If achieved at the midpoint, this would represent a 10% normalized FFO per share growth rate year-over-year. First, let's talk about the growth side of Ventas. Growth at Ventas comes from excelling at our 3 key activities: Allocating capital, raising capital and managing our assets. Simply put, we focus on investing in the right asset at the right price and structure, continuing to improve our cost of capital and driving performance in our portfolio. We have a long track record of effectively executing all 3 activities. Our external growth this quarter includes the completion of $1.2 billion in high-quality accretive acquisitions including Cogdell Spencer's MOB business and 16 new, high-quality, private pay Sunrise-managed senior living communities. Those acquisitions are performing extremely well and we continue to see excellent opportunities to invest in performing health care and senior housing assets. And we have good visibility to completing over $300 million in additional acquisitions in the near-term, as well as investing about $100 million in a small but profitable development and redevelopment pipeline. Our business model allows us to continue allocating capital flexibly across subsectors in different operating models and investment types as conditions warrant and opportunities arise. And of course, the $1 trillion health care and senior housing real estate market is huge, fragmented, growing and dynamic. It should provide many investment opportunities to Ventas for years to come. Our internal growth has also been exceptional this quarter, particularly, in our senior housing operating segments. Our Atria- and Sunrise-managed assets are proving the benefits of our strategy, of buying the best assets in the best markets operated by the best managers. These communities are delivering great results with same-store NOI growing 8% year-over-year before management fees. These high quality assets provide upside to our shareholders in a growing economy. We also generated additional internal growth that will materialize in 2013 through our new 10-year lease with Kindred, on 10 long-term acute care hospitals or LTACs at a $6 million annual rent increase. Year-to-date, we have been proactive at capital raising, generating further internal growth by issuing $1.2 billion in bonds and using a portion of the proceeds to replace higher coupon debt security. Finally, our current $2.48 annualized dividend represents only 66% of our new guidance midpoint. This exceptionally favorable payout ratio should provide opportunities for us to continue increasing our annual dividends. We know that dividend growth is an important component of our total value proposition for shareholders. On the defensive side, there are 5 aspects of the Ventas business that are significant. One, we have scale, with a $26 billion enterprise value and $1.5 billion in annualized NOI. Two, we have a balanced portfolio that is diversified via geography, tenant operator, asset class and business model. Three, all of our asset types are need-based and resilient in a downturn, with increasing demand from those demographics and healthcare policy. Four, a significant portion of our business is in triple-net leases that provide long-term stability and cash flows. And last, but not least, we have a fortress balance sheet. All of these factors protect investors, reserve value and limit volatility. Our outstanding balance sheet and liquidity provides those offensive and defensive benefits. Our 28% debt-to-enterprise value at quarter-end is industry leading and should allow us to continue taking advantage of external opportunities and also be a safe haven if the market is disrupted. During the quarter and the year, we have taken actions to further enhance our balance sheet and improve the quality of our portfolio. Among other things, we raised over $300 million in equity capital and sold assets or harvested loan repayments of over $250 million including the sale of 12 assets to assisted living concept. Our normalized FFO guidance assumed another $150 million in real estate dispositions and loan repayments. Our asset sales year-to-date have generated gains approaching $80 million. And we intend to continue executing on our articulated strategy of selectively and calculatingly divesting of assets to improve our portfolio. We believe the Ventas combination of internal and external growth on the one hand, and balance sheet and portfolio management on the other, provide the right mixture of offense and defense for our investors, particularly in the current macroeconomic environment. The results of our strategy and execution are clear, in early 2008, Ventas was not a top 10 component in Vanguard's REIT index. Now, we are fourth with a 4.3% rate. More importantly, Ventas' performance has continued to be strong. Our total shareholder returns year-to-date exceeds 20%. Whether you look at year-to-date, 1-, 3-, 5- or 10-year periods,, Ventas has outperformed both the S&P 500 and the REIT Index in each period, often by a wide margin. This record reflects the consistency, reliability and all weather performance we seek to deliver. Ray?

Thank you, Debbie. Today, I'd like to share with you how our strategic growth and diversification strategy, coupled with our rigorous asset management approach, continues to deliver results with a potent combination of our higher growth seniors housing operating asset, coupled with the stable cash flows of our triple-net lease portfolios and MOBs. First, I'll briefly cover the performance of our triple-net lease portfolio, which is diversified across 913 seniors housing, skilled nursing and hospital assets with over 73 tenants. These assets are generally in pool, multi-facility, long-term after leases with credit and structural support. Cash flow coverage in our same-store triple-net lease portfolio for the first quarter of 2012 was strong at 1.7x, and our Kindred coverage remains strong at 2x. Coverage across our same-store portfolio of senior housing and hospital assets was stable to slightly improving sequentially at 1.3x and 2.5x, respectively. As expected, coverage in the same-store skilled nursing portfolio declined sequentially from 2x to a still, very healthy, 1.9x, due to the inclusion of another quarter of the 2012 CMS reimbursement cut in the debt period. We expect an update from CMS for the 2013 fiscal year, Medicare reimbursement rate and the skilled nursing and long-term acute care hospital sectors to be delivered shortly. Our expectations for skilled nursing is a net 1% to 2% increase beginning October 1, 2012. As for the LTACs, the proposed rule issued in April called for a 1.9% increase in spending, and it's possible that the final rule could be more favorable. These impacts on the SNF and LTAC sectors are before any impact from sequestration, if it occurs. So, all in all, the near-term outlook is stable for reimbursement. Before I move on, I'd like to take just a brief moment to update you on the status of the releasing process for 54 skilled nursing facilities. With the completion of the lease on the 10 LTAC properties that Debbie mentioned, we have renewed 35 of the 89 properties, including all 16 of the LTACs, and about 60% of the existing rent on the building. We've been actively managing the process and have generated significant interest in the remaining 54 assets. In fact, we have received strong interest with multiple bids in all states from both existing and prospective relationships including national, local and regional operators. As a reminder, our goals in this process are to do business with reputable operators and to maximize rent, and we expect to enter into multiple transactions to achieve this outcome. And while we are still relatively early in the process, we are encouraged by the broad interest in our assets and continue to believe that our current rents are consistent with market level. We hope to be able to provide you with more clarity in the third quarter as the marketing process unfolds. Next, I'd like to discuss our seniors housing operating portfolio, which accounts for 26% of our NOI. With the addition of the 16 new Sunrise properties that we acquired in April, this portfolio now consists of 214 high-quality, independent and assisted-living communities in affluent markets around major metropolitan areas managed by Sunrise and Atria. As we have been saying, these best-in-class properties have core-like characteristics, but provide above core return. And right on cue, our portfolio turned in another strong performance in the second quarter, with positive sequential and year-over-year increases in occupancy, NOI and margin. NOI, before management fees, for the total same-store portfolio increased 2% sequentially in the second quarter to $107.9 million compared to the first quarter of 2012. And NOI, after management fees, was $91.8 million, up about 1.7% sequentially. Unit occupancy in our 197 property same-store portfolio continued its upward trend by increasing 80 basis points sequentially to 89.2%. NYXdata on the Top 31 MSA shows that unit occupancies increased 40 basis point sequentially. Typically, we would expect to see a seasonal decline in occupancy at the beginning of the second quarter but not this year. On the contrary, occupancy has continued to be very strong and we are very pleased with the overall performance. In second quarter of last year, NOI and the 196 properties in our same-store Sunrise and Atria portfolio, grew 8% before management fees and 4.8% after management fees. As a reminder, our Sunrise-based management fee reverted the 6% of revenues this year, up from the 3.75% reduced rate that we had negotiated for 2011. Year-over-year, unit occupancy and the same-store Sunrise- and Atria-managed portfolios grew 250 basis points to 89.3% compared to a 10 basis point year-over-year occupancy increased reported by NYX for the top 30 MSAs. On May 1, we closed the acquisition of 16 Sunrise communities for $362 million. These high-quality assets were developed by Sunrise are similar in quality to our existing Sunrise portfolio and are 4-years old on average. Based on the performance during the first couple of months of our ownership, the current yield on this portfolio is over 7%. As the consequence of the 17th Sunrise and Atria operating properties acquired in the first half and our strong performance year-to-date, we are raising our full-year guidance range on our seniors housing operating assets to $375 million to $381 million, from $350 million to $360 million. We expect performance for the 197th senior housing asset included in our original guidance to be at the high-end of the original range. Though those expenses were slightly higher this quarter, in line with what we expected and what we told you during our first quarter results call, and we expect this trend to continue into the second half. But all in all, the results of our operating assets have continued to prove out our strategy that investing in the best asset in the best market with the best operators will result in above average growth for Ventas. Before I turn to acquisitions, I'd like to discuss the Ventas' MOB portfolio, with which the acquisition of Cogdell Spencer, which closed on April 2, now comprises 320 properties standing on about $17.4 million-owned square feet and accounts for 15% of our annualized NOI. Here are a few of the MOB segment highlights for the second quarter. Cash NOI in the 69 same-store consolidated MOBs that we own in both the second quarter of 2011 and 2012, increased 3.2% year-over-year. Driven primarily by increases in rate and expense control, offset by a slight decrease in occupancy. Occupancy in our 245 stable MOBs was just under 92% in the second quarter. Occupancy in the same-store stable portfolio in the second quarter of 2012 was consistent with the first quarter and leasing activity remained strong. We closed our acquisition of Cogdell in early April and due to the efforts of many talented professionals at both companies, the closing and integration went exceptionally well. The portfolio consists of 71 high-quality medical office buildings containing 3.9 million square feet located primarily on the campuses of leading health care systems in the Southeast. Stable portfolio is 94% occupied and we purchased the entire portfolio for less than $200 per square foot. Second quarter financial results are in line or slightly better than our expectations, making the acquisition cap rate in the mid-7% range. We welcome our new Cogdell colleagues to the company. Finally, we will complete and open 3 100% pre-leased medical office building developments in the second half containing 278,000 square feet. The total development cost is approximately $109 million and the expected yield to cost averages 8.4%. Though our medical office business continues to provide steady performance and with the addition of Cogdell, a further diversification of our national platform and relationships with leading health care system across the country, that position us to continue to consolidate and grow in this attractive space. Finally, before I turn the call over to Rick Schweinhart, I'd like to spend a brief moment on the investment environment. Our acquisition pipeline is very active and we are seeing both small and large acquisition opportunities. In addition, to the $1.1 billion we have invested in the Cogdell and Sunrise transactions, we have also closed investments of $159 million in the first half of the year at an average going in unlevered cash yield exceeding 7%. We also expect to complete over $300 million in additional acquisitions in the third quarter at approximately 7% going in unlevered yield. All of this investment activity is coming from existing NHP, Lillibridge or Ventas relationships. Our opportunities continue to be diverse. Individual assets, small and large portfolios, both senior housing and MOBs, and play off the trends of demographic growth and operator consolidation. The U.S. health care market is large, growing and still very fragmented and there are no shortages of potential opportunities available to us from either existing customers or new relationships. 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 during the second quarter. On April 2, we acquired 100% of the stock of Cogdell Spencer for approximately $760 million, including the assumption of debt of $213 million. Cogdell's operations are included for the entire quarter. On May 1, we acquired 16 Sunrise-managed properties for $362 million. During the quarter, we also acquired 7 assets for approximately $98 million. On June 18, we sold 12 senior housing communities for $100 million, including a $3 million fee producing a $24 million gain. In April, we issued $600 million of 7-year, 4% senior notes. The proceeds were used to pay down our revolver and pre-fund our acquisition of 16 Sunrise communities, and call our 6 3/4 senior notes. On May 16, we redeemed our 6 3/4% senior notes due 2017, incurring a loss on debt extinguishment of $10 million, of which, $7.6 million was a cash make-whole payment. On May 1, we repaid $82 million of our 9% senior notes on their maturity date. In early June, we issued almost 6 million common shares producing proceeds of $342 million. Our revolver balance at quarter-end was $367 million. Currently, we have unrestricted cash of $55 million, $370 million outstanding on the revolver and over $1.6 billion of capacity available. Our pro forma and net debt to EBITDA is extremely strong at about 4.9x. Now, let me focus on second quarter results. Second quarter 2012 normalized FFO was $0.95 per diluted share, an increase of 19% compared to the second quarter 2011 per share results of $0.80. Normalized FFO increased 96% to $278 million compared to last year's second quarter of $142 million. We have detailed the non-cash items included in normalized FFO on Page 18 of the supplemental. Normalized FFO in the second quarter excludes the net expense of totaling $3 million from the loss on extinguishment of debt, merger expenses and deal costs, mark-to-market adjustment for derivatives and amortization of other intangibles. Offset by the gain on sale of real estate and non-cash income tax benefit. Second quarter normalized FFO increased from last year's second quarter due to NOI increases in all 3 of our segments: Triple-net, senior housing operating and medical office, and lower-weighted average interest rates. Triple-net lease revenue grew to $208 million from $116 million last year, primarily due to the acquisition of Nationwide Health Properties and normal annual contractual escalation. Senior housing operating NOI increased $31 million to $96.5 million from $65.5 million last year, principally due to the acquisition of Atria and 16 Sunrise-managed communities. Second quarter medical office building NOI grew to $62.9 million from $18.7 million last year, primarily due to the NHP and Cogdell acquisitions. Both periods include $1.4 million in unconsolidated joint venture earnings. Income from loans and investments was $8.2 million this quarter, fairly flat with the $8.4 billion last year. On the expense side, consolidated interest expense increased to $74.4 million this quarter from $52 million last year reflecting the assumed debt due to the Atria, NHP and Cogdell acquisitions, as well as all the debt activity in the last 4 quarters. Our average cash interest rate improved to 4.6% from 5.2% last year. Looking at sequential results, normalized FFO increased $13.9 million to this quarter's $277.8 million, primarily due to second quarter acquisitions and second quarter increases in all 3 of our segments, partially offset by increases in interest and G&A expense. Interest expense increased $4.8 million in the second quarter compared to the first quarter, principally due to acquisition activity offset by interest decreases due to the retirement of our 9%, 6 3/4% and 6 1/2% senior notes, and the issuance of our new 4% senior notes. We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. Net cash provided by operating activities increased 147% to $461 million in the first half of 2012, from $186 million in last year's first half. At June 30, our credit stats were outstanding with the net debt to pro forma EBITDA at 4.9x. Our fixed charge coverage ratio in excess of 4x and debt-to-enterprise value of 28%. Weighted average shares outstanding in the quarter were 293 million shares, up 64% compared to the second quarter of last year, and up slightly compared to the first quarter of this year, reflecting the issuance of almost 6 million shares in June. We are raising our 2012 normalized FFO per diluted share guidance to $3.70 to $3.74 from $3.63 to $3.69. This 1.6% increase in our FFO per share guidance is primarily due to our acquisition of the 16 Sunrise-managed communities, stronger performance from the company's senior housing operating portfolio, year to date, slightly better-than-expected results from the Cogdell acquisition and additional investment activity, offset in part by more shares outstanding, the $0.02 to $0.03 per share second half impact of the year's approximately $400 million in asset sales and loan repayments, net rent adjustments on our triple-net lease portfolio approximating $6 million and debt refinancing during the second quarter -- second half of the year. Guidance does not include the impact of additional capital transaction or any unannounced acquisition. Operator, if you would, please, open the call to questions.

[Operator Instructions] And our first question is coming from the line of Rich Anderson, BMO Capital Markets.

Can you list, in order of priority, your financing alternatives as it relates to your acquisition pipeline?

We, obviously, focus on our cost to capital and we have maintained a split in every capital market imaginable. So we obviously, have revolver capabilities. We have term loan capabilities. We have long-term, unsecured bonds capabilities, Fannie and Freddie , converts, et cetera. And so, as we are modeling out the identified near-term acquisitions, we're looking at some combination of those debt products for -- to acquire those assets.

Okay. But more likely, debt products at this point?

Yes.

Been talking a little bit to our economist up in Canada about the potentially plateauing economy there, and I'm curious what your view is on the future of Canada given your investments there. It's become a lesser portion of the portfolio, obviously, as you've grown. But do you have any opinion now about the future in terms of Ventas' interest north of the border?

Well ...

Oh, go ahead, Ray.

Rich, as you point out, we currently own 12 Sunrise properties in Canada. They have been very strong performers in our portfolio. Average occupancy in Canada is 95.6% in the quarter and they've consistently been very strong performers. We think the Canadian senior housing market generally is a good market. It doesn't have a lot of supply particularly in the high-end assisted living and higher acuity assisted living space. So we really like our investments up there. If we could find more attractive investments like that, I think we would be comfortable adding to those. But obviously, we keep a mindful eye on the same economic trends that you do.

A couple of quick follow-up, the guidance methodology changed by adding unannounced to acquisition and dispositions, I'm curious what motivation was behind that?

Yes, the methodology, really, is -- typically, we do not include acquisitions or dispositions or loans repayments in our guidance. I would say that when in fact we had a known inflow, however, of capital such as we have this year with the potential $400 million worth of dispositions, I think it gives investors a clear, more transparent picture if we explain to them what our use of proceeds is, because if we simply pay down the revolver, something with the capital, that wouldn't really give a true reflection to investors of what we expect our FFO per share growth to be. So if -- we have done this in the past when we had known inflows of capital, that's why.

That's fair. Then the last question is, what were the motivations behind the sale to assisted living concept?

As we said in our press release, Ventas really stands for excellence in senior's housing. We believe that this transaction really will gave ALZ the opportunity to make positive changes for the residents in those assets.

Like you didn't -- weren't on the same page with them in terms of their operating methodologies, is that right, or how they went after this?

It was a mutually beneficial transaction and again, we hope that ALZ uses that transaction as a springboard to continuing to make changes for the benefit of its company and its residents.

Your next question is coming from the line of Jana Galan from Bank of America Merrill Lynch.

I wanted to clarify the $98 million of senior housing community acquisitions in 2Q, is it triple-net or operating? And if maybe you could give us your view on partnering with other operators in the space other than Atria and Sunrise?

Well, the first part of your question, the $98 million was triple-net, there were -- yes, it was triple-net. And then with respect to partnering with Atria and Sunrise, obviously, with the acquisition of the 16 Sunrise assets, we've increased our relationship, grown our relationship with Sunrise. We continue to believe, and I think our performance shows that they are both outstanding operators, and to the extent that we can find the best assets in the best markets, we'd be very happy to continue to grow our relationship with those 2 operators.

And then maybe if you could give us some guidance around what type of disposition yields your cap rates?

Yes, we can. In this second half, $150 million, which is loan repayments and dispositions. It's pretty much across the board in terms of asset type and balanced in that way and the lease cap rate or NOI cap rate is in that the 8% to 8.5% range.

Your next question is coming from the line of James Milam from Sandler O'Neill. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Can you just break down how much of the dispositions, I guess, that 8, 8.5 covers the whole $150 million, is there -- I guess how much of that is a debt repayment versus asset sales?

It's about 1/4 of everything. It's pretty balanced across the board, James. James Milam - Sandler O'Neill + Partners, L.P., Research Division: And then I was wondering if -- on the senior housing operating guidance, what would that number have been, excluding the acquisition that you guys announced, so kind of comparable to your prior guidance at the beginning of the year?

Right. And I think Ray mentioned, we have given the $350 million to $360 million guidance for the year, and with respect to the assets that, that covered, it's -- we're performing, and our expectations are in the high end of that range. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay, great. And then my last one, Debbie, probably for you. Just given as you kind of close in at the end of the year and at least as of right now, tax law is going to change and going to increase, I think for Ventas specifically, that may mean there could be additional acquisition opportunities. So I wonder if you could share some color on that. And then also more broadly, just if -- what your perspective is given your visibility and the people you're talking to, whether or not people are starting to change their behavior in anticipation of those changes.

I don't see a lot of behavioral changes regarding tax changes that may occur at the end of the year because I think there isn't a tremendous amount of certainty about what actually will happen. The one thing I was a little bit more focused on is that as you know, when the Bush tax cuts were originally passed, they included a preference essentially for corporate dividends over REIT dividends. And if those provisions expire, REIT dividends could be relatively, be even more on an even footing with corporate dividends, and that could actually benefit REITs.

Your next question is coming from the line of Ross Nussbaum from UBS.

I'm here with Derek Bower. You had answered a question earlier from Rick regarding capital alternatives, and I was a little perplexed because you're stock's now creating the highest valuation I think it's ever traded as a public company, you’re at a 5% FFO yield, below 5% implied cap rate, you could effectively go out, issue equity and buy absolutely anything you wanted to and it would be accretive. What's stopping you from doing it?

Well, I would tell you that based on what we talked about here today, we identified about $1.5 billion of acquisitions that we've talked about, if you think about Cogdell, if you think about the Sunrise, 16, if you think about the other acquisition activity, if you think about the $300 million we've discussed, if you think about the investment development -- redevelopment pipeline, so I would say that we are certainly not sitting on our hands here at Ventas and we -- here's what I will say. First of all, 2 things, we will always be disciplined, and that is really important. We have a strategy. We execute that strategy to the best of our ability. We want to have the high-quality company that is delivered to its all-weather performance and I think regardless of "accretion" we're trying to build value, long-term value, short-term value and we will be disciplined in deciding kind of what to buy. But obviously, we have been active. I will tell you something else though, and that is, I was reflecting with a new senior level executive at Ventas and I said that if someone had told me in 2000 when Ventas' equity cap was $200 million, that we'd be sitting here in 2012 with a $19 billion-plus equity market capitalization, I wouldn't have possibly believed that. But what is really amazing to me is I never would have believed also that even after all of that growth over the last 12 years, I would be more excited and believe more in the growth potential of Ventas and our industry as I am right now. And that is a pretty remarkable observation. And I think it does speak to our ability to use all the attributes that we have here including cost of capital and including the market that we're in and the opportunities that we see over the near and long term, to continue building value and continue growing the company. So I hope -- that's a long answer to your question, but I hope it's responsive.

Your next question is coming from the line of Dan Bernstein from Stifel, Nicolaus. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I just want to be clear on the -- what's coming out from the third quarter for ALZ for the assisted living concept and the triple-net leases, I think Rick said $6 million, does that include the $3 million termination fee that was -- I think in the second quarter, is that a correct assessment?

I don't understand the question, could you repeat? Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I guess you're going to lose some lease rent from ALZ and I think Rick said, there was $6 million less of lease rents that are going to come out from all dispositions, and I just want to make sure that I'm understanding that $6 million correctly as to whether that includes the termination fee that was part of the ALZ leases or not.

No. The ALZ fee is in this quarter and it was about $7 million in rents. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Including the termination fee?

The termination fee is a part of the $100 million and it's in this quarter. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Right. But is that $3 million in the rent number somewhere or is that in your earnings this quarter?

No, it's not. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay, that's what I didn't understand. And then the other question I had, when looking at the seniors housing performance, and I just kind of try to isolate some of the same-store Sunrise property, that 79, it looked like it performed 60 or 70 basis points or so quarter-over-quarter and that maybe implies that the Atria occupancy was a little less than that. And if you could talk about the performance between those 2 portfolios. And I also understand, maybe on the Atria side, I'm missing the redevelopment property, so you could talk about maybe how the redevelopment assets are doing in terms of your expectations as well.

Dan, both the Atria and the Sunrise assets performed extremely well during the quarter. As you know, we acquired the Atria assets in the second quarter of 2011, and so we don't yet report year-over-year analysis or include those in the same-store analysis, but I can tell you that Atria perform -- Atria and Sunrise performed quite comparably, sequentially and year-over-year. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: And the redevelopment assets are meeting your expectations for your returns on your investment there?

On they are, Dan. I think they performed right in line with our underwriting on those assets. We continue to identify redevelopment opportunities in the portfolio and invested additional capital in there. And that is a good growth driver in that portfolio. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: And then turning to the remarketing of the 54 skilled nursing assets, you talked about some very strong demand from local, regional, large, national operators, what do you think is driving the demand from those operators? Is it the quality of the assets, are they all looking for economies of scale? We've obviously seen the Jonas' Sun merger [ph] , and turning to the REITs for that financing due to their cash positions post-reimbursement cut last October?

We met -- there are a few simple reasons why the process in these assets have generated such a competitive process and robust interest. First of all, there's a lot of cash flow with the asset and the prospective tenants will have to make -- remember, there's essentially very limited capital that's involved in re-tenanting the assets, effectively working capital for the new operator. And so they will be essentially stepping into a cash flow position where they will get immediate cash flow over and above the rent payment for a very, very de minimis capital contribution, and they will be able to spread overhead as you suggest. So this is a very attractive way to be able to expand your business if you're in market, if you're a provider and that I think is the central reason why we're having such terrific interest on this process. Dan Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: And does that imply, do you think that the SNF operators are going to turn more to the REITS as well for further financing and growth of their companies, you see that as an opportunity for you?

I mean, certainly, that is one part of the consolidation theme and part of the growth being potentially in-house care real estate. But I think this marketing process is really more about the quality of these assets, the cash flow with these assets and the ability of operators to be able to drive profitability in their market by spreading overhead and getting coverage, cash flow over and above the lease payment. And it's as simple as that.

Your next question is coming from the line of Quentin Velleley from Citi.

Just in terms of -- Debbie, I'm just wondering if you could elaborate a little bit on the acquisition pipeline you're seeing, has there been any reduction in the size of the pipeline? And maybe if you could talk a little bit more about what sectors are more active.

I'm going to ask John Cobb to take that, Quentin.

Yes, I think we still see an active pipeline across all sectors, both in MOBs, senior housing and skilled nursing, and we still focus on the senior housing and MOB, but it's still very active both small deals and large deals as Ray said earlier.

And then in terms of size, you haven't seen any reduction over the last 12 or 24 months, is that a fair statement?

That is a fair statement.

And then just in terms of guidance, it's all about the run rate in the second quarter at $0.95 and just simplistically apply that for the rest of the year, you'd be above the high end of the revised guidance? And then if I look at some of the capital management you're doing, there might be a little bit of net dilution there. I think you said you're buying $300 million assets or factoring in $300 million of assets at a 7 cap, selling $150 million at an 8%, 8.5% and then I assume you're going to turn out some of the debt on the line. Is there anything else in there that's going to pull that run rate down that I should be thinking about?

Yes. And it's quite simple. So as we mentioned to Dan, there's a $3 million lease termination fee in the second quarter. So obviously, that is relevant. And then remember, we had the 6 million shares outstanding just for June, and so those will have an impact in the second half as well. And we sold the ALZ for $100 million at the end of June, so it's really the $150 million that will come of dispositions plus the $100 million that occurred at the end of the quarter. So we do have a lot of really positive things and accretion happening in the second half. And then we do have the impact of those dispositions and loan repayments and the like.

Your next question is coming from the line of Nick Yulico from Macquarie.

Just quickly on who is the operator for the $98 million of acquisition in senior housing? Is that one operator, who was that?

Some of it was an existing customer and some of it was a new customer.

Okay. It's not possible I get the actual operator? Names?

They're existing, kind of NHP and Ventas customers, public and private.

Okay. And then on the $350 million refinancing plan, I just want to be clear, were you saying that, that -- is that going to be accretive or dilutive? Is that based on permanent financing versus what's on the line or is it based on taking out some of your bonds which you're trading or which have higher costs and where you could issue today?

Yes. Well, as Quentin said, some of it is turning out the line and if we did go to the bond market, and some of the debt that we now have has higher cash coupons that has lower GAAP interest rates. And so that would show up as a dilutive -- a slightly dilutive impact even though it could be cash accretive.

Okay. And then just lastly on the whole debt side. I mean, you do have a fair amount of bonds next year coming due and then mortgage debt as well. I mean how early can you go out and refinance some of this, particularly some of the mortgage debt?

The mortgage debt really isn't -- wouldn't be until -- if we chose to take it out early, it wouldn't be really until the end of the year. So there won't be much of an impact on that in '12.

Okay. But presumably, it would be -- the thinking would be that you would be -- I mean, would the plan be to do an unsecured to refinance that?

I mean, we'll access market conditions at that time. Again, I think one of the things that we try to be really good at is capital raising and hitting the right market at the right time. So obviously, we have to see what market conditions are and then we'll make a judgment at that time.

Your next question is coming from the line of Philip Martin from Morningstar.

I have a question just regarding the nature of Ventas' organic growth. Specifically, any discussions you might be having with the hospitals and healthcare systems and their development, redevelopment or expansion needs. Could you address this and how and when it may impact your development pipeline or portfolio?

So, Philip, obviously, Ventas, through its Lillibridge business, has very strong relationships with a number of highly rated health systems around the country, and as I'm sure you're acutely aware, as the healthcare market is evolving, you're seeing more and more interest in integration, vertically and horizontally, in that space. Hospitals are focusing on returns on operations, and that's the whole message of having real estate flow to the most efficient operators starting to gain traction. And so we think we're very well positioned as hospitals look to optimize their capital structure to participate in the consolidation, both vertically and horizontally that is inevitable in the industry. So when that's going to happen, is difficult to predict, but we continue to work on that opportunity and plant the seed so that we're well positioned when it does start to accelerate.

Are the systems really, at this point, in assessment mode? I mean, certainly, the care and coordination of care is likely going to be delivered a bit differently as this continues to evolve. But the systems, I'm sure, have to be looking at their strategies going forward, managing this real estate need, et cetera. So I would have to imagine there's some pretty interesting and attractive opportunities are down the road.

We think there will be as well. Wherever there's a lot of change and there's a lot of real estate and a lot of capital needs, which in, obviously, with the relationships that we have, we should be very well positioned to both understand and execute. And so over time, I think it will be a fruitful avenue potentially.

Your next question is coming from the line of Tayo Okusanya from Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Actually, Philip just asked my question, so I don't have any further questions.

Your next question is coming from the line of Karin Ford from KeyBanc Capital Market.

On the development and redevelopment, the $100 million that you were talking about for later this year, are those the projects listed on Page 16 of the supplement, or is that in addition to what you've got already underway there?

It's really listed on the supplemental.

Okay. And then second question is just on Lillibridge. If I remember correctly, I think there are about 60 assets that you guys bought joint venture interest in, and I think you had the right to first offer on the remaining interest in those. Is that something you guys would want to own, is that a potential deal that you guys are looking at on the table? And what would you -- how would you feel about owning more of Lillibridge today?

Well, our Lillibridge partnership has gone quite well. We're looking at our friends across the table here and obviously, at the high quality portfolio. And so -- and in strategy, so the assets in our MOB Lillibridge portfolio are generally performing well, and so if there's an opportunity, I'm sure we would look at it.

Your next question coming from the line of Tom Truxillo from Bank of America Merrill Lynch.

Just following up on the surprisingly high number of questions about balance sheet and capital, it kind of felt like a bank call today. I'd appreciate the comments about it. So first of all, I'd appreciate the comments about being prudent when deciding to buy and not necessarily letting this cheap capital that's abundant drive your acquisition strategy. But getting back a little bit to how you finance the deals that you do close, you stated it would be mostly some form of debt, not equity. Given that, I assume your leverage metrics are going to go up a little bit, depending on how much you do, is that...

Remember, I was just addressing the, essentially the $300 million that we talked about as a near-term opportunity. I mean, look at our -- you know our credit stats are just of the chart, they deserve the IBM coupon. And so a $300 million acquisition is not going to move the needle one way or another.

So that was just to that $300 million. I mean if you pursue something bigger than that, it would be, maybe a more balanced financing approach?

As you know, we are absolutely fanatical about managing our balance sheet, keeping a strong balance sheet and we have our own identified target ratios that are very strong that we have maintained over years and years of growth, again, going from the $200 million of equity capital to the $19 billion now. And I think equity has grown twice as much as debt over that time, so we have been able to make money for shareholders while maintaining a really strong balance sheet, and again that goes back to the offense and defense. And you will not see any -- we are as committed to that now as we always have been. So you should feel good about that.

Great. And a real quick follow-on, I assume you're revolver is probably the cheapest form of capital you have. Can you talk about how you decide when to term that out -- term the short-term borrowings out rather than running up a more kind of substantial balance and then issuing, maybe, a larger unsecured bond deal?

Well, we look at those kind of tactical things all the time, and hopefully, we're doing a good job balancing all the objectives that we have in terms of tapping the market at the right time, providing our bond investors with liquidity and keeping a lot of availability on the line over time so that we could be opportunistic. So it's a mixture of all of -- it's a judgment call, really, of all of those qualities. So I want to thank, Derek, our operator, and all of our participants. With 10-year total return exceeding 770%, normalized FFO, compound annual growth over 10% and the highest compound dividend growth rate in REITs sector over that decade, I think you would all acknowledge that Ventas stacks up very well against many of the growth REITs, while also providing investors with shelter in the storm. So we really believe we enjoy valuable attributes that are going to support Ventas' continued success and growth for our constituents. And these are most importantly, our long tenured cohesive management team that focuses on delivering consistent superior total return to investors, excellent underlying supply-demand fundamentals in our business, a flexible business model, a competitive cost of capital, a huge fragmented market where consolidation and change will provide opportunities and an excellent diverse portfolio and of course, a strong balance sheet. So we hope everybody has a great rest of the summer. We're happy to see through our second quarter earnings, and we look forward to seeing you all in the fall. Thank you for your support.

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