Health Care REIT, Inc. (HCN)

HCN 
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Industry: Consumer Services
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Health Care REIT (HCN)

Q4 2012 Earnings Call

February 26, 2013 9:00 am ET

Executives

Jeffrey H. Miller - Executive Vice President of Operations and General Counsel

George L. Chapman - Chairman, Chief Executive Officer, President, Member of Planning Committee, Member of Executive Committee and Member of Investment Committee

Scott M. Brinker - Executive Vice President of Investments

Scott A. Estes - Chief Financial Officer and Executive Vice President

Analysts

James Milam - Sandler O'Neill + Partners, L.P., Research Division

Richard C. Anderson - BMO Capital Markets U.S.

Wilfredo Jorel Guilloty - Morgan Stanley, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Jeff Theiler - Green Street Advisors, Inc., Research Division

Michael Carroll - RBC Capital Markets, LLC, Research Division

Nicholas Yulico - Macquarie Research

Tayo Okusanya

Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Health Care REIT Earnings Conference Call. My name is Brooke, and I will be your operator today. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes.

Now I would like to turn the call over to Jeff Miller, Executive Vice President, Operations and General Counsel. Please go ahead, sir.

Jeffrey H. Miller

Thank you, Brooke. Good morning, everyone, and thank you for joining us today for Health Care REIT's Fourth Quarter 2012 Conference Call. If you did not receive a copy of the news release distributed this morning, you may access it via the company's website at hcreit.com. We are holding a live webcast of today's call, which may be accessed through the company's website as well.

Certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Health Care REIT believes results projected in any forward-looking statements are based on reasonable assumptions, the company can give no assurance that its projected results will be obtained. Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news release and from time to time in the company's filings with the SEC.

I will now turn the call over to George Chapman, Chairman, CEO and President of Health Care REIT, for his opening remarks. George?

George L. Chapman

Thanks very much, Jeff. During my more than 2 decades of involvement in the senior housing and health care industry, I cannot recall a time with greater dynamism or opportunities. In 2012, Health Care REIT was both a beneficiary and driver of these dynamic markets. And Scott Brinker and Scott Estes will provide you with a quantitative and qualitative summary of our quarterly and annual investments and performance, but I want to set the stage by touching on some of the most important themes.

First, our strategic plan has focused on maximizing total shareholder return by building a portfolio of high-quality communities and facilities in the strongest markets, operated by the most capable operators and health systems, all as demonstrated by their clinical and operating results. Our recently completed Sunrise acquisition was a milestone in the execution of this strategy, but there are numerous other relationships, developments and acquisitions that also advanced and solidified this strategy. Among the noteworthy investments during the fourth quarter were a major addition of $530 million to our Belmont relationship and the $240 million expansion of our relationship with Brookdale, both through RIDEA investments.

Underpinning this strategic effort is our belief that this portfolio and network of relationships will deliver consistent and resilient returns over the long term. Of the $4.9 billion of investments in 2012, $3.7 billion of them came from existing relationships. And of the $2 billion of fourth quarter investments, 94% came from our relationships. So we really believe in these relationships. I think the real estate is terrific and that our risk-adjusted return profile is very, very strong. As Scott -- and Scott will cover it in more detail, we think our investment thesis has been borne out during the last several years.

Second, the execution of our strategic plan has involved a thoughtful repositioning of assets. We have purposely invested in high-quality facilities and stronger operators with less exposure to government reimbursement. We are particularly focused on private pay senior housing assets that have proven their resiliency in tough economic times. The measure of each new investment for us is whether it will achieve solid, growing yields and steady appreciation over our long investment horizon. We have purposely disposed of assets that did not meet these criteria, including some relatively high-yielding but riskier assets. And as all real estate investors know, there are always a number of assets that do not perform as well as expected, and we are quite aggressive in managing these non-core assets, producing large net gains while driving more internal FFO growth and maximizing long-term value.

Third, we have successfully managed the integration of our operating platform. Practically speaking, integration means engaging in a robust budgeting process with our operators; monitoring and evaluating operations against that budget, and for that matter, industry benchmarks; capitalizing on development and acquisition opportunities with these operators; maximizing operational efficiencies and putting in place a requisite people systems and processes. Before we ventured into the operating space, we believe we have the industry's most experienced and talented people and the industry's best systems.

Those were dramatically strengthened during 2011 and 2012, and the operational results attest to the success of that integration. Our RIDEA platform portfolio has exceeded underwritten expectations in every quarter since our first investment in 2010. And there are also a number of qualitative measures that underscore this success. For example, on various occasions, I have spoken about our facilitation of best practices and group purchasing by some of our RIDEA and triple-net operators while at the same time being mindful of the necessity of competitive independence.

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