Health Care REIT, Inc. (HCN)

HCN 
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Health Care REIT, Inc. (HCN)

Q2 2010 Earnings Conference Call

August 5, 2010 10:00 AM ET

Executives

Jeff Miller – EVP, Operations and General Counsel

George Chapman – Chairman, President and CEO

Charles Herman – EVP and Chief Investment Officer

John Thomas – EVP - Medical Facilities

Scott Estes – EVP and CFO

John Getchey – VP, Senior Housing Underwriting

Analysts

Jerrall Gialty – Morgan Stanley

Dustin Pizzo – UBS

Ross Nussbaum – UBS

Karin Ford – Keybanc

Rich Anderson – BMO Capital Markets

Jerry Doctrow – Stifel Nicolaus

Tayo Okusanya – Jefferies & Company

Todd Stender – Wells Fargo Securities

Rob Maine – Morgan Keegan

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Second Quarter Health Care REIT Earnings Conference Call. I will be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As reminder, this conference is being recorded for replay purposes.

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

Jeff Miller

Good morning, everyone and thank you for joining us today for Health Care REIT’s second quarter 2010 conference call. If you did not receive a copy of the news releases distributed late yesterday afternoon, you may access them via the company’s website at www.hcreit.com. A live webcast of today’s call maybe accessed through the company’s website.

Jeff Miller

Thank you, Tonya. Good morning, everyone and thank you for joining us today for Health Care REIT’s second quarter 2010 conference call. If you did not receive a copy of the news releases distributed late yesterday afternoon, you may access them via the company’s website at www.hcreit.com. A live webcast of today’s call maybe accessed through the company’s website.

Certain statements made during this conference call maybe 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 attained.

Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news releases and from time to time in the company’s filings with the SEC. With that, I will turn the call over to George Chapman, our Chairman, CEO and President, George.

George Chapman

Thanks very much, Jeff, good morning. Needless to say, the Management Team was quite pleased with our quarter. We’re on track to record the highest annual investment volume in our history. We are also very pleased to announce the partnership with Merrill Gardens. As you know, in the last couple of years, we’ve managed the company in a conservative fashion during the capital-constrained downturns in the economy. Yet, even during that time as we reported, we used this time to strengthen all of our capabilities and add key personnel. We also maintained dialogue with excellent, existing and new operators in health systems as we awaited economic improvement and reasonably-priced capital.

And now, we’re here. And we’re pleased that our investment platform is operating as planned. We now expect to make investments in excess of $2 billion this year, with strong investment performance continuing in 2011 and beyond. In turn, these investments should drive, and are driving, significant earnings growth as well. And we are quite pleased to raise our dividend and would expect continued increases going forward. Not surprisingly this morning, our primary focus will be on our investment success, as well as the reasons for the success and the reasons for our confidence going forward.

In virtually every call, I have emphasized the critical importance of our full-spectrum investment platform. This platform permits us to knowledgeably invest in facilities from early stage senior housing to hospitals. In doing so, we can pick the best risk reward, the best projects, the best operators. We are capable of doing so due to our team that has expertise across that entire spectrum. We benefit as well from our development and property management capabilities that permit us to provide solutions to operators and systems. In short, we are much more than simply a capital source.

They key to our success continues to be our relationship approach to investing. We looked back at our five years and found that 80% or more of our investments came from existing relationships, off-market opportunities. We know the operators and systems and have confidence in their ability to deliver quality care in an efficient manner. They know our commitment and in turn to them, in our flexibility. Moreover, they have witnessed, firsthand, our ability to add value to their projects and programs. And you should note that we, regularly, add new operators to our relationship programs.

Due to this relationship approach, we generally do not need to pursue auction transactions to make our year. We believe that too often, these situations tend to price at high levels and do not necessarily engender the relationships that produce future success. Moreover, these large transactions entail concentration risk which we work hard to avoid.

Year after year, we have recurring business with our operator and health system base and that provides a predictable, high level of investment support, while maintaining our sector-best diversification. Last night, we are very pleased to announce our expanded, deepened relationship with Merrill Gardens. Our $817 million, 38-community venture with Merrill Gardens has all of that element we believe are important for any greater (ph) partnership, first-class operator, quality real estate in attractive markets, greater growth potential than our typical rental escalators and a very strong alignment of interest.

In this case, we have been doing business with Bill Patent (ph) and his team for nearly 15 years. They have operated in good and bad times and have the seasoning that comes from those experiences. The real estate is high quality and, generally, in a high (ph) entry markets in Washington and California. And we believe that this should provide strong pricing power as the economy continues to improve. Moreover, with our 80/20 ownership structure at HCN’s (ph) and Merrill Gardens interests are very well aligned. This is a venture, we believe, should provide excellent growth opportunities for both of us going forward.

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