Ventas, Inc. (VTR) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2013 Ventas Earnings Conference Call. My name is Ian, and I'll be your operator for today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes. I'd now like to turn the call over to Ms. Lori Wittman, Senior Vice President of Capital Markets and Investor Relations. Please proceed.

Thank you, Ian. Good morning, and welcome to the Ventas conference call to review the company's announcement today regarding its results for the quarter ended September 30, 2013. 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 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, 2012, and the company's other statements -- 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 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 on 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. Good morning to all of our shareholders and other participants, and thank you for joining Ventas' Third Quarter 2013 Earnings Call. I'm happy to be hosting today's call with many of my Ventas colleagues in the room as we discuss the positive results of their terrific work. At Ventas, we're focused on delivering consistent, superior results. This quarter, our performance was strong as we executed across our 3 pillars of excellence, raising capital effectively, allocating capital wisely and managing our assets productively. Following my brief comments on our outstanding performance, our investment and other activities in the quarter, our increased guidance and the external environment, Ray Lewis will discuss our portfolio and Rick Schweinhart will review our financial results. Following our remarks, we'll be pleased to answer your questions. Let's start with an overview of Ventas. At September 30, our pro forma NOI and enterprise value were approaching $1.8 billion and $29 billion, respectively, as we continue to execute our strategy of providing investors with consistent superior cash flow growth, coupled with financial strength and active risk management. At Ventas, we remain committed to playing offense and defense so that we can thrive and outperform over the long term. We also know that near-term results matter as well. This quarter, we reported record profits at $1.04 a share in normalized FFO. This represents growth of 10% per share compared to last year, excluding noncash items, and over 8% as reported. Equally important, year-to-date, we have already generated almost $200 million in operating cash flow after dividends and recurring capital expenditures. Turning now to capital allocation. Since July 1, we have closed nearly $1.3 billion in attractive, accretive private pay acquisitions. About $1.2 billion in our deals closed during the quarter, with a weighted average closing date about September…

Thank you, Debbie. With the investment activity completed so far this year, our balanced and diversified portfolio now stands at 1,476 seniors housing, medical office and post-acute properties. Our productive portfolio delivered year-over-year same-store cash NOI growth of 4.2%, adjusted for a couple of out-of-period cash payments received in the third quarter of last year. Today, I will briefly run through some of the third quarter portfolio highlights, starting with our seniors housing operating portfolio. Our total SHOP portfolio now stands at 236 properties, as 9 new properties have -- were added to the SHOP portfolio since July 1, all managed by Atria. These best-in-class assets are in great locations around major metropolitan areas including Los Angeles, San Francisco, Miami and Sacramento. Occupancy in the 212 properties in our same-store portfolio increased by 110 basis points year-over-year, and occupancy in the 220 communities that we own in both the second and third quarters of this year was up 60 basis points sequentially. Occupancy growth in our same-store SHOP portfolio outperformed the growth reported in the NIC Top 31 MSAs by 60 basis points year-over-year and 30 basis points sequentially. REVPOR increased 3.6% in the same-store portfolio year-over-year and was stable sequentially. Variable expenses were higher in the third quarter over the second quarter due to increased occupancy, and fixed expenses increased due to seasonal utility costs resulting in some margin compression. This is a typical seasonal pattern, which we predicted on our call last quarter. Same-store NOI growth in the portfolio totaled 4.4% year-over-year. However, if you take out the previously mentioned property tax settlement received in the third quarter of 2012, year-over-year NOI growth normalizes to 6.2%. Finally, our new Atria development in Cape Cod, Massachusetts opened up this August. This state-of-the-art, 125-unit ILAL property is leasing up well…

Thank you, Ray. Cash flows from operations were $328 million, up 32% from the third quarter last year. Dividends were $198 million, producing a net of $130 million available to invest. In the third quarter, we had approximately $1.2 billion in real estate investments. In addition to the cash flow, we raised $850 million in senior notes, with a weighted average interest rate of 3% and a term of 12.5 years, which helped fund our acquisitions. We also received proceeds of $86 million from asset dispositions, loan syndications and loan repayments. We issued approximately 375,000 shares, raising $24 million under our at-the-market program in addition to the $82 million raised in the first and second quarters. We assumed a mortgage debt of $115 million at 5.5% as part of the acquisitions, and paid off $143 million of secured debt at 5.5% with a GAAP rate 4.8%. With all of the sources of funds, we only borrowed $188 million on our revolver. Our revolver balance at quarter-end was $448 million. We currently have unrestricted cash of $63 million and over $1.5 billion in borrowing capacity available on our revolver. Now let me focus on third quarter results. We achieved our highest profitability ever this quarter. Third quarter 2013 normalized FFO was $1.04 per diluted share, an increase of 8.3% compared to the third quarter of 2012 per share results of $0.96. Normalized FFO increased 7.8% to $307 million compared to last year's third quarter of $285 million. Third quarter 2013 normalized FFO increased from last year's third quarter due to our last 4 quarter investments of over $2.7 billion, NOI increases in all 3 of our segments, a loan recovery and lower-weighted average interest rates, offset by higher debt balances from our acquisition activity, asset and loan sales and receipt of loan repayments. Our average cash interest rate improved 50 basis points to 3.9% at September 30, 2013 compared to September 30, 2012. And we have been able to lengthen our weighted average debt maturity to 6.8 years from 5.7 years compared to last year. Weighted average shares outstanding for the third quarter were 295 million shares, down 1% compared to the third quarter of 2012. At September 30, our credit stats remained outstanding, with net debt to pro forma EBITDA at 5.6x, our fixed charge coverage ratio in excess of 4x, secured debt to enterprise value of 10%, and debt-to-enterprise value at 34%. On August 26, Moody's upgraded us to Baa1 from Baa2. We are currently rated BBB+ at Fitch and BBB+ by S&P. We are increasing our 2013 normalized FFO per diluted share guidance to $4.12 to $4.14, from $4.06 to $4.10. The midpoint increase is to $4.13 from $4.08. The midpoint results in growth of 9% in normalized FFO per share. The guidance does not include the impact of additional capital transactions or unannounced acquisitions. Operator, if you would, please open the call to questions.

[Operator Instructions] This comes from the line of Emmanuel Korchman at Citi.

Maybe if we can talk about the deal that -- or the deals that you completed this quarter, how many of those encompass sort of the pipeline that you had coming out of 2Q? I believe that was $400 million pipeline. Or what happened to those deals?

Those deals are in the $1.3 billion.

And do you have a similar sort of pipeline number that you can share with us going forward?

As you recall, we provided forward acquisition guidance last time for a specific reason; because we had raised the capital in the first quarter and we thought it was important to give you visibility into things that we had under contract because we essentially prefunded those with the capital raises that you could see. So typically, we do provide guidance in terms of forward earnings without additional acquisitions or capital transactions, and that's what we've done here. But I can assure you, as you could tell from my remarks, we continue to be very active and looking at potential investment opportunities.

And then on the senior housing assets that were transferred to Atria, what kind of upside do you typically see in sort of that type of transfer from maybe a smaller operator to the Atria platform?

Could you repeat the question, Manny? Sorry.

I said, what kind of upside could we expect to see in -- whether it be that pool of assets or the assets you transferred to Atria the last time?

Yes, I mean, we have a competitive advantage when we acquired these kind of high-quality assets and transitioned them to Atria, because as you know, we own 1/3 of the management company and so we have a slight competitive advantage because we get essentially 1/3 of the management fee. But in addition, we're acquiring very high-quality assets and we would expect those assets to grow kind of 5% plus or minus 1% or 2%, depending on where we are in the market cycle.

So -- and Manny, this is Ray. Part of the upside in these assets is that they are primarily independent-living properties, so the ability to add some additional programming as we move forward could drive some potential upside in those buildings. But that's down the road.

We have another question for you. This one's from Juan Sanabria of Bank of America.

I was just hoping you could give a little bit more of a color or breakdown on the deltas in the guidance for FFO, the $0.05 increase to $4.13. What was related to sort of the acquisitions you did at $1.3 billion. And if anything, what was related to the change, slightly lower I guess, range for the same-store SHOP portfolio?

In general, most of the fourth quarter and guidance increase is due to acquisitions or some other offsetting things, but those sort of come out in the wash. That was principally the benefit of the acquisitions and the very favorable capital raise that we did at the end of the third.

Now what drove the change on the high end of the SHOP same-store guidance? I'm assuming you knew about the third quarter '12 sort of onetime tax. So I'm just a little curious, given it seemed like occupancy was strong and the REVPOR was up, why the lower range for SHOP assets?

Yes, I think there's a couple of things that are going on there, Juan. One, we've got 3 redevelopments in the portfolio this quarter versus '12 last year. So we're sort of at a little bit of [indiscernible] in the redevelopment pipeline. But we're gearing that up, as I mentioned in my comments. I think Atria continues to perform very well. And a little bit of underperformance, perhaps, in the Sunrise portfolio, in Canada, in particular, where we had some FX as well, and that, I think, accounts for most of it.

Do you see that sort of new range for the RIDEA portfolio a sort of a good run rate to assume over the medium term? And if possible, could you break out sort of the components, what would be an occupancy rate and a margin sort of component of that guidance?

I mean, I think this range is pretty consistent with what we said when we originally acquired the portfolio -- the portfolios 3 years ago, when we said these things are going to run in the 4% to 7% range. So I mean, I think this is fairly consistent with what we've projected over the long run for these assets.

And could you give Juan just a little bit of color in terms of how seasonality typically would work in the fourth quarter versus the third in the senior living business?

Sure. So in the fourth quarter, what you'll typically see is declining occupancy throughout the quarter as you head into the holidays. I think typically, you'll see that people just aren't moving their family members into buildings around the holidays. And then there's always sort of a year-end rush to get some of the repairs and maintenance completed that have been scheduled, and that typically leads to little bit of margin compression in the portfolio. So we would expect that through the balance of the year, the properties will perform similarly to how they've performed in the third.

We have another question for you. This one's from Michael Carroll at RBC Capital Markets.

Can you guys give us a little bit more color on the $800 million independent-living investment? And I'm sorry if you've mentioned this, but did you name the tenant and if there are expansion opportunities with that tenant?

Mike, the tenant is named in our supplemental and it's a Holiday Retirement, which as you may know, is one of the largest senior living owners in the U.S.

And do you expect more, I guess, investments at that tenant going forward?

Well, the good news about our business and our business model, and I touched on this a little bit in my remarks, is that almost all of our important tenant operators in the MOB business, the hospitals, they all own, in general, lots more real estate. And so I think whether it's our new tenant Holiday who we welcome to the fold or existing tenants, I do think there continues to be lots of opportunity to acquire real estate over the coming years.

Okay. And then how will expanding the Atria platform impact your ownership position? I believe that managers' cash flows are relatively modest right now, but there's a lot of opportunities to add scale. Can we expect this to hit your P&L more meaningfully in the future as that continues to grow?

It would be immaterial, but at the margin, it just does give us a little bit of a competitive advantage on assets that Atria can operate. And it helps them develop scale. As you mentioned, they're built to grow, and so that's important. And also, these assets were squarely in their existing markets, so that helps with the market concentration and penetration as well.

Okay, great. And then my last question be with regards to your development activity, can we expect $40 million of starts a quarter be a good run rate going forward?

I think we've got, as I said in my remarks, about $150 million that's sort of under construction right now, and another couple of $100 million in the pipeline. That pipeline number has been fairly consistent. It's really going to depend upon what is sort of shovel-ready at any one point in time. But yes, I mean, I think based on that pipeline, that's a reasonable assumption.

Right. But it will kind of have -- because of permitting and things like that, like any development, it will ebb and flow. So a straight-line assumption is probably the best you can do, but it will inevitably be incorrect.

Right.

We have another question for you, this one is from the line of Jack Meehan at Barclays.

I just wanted to start with shop portfolios. Now that you're 91% plus occupancy, do you think there's room for additional pricing improvement on top of the 3.6% you reported this quarter? Is that ultimately some limit to that growth?

No. I mean, I think as you start to get into the fully-occupied zone of 93%, 94%, that's when you can really start to test pricing, that's when you start to get waiting lists that will build up in your buildings and that's when you can really sort of push a little bit to see what the market can support. So I do think there's more pricing upside.

And do you think there's a range where that ultimately starts to plateau?

The pricing?

Yes.

Well, no. I mean, I -- again, I think it's a supply demand equation right? So I think if you look at the marketplace right now, occupancies are pretty strong. And so we should be at a point where we can push pricing. So no, I don't think that's constrained in any way.

Yes. And just a follow on that. If you look at what seniors are getting in terms of the high-quality product, and if you assume maybe a cost of $5,500 or $6,000 a month for all your housing, insurance, maintenance, meals, et cetera, most of the seniors in, certainly in the areas where we talk about the -- where we have the assets in the shop portfolio can well afford the $72,000 a year for the 1 to 3 years that they may be living in these communities. So there's not a -- there's not pressure from affordability standpoint. In fact, I think they're quite affordable for the population that, that communities serve and actually are a great value proposition for those seniors.

Okay. And then the range for the fourth quarter shop guidance is $4 million top to bottom, that's a little bit wider than we were last year. So I'm guessing, just what are you embedding that will get you the top end in that range versus the lower end? Is that really the development or the lease-up of the new Atria?

Well, I mean, I think there are a number of things in there. One, if occupancy doesn't tail off and if the expenses don't materialize, you could find yourself at the top end of the range and vice versa.

We have another question for you. This one is from the line of Jeff Theiler at Green Street Advisors.

I had a question on the senior housing operating portfolio. Year-over-year expense growth was a little bit higher on the stabilized portfolio than we've seen in the past at 5%. Can you comment on what's driving that and kind of what your expectations are for expense growth and margins going forward?

Was that year-over-year that you were asking about, Jeff?

Yes.

Yes. I mean, I think when we looked at the numbers, one thing that did jump out is -- it was a pretty high utilities year this year, pretty hot summer. So that would be part of it.

I think there was also a $1.7 million last year in the numbers that was out-of-period expense reduction, so that probably affected it as well.

Okay. Okay. And then on the skilled nursing side, just looking at the occupancy. I understand the trend is for lower occupancy and skilled nursing going forward as you move to a higher acuity model, but the portfolio seems to be dropping pretty quickly and significantly below your peers' skilled nursing portfolios. Can you -- is that something you're concerned about or keeping an eye on, or what's going on there?

Well, I mean, I think when you look at occupancy is, that is consistent with industry trends, generally. I think the coverage has remained stable. The operators are able to generate higher revenues per day from these post-acute short-stay patients, which are the primary cause of the occupancy drop. So look, I mean, we worry about everything, but as we look at the numbers, they seem to be pretty stable.

Okay. I guess, along those lines, we've seen some of your peers start providing enhanced disclosure on their triple-net lease portfolios, either through heat maps or just stratifying the coverages in a little more detail so investors can get a better sense of what's underlying those summary statistics. Is that something that you would think about including in future disclosure?

Jeff, we are considering and looking at enhanced disclosure for the end of the year.

We have another question for you. This one is from the line of Rich Anderson at BMO Capital Markets.

So just a question first on Holiday. I'm curious why that -- was that a onetime -- like you did it all at once or does that kind of happen over the course of the quarter? I'm curious why we didn't hear about it until now? Was there a disclosure issue on their side or?

It happened all at once. It was a single deal closing.

I know. I mean, that's kind of interesting right, we were all waiting to see what happens with Holiday. I'm just curious why you held back. Was there any legal issue why you held back?

I mean, we like to announce all of our activity in a single -- so everybody has contacts and transparency into all the different things that we're doing. So this is our big tada, so -- of everything in the quarter, so here it is.

Okay. I'm curious, when you think about your pipeline, which is obviously still active, how much is life science still represented in that pipeline, in your mind?

Again, we look at all the healthcare and senior living assets across the board and wouldn't exclude anything. But the pipeline itself is really across all asset types, I would say, including life sciences.

Do you have any change in your view about life science from past comments and conference calls?

I think we've been very consistent about it. I could press Ray Lewis in the arm.

I won't put you through it, Rich.

He can say the same thing over again. But we think it's a good asset class. And if we ever found a good opportunity to invest, then we would.

Okay. How much, if anything, did rising interest rates and your stock price moving over the course of the second quarter impact pricing of deals, your appetite for deals? Can you give us some color on that on -- this $1.3 billion that you've been able to achieve since July?

Yes. I'm glad you asked that. I think it's really important to put the whole cost of capital in perspective. As we -- we've had some volatility this year in the market, so I think we took an opportunity to step back a little bit and make sure that we were kind of building and managing the business with a realistic and consistent view of the world and the Capital Markets and our cost of capital. So while we love the market exuberance between March and May, we certainly don't build our business around that. And we believe that the environment for investing, when you take a good perspective on it, is still quite constructive. And we're continuing to lower our cost of debt, and we feel good about where we are in the world. I think it's very important to understand that we don't make decisions based upon a 2-month stock price. We make decisions based on -- and we manage the company based on a very consistent view of the world. And that's been very successful for our investors. As my mother said, don't get carried away, one way or another. So we try to really take a mature view of the markets despite kind of near-term phenomena.

Okay. And then the last question for me is, and maybe for Ray. In your markets, from a senior housing supply perspective, are you getting any elevated concern looking out a few years about new development?

Yes. So this is obviously been a big topic in the industry in the NIC calls. Look, I mean, I think over the long run everybody would agree that seniors housing is the best market demographically, it's where you want to be, that's where the growth is. But let's talk about the construction. As said earlier, I mean, we worry about everything. There's maybe 16,000, 17,000 seniors housing units under construction. And to put that in perspective, there are 17 million people over the age of 75. So it doesn't necessarily seem like a lot of construction, but as you point out, you kind of have to look market-by-market. And when we sort of bump our portfolio up against the markets that -- say the top 5 markets where you're seeing the largest increase in the percentage of the inventory, that's maybe about 3% of our total shop NOI. So we've said all along, our assets are in high barrier to entry, infill locations, that's true. That provides us with some insulation against the construction. But just like everybody else in industry, whether it's our existing portfolio or new acquisitions, we want to understand what's going on in our markets with respect to construction.

We have another question for you. This one is from the line Nick Yulico at UBS.

Just going back to the Holiday deal. Could we get the annual escalators, the lease term and the coverage on that?

We generally would say that the debt lease is going to be straight line because of the way it is structured, and that you could expect, since that's a big part of our $1.3 billion in acquisitions that we announced, that kind of near-term cash flow growth rate, which would really be the escalators, would be in that kind of 4% to 5% range, along with everything else.

Okay. So the escalators are somewhere in that 4.5% -- I'm sorry, 4% to 5% range. What about the lease term and the coverage?

Nick, when you look at the $1.3 billion of acquisitions, if you look at it, what we said is, in the first couple of years we'd expect kind of 4% to 5% growth, and Holiday is a big component of that. So that's the way I would think about it, kind of altogether.

Okay. What about the lease coverage and the term?

The lease coverage would be relatively consistent with our existing senior housing triple-net portfolio.

Okay, and the lease term?

15 years.

15 years? Okay. So I mean, essentially that deal was a low 6-type going in cap rate, is that right, on a cash basis?

Everything's about 6.25%, yes.

Okay. And then just going back there, I mean, if there's -- I mean, it's no secret that there's another -- we estimate about $6 billion of real estate still at Holiday, what's -- I mean, how are you guys thinking about that opportunity? I mean, this was clearly a portfolio of assets that they sort of wanted to do initially. I mean, would you be comfortable doing another sizable deal on a triple-net basis that's similar economics to what you got here?

Well this is a very good portfolio. Again, 94% occupied, good EBITDAR margins, over 50%, we're very happy with the acquisition. And again, with all of our tenants and operators, they own -- or most of them anyway, they own significant amounts of additional real estate. And hopefully, if we do a good job and we think that they're a good operator there will be follow-on opportunities and we'll evaluate all of those in the context of our business strategy and we're hopeful that there will be sort of quasi-proprietary pipeline with many of our tenant operators over time.

Okay, great. Just one other quick one. If I look at the -- I know you don't give AFFO guidance, but if I look at the FFO guidance going up $0.05 like you said at the midpoint for the year, it sounds like that was mostly due to the acquisitions. What would the AFFO type impact be relative to that [indiscernible]?

Well obviously, as we've talked about over the years, there are pros and cons to the senior housing operating acquisitions, pros and cons to triple-net leases, I think given that $800 million of the $1.3 billion of acquisitions is in triple-net lease, that, that impact of that would obviously be more favorable, because the tenant pays CapEx on those types of acquisitions. So that's one thing to look at. If you do look at our supplemental, we have a pretty extensive disclosure at the end that gets you to kind of pre-CapEx AFFO, and then we have another disclosure that talks about recurring CapEx. So I think we can talk to you offline and be happy to do that to get you down to what you may be defining as your AFFO.

Yes. No, I'm saying relative to the acquisitions you just did. If you're saying you did 6.25% cash versus 7.3% GAAP, what's the sort of rough difference that you guys see, as far an AFFO impact on that?

Well, AFFO should go up.

Okay. So up but not as much as the FFO?

Correct, because the triple-net lease would be straight line, correct. But AFFO will definitely go up.

We have another question for you. This one is from Tayo Okusanya from Jefferies.

I guess just kind of going back to the senior housing issue, Ray, and I know you just kind of gave a couple of comments. I mean, what we are also kind of looking at this issue and there are some markets that have a lot of new supply coming on and it sounds like you guys have done some initial analysis around this. But when I still look at your supplemental and I look at some of the exposure you have to markets like Texas, Ohio, Florida and I compared against the NIC data where there are specific MSA that have meaningful supply coming online, in some of the MSAs in these states, I mean, can you get us a little bit more comfortable that your stuff is not in those MSAs, although your assets are in those states?

I mean, I think as I mentioned last call, Tayo, our singer largest market is the New York Metro area and that accounts for 20% to 25% of our entire shop NOI. There's no other market that accounts for more than 4% of our NOI. So we have a highly diversified portfolio. And again, I'll go back to, if you looked at the top 5 markets where the -- or the 5 markets where the percentage of inventory is increasing the most, that accounts for about 40% of all of the construction that's going on in the industry right now. And that accounts for about 3% of our NOI. So again, I mean, it's something that we watch very closely. And then within each one of those markets, you kind of have to look at where the assets are being built relative to where our assets are located.

And what type of construction versus what type of...

And what type of construction versus what type of asset that we have. So it's a highly granular analysis. But at the moment, as we look at what's going on in the industry, we believe our assets are well positioned.

Okay. That's a definitely helpful color. Going forward from a disclosure perspective, would you consider splitting up your senior housing disclosure into the triple-net and also the operating stuff, like HCN does?

Tayo, it's Lori. We are looking at some increased disclosure. We do divide up in our supplement already for the shop information so...

But do give the shop by state? I don't...

No. We're looking at that, though.

Okay. Great. I think would -- because I think your HCN does that, and I think it would just kind of be helpful as people kind of really focus on in this issue of new upcoming supply.

We have another question for you. This one is from the line of Daniel Bernstein at Stifel. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I have a follow-up question on the construction of seniors housing. You mentioned before, obviously, that New York City is a big component of that and I agree. I don't see any real serious threat in construction where you have the shop portfolio. But the number of lenders are picking up in the business. Clearly, construction is probably going to filter to other geographies. Does any of the construction in seniors housing force you to consider maybe any of the strategy of the mix of triple-net versus RIDEA? I'm sure Holiday was more opportunistic, but you think about any change in RIDEA versus triple-net mix?

Dan, that's a good question. And I think what we've said very clearly for a long time is that we strongly believe in a balanced portfolio. And that's what we've tried to create and that's what we're constantly recalibrating. I think that when you have a diverse and balanced portfolio, and by that we mean, by tenant, by operator, by asset type and by business model, which is what you're focused on. I think if we maintain that balance, we're going to be able to deliver consistent, superior results. And as you could see, this quarter we did do -- of our $1.3 billion, we did do just under $800 million in triple-net and so we're keeping that balance in mind as we make acquisitions. And so I think you're making a very good point. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Are the sellers of assets -- I mean, what prompted maybe Holiday to think about triple-net versus RIDEA because a lot of the private equity sellers have really been pushing for that RIDEA structure, but clearly, triple-net still a viable structure as well? I don't know if you can specifically Holiday because disclosure, but what's the seller's decision process in terms of RIDEA?

Let me speak just generally about the Ventas strategy. So the Ventas strategy has been very clear, which is that we want in the shop portfolio the absolute best assets in the best market, highest barrier to entry with institutional quality operators who can produce -- have robust reporting functions, et cetera, and great management capabilities. And we also believe in the mass-market for senior housing and we believe in those assets as well. And we think that in general, those assets should be in more of a triple-net lease structure. And that's how we have developed our strategy from the beginning, and that's how we've been executing the strategy. And again, I think it's worked very well and maintains the balance that we spoke about. So I hope that answers your question, Dan. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: It certainly answers it for your strategy, that's for sure.

We're the one making the investments. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Right. That is what you're going to do, that's true. And then what -- again not to beat a dead horse on the construction, but you've really picked up of the amount of redevelopment in the Atria portfolio, you're going to fund some redevelopment of Brookdale triple-net leased assets. Is some of that in response to potential construction down the road where you what you get your properties fixed up before the competition gets in, take that market share, and again, provide yourself some insulation against any of that future construction, if it does happen to filter into some of your MSAa? I'm just trying to think about that a little bit more as well.

I think it's a combination of offense and defense, absolutely. These types of transactions generate low double-digit returns. They're the safest type of -- development type of investments you can do. You're leveraging our existing buildings, you know the team that's in place, you have good market experience there. And you're also improving your portfolio, increasing the coverage at your assets. So there's a defensive strategy to it as well. So from our perspective, a measured approach to redevelopment, which for a company of our size, $150 million at any one point in time, a couple of hundred million bucks, it's a very reasonable investment level where we can accomplish both offensive and defensive objectives. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Are you getting more requests from your triple-net operators for the kind of development -- re-dev funding?

Not only request from them, but us sort of going through our portfolio and trying to identify those markets and assets and operators where there are opportunities for us to proactively approach them, so yes.

Operator -- we have time for 1 or 2 more questions, Ian.

We have one question here. It's from the line of Karin Ford at KeyBanc Capital Markets.

I was wondering if you could please break down the cap rate between the 3 buckets within the $1.3 billion that you purchased this quarter?

Yes. I mean, we're providing it really as a blended cap rate, which is basically, the first year, 7.3% GAAP and 6.25% cash going in. And as we said, about 4% to 5% expected first couple of year cash growth, Karin.

Okay. Is it possible for you to give us a range, since it's kind of a big number here, just a range of what the cap rates were within the buckets?

I mean, probably 6.1% to 6.4%, something like that.

Okay, that's helpful. Second, can you just give us a little more color on what you think drove the underperformance in the Sunrise portfolio and in Canada?

I think there's a couple of properties there where there's been some turnover in the executive directors, and those properties have underperformed. And since it is a relatively small portfolio that has performed extremely well in the past, the underperformance there can be exaggerated. So that's really it. But it's still, we think, a good market, and we're hopeful that Sunrise will be able to get those properties back to the levels they performed at historically.

And last question for me. I think you're heading towards the higher end of your leverage range of 4x to 6x debt to EBITDA, just talk about your thoughts on equity as you think about your next slug of acquisitions here?

We're very consistent about saying when we want to maintain a strong balance sheet. As you know, we're very comfortable with where we are now and are generating probably well over $250 million a year in free cash flow to use for additional acquisitions and/or debt pay downs. So at 32% debt-to-enterprise value, I think we're in good shape. And we're well within the range of our 5x plus or minus a turn, Karin.

Your final question is from the line of Jeremy Metz at Deutsche Bank.

Earlier Ray, you talked about driving rates in the MOB portfolio. Can you just talk about what the mark-to-market or your growth was this quarter? And then just as you look out with over 16% of MOB Rev expiring through 2014, just how early can you renew some of those and what's the mark-to-market outlook for that?

So in general, the mark-to-market on our MOB portfolio is a positive 2%. So that's sort of what we're looking at. As we look forward, I don't know that we're predicting anything different.

Okay. And then about -- just in terms of how early can you get in front of some of those renewals since that's a pretty big chunk of MOB rev?

We're in front of those things.

All the time.

All the time. Well in advance of the renewals. I mean, we're very actively managing our pipeline of lease expirations. And as you know, the great thing about medical office buildings is that physicians have their practices in those buildings. Their customers are used to visiting them there. There, 96% of our buildings are on the campuses of the major health systems, so they're convenient for the physicians. So we have a very good product to market.

And a high retention rate.

And a very high retention rate.

Okay. Yes -- no, I figured that. It's just -- I think that's why I was a little surprised to see the actual percentage in -- for 2014 actually go up. I was thinking it would start coming down as you start renewing a little bit of that the closer we are getting to 2014. But appreciate the color.

Yes. And again, we don't necessarily move those into renewed until it's signed up and moved and people are moving in. So that might be some of the questions. That might be some of the answer to your questions. So anyway, I want to just wrap up the call and thank you for joining this morning. As always, we really appreciate your interest in Ventas and we're looking forward to seeing everyone in San Francisco next month. So take care and we'll see you soon.

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