Ventas, Inc. (VTR)

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Ventas (VTR)

Q2 2011 Earnings Call

August 04, 2011 11:00 am ET

Executives

David Smith - Head of Investor Relations

Raymond Lewis - President

Debra Cafaro - Chairman, Chief Executive Officer, Member of Investment Committee and Member of Executive Committee

Richard Schweinhart - Chief Financial Officer and Executive Vice President

T. Riney - Chief Administrative Officer, Executive Vice President, Secretary and General Counsel

Analysts

Jeffrey Spector - BofA Merrill Lynch

Jerry Doctrow - Stifel, Nicolaus & Co., Inc.

Omotayo Okusanya - Jefferies & Company, Inc.

Karin Ford - KeyBanc Capital Markets Inc.

Philip J. Martin

Thomas Truxillo - BofA Merrill Lynch

Jeff Theiler - Green Street Advisors, Inc.

Richard Anderson - BMO Capital Markets U.S.

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

Todd Stender - Wells Fargo Securities, LLC

Bryan Sekino - Barclays Capital

Ross Nussbaum - UBS Investment Bank

Michael Bilerman - Citigroup Inc

Suzanne Kim - Crédit Suisse AG

Presentation

Operator

Thank you for your patience, and welcome to the Second Quarter 2011 Ventas Inc. Earnings Teleconference. [Operator Instructions] I'll now turn the presentation over to your host for today's conference, Manager, Investor Relations and Capital Markets, Mr. David Smith. Sir, you may proceed.

David Smith

Good morning, and welcome to the Ventas' conference call to review the company's announcement today, regarding its results for the quarter ended June 30, 2011.

As we start, let me express that all projections and predictions, and certain other statements to be made during this conference call may be considered forward-looking statements within the meaning of the federal securities laws. These projections, predictions and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events.

The forward-looking statements are subject to many risks, uncertainties and contingencies, and stockholders and others should recognize that actual results may differ materially from the company's expectations, whether expressed or implied.

We refer you to the company's reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended December 31, 2010, and the company's other reports filed periodically with the SEC, for a discussion of these forward-looking statements and other factors that could affect these forward-looking statements.

Many of these factors are beyond the control of the company and its management. The information being provided today is as of this date only, and Ventas expressly disclaims any obligations to release publicly any updates or revisions to any forward-looking statement to reflect any changes in expectations.

Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure as well as the company's supplementary disclosed schedule are available in the Investor Relations section of our website at www.ventasreit.com.

I will now turn the call over to Debra A. Cafaro, our Chairman and CEO of the company.

Debra Cafaro

Thanks, David, and good morning to all of our shareholders and other participants, and welcome to this morning's call. Today's call is to report on our results and activities for the quarter ended June 30, but we'll also discuss the impact of our NHP acquisition, which closed July 1, as you know.

Ventas has been in an intense period of growth and portfolio construction to create a strong and balanced enterprise. With the recent closing of our Atria and NHP acquisitions, we're now a highly diversified enterprise with scale and over 1,300 healthcare and senior housing assets. We derived almost 70% of our projected annualized NOI from private pay sources, we own or manage a coast-to-coast $14 million square foot medical office building business and we enjoy a combination of high-quality tenant operators, asset mix, operating models and geographic reach.

Our aim with all these activities is to deliver consistent superior risk-adjusted returns to stakeholders. At this point in the year, we are at or slightly ahead of where we expected to be. We believe that consistent superior risk-adjusted return, followed from owning a balanced and diversified portfolio of high-quality senior housing and healthcare assets weighted heavily towards private pay revenue sources, a meaningful exposure to senior housing operating assets located in major metropolitan markets designed to provide lift in a growing economy and limited downside in a slower one, well-covered triple-net leases that should deliver reliable cash flow growth from contractual escalations year-in and year-out and outstanding balance sheet with improving ratings, low debt cost and excellent access to a variety of debt markets, scale to absorb large acquisitions and attract global investment capital, relationships with customers and an investment team that can grow earnings and assets, across this array of sizes, asset types and structures, a cohesive leadership team with continuity and a conservative well-covered dividend with opportunity for future increases.

At the same time, we recognize the imperative of delivering positive near-term results and as such, we're pleased to announced 13% normalized FFO per share growth to $0.80 a share in the second quarter and to increase our full-year guidance to a range of $3.17 to $3.23 per fully diluted share. If achieved, these results would represent double-digit year-over-year growth.

As all of you know, we continue, consistent with our history, to be focused on managing risk in our balance sheet as we grow. We believe the winning combination for shareholders is coupling earnings growth with reduced risk through continued diversification, financial strength and flexibility.

Since the closing of the NHP acquisition, we have obtained 2 ratings upgrades, to high to middle BBB and the endorsement from the bond market of our strategy. Continuing to lower our cost of debt and increase our assets to multiple capital markets is a significant predicate for success in our business.

Today, I'd like to describe what Ventas looks like now and our prospects for the future, my colleagues Ray Lewis, will discuss our portfolio performance and investment outlook; Rich Schweinhart will provide a detailed review of our quarterly financial results and Rick Riney will update you on the pending HCP litigation. Following our remarks, we'll be happy to take your questions.

So here are some of the highlights of how we see the Ventas business now pro forma for NHP, and our views of macro-trends. As a result of our deliberate strategy, we now derive almost 70% of our NOI from private pay sources. Our private pay business includes 117 high-quality private pay seniors housing assets managed by Atria we acquired in May, as well as our 79 Sunrise managed assets. This private pay component has increased from about 55% only 2 years ago.

We are a highly diversified healthcare REIT by tenant manager, asset class, operating model and geography. Our portfolio consists of over 1,300 properties across 47 states and 2 Canadian provinces. Our largest tenant, Kindred Healthcare, which now represents only 19% of our net operating income, is the largest, most diversified provider of post acute-care in the United States, with a business model that includes long-term acute care hospitals, in-patient rehab hospitals and skilled nursing facilities.

We have also worked to intentionally diversify our business by operating segments. We derived about 1/4 of our NOI from our high-quality private pay seniors housing assets located in major metropolitan areas managed by Sunrise and Atria. These assets, best quality, best market and great managers are in a management structure rather than a lease because they should provide lift in a growing economy. We also derive strength from a stable and reliable triple net lease portfolio that represents approximately 62% of our NOI and also includes private pay seniors housing and should provide consistent contractual cash flow growth. Through our investment strategy, we have significantly reduced the portion of our business derived from skilled nursing assets to about 1/4 of our NOI.

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