ventas (vtr) earnings report: q2 2015 conference call...
TRANSCRIPT
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
©2014TheStreet,Inc.Al l R ightsReserved Page1of22
Ventas(VTR)EarningsReport:Q22015ConferenceCallTranscriptThefollowingVentasconferencecalltookplaceonJuly24,2015,10:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
LoriWittman;Ventas;SVP-CapitalMarkets&IRDebraCafaro;Ventas;Chairman,CEORaymondLewis;Ventas;PresidentRobertProbst;Ventas;EVP,CFOToddLillibridge;Ventas;EVP-MedicalPropertyOperations
OtherPart icipants
NickYulico;UBS;AnalystSmedesRose;Citigroup;AnalystJordanSadler;KeyBancCapitalMarkets;AnalystKevinTyler;GreenStreetAdvisors;AnalystJohnKim;BMOCapital;AnalystToddLukasik;Morningstar;AnalystVincentChao;DeutscheBank;AnalystToddStender;WellsFargo;AnalystJuanSanabria;BankofAmerica;AnalystDerekBower;;AnalystRichAnderson;MizuhoSecurities;AnalystDanielBernstein;Stifel;AnalystMichaelCarroll;RBCCapitalMarkets;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodday,ladiesandgentlemen,andwelcometothesecond-quarter2015Ventasearningsconferencecall.MynameisDerekandIwillbeyouroperatorfortoday.Atthistimeallparticipantsareinalisten-onlymode.Weshallfacilitateaquestionandanswersessionattheendoftheconference.(OperatorInstructions).
Asareminderthisconferenceisbeingrecordedforreplaypurposes.IwouldnowliketoturntheconferenceovertoMs.LoriWittman,SeniorVicePresidentforCapitalMarketsandInvestorRelations.Pleaseproceed.
LoriWittman (SVP-CapitalMarkets&IR):
Thankyou,Derek.GoodmorningandwelcometotheVentanasconferencecalltoreviewtheCompany'sannouncementtodayregardingitsresultsforthequarterendedJune30,2015.Aswestart,letmeexpressthatallprojectionsandpredictionsandcertainotherstatementstobemadeduringthisconferencecallmaybeconsideredforward-lookingstatementswithinthemeaningsofthefederalsecuritieslaws.Theseprojections,predictions,andstatementsarebasedonmanagement'scurrentbeliefsaswellasona
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
©2014TheStreet,Inc.Al l R ightsReserved Page2of22
numberofassumptionsconcerningfutureevents.
Theforward-lookingstatementsaresubjecttomanyrisks,uncertainties,andcontingencies,andstockholdersandothersshouldrecognizethatactualresultsmaydiffermateriallyfromtheCompany'sexpectations,whetherexpressedorimplied.WereferyoutotheCompany'sreportsfiledwiththeSecuritiesandExchangeCommission,includingtheCompany'sannualreportonForm10-KfortheyearendedDecember31,2014,andtheCompany'sotherreportsfiledperiodicallywiththeSECforadiscussionoftheseforward-lookingstatementsandotherfactorsthatcouldaffecttheseforward-lookingstatements.ManyofthesefactorsarebeyondthecontroloftheCompanyanditsmanagement.TheinformationbeingprovidedtodayisasofthisdateonlyandVentasexpresslydisclaimsanyobligationtoreleasepubliclyanyupdatesorrevisionstoanyforward-lookingstatementstoreflectanychangesinexpectations.
Pleasenotethatthequantitativereconciliationsbetweeneachnon-GAAPfinancialmeasurecontainedinthispresentationanditsmostdirectlycomparableGAAPmeasure,aswellastheCompany'ssupplementaldisclosureschedule,areavailableintheinvestorrelationssectionofourwebsiteatwww.VentasREIT.com.Iwillnow,forthelasttime,turnthecallovertoDebraA.Cafaro,ChairmanandCEOoftheCompany.
DebraCafaro (Chairman,CEO):
Thanks,Laurie,andgoodmorningtoallofourshareholdersandotherparticipantsandwelcometoVentas'ssecond-quarterearningscall.ThismorningwearehappytoshareourstrongQ2results,discussourpendingstrategictransactions,anddescribehowweexpecttofinishtheyearstrongasahigher-quality,faster-growingcompany.ThenRayLewiswillprovidehislastupdateasourPresident,givingyouareportonourportfolioperformanceandasneakpeekatCareCapitalProperties.BobProbstwillfinishbydescribingourseniorhousingoperatingandfinancialresultsandouroutlookforthebalanceoftheyear.
Followingourremarks,wewillbehappytoansweryourquestions.Itisobviousthatwehadanincrediblyproductivequarter.Wedrovefinancialresults,acceleratedprogressonourspinoff,tookmeaningfulstepsforwardonourArdentacquisition,andexpandedourinternationalprofile,allatthesametime.Itisalwaysfuntostartwithstrongresults.InthesecondquarterwegeneratednormalizedFFOpershareof$1.18,representing5%growthcomparedtothesameperiodlastyear.Cashflowfromoperationsincreased20%andoursecond-quarterdividendpersharegrew9%,inlinewithourlongtrackrecordofsustainable,recurringdividendgrowth.
Wearealsopleasedtoreportthatwe'veachievedmajormilestonesinourpendingstrategicmovetospinoffmostofourskillednursingportfoliointoCCPandentertheUShospitalspace.Webelievetheseinnovativedecisionswilldeliversignificantbenefitsforourinvestors,lenders,customers,andemployees.StartingwithourspinoffofCCP,apure-playskillednursingREIT,wearepoisedtocompletethetransactioninthecomingmonths,subjecttoapplicableapprovals.
WerecentlyfiledouramendedForm10withtheSECandbelieveitisclosetofinal.CCPiswellunderwaywithitsdebtfinancingandallofourinternalplanningisontrack.WeexpectVentasandCCPtobetwofaster-growingcompanieswithfocused,differentiatedstrategies.CCPwillbeanexcitingexternalgrowthvehiclewithagreatmanagementteam,diverseportfolio,andstrongbalancesheet.Uponcompletionofthisspinoff,Ventaswillhaveanoutstandingportfolio.
SpecificallyourNOIcontributionfromprivatepayaccesswillimprovetoamarket-leading83%,thetop20operatorsineachsectorwillaccountfor83%ofourNOI,andourpost-acutequalitymixwillimprovemateriallytoabest-in-class78%.Wewillalsoretainsignificantscale,diversification,financialstrength,ahigh-qualityseniorhousingoperatingportfolio,andbest-in-classMOB,ormedicalofficebuilding,
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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franchise.WehavealsomadesignificantstridesduringthequartertowardcompletionofourpendingArdentinvestment.Mostimportantly,weselectedapartnerfortheArdentopco,EquityGroupInvestments,whowillbethemajorityownerofArdentgoingforward.
Wearedelightedwiththeoutcomeofourprocessandournewpartner,andwelookforwardtoworkingtogetherwithEGIandArdent'smanagementteamtogrowtogether.Weexpecttoachieveapproximatelya7.5%going-incashunleveredyieldonourrealestateinvestmentinthesehigh-qualityhospitalassets.Wecontinuetotargetathird-quarterclosingforthisimportanttransaction.
Afterclosing,Ardentwillremainatop10UShospitaloperatorwithastrongfinancialandoperatingprofile.BothweandEGIareattractedbythemassive,fragmented,andrapidlyconsolidatinghospitalsector.Hospitalsarecurrentlybenefitingfrommajorpositivetrendssuchasdemographics,policytailwindssuchasMedicaidexpansion,andanimprovingeconomy.TherecentSupremeCourtdecisioninKingv.Burwelltovalidatefederalexchangesandsubsidieswasjusttheicingonthecakeintermsofourinvestmentthesisandvaluation.
Allofthosetrendsaredrivinggrowthinadmissionsandemergencyroomvisits.Infact,accordedtonotedhospitalanalysts[H.A.Rice],Q2hospitalvolumeswerethebestinyearswithindustryinpatientadmissionsup1.2%,ERvisitsup3.1%,andinpatientsurgeriesthestrongestsince2011.Insum,withArdent'sexperienced,well-respectedmanagementteamandscalableplatform,EGI'sparticipation,andourcapitalweareconfidentwecanbuildaformidablebusinessintheUShospitalspace.
DuringthequarterwealsoexpandedourfootprintintheUKwithafollow-oninvestmentwithourexistingoperatingpartner,CanfordHealthcare.Ournewinvestmenttotaling$87millionisinfivecarehomesintheLondonmarket,whoseoperationshavebeenassumedbythequalityteamatCanford.WeworkedtogetherwithCanfordfollowingourinitialinvestmentwiththeminJanuarytoidentify,underwrite,andacquirethesenewly-constructedhomes,whicharesubjecttoalong-termtriple-netleaseyieldingnearly6.5%onaninitialcashafter-taxbasis.Thisisjustanothergreatexampleofhowweprovidecapitaltohelpourcustomersgrow.
Ourinvestmentmarketremainsveryvibrantandourpipelinerobust.Wecontinuetoseeopportunitiestoinvestacrossassetclassesandgeographies.Weintendtocontinuetogrowexternally.Aswethinkaboutourinvestments,wewillstaydisciplined.Wewillfocusonvaluecreation,growth,andqualityforourshareholdersandcustomers.Wewillcarefullyunderwriteriskandupside.Wewillbeactivewherewehaveacompetitiveadvantageandwewillretainourportfoliobalanceandastrongfinancialprofile.
OuractionsdemonstrateVentas'sleadershipandcleardirectionwithourthoughtfulandefficientspinoffthatshouldcreatevalueandpositionusforhigherinternalandexternalgrowth,withourentryintothe$1trillionnewhospitalsectorwithqualitypartnersinrealestateandexcellentrisk-adjustedreturns,withourexpansionintonewattractivemarketssuchastheUK,andwithouracceleratedportfolioenhancementandcapitalrecycling.AllofthismomentumreinforceshowbullishIamonVentas.Wehavetremendousopportunitytocapturevalueforourshareholdersaswedemonstratethesuperiorqualityofourportfolio,focusonsustainablecashflowanddividendgrowth,andprovidethoughtfulcapitalsolutionstoourrosteroftop-tiercustomers.Onthatnote,IwillturnthecallovertoRay.
RaymondLewis (President):
Thanks,Debbie.Ourdiversifiedandproductiveportfolioof952seniorshousing,post-acute,andhospitaltriple-netleaseassetsaccountsforabouthalfofourNOIanddeliveredanotherquarterofstrongandstableperformance.CashNOIgrowthinthetriple-netsame-storepoolwas1.6%inthesecondquarterof2015and3.2%year-to-dateversusthecomparable2014periods.Cashflowcoverageinoursame-storetriple-netleaseportfolioforthefirstquarterof2015,thelatestavailableinformation,wasstrongand
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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stableat1.6times.Eachofourseniorshousing,skillednursing,andhospitalportfoliosreportedstabletrailing12months'coverageat1.3times,1.8times,and2.2times,respectively.Thereimbursementenvironmentremainsstable.InthefirstquarterwetoldyouthatCMShasrecommendedincreasesof1.4%forskillednursing,1.2%forLTACsand1.7%for[ERFs].TheserecommendationsaretypicallyfinalizedinAugustandweexpectincreasesalongtheselinestobeimplementedinOctoberforthe2016fiscalyear.Soourhigh-qualitytriple-netportfoliocontinuestodeliverreliableperformance.
Next,letmeturntoourmarket-leadingLillibridgeMOBbusiness.Forthesecondquarter2015,NOIinthetotalconsolidatedportfolioof359propertieswas$93.2million,anincreaseof35.8%overthesecondquarterof2014.Performancewasdrivenbysolidsame-storeresultsandtheadditionof83propertiesinJanuary.Occupancyinthetotalconsolidatedportfoliowasup80basispointsto92.5%andmarginsincreasedbyanexceptional320basispoints,reflectingthequalityofthepropertiesweacquired.Ofthe83newly-acquiredMOBs,37arelong-termtriple-netleased,andoftheremaining46multitenantbuildings,wehaveinsourcedmanagementon37assetssofarandexpecttoinsourcedfivemorebyyear-end.Soweareexcitedabouttheopportunitytoimplementouroperationalbestpracticesinthesebuildingstodriverevenueandreduceoperatingcosts.Turningtosame-store,the274propertiesinthesame-storeportfoliodeliveredyear-over-yearcashflowgrowthof2.3%.
Thiswasdrivenbyanincreaseinrentalrateof2.1%andstrongexpensecontrolsoffsetbyaslightdecreaseinoccupancy.Sequentially,occupancyinthe275-propertysame-storepoolwasup20basispointssincethefirstquarter.Lookingbehindtherevenuenumbers,weareseeingencouragingtrendsinthebusiness.Ournewleaseshavelongerterms,higherbaserentalrates,andlowertenantimprovementcommitmentsthanduringthelastfewyears.
SotheMOBportfoliocontinuestodeliverstableandreliableperformanceandgrowth.BeforeturningthecallovertoBob,IwouldliketoprovideanupdateonthespinoffofmostofVentas'sskillednursingportfoliotoCareCapitalProperties.Asareminder,CCPisgoingtohaveadiversifiedportfolioof355primarilyskillednursingpropertieswithstrongcoverage,limitednear-termmaturities,andrelationshipswithover40operators.Wewilldeliverexternalgrowthbyinvestingwithqualityregionalandlocalskillednursingoperatorstoconsolidatethishighly-fragmented$120billionmarketandgrowinternallythroughleaseescalationsandredevelopment.
Ourbalancesheetwillbestrongandwewillhavelowleveragetofacilitateourexternalgrowth.Sincewespoketoyoulastquarter,wehavemadesignificantprogressonthespinoff.First,I'mextremelypleasedtoreportthatwe'veassembledourindependentBoardofDirectorswithagroupofsixhighly-respectedleadersinthefieldsofrealestate,finance,andhealthcare.Second,wehavemadesignificantprogresswithourbankfinancingandexpecttohave$1.4billionintermloansand$500millionofrevolvercapacityinplaceatthetimeofspinoff.
Third,progresswithbuildingouttheteamandinfrastructurehasbeenprogressingrapidlyandIwouldliketothankmycolleaguesatVentas,manyofwhomarepullingdoubleduty,foralloftheirhardworktomakethespinoffofCCPasuccess.Fourth,theCCPteamishittingthegroundrunningandbuildingapipelineofattractiveskillednursinginvestmentopportunities.Wehavehiredanexperiencedandwell-regardedindustryinvestmentprofessionaltohelpussourcenewinvestmentopportunitiesandweareactivelybiddingondealsinourstrategicfootprint.Finally,weareontracktocompletethespininAugustsubjecttoapplicableapprovals.Thenewleadershipteamislookingforwardtogettingontheroad,meetingwithinvestors,andsharingtheexcitingCCPstory.Withthat,I'mhappytoturnthecallovertoBob.
RobertProbst (EVP,CFO):
Thankyou,Ray.Iwouldliketostartbyreviewingoursecond-quarterperformanceforourshopportfolio,
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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followedbyadiscussionofouroverallVentasQ2financialresults.Intermsofshop,Ireallyenjoyedmeetingwithouroperators,touringourfantasticassets,anddiggingintothisgreatbusinessabitmoredeeplyoverthelastseveralmonths.AndI'mverypleasedtoreportacceleratedgrowthofthisportfoliointhesecondquarter.NOIinthe234propertiesinoursame-storeportfolioincreased4%inthesecondquarterof2015overthesecondquarterof2014.Thisperformancewasachieveddespitethelingeringeffectsinthesecondquarterofaseverefluseason.Second-quartersame-storeoccupancygrowthversusprioryearwassolidat50basispointsandoccupancyincreasedinboththeAtriaandSunriseportfolios.Year-over-yearrategrowthwasalsostrongat3.2%,drivenbytheAtriaportfolio.Expensesgrewinlinewithrevenueinthequarteraswageincreaseswerepartiallyoffsetbybenefitsavingsandprocurementinitiatives.Asaresult,same-storeshopNOImarginsof33.6%inthesecondquarterwerestableversusprioryear.
Onasequentialbasis,andconsistentwithseasonalpatterns,same-storeoccupancydeclinedinthesecondquarterversusthefirst.Sequentialsame-storeNOIwasup3.9%asseasonalcostsassociatedwithfluandharshweatherinQ1abatedinthesecondquarter.Aswelooktothebackhalfoftheyearforthesame-storeshopportfolio,weexpectoccupancytotrendhigherversussecond-quarterlevels.Wealsobelievethatcurrentratelevelswillholdandexpenseswillmoveinlinewithrevenue;therefore,overall,weexpectsame-storeshopNOIgrowthtoapproximateorexceed4%inthethirdandfourthquarters.Turningnowtothe305assetsinthetotalshopportfolio.
ThetotalshopportfoliogeneratedNOIaftermanagementfeesof$155millioninthesecondquarter,representinggrowthof24%year-over-year.Thisgrowthwasdrivenbythestrongsame-storeperformance,aswellastheacquisitionof66newpropertiessincethesecondquarterof2014.Occupancyinthetotalportfolioat91%was70basispointshigherinthesecondquarterof2015comparedtotheprioryear.OurtotalUSportfoliooccupancyinthetop99marketsat90.8%exceedstheaverageseniorhousingoccupancyreportedbyNICby80basispoints,whileourRevPORexceedsNICaveragesby65%inthosesamemarkets.
Lookingatthesupplydynamicsinthebroaderseniorhousinglandscape,Ventas'sconstructionasapercentageofinventoryinthethree-miletraderadiusaroundourbuildingswas3.2%inthesecondquarter,whichcomparesfavorablytothe4.5%asmeasuredbyNICinthetop99markets.IwouldliketonowturntotheCompany'sfinancials.Itisimportanttosayupfronthowpleasedwearewiththeresultsofthesecondquarterandthefirsthalfoftheyear,aswellasouroutlookforthefullyear.
Lookingatthesecondquarter,wedeliverednormalizedFFOof$394million,anincreaseof19%versusprioryear.Q2normalizedFFOperdilutedsharewas$1.18versus$1.12in2014,anincreaseof5%.ThesolidQ2growthover2014,whichwasaheadofourexpectations,isprimarilyduetothepositiveimpactofaccretiveacquisitions,same-storeportfolioNOIgrowthof2.4%ledbygrowthinourshopportfolio,andincomefromthesaleofhealthcarebonds.ThesolidFFOgrowthwaspartiallyoffsetbya13%increaseinsharecountinQ2versusprioryear.
Weightedaveragedilutedsharesoutstandingforthesecondquarterof2015increasedto334millionshares,comparedto296millioninQ22014.Onafully-dilutedsharebasis,NAREITFFOgrewbyastrong8%to$1.16perfully-dilutedshare,upfrom$1.07inthesecondquarterof2014.NormalizedFADforthequartertotaled$1.08perfully-dilutedshare,anincreaseof7%overlastyear.Ventasgenerated$374millioninoperatingcashflowinthesecondquarter,anincreaseof20%overQ22014.Onaper-sharebasis,operatingcashflowincreased7%.Thedividendforthequartertotaled$261million,or$0.79pershare,up9%versusprioryear.
Ourpayoutratioremainsstrongatapproximately67%andprovidesupsideforfuturedividendgrowth.Indeed,weexpecttoincreaseourcombineddividendfollowingthespinbyatleast10%.Lookingatliquidity,assetdispositionsandloanrepaymentsyear-to-datereached$591millionataGAAPyieldof
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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7%.,rightinlinewithourguidance.
Duringthesecondandthirdquartersof2015,Ventasalsoaccessedthedebtandequitycapitalmarkets.Weissuedandsoldatotalof1.6millionsharesofcommonstockforaggregateproceedsofapproximately$105millionunderourat-the-marketequityprogramatanaveragepricepershareof$64.30.Weraisedthismodestamountofequitytopartiallyfundpendingandclosedinvestments.InJuly2015,Ventasalsoissued$500millionof41/8%seniornotesdue2026.Thesenoteslengthenedourdebtduration,whichnowstandsataweightedaverageof6.8years.Moreover,theCompanycurrentlyhasapproximately$1.7billionavailableunderitsrevolvingcreditfacility,aswellas$410millionofcashonhand.
TheCompany'snetdebttoadjustedproformaEBITDAatJune30,2015,is5.6times.Currentdebttoenterprisevaluenowstandsat35%.Withthatletmenowturntoourupdatedguidanceforthefullyear2015.Asareminder,ourpreviousoutlookwastodeliver2015normalizedFFOpershareintherangeof$4.67to$4.75.WearepleasedtonowraiseandnarrowourguidancerangeofnormalizedFFOperfully-dilutedsharetobetween$4.70and$4.76,representing5%to6%growthoverprioryear.Thedriversofthisupdatedguidanceincludeabetter-than-expectedfirsthalfandaccretiveacquisitionsclosedinthequarter,partiallyoffsetbyalaterQ3Ardentclosingdatethanpreviouslyforecast.
Wecontinuetoprojectfull-yeartotalcompanysame-storecashNOIgrowthofbetween2.5%to3.5%in2015.Thiscomparestothe2.8%same-storeNOIgrowthpostedinthefirsthalfof2015.Inaddition,aswediscussedwithyouatNAREIT,weexpectourfull-yearshopgrowthtobeinthelowerendofour3%to5%guidancerange.Wehaveassumednofurtherunannouncedacquisitionsorspeculativefeeincomeinourguidance.
ThisguidancealsodoesnottakeintoconsiderationanyimpactfromthespinoffofCareCapitalProperties.Wewillformallyupdateguidanceoncethespinofftransactioniscompleted.However,toprovideanideaofthespinimpactonVentas,theresetofFFOarisingfromthespinofCCPforonefullquarterisgoingtobea$0.20to$0.22reductioninnormalizedFFOperfully-dilutedshareforVentas.Intermsofcapitalstructure,Ventasiscommittedtoastrongbalancesheet,financialflexibility,andtoatargetnetdebttoEBITDAratiointhe5to6timesrange.
Wehavemultipleclubsinourbagtoachievethisrangeovertime,includinganassetdispositionprogram,equityissuance,andofcourse,ourstrongcashflowgeneration.Sotosumup,onbehalfofmyVentascolleagues,Iwouldliketoexpresshowfiredupweareaboutourstrongresultsinthefirsthalfandourcommitmenttofinishing2015asasuperior,faster-growingcompany.Withthat,operator,pleaseopenthelineforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)NickYulico,UBS.
NickYulico (Analyst-UBS):
Goodmorning,everyone.Fortheskillednursingportfolios,there's--Iguessonethere'sthatclosedrecently;someoneelsepurchasedandthere'sseveralotheronesoutthere.Youdidn'tannounceanyacquisitions.Areyouguyshavetowaitprocedurally,youthink,forthespinofCareCapitalbeforeyouarewillingtobuyaskillednursingportfolioouttheretoday?
DebraCafaro (Chairman,CEO):
IwillturnthatovertoRayafterIjustsaythatweareabletopurchaseanyassets,andifwe--weareworkingonpipelineopportunitiesforCareCapital,becauseitisastrongexternalgrowthstory.
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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RaymondLewis (President):
Nick,Debbieis100%right.Ithink,aswehavesaidinthepast,therearedifferentiatedstrategieswithrespecttoacquisitions.Wearegoingtotargettheregionalandlocaloperators,andwehavebeenworkingwiththeVentasteamtobuildapipelineofthoseopportunities,sowe'regoingtohitthegroundrunningwhenwespinoff.Butiftherewerelargenationaloperatoropportunitiesaswell,I'msureDebbieandherteamwouldbelookingatthoseopportunities,too.Weareproceedingfullsteamaheadandbucketingthetransactionsintheappropriatecategoriesforthego-forward.
NickYulico (Analyst-UBS):
ThenoneotherCareCapitalspinquestionisoriginallyIguessyouweretalkingaboutraisingdebtatCareCapitalanddividendingcashtoVentasatthesame--Iguessconcurrentwiththespinandyoudidabonddealrecently.Isthattheplannowoffthetable?Howshouldwethinkaboutthat?
RobertProbst (EVP,CFO):
Nick,thisisBob.Youareabsolutelyright;thereiscertainlyaplanforCCPtoraiseitsowndebtandthathasgoneverywell,aswediscussedinourpreparedremarks.AndthendistributethattoVentas.Wewillusethattoreducenear-termmaturities,increaseourdurationofourdebt,andreduceourdebtnet-net.Sothatisontrackandremainsunchanged.
NickYulico (Analyst-UBS):
Sorry,couldyouremindmewhatthedollaramountwouldbeforthat?
RobertProbst (EVP,CFO):
Wehad,Ithink,saidbeforesomethinginthe$1.3billionrange,butagainthisisgoingtobefinalizeduponcompletion.
NickYulico (Analyst-UBS):
Okay,gotit.Thenjustoneotherquestiononthequarter.Itlookslikeyourinvestmentincomewasalittlehigherthannormal.Ithinkyousaidaboutyougotsomeincomefromthesaleofsomehealthcarebonds.Couldyoujustquantifywhatthatimpactwasforthequarter?Thanks.
RobertProbst (EVP,CFO):
Sure.Wesoldabout$75millionworthofhealthcarefixedincomesecurities.Thiswaspartofourbroaderdispositionplanandindeedispartofournormalcourseofbusinessasweinvestinloansandobviouslysellthoseoffintime.Thatwouldcontributeabout$6millioninincomeinthequarter,sothat'swhatwediscussedinthepreparedremarks.
NickYulico (Analyst-UBS):
Thanks.
Operator :
SmedesRose,Citigroup.
SmedesRose (Analyst-Citigroup):
Goodmorning.Iwantedtoaskyoujustalittleontheseniorhousingoperatingportfolio.Itlookedlikeinyourtop20marketsthatthesequentialgrowthfromfirstquartertosecondquarterwasparticularly
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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stronginNewYorkandmadeupquiteabitoftheoverallincrease.Iwasjustwonderingifthereweresomesortof--ifsomethingisgoingontherewhereyousawbetterpricingpowerorsomesortof--onthemove-insideorsomethingthatwashappeningsequentiallyintheNewYorkmarketforyou.
RobertProbst (EVP,CFO):
Yes,Smedes;it'sBobhere.Ithinkyou'rerighttosayNewYorkcontinuestogenerategreatperformance.Wehaveanadvantagedpositioninthatmarket,particularlywithintheAtriaportfolioandwehaveseenoccupancygrowth,rategrowth.Andthatgeneratescontinuedpositivegrowthinthequartersequentiallyandyear-over-year.That'sthebiggestpieceofourbusiness.Asyouknow,it'sperformingverywell.
SmedesRose (Analyst-Citigroup):
Okay.Debbie,justasyouarefurtherdowntheroadwithArdent,nowIknowyouhavesaidinthepastthatyouhopeVentaswillbecomealeaderinhospitalconsolidation.Doyouhaveasenseofmaybewhere--afteryouclosekindofwhereyouwouldliketoseethatportfolioinayear?Wouldyoubehappywith--ifyourinvestmentgoesfrom10to20hospitalsorfrom10to15?Howareyouthinkingaboutthescope,Iguess,ofthatopportunity?
DebraCafaro (Chairman,CEO):
Good.Well,aswehavetalkedabout,welovetheArdentinvestment.Weareexcitedtocloseit.AllthepiecesarefallinginplaceandwebelieveitwillbeaplatformforgrowthinthewaythatLillibridgeinmedicalofficeandAtriainseniorhousinghavebeen.Ithinkinhospitalsthereisthishugemarketandwewillhaveopportunities,anditwillbe6%ofourNOIwhenweclose.Icouldseethatgrowingovertimeto10%,12%,butwearefocusedonquality.Wewanttohavehospitalsthathaveleadingpositionsintheirmarketsandbeintherightmarketsandhavepricingpowerinsortofgrowingoperations.ThatiswhatArdentisandwewanttocontinuetogodownthatpath.Soweareveryexcitedaboutit,asyousay,andIdobelieveandhopethatwewillgrow.
SmedesRose (Analyst-Citigroup):
Okay,thankyou.
Operator :
JordanSadler,KeyBancCapitalMarkets.
JordanSadler (Analyst-KeyBancCapitalMarkets):
Thankyou,goodmorning.Wantedtoseeifyoucouldmaybeshedalittlebitmorelightonwhatproformaleveragewouldlooklike.IthinktheresetnumberwashelpfulpostCCPspin.IthinkthatwasFFOgoingdown$0.20to$0.22quarterly.AndIwasjustcurious:what'ssortofassumedasitrelatestothecapitalstructureinthat$0.22?SoIguessproformaleverageandthentheassumptiontogettothe$0.20to$0.22onthecapstructure.
RobertProbst (EVP,CFO):
Jordan,it'sBobhere.Intermsofourleverage,Ventasproforma,postbothArdentandCCP,whatisinherentlyassumedisanetdebttoleverageslightlyabove6times.Thatis,inpart,whywereinforcedourcommitmenttothe5to6timesleverageinthetoolsinourtoolkittogetthere.Ithink,asInoted,intermsofthedividendfromordistributionfromCCPthatisgoingtobeanetreductionindebt,butobviouslythestrongbalancesheetthatCCPisgoingtohavetopursueitsacquisitionstrategyisgoingtonet-netbe
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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modestlyleveragingforus.Sothat'showweendupatthatslightlyabove6timesnumber.
JordanSadler (Analyst-KeyBancCapitalMarkets):
Okay.Andthe$0.20to$0.22reflectsthatdividendfromCCP,essentially?
RobertProbst (EVP,CFO):
That'scorrect,yes.
DebraCafaro (Chairman,CEO):
Yes,itreflectsit--.
RobertProbst (EVP,CFO):
Andinterestexpensearisingfromthedebtreductionisincluded.
JordanSadler (Analyst-KeyBancCapitalMarkets):
Okay,okay.Andthen,inthepressreleasethereis--youtalkaboutsortofthefundingofArdentcomingfromafewdifferentcomponents,includingobviouslyequity.Anythoughtssurrounding--andI'mnotaskingyouaboutthat.Justaroundassetsalesandwhatthescopeofthatmightlooklike;anyopportunitytopickasasourceoffundingaswell?
DebraCafaro (Chairman,CEO):
Youarerightonpointthere.Wehavealreadysold$600millionofassetsthisyearandBobtalkedaboutdifferentclubsinourbag.I'mnotagolfer,butIknowwhatthatmeansandthatmeanswehavealotofopportunitiestorecyclecapitalaspartofthis,asIspokeaboutportfolioenhancementsaswellandcapitalrecycling.Andsoweareveryconfidentinourposition.
JordanSadler (Analyst-KeyBancCapitalMarkets):
Okay,thankyou.
Operator :
MichaelKnott,GreenStreetAdvisors.
KevinT yler (Analyst-GreenStreetAdvisors):
Goodmorning.It'sKevinTylerherewithMichael.Justnowthatyourcostofcapitaladvantageisvirtuallygone,yoursharesaretradingclosertoNAVasweseeit,howdoyouthinkaboutapproachingcapitalallocation?
DebraCafaro (Chairman,CEO):
Good.Firstofall,
DebraCafaro (Chairman,CEO):
Good.Firstofall,IamabsolutelyenthusiasticthatourcostofcapitaladvantageisgoingtoreturnandthatispartofthevaluecreationopportunitythatItalkedaboutandthequalityoftheportfoliothatwehave.SoIamexcitedaboutthat.AndasImentioned,wehavemanagedthiscompanyandgrownthrougheverypossiblecapitalmarketsreinforcementandeconomiccycle.WealwaysfindawayatVentastodelivervalueandresults.Wedoitagainandagainandagain,andsoIfeelgoodaboutour
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ability,whetherit'sthroughcapitalrecyclingorotherways,tocontinuetogrowanddrivevalue.Ithinkaswe'vesaidaboutthehospitaldeals,wethinkweareskatingtowherethepuckisgoing.Wethinkit'sgreatrisk-adjustedreturn.Wearebuildinganewbusinessinanareawherewereallycanhaveanadvantageandweclearlycanbeprofitableforshareholders.SoIthinkwearetakingalltherightstepstopositiontheCompanyforcontinuedgrowth.
KevinT yler (Analyst-GreenStreetAdvisors):
Thanks.JustshiftingtotheUKforasecond,canyoutalkaboutyourappetiteinthatmarketcurrently?Obviouslyseeingthe$90millionorsothatyouputtoworkthere.Butcanyoujustgiveussomecoloronthatopportunitysetandifyouhaveanyconcernssurroundingsomeofthestaffing,nursingshortagesthatwe'vereadabout?
DebraCafaro (Chairman,CEO):
Well,again,theUKmarketsharesalotofthecharacteristicsthatwetalkedaboutintermsofbeinganattractiveinternationalmarket,whichareobviouslydemographics,policysupportforhealthcareandseniors,veryhighandefficientcapitalmarketsenvironmentsothatyoucanmatchfundandeffectivelyhedgeyourcashflows.Andabigenoughmarket,addressablemarketforustomakeallthebraindamageworthit.AndsoweobviouslyhaveidentifiedtheUK.WehadourSpirehospitalinvestment,whichweareveryexcitedabout.Spirebeingthesecond-largesthospitaloperatorintheUK;publictradedwithoverGBP1billionequitycap.Andthat'sgoingwell.Nowwe'veidentifiedCanfordasapartnerthereinthecarehomesmarket.AsImentioned,wedidourfirstdealwiththeminJanuaryandnowdidafollow-ondealwiththemalreadytohelpthemgrowtheirbusiness.Welikethatmarket.Webelievewewillexpandthereovertime,butobviouslyit'sonacase-by-casebasis.Wehaveestablishedsomegoodfootprintsthereandwewillhopetogrowthose.
KevinT yler (Analyst-GreenStreetAdvisors):
Okay,that'sallIhad.Thanks.
Operator :
JohnKim,BMOCapital.
JohnKim(Analyst-BMOCapital):
Follow-uponJordan'squestion.SofaryouhavementionedcapitalrecyclingasthesourceoffundingtheArdentacquisition,butthisyearyouhavebeenbasicallymatch-fundingacquisitionswithdispositions,excludingArdent.Soshouldwebeexpectinganaccelerationofassetsalesinthethirdquarter?
DebraCafaro (Chairman,CEO):
IntermsoffundingArdent,wehaveraised$0.5billioninbondsandwealsohaveafive-yearbankloan.AndasBobmentioned,weraised$100millioninequityduringandafterthequarterintermsofourATM.Sowe'vegotthatfundinginplace,butaswegoforwardagainwehavetalkedaboutamodestamountofadditionalassetsalesandsoonaspartofourcapitalrecyclingandportfolioenhancementsinitiative.
JohnKim(Analyst-BMOCapital):
IthinkBobmentionedonpriorcallsthatthiswouldbealeverage-neutraltransaction.SoIjustwantedtoclarifyisthataday-oneleverageneutralorisitafteracertainperiod?
DebraCafaro (Chairman,CEO):
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
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Goodquestion.
RobertProbst (EVP,CFO):
Thankyouforclarifying.Itwillnotbedayoneleverageneutral.Wethinkitisappropriatetobeabletoshowwithapermanentcapitalstructuretotalkaboutitthatway,butbasedonthefinancingasjustdescribedbyDebbie,itwillbeslightlyleveragingintheshortrun.Again,that'swhywecomebacktothediscussionaroundourtargetfromalong-termandshort-termcapitalstructureperspective.
JohnKim(Analyst-BMOCapital):
Gotit,okay.Debbie,youmentionedequitygroupasanimportantpartnerforyouandyourplantogrowtogether.GiventheCompany'sillustriouspropertybackgrounds,doyouhaveanyideaorinclinationiftheyareattractedtohospitalsasarealestateplay?
DebraCafaro (Chairman,CEO):
Well,it'simportanttonotethatEGI,whichforthoseofyouwhodon'tknowistheprivateequityfirmfoundedandrunbySamZell.70%ofEGI'sinvestmentsareinnon-realestatebusinesses.Andtheyhaveanimpressiveandextensivetrackrecordofinvestingsuccessacrossawidevarietyofindustries,includingenergyandhealthcare.SotheyaretheequitysponsorofArdentOpCo,ourtenant,andofcoursewewillbepartnerstheninhelpingtheopcogrow,butwearetherealpropertypartner.WewillownalltherealestateattheclosingandpresumablyparticipateinowningadditionalrealestateasArdentidentifiesadditionalacquisitionopportunities.AndEGIwillbetheequitysponsorontheoperatingcompanyside.
JohnKim(Analyst-BMOCapital):
Sowoulditsurpriseyouiftheygotinterestedinrealestateinthefutureorhavethoseconversationsnothappened?
DebraCafaro (Chairman,CEO):
Weareclearlythebestowneroftherealestateasapubliccompany,justlikeEQRisthebestownerofapartmentsontherealestateside.AndsoIthinktheinterestreallythereinArdentisinthetenantoperator.
JohnKim(Analyst-BMOCapital):
Gotit,okay.ThenIhadaquestiononyourdispositiondisclosure,whichIknowisrelativelynewandIappreciatethat.ButtherehavebeensixassetsthatyousoldduringtheperiodthathadazerocaprateandIjustwantedtounderstandifthatmeanttherewasnooperatorattheseassetsorifthefacilitywasbasicallycashflownegative.
DebraCafaro (Chairman,CEO):
Notcashflownegative,justnotincomeproducing.
JohnKim(Analyst-BMOCapital):
Sothere'sphysicaloccupancythere?
DebraCafaro (Chairman,CEO):
Itwasaninfinitereturn,butwedidn'thavethatlittlesideways8onourtypewriter.
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JohnKim(Analyst-BMOCapital):
Okay,thankyou.
Operator :
ToddLukasik,Morningstar.
T oddLukasik(Analyst-Morningstar):
Goodmorning.Iwasjustwonderingifyouguyscouldcommentanymoreonthetriple-netdealsdoneinOregonandtheUKontheseniorhousingside,specificallywithregardstothetermsoftheleasesandwhatthelengthsandanyrentescalatorsthatthetenantsmayhaveagreedtoonthose.
DebraCafaro (Chairman,CEO):
Willdo.
RaymondLewis (President):
SotheUKwetalkedabout,whichwastheChurchgatefollow-onfromCanford,whichIthinkDebbiewalkedthrough,whichiswethinkthe(inaudible)arebetween2%and5%.Sothat'sthefollow-ondealwithCanford.AndthesmalldealwedidinOregonwaswithanexistingcustomer,Avamere,whichweaddedtotheirexistingmasterleasethatwehaveinplaceandthat--Iforgetthespecifics,butit'snorthof2%.
T oddLukasik(Analyst-Morningstar):
Andthelengthsarelongertermwithrenewals?
DebraCafaro (Chairman,CEO):
TheChurchgate,ascanbetypicalintheUK,islongerandtheAvamereoneI'mguessingisatleast10years.
T oddLukasik(Analyst-Morningstar):
Okay,thanks.ThendoyouguyshaveanyguidancewithregardstothedividendpayoutratiosforCCPandVentaspostspin?
DebraCafaro (Chairman,CEO):
Ithink--again,goodquestion.Dividendgrowthisanimportantpartofourvaluepropositionand,again,wehave--areveryproudofourtrackrecordof9%dividendgrowthforthelast10years.Whatwehavesaidisonacombinedbasisafterthespinthatthecombineddividendwillgoupbyatleast10%.WesaidintheForm10forCCPthattheexpectationisthattherewillbe75%,76%ofFFOtargeted,normalizedFFOtargetedasthedividendpayoutratio.Bobmentionedourcurrentisabout67%andsothere'sroomforgrowththereandwehavehoveredinandaroundthat70%ish,plusorminus,overtimeatVentas.
T oddLukasik(Analyst-Morningstar):
Okay,great.Thanksfortakingmyquestions.
Operator :
VincentChao,DeutscheBank.
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VincentChao (Analyst-DeutscheBank):
Goodmorning,everyone.Justwantedtoaskaquestionaboutsupplyhere.Itdoesn'tseemtohaveimpactedresultsintheshopportfolioherethisquarterandsoundslikeyoustillexpect4%growthinquartersthreeandfour.Butjustcuriousifyoucouldjustmaybeprovidesomequalitativecoloronwhatyouareseeingonthesupplyside.Itdoesseemlikethatwentupquiteabitversuslastquarter.
DebraCafaro (Chairman,CEO):
ThisisDebbie.I'mgoingtoaskBobtocommentingreaterdetail,butIthinktheimportantthingtoleadoffwithisalsothatthedemandsideisgrowing.Andthedemandsideisgrowinginexorablythroughdemographicsandthefactthattheover85populationisthefastest-growingpartoftheUSpopulation.AndwithinthatthatAlzheimer's,unfortunately,anddementiacarearetwoofthegrowingsubsegmentsofthecarethatweprovide.AndsoIthinkit'sveryimportanttothinkaboutthedemandsideandbalancethatasyoulookatthesupplyside.AndIwilljustturnitovertoBobtotalkaboutthesupplyquestion.
RobertProbst (EVP,CFO):
Wementionedinthepreparedremarksthatourinventoryconstructionpercentageisabout3.2%;thatcomparesfavorablytoNIC.IthinkthatreflectstheadvantagedpositionwehaveinplaceslikeNewYork,aswetalkedaboutearlier.IthinkthatreflectstheadvantagedpositionwehaveinplaceslikeNewYork,aswetalkedaboutearlier.Therehasbeenanuptickincertainmarketsforsure,asNIChastalkedaboutandaswehaveobserved,butagainit'sspotty.Andwelikeourportfoliorelativetowhereweseethatgrowth,sonet-net,notonlydowefeelgoodaboutthegrowthinthesecondhalfasItalkedabout.Andaswethinkaboutthesupplydemandequation,howthatplaysoutovertimewecontinuetobebullishabouttheshopportfolio.
VincentChao (Analyst-DeutscheBank):
Okay.Justmaybeanotherquestiongoingbacktothetriple-netportfolio,the1.9%--1.6%same-storeNOIgrowth.Iknowthatdoesbouncearoundquartertoquarter,andinsomecasestheremightbesomefeesintherelikelastquarter.Butisthe1.6%--wasthereanythingdrivingitdowntheotherwaythistimeoristhatsortofanormalizedrunrateoutsideoffeeincomethatyoumightgeteveryonceinawhile?
RaymondLewis (President):
Vince,thisisRay.Yes,you'rerighttopointoutthatfromanyonequartertoanotherwemayhavemoreorlessfeeincomeinthatportfolioand,asyoulookatitover12-monthperiod,ittypicallyaveragesout.Inthisquarterweactuallyhadatoughercomplastyearbecauseofsomefees,sothathadalittlebitofanimpactonthegrowthrate.But,again,ifyoulookityear-to-dateweareatthat3.2%range,whichisinlinewithwhatanexpectationforanormalizedratewouldbe.
VincentChao (Analyst-DeutscheBank):
Okay,thanksalot.
Operator :
ToddStender,WellsFargo.
T oddStender (Analyst-WellsFargo):
Goodmorning.Forthenewmultitenantmedicaloffice,thepropertiesacquiredintheHCTacquisition,canyougointosomeofthepotentialupsidethatyouarelookingat,particularlythegroupofassetsthatIthinkRaytalkedaboutthatyouplantointernalizepropertymanagementbyyear-end?
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DebraCafaro (Chairman,CEO):
Ithinkwehavealreadyinternalizedpropertymanagementonmostofthem.And,[Todd],doyoujustwanttocommentonwhereyouaredrivingvalueoncewetakethingsoverfromthird-partymanagers?
T oddLillibridge (EVP-MedicalPropertyOperations):
Debbie,asRaypointedout,wehave--ofthe83,37ofthemareagainbasicallysingle-tenanttriple-netleasedassets.Buttheportfoliothatwehaveinsourcedtoday,namely37withtheremainingfive,wearebringingourobviouslyleveragedplatformtothoseassetsandputtinginplace,ifyouwould,notonlythosebestpracticesbutmanyofourcost-savinginitiatives,whichisobviouslygoingtoresultindrivingNOI,whileatthesametimeweseelease-upopportunitiesintheportfolioaswell.
T oddStender (Analyst-WellsFargo):
HaveyouguysbifurcatedwhatthatpotentialNOIcontributioncouldlooklikeonapercentagebasis,justrelativetowhatthesame-storepoollookslike?
T oddLillibridge (EVP-MedicalPropertyOperations):
No.
T oddStender (Analyst-WellsFargo):
Todd,whileIhaveyou,canyouspeaktothenewmedicalofficebuildingyouguysacquiredinIndianapolisjusttohearwhat--?Itlooksliketheexpectedcashyieldis6.3,butmaybewiththetrailingnumberwasandanyoccupancynumbers.
T oddLillibridge (EVP-MedicalPropertyOperations):
We'reexcitedaboutthemostrecentacquisitioninIndy.It'safollow-onreallytoalong-standing,almost12-yearrelationship,we'vehadwithAscension.OrthoIndyisaleadingorthopedicpracticeinIndianapolisandinplace--ithasbeen,Iwouldsay,inthiscurrentfacilityforaboutadozenyearsandwehavearemaining11-yeartermonthelease.Asyousaid,weareinitat6.3withescalators.WeseeitasagreatcontributiontoouroverallportfolioinIndy,whereourcurrentoccupancyinthatportfolioisaround94%,andwecontinuetogetgreatsame-storegrowthoutofthatportfolio.SogoodrelationshipwithnotonlyOrthoIndy,whoisalreadyinourbuilding,butAscensionoverall,whichasmanyofyouknowisaleadingCatholichealthsystemaroundthecountry.
T oddStender (Analyst-WellsFargo):
Great,thankyou.
Operator :
JuanSanabria,BankofAmerica.
JuanSanabria(Analyst-BankofAmerica):
Goodmorning.IwasjusthopingyoucouldspeaktosomeofthelargeM&Awehaveseenintheinsurerspace,happeninCIGNAtoday,andanypotentialincreasednegotiatingleveragetheymayhaveonsomeoftheoperatorsthatcouldimpactprofitabilityinareaslikeMedicareAdvantage.Haveyouhadanyofthoseconversationsordoyouhaveanythoughtsyoucouldshare?
DebraCafaro (Chairman,CEO):
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Great,veryinterestingquestion.Foralltherealestatepeopleonthecall,Iwouldjusttellyouhealthcareissoexcitingandwearesoluckytobeatthissortofcrossroadsofrealestateandhealthcare.Whetherit'sthemanaged-caremaniathatyouareseeingwithalotofconsolidationthere,verticalintegrationwithUnitedandCatamaranPBM;whetherit'sCVSbuyingOmnicare,whicharetwodifferentbusinesses;orhospitalconsolidationaswehavetalkedabout,itissuchadynamictimetobeinhealthcareandthat'spartofwhatisjustsoexciting.Intermsofthespecificquestionyouasked,andIwillgetoffmysoapbox,isthatwhenwetalkaboutwhatkindofhospitalswewanttoinvestin,wetalkaboutqualityandwetalkaboutwhyisArdentagreatportfolio.Inthatcase,itismoreofananalysisofdominantmarketspositions,whichiswhatArdenthas,inareasthathavegoodemploymentprofiles,gooddemographicprofiles,etc.Andso,becauseArdenthasthatdominantmarketposition,wefeelveryconfidentintheircontinuedabilitytodrivepricingandvolumes.
JuanSanabria(Analyst-BankofAmerica):
Withregardstomaybeskillednursing,IknowwehaveseensomeissueswithpressuresonandgrowingshareofMedicareAdvantage.Anythoughtsonthatwithwhatwe'veseenontheconsolidationend?
DebraCafaro (Chairman,CEO):
IwouldsaythatMedicareAdvantagecontinuestobeabiggerpartoftheskillednursingandpostacuteworldandthesuccessfuloperatorswillbetheoneswhoareabletomanageintowhatwillbeashorterlengthofstay.Butbyshowingthattheycandeliveroutcomesthatareattractivetomanaged-careprovidersand,therefore,increasethepipelineofpatientsthatcomefrommanagedMedicare,becausethosearestillveryattractivepatientsfortheproviders.
RaymondLewis (President):
Butourstrategy,Juan,isreallytobackthoseoperatorsthatareconsolidatingintheirlocalmarkets.YouthinkaboutaKindredforinstance,wheretheyhavetargetedtheclustermarketsandtheyarebuildingouttheentirepostacutenetworkwithhomehealthcare,rehab,skillednursing,LTACs,andthatreallypositionstheseoperators,whethertheyareregionaloperatorsornationaloperators,inthosemarketstolineupwellwiththemanaged-careprovidersandprovideanentiresuiteofpost-acutesolutions.
JuanSanabria(Analyst-BankofAmerica):
Okay.Andjustoneotherquestionforme.There'sbeensomepressarticlesaboutyourpotentialinterestinapieceofGEHealthcareFinanceunit.Maybeyoucan'tspeaktothatspecifically,butifyouparticipateingettingloansinsomeform,wouldtheviewbetohavinganangletowardsoreventuallygettingahandontherealestate?Oristhismaybeanotheropportunitythatmaybeweshouldthinkaboutalittledifferently?
DebraCafaro (Chairman,CEO):
Firstofall,mymothertoldmenevertobelieveeverythingyoureadinthepaper,soIwillstartwiththat.Andwedohave--look,wedon'tcomment,obviously,ondealrumorsasamatterofpolicy.Wehaveaverysmallpartofourportfoliothatisaloanportfolio,asBobtalkedabout,andweusethatsparingly.WeareveryfocusedonbeinganequityREITandbuildingthekindofbusinessthatwehavehadconsistentwithourstrategyandreallyfocusedonthesevalue-creatingactivitieswithArdentandTCP.Andthatiswhereourfocusis.
JuanSanabria(Analyst-BankofAmerica):
Great,thankyou.
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Operator :
[DerekBower](technicaldifficulty).
DerekBower (Analyst-):
Thanks,goodmorning.Ijusthadacouplefollow-ups.OnCCP,IbelieveintheForm10theproformaforCCPinthefirstquarterwas$0.72,whichisabout$0.18onVentas'ssharecount.Socouldyoureminduswhatthedifferenceisagainbetweenthat$0.18andthe$0.20to$0.22thatBobtalkedabout?IsthatjustG&Adyssynergies?
LoriWittman (SVP-CapitalMarkets&IR):
Partofwhatyouhavetorememberisit'stheproformaandsoyou'vegotadjustmentsbeingmade,forexample,that--youhavetheacquisitionsthatweremadeinthebeginningoftheyearandproforma-Ingthoseversesotherchangesthataremade.SoIdon'tknowthatthatisreallyagoodrunrate,butthereisaswelltheG&Asynergiesthatareinthere.
RobertProbst (EVP,CFO):
Derek,tofollowonthat,youhavethreetopics:youhavetheunderlyingNOI,youhavetheG&Aimplications,andthenthecapitalstructureimplications.AndthenumberIquotedyouIthinkisourbestviewoftherealproforma.
DebraCafaro (Chairman,CEO):
ImpactonVentas.
RobertProbst (EVP,CFO):
TheimpactonVentasveryspecifically,correct.Andthosethingsdon'talwaysfollowtheaccountingrules,soyou'regoingtohavesomedifferencesthere.
JuanSanabria(Analyst-BankofAmerica):
Okay,thathelps.Thanks.ThenjustgoingbacktotheCCPpipeline,Ray,canyoutalkabout,asyouguysarestartingtoworkthroughthedeals,whatcapratesyouareseeinginthemarketrightnow,whetheritbeforone-offassetsorifthere'sanythingdifferentbetweentheone-offandasmallportfolio?
DebraCafaro (Chairman,CEO):
Therealpropertymarketcontinuestobefirm.Peopleareattractedtoourassetsforthereliabilityandgrowthincashflowthattheyhaveprovided,theneed-basednatureoftheassets.AndsofromacapratestandpointIwouldsaycaprateshavestayedrelativelyconsistentwithwhatwehaveseeninthepastwherehigh-qualityseniorhousingandmedicalofficeisinthekindof5.5to6.AndeveninsomecasesaBportfoliocouldbeinthatrangeifithasotherattractivecharacteristics.Andintermsofskillednursingandpostacute,reallyit'sinthat6to9range,dependingonwhatitisandthecreditandstructureandsoon.
JuanSanabria(Analyst-BankofAmerica):
ButasitrelatestoCCPandtheskillednursingdeals,thatwouldbe,Iimagine,thehigherendofthatrange,so8%to9%.Isthattherangethatyouguysarethinkingaboutfornewdeals?
DebraCafaro (Chairman,CEO):
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ItwilldefinitelybepositivearbitrageintermsofexternalgrowthopportunitiesforCCP.
RaymondLewis (President):
Ithinkthat'sright,Debbie.Andso,yes,Ithinkyouareprobablytrendingtowardstheupperendofthatrange,that7.5%to9%.Theseareoperatorswheretheyhavefewercapitalalternativesandweareabletogetalittlebetterpricingpowerthere,sothatissortofwhatweareseeing.Itstillhassomereallynicepositivenetinvestmentspreadsandthatispartofthestrategicthesisandtheopportunitythatwearelookingtocapitalizeon.
JuanSanabria(Analyst-BankofAmerica):
Aretheseprimarilywithexistingornewtenants,ornewoperatorsthatyouarebiddingon?
RaymondLewis (President):
Both.
JuanSanabria(Analyst-BankofAmerica):
Okay.Thenjustlastoneforme.OntheotherUSmarkets,[yourDaya]portfolio,canyoujustremindusagainwhat'sdrivingthedouble-digitEBITDAorNOIgrowththisquarterandlast?
RobertProbst (EVP,CFO):
Sure,it'sarelativelysmallportfolio.Yourightlypointoutthatithasperformedverywell.We'vegotsomegreatassetsinthatpoolandsome--forexample,anewdevelopmentfromusinCapeCodthatisdoingvery,verywell.Soyouhaveveryspecificsortofdriversthere,butoverallsomestrongassetsinthatpool.
JuanSanabria(Analyst-BankofAmerica):
Okay,gotit.Thanks,that'sallforme.
Operator :
RichAnderson,MizuhoSecurities.
RichAnderson (Analyst-MizuhoSecurities):
Thanks.IthoughtIwasearlyinthequeue;apologizeforkeepingyougoing.Doyouhaveanyidea,maybetoRay,whereyouthinkCCPwilltradefromanimpliedcapratestandpointcomingoutofthegate?
DebraCafaro (Chairman,CEO):
Whatagreatquestion.
RichAnderson (Analyst-MizuhoSecurities):
Thankyou.
DebraCafaro (Chairman,CEO):
Thatisforthemarkettodecideandso--.
RichAnderson (Analyst-MizuhoSecurities):
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
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Yes,itis,ofcourse.Yes.
RaymondLewis (President):
I'vegotmyroadshowcomingupandI'mgoingtodomybesttotellthestory.Andhopefullythemarketwillrecognizewhatagreatcompanywehave.
RichAnderson (Analyst-MizuhoSecurities):
Yes,obviouslyit'smarketdriven,butIdidn'tknowifyouhadacollarthatyouwerethinkingaboutasyouprepareforyourroadshow.Iguesstheanswerisno.
RaymondLewis (President):
We'regoingtodothebesttotellthegreatstorywehaveandwewillletthemarketvaluethat.
RichAnderson (Analyst-MizuhoSecurities):
Okay.Oneofthedifferencesbetweenthisquarterandlastquarterintermsoflanguagewasinthe--andIknowwehavetalkedaboutalittlebitmoreleverageinArdent,buttherewasaleverage-neutrallanguageinthelastquarterasfarasthefundingandnowthathasbeenremoved.Isthatafunctionofyourstockbeingdown10%thisyearoristhatjustclarifyingthelanguagealittlebitbetterbasedonwhatyoujustsaidearlieraboutlong-termversusshort-termleverage?
DebraCafaro (Chairman,CEO):
It'sjustatimingissue.
RichAnderson (Analyst-MizuhoSecurities):
Okay.Sonothinghaschangedbetweenthenandlastquarterandthisquarterintermsofhowyouarethinkingaboutfundingit?
DebraCafaro (Chairman,CEO):
Wecontinuetothinkaboutaccretion,forexample,onapermanent,leverage-neutralbasis.
RichAnderson (Analyst-MizuhoSecurities):
Okay,fairenough.AndthenmaybeaquestionforTodd.Someofthemessaginghaschangedinmymindasitrelatestomedicaloffice,specificallyonversusaffiliatedoff.IthinkmoreandmoreI'mhearingpeoplesaynicerthingsaboutaffiliatedoff-campus.72%ofyourportfolioison-campus.I'mwonderingifyouthinkthatthatmightshowupalittlebitinyourstrategygoingforward.YourpureHCNlikesoff-campusbetterthanmanyothers;I'mwonderingwhereyoustandonthatissue.
T oddLillibridge (EVP-MedicalPropertyOperations):
Ithink,Rich,forthepast20-plusyearswehavealwaysbelievedthataffiliatedis,infact,thenumberoneandkeygoalinallthis,irrespectiveofwhetherit'sonoroff.Itjustsohappensthatwehavebuiltastrongportfoliowithstronggroupofproviders.Asyouknow,96%todayisonand/oraffiliated.Ithinkwhatisimportant,though,isthequalityofthosethatareaffiliated,becauseinfact,89%ofourportfolio,thosethatweareaffiliatedwith,areinvestmentgradeorbetterintermsofcredit.Soweputalotofstockinwhowepartnerwithbytheverynatureofthehospitalandtheiraffiliationwiththehealthsystem.Weareverycomfortablegoingoff-campus.TheHCTacquisitionwewereexcitedaboutbecausetheaffiliationthattheyhaveinthosehealthsystemsandveryleadingprovidersaroundthecountry,asyouknow.Againwhatiskeyintheoff-campusisnotonlythatitisaffiliatedbutitisofasizeandwhatwewouldsay
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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ofacomprehensivenatureintermsofclinicalservicesandqualitythatcandelivertothemarketplace.WehavewhatIthinkisagreatbalancebetween70onand30off,roughly,andIthinkwe'regoingtocontinuetoseesomethingofthatsamebalance.Obviouslythere'salotoftalkaboutoff-campus,butfreestandingandoffandnotaffiliatedoraffiliatedwiththewrongsystem,I'mnotsosurewhatyouhave.
RichAnderson (Analyst-MizuhoSecurities):
Gotyou,thankyou.
DebraCafaro (Chairman,CEO):
Again,affiliatedwithwhomisimportant?On-campuswithwhom?It'simportant.
T oddLillibridge (EVP-MedicalPropertyOperations):
Pickingtherightpartnershasbeenthenatureofthisbusiness,asfarasI'mconcerned,sincewegotinit30yearsago.
RichAnderson (Analyst-MizuhoSecurities):
Thankyou.
Operator :
DanielBernstein,Stifel.
DanielBernstein (Analyst-Stifel):
Goodmorning,andIlookforwardtohearingRayonhiscallaswellinthenextquarter.
RaymondLewis (President):
Thanks,Dan.
DanielBernstein (Analyst-Stifel):
Sojustarealquickquestiononseniorshousingandtheshopportfolio.Itlookslikemanagementfeeswentdownalittlebitinthequarter.Isthat--didmanagementfeestweaklowerbecauseoftheperformanceinshopatalloristhatjustsomeseasonalitythatisnotclearlyvisible?
RobertProbst (EVP,CFO):
Dan,it'sBobhere.Asmallnumber.Ithinkyouwillseefluctuationsovertimeaswejusthaveaccrualsinanyonequarterthatwillvery,soIwouldn'tsayit'sreflectiveofanysortofunderlyingtrend.
DanielBernstein (Analyst-Stifel):
Okay.There'snoresetofanymanagementfeesattheSunriseor--?
DebraCafaro (Chairman,CEO):
No.
DanielBernstein (Analyst-Stifel):
Okay.Then,Debbie,yousaidyouwereskatingtowardsthepuckandIthinkthatyouarereferringtowardsthehospitals.Whatkindofopportunitiesareyouseeingoutthereonthehospitallandscape?
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Areyouseeingmoreconsolidationyet?Doyouthinkyou'regoingtoseemoreconsolidation?IthinkCMSlastweekortwoweeksagoputoutsomemoreexperimentalbundledpaymentsystemsoutthere.SoistheinvestmentinArdentitself,areyouseeing--doyouthinkthere'sgoingtobemorehospitalconsolidationgoingforwardthesamewayweareseeingontheinsurancesideandelsewhereinthehealthcaresystems?
DebraCafaro (Chairman,CEO):
Yes,Ithinkwebelievethatthehospitalsegmentis$1trillionannualrevenuemarketthatishighlyfragmented.Itisrapidlyconsolidatingandtherearen'tenoughofthequalityassetsinpublichandslikeours,sothat'sthebasicthesisoftheinvestments.
DanielBernstein (Analyst-Stifel):
Todd,Iguessmaybeinarelatedquestion,wehaveheardorseenmoremonetizationsmaybeinatrickleofmedicalofficecomingoutfromthehospitalsystems.Areyouseeingmoreofthoseopportunitiestobuymoremedicaloffice?Andonthesametokenareyouseeingmoredevelopmentopportunitiescomingfromthehospitalsystemsaswell?ItjustseemslikeMOBmonetizationsarejusttickingupalittlebitandIwantedtogetyourthoughtsonthat.
T oddLillibridge (EVP-MedicalPropertyOperations):
Iwouldagree.Hospital-relatedorhospital-ownedmonetizationsareaslightpickup,buttobehonestwithyou,it'snothugeoverprioryears.Thatisontheacquisitionfront.Onthedevelopmentfront,wearestartingtoseesomeincreasedactivitythatiscomingoutofwhatIwouldcallsomehistoricalhighsandthengoingtohistoricallowshere.Again,planningbutwhatreallyisconvertingintorealdealsissignificantlydownfromthe2007/2008timeframe;thatisdevelopment.Sowewillseesomeactivity,butwedon'tseeittobeclearlyasrobustasitwasinthepast.
DebraCafaro (Chairman,CEO):
Onthemonetization,Ibelieveweareaswellpositionedasanyonewithour400-plusclientstotakeadvantageofincreasedmonetizationsthatmayoccurandsothat'sgood.WewillcontinuetomindthatasToddhasdoneforalongtime.
DanielBernstein (Analyst-Stifel):
Onequickquestion,Debbie.OneofyourS&P500peers,Simon,announceda$2billionbuybackwithyoursharesdownsome.Underwhatcircumstanceswouldyouwanttobuybackyourshares?WouldthatbeanappropriatestrategyforVentasoristhatnotanappropriatestrategyforhealthcare?
DebraCafaro (Chairman,CEO):
Ithinkourjobsasmanagersandasboardsobviouslyaretobethoughtfulstewardsofshareholdercapital,andovertimethatmeans,aswehavedone,andcreatealotofvaluebygrowinganddiversifyingandbuildingahigh-qualityportfolio.Theremaybetimesinthemarketwhereotherstrategiesareappropriate,suchasdividendincreases,etc.Basicallyourjobistomakesurethatwearepullingtheleversthatareappropriateatgivenpointsintimetomaximizeshareholdervalueandmaintainagoodstrategyandahigh-qualitycompanythatcancontinuetodeliveroverandover.AsIsaid,it'sthehallmarkofVentas.
DanielBernstein (Analyst-Stifel):
Thanksfortakingthecallsandagain,congratsonthegoodquarter.
CompanyName:VentasIncCompanyTicker:VT RSector:FinancialIndustry:RealEstate
EventDescription:Q22015EarningsCallMarketCapasofEventDate:21.16BPriceasofEventDate:63.6
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DebraCafaro (Chairman,CEO):
Thankyou.Ithinkwearehaveonemore,sowho'sbattingcleanup?
Operator :
MichaelCarroll,RBCCapitalMarkets.
MichaelCarroll(Analyst-RBCCapitalMarkets):
WithyourrecentCanfordinvestment,didyousaywherethosewerelocatedintheUK?AndifImissedthis,werethoseexistingassetsorwerethosedevelopments?
DebraCafaro (Chairman,CEO):
Theyarenewly-constructedhomesthatareinandaroundLondon.
MichaelCarroll(Analyst-RBCCapitalMarkets):
Okay,great.ThenhowdeepisCanford'splatformandhowbigcanyougrowthatrelationshipinthenear-term?
DebraCafaro (Chairman,CEO):
Theyareveryexperienced,long-standingoperatorsofseniorhousingintheUKandwebelievewecancontinuetopotentiallygrowwiththem.OvertimeIthinktheyhavemanagedover70homesduringthelast20years.Theyareveryexperienced.
MichaelCarroll(Analyst-RBCCapitalMarkets):
Okay,great.Iknowthecallislong,soIwillstopthere.
DebraCafaro (Chairman,CEO):
Well,thatwasagoodcleanupandIwanttothankeveryoneforjoiningustoday.and,asalways,foryourinterestinourcompany.Wereallyappreciateyoursupportandyourinterest.Lookforwardtoseeingyouagainsoon.Thankyou.
Operator :
Ladiesandgentlemen,thatconcludestoday'sconference.Wethankyouforyourparticipation.Youmaynowdisconnect.Haveagreatweekend.
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