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Ventas, Inc. (NYSE:VTR)

Q4 2009 Earnings Call

February 18, 2010 10:00 am ET

Executives

David Smith - IR

Debra A. Cafaro - Chairman, President and CEO

Raymond J. Lewis - EVP and CIO

Richard A. Schweinhart - EVP and CFO

Analysts

David Toti and Michael Bilerman – Citi

Jerry Doctrow - Stifel Nicolaus

Karen Ford - Keybanc

Craig Schmidt - Bank of America/Merrill Lynch

Rich Anderson - BMO Capital Markets

Bryan Sekino - Barclays Capital

Rob Mains - Morgan Keegan

Tayo Okusanya - Jefferies

Operator

Good day, ladies and gentlemen and welcome to the fourth quarter Ventas earnings conference call. My name is Jennifer and I will be your coordinator for today. (Operator Instructions)

I would now like to turn the presentation over to your host for today's conference, Mr. David Smith of the company. Please proceed Mr. Smith

David Smith

Good morning and welcome to the Ventas conference call to review the company's announcement today regarding its results for the year and quarter ended December 31, 2009.

As we start, let me express that all projections and predictions and certain other statements to be made during this conference call maybe 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, 2008 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 obligation to release publicly, any updates or revisions to any forward-looking statements 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 supplemental disclosure 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, Chairman, President and CEO of the company.

Debra A. Cafaro

Thanks, David. Good morning to all of our shareholders and participants and welcome to the Ventas’ 2009 year-end earnings call. My colleagues and I are pleased to be joining you today from our Louisville office.

Today, I'll provide a company overview, Ray Lewis will discuss our portfolio performance and investment outlook, and Rick Schweinhart will address financial results in detail. After that, we will be happy to answer your questions.

Ventas had an excellent and highly productive 2009, overcoming the severely negative conditions that challenged our economy and capital markets during the year. I’d like to quickly recap some of the Ventas highlights of 2009.

Normalized FFO per share was $2.68, exceeding our guidance of $2.62-$2.65 per share. Notably, 2009 normalized FFO per share compressed only 1% from 2008, despite 9% more shares outstanding, meaning that our entity level FFO grows considerably during the year.

Our cash flow from operations was $422 million, an increase of over 11% from 2008, the passed the data to the S&P 500. We were also named the top financial stock of the decade, providing over 2000% total returns to shareholders during the period. In this regard we led all bank, insurance companies, REITs and diversified financials, total shareholder returns for 2009 alone was 39%.

We purchased or repaid during the year $560 million of bonds and mortgage debts. In 2009 we received an upgrade from Fitch to BBB-, one of only five total upgrades in the REIT sector from all three rating agencies during the year.

We extended our revolver to 2012 and our revolver has total current capacity of $1 billion. We raised $312 million of equity and $341 million of debt financing, we also sold 14 assets and recognized the net gain of over $66 million.

We opened or acquired 6 high quality on-campus medical office buildings all affiliated with highly rated not-for-profit hospital systems. This expanded our MOB portfolio to $1.7 million square feet. We extended the lease term on 108 healthcare assets operated by Kindred, had escalated rent levels of $126 million per year, the lease term for those assets would have expired on April 30, 2010, but was extended until 2015.

We received a unanimous jury verdict in our favor of $102 million in our law suit against HCP for tortuous interference with our 2007 acquisition of Sunrise REIT.

And we ended the year with an excellent balance sheet and liquidity position. Net debt to EBIDTA was 4.1 time, at year end we held over $100 million in cash-on-hand and our revolver capacity approximated $1 billion.

In sum, we have managed the company in a prudent manner that protected the downside and preserved the upside for our stakeholders. We finished the year and the decade consistent with our objectives, as a cash flowing, productive enterprise delivering consistent, superior value for all our stakeholders. Well positioned to drive in a variety of economic capital markets and reimbursing environment and ready to execute our growth and diversification plans.

2010 has begun on a very positive trajectory as well, I’d like to highlight three items in particular. Credit ratings positive momentum, a 4.4% dividend increased and improved earnings guidance for 2010.

First ratings, because of our excellent credit statistic and our cash flowing assets Moody’s recently upgraded the rating on Ventas’s senior unsecured debt to investment grade, awarding us a Baa3 rating earlier this month. As most of you know we have worked long and hard to merit this improved rating, we appreciate Moody’s confidence in us and we now have an investment grade rating from all three major rating agencies. It is a significant accomplishment for any real-estate company to continue ratings improvement in today’s environment.

Second, our board of directors just approved a 4.4% increase in our past dividend to an annualized rate of $2.14 per share. We are pleased to share our stable growing cash-flows with our shareholders while we also retain significant cash flows for growth. This decision demonstrates our confidence in Ventas’ future.

And last we have introduced 2010 normalized FFO guidance of $2.69 to $2.75 per share. In terms of total normalized FFO dollars we expect FFO to grow from $409 million in 2009 to a range of $422 million to $432 million in 2010. Our same store cash NOI growth should increase by 2%-3% for the whole portfolio in 2010.

While our 2010 guidance does not (inaudible) material acquisitions the healthcare real estate sector is large growing and highly fragmented, with REITs owning only about 6% of the total investable assets. The sector generally is not over-levered in contrast with many other real-estate sectors. This should permit private owners to sell assets and obtain a much desired liquidity. As a result we do expect to see increased transactional volume in 2010 compared to the last two years, only time will tell whether these trends will translate into significant investments for Ventas, and if so, the timing and size of those investments. But we do believe we will have the opportunity to reignite our growth and diversification efforts in 2010.

I’m going to turn the call over to Ray who is going to walk you through our portfolio performance and talk a little further about the current investment environment.

Raymond J. Lewis

Thanks, Debbie. Our high quality cash flowing portfolio of healthcare and senior’s housing assets performed well in 2009. For the year same store cash NOI growth on our triple net leased portfolio increased by 3.4%. Cash NOI in our hospitals grew 2.6%, senior’s housing grew 3.2% and skilled nursing delivered 4% growth. Our triple net lease assets continue to have excellent cash flow coverages across the spectrum of independent living, assisted living, skilled nursing facilities and hospitals.

75% of our NOI comes from our pool, multi-facility master leases with credit and structural support and contractual growth escalation. Cash flow coverage through the third quarter of 2009, the latest data available remains stable at 1.8 times, this strong metric has been consistent to 2007, occupancies in the triple net seniors housing portfolio increased 80 basis points in the third quarter versus the second as we saw evidence of occupancy beginning to rise in the third quarter.

The weighted average remaining lease term for our triple net lease assets is approximately seven years and only 1% of our total triple net portfolio is up for renewal before 2013. We expect same store cash growth in our triple net portfolio to exceed 2.5% in 2010. Overall, our pool, multi-facility master leases with credit tenants continue to provide strong and steady contractual cash flow growth to Ventas.

The company’s operating portfolio, which consists of 79 high-end mansion style, assisted living communities, managed by Sunrise Senior Living and 26 medical office buildings accounts for 23% of our NOI, this portion of our portfolio exhibited improving fundamentals during the quarter and ended the year on a strong note. First, let me address our need-driven operating portfolio of senior living communities managed by Sunrise.

We derive 18% of our entity level NOI from this portfolio, there occupancy in our 78 stable communities continue the trend positively during the fourth quarter and increased 70 basis points sequentially to 88.8%. This continued the positive trend and occupancy that began in the third quarter, we are pleased with two consecutive quarterly increases in occupancy for the portfolio.

Notably fourth quarter occupancy and senior’s housing tends to be weaker than the third and industry statistics released by Nick(ph) earlier this week confirm that. Though our Sunrise portfolio distinguished itself by enjoying a sequential improvement in the fourth quarter occupancy and in our Sunrise lease of asset in Toronto known as, Stealth, we continue to gain momentum.

All metrics were positive sequentially in the fourth quarter and Stealth continues to gain occupancy and NOI as the community trends towards stabilization. As a result of these trends our total fourth quarter property NOI for our 79 Sunrise communities was $33.3 million fairly consistent with the $33.4 million we earned in the third quarter. This was slightly higher than what we had projected, driven by improved occupancy and slightly increased average daily rate, which rose to $173 per day in the fourth quarter, off-set by the anticipated higher expenses in the fourth quarter attributable to the spending of repair and maintenance budgets and labor cost.

Finishing the year on such a positive note caused our full year Sunrise results to total $131 million dollars above the high-end of our 2009 expectations that range from $122-$129 million.

Looking forward to 2010 guidance in our Sunrise portfolio, our total NOI projection is $128 - $138 million. The mid-point of this range $133 million represents an NOI increase of 1.5% over 2009. Our projections assume that occupancies will rise slightly ADR will increase about 1.5% and margin may experience some compression due to inflation and expense increases.

So our mid-point NOI expectation assumes that positive rate and occupancy trends continue into 2010. This should result in positive NOI growth for the portfolio absents (inaudible) double every session or another shock to the financial system. Over time very favorable supply demand fundamentals should drive growth in our Sunrise portfolio. With the over-85 population being the fastest growing segment of the U.S. population and virtually no new assisted living supply coming online in 2010 or 2011 the conditions are right for excellent performance as the economy improves.

Our medical office building portfolio, which now totals over 1.7 million square feet and represents 5% of our NOI also performed well this quarter substantially all of our 26 MOBs are on the campus of major hospital systems. In our 21 stabilized assets occupancy was a strong 94.7% in the fourth quarter. Before occupancy and our same store stabilized portfolio of 18 MOBs increased sequentially by 50 basis points to 94.4% and generated NOI of $4.8 million and increased of 2% compared to Q3 2009.

We also continue to have strong results in our MOB lease-up portfolio. We have added three development assets to this pool since the fourth quarter of 2008 all of which were on-time, on-budget substantially preleased and generating positive NOI to Ventas. NOI for the four lease-up assets we own in both the third and the fourth quarters of 2009 increased by 20%.

Leasing prospects for this portion of the portfolio are good, including 54,000 square feet of leases signed but not yet in occupancy and a strong forward pipeline of potential tenants. When tenants who have already signed leases have moved in, the occupancy on our five lease-up assets should rise from 74%-87%.

In the fourth quarter we began investing again but purchasing four Class A, on-campus medical office buildings valued at $77.7 million. The MOB acquisitions should provide Ventas with unlevered yield succeeding 8%.

In sum, our growing MOB portfolio provided stable and increasing NOI to Ventas in 2009. As you saw with our MOB acquisition activity in December we’re beginning to put capital to work to continue to grow and diversify the company. Moreover we are seeing an increase in flow of opportunities across all asset classes in the healthcare and senior housing spectrum. And although we are shifting to a more offensive stance on acquisition, we remained disciplined in our investment approach and continue our practice of targeting high quality, accreted investments with excellent operators that can create long-term value for shareholders.

With that I’ll turn the call over to Rick Schweinhart to discuss our financial results.

Richard A. Schweinhart

Thanks, Ray. The highlights to the fourth quarter are the operating income increased 1% from the third quarter, resulting in normalized FFO of $0.67 per delivered share, additionally we continue to focus on maintaining a strong balance sheet, doubling liquidity and increasing cash-flows from operations. As Debbie mentioned we are extremely pleased that Moody’s raised our rating to investment grade earlier this month. We now have investment grade ratings from all three rating agencies; we also have increased our revolver from the September capacity of $167 million to $1 billion.

The (inaudible) in April of 2012 has increased from $590 million to $800 million. At December 31, our cash balance was $107 million and we have only $8.5 million outstanding on our revolving credit facility, currently $992 million of undrawn availability and cash-on-hand of approximately $155 million. Our credit stands for being very good with net debt to pro forma EBIDTA at 4.1 times and our fixed charge coverage ratio at 3.2 times we closed 2009 with debt to enterprise value of 28%.

Early 2009 we repaid our purchase $411 million of our senior notes and reduced our mortgage balances by $148.7 million, which $25 million of normal periodic principal amortization. We have $175 million in total debt maturities in 2010, excluding normal periodic principal amortization payments, most of which is mortgaged debt. Our cash-flows from operations for the year ended December 31, 2009, increased 11% to $422 million, from $380 million from last year.

Turning to (inaudible) for the quarter, fourth quarter normalized FFO was $104.8 million or $0.67 per diluted share. Normalized FFO excludes merger related expenses and (inaudible) of approximately $1.6 million. Fourth quarter normalized FFO increased from third quarter to primarily NOI increases in our MOB portfolio due to acquisitions and lower D&A.

Interest expense increased to $44.6 million from $43.6 million in the third quarter, primarily as a result of additional interest expense from our GSE mortgage financing of $173 million at 6.3%, which closed in the second and third quarter. D&A was $8.2 million down $1.4 million from the $9.7million in the third quarter, primarily as a result of lower non-cash stock based compensation.

Weighted average shares outstanding remained fairly plaid at $156.7 million in the fourth quarter, versus $156.5 million in the third. Fourth quarter FAD per diluted share was $0.62 compared to $0.63 in the third quarter as a result of higher routine capital expenditures in the fourth quarter, down when we compare the fourth quarter 2009 normalized FFO per diluted share to the fourth quarter of 2008.

Normalized FFO grew 11.5% to $104.8 million from $94 million from last year and the fourth quarter FFO per diluted share was $0.67 compared to $0.66 last year. Triple-net leased revenues grew to $117 million from $114.4 million, primarily due to contractual escalations. It is important to note that (inaudible) NOI increased 3% to $33.3 million this quarter from $32.2 million from last year. Also year-over-year our medical office building NOI grew to $6.7 million from $5.3 million, primarily due to acquisitions.

Interest expense decreased to $44.6 million from $50.6 million last year. Principally due to debt repayments and senior note purchases. Our weighted average cost of debt is about 6.6%.

G&A was $8.2 million in the fourth quarter of 2009, down $2.9 million from the $11.2 million in 2008, primarily as a result of low professional fees. Weighted average shares outstanding increased 9.5% for the fourth quarter of 2009, versus the comparable 2008 period to $156.7 million from $143 million. The share count increased due to our April 2009 equity offer.

Finally, left to compare the year ended December 31, 2009 to 2008. Normalized FFO grew 8% to $409 million from $379.5 million last year and FFO per diluted share was $2.68 compared to $2.71 last year. Triple-net lease revenues grew 2.5% to $465.2 million from $453.7 million primarily due to contractual escalations.

Internalized NOI decreased to $131 million from $138.8 million last year, which was better than forecast due to rising occupancies in the portfolio. (inaudible) off-set by higher expenses. Last year’s results benefited from about $4 million in expense credits that didn’t reoccur in 2009. On a reoccurring basis NOI’s down 3% in the portfolio year-over-year. Year-over-year our medical office building NOI grew to $23.2 million from $17.3 million due primarily to acquisitions and lease-up activity.

Interest expense decreased approximately 13% to $178.5 million from $204.5 million last year, primarily due to lower debt value. G&A decreased from 4.5% to $38.8 million in 2009, from the $40.7 million in 2008. G&A as a percentage of total revenues fell to 4.1% from 4.4%. Weighted average shares outstanding increased 9.2% in 2009 due to equity issuances.

And finally, guidance; as Debbie mentioned we are initiating 2010 normalized FFO fully diluted share guidance at $2.69-$2.75, without NOI from some of those (inaudible) operations expected to be between $128-138 million. The mid-point of our initial 2010 guidance is $2.72, which represents 1.5% of FFO per share growth in 2010.

There is an $0.08-$0.09 dilution in 2010 from our 2009 debt and equity offerings in asset sales, which were completed in 2009 to strengthen our balance sheet and to slightly higher 2010 G&A. This should be more than off-set by positive, strong increases in FFO from contractual escalations from our triple-net portfolio. The full-year impact 2009 investments increased that a lot from our centralized managed communities and in a creative use of cash-on-hand during 2010.

Our key assumptions for our guidance (inaudible) that total summarized NOI from our 79 assets bring us from $128million to $138 million. G&A expenses range between $39 million and $41 million and we invest our cash-on-hand. But our guidance does not include other material acquisition or vesture activity, deal cause, capital transaction or litigation expenses or proceeds.

Operator, please open the calls for questions.

Question-and-Answer Session

Operator

(Operator’s Instructions) You’re first question comes from the line of David Toti from Citi. Please proceed.

David Toti - Citi

Good morning, everyone Michael Bilerman is here with me as well. My first question has to do with something you’ve talked about in the past few calls and that’s with regards to diversification and your strategy in looking at other asset classes. I was wondering if you could update us on that strategy, the assets you’re looking at, perhaps the near-term timing and maybe some yield expectations.

Raymond J. Lewis

Sure David, this is Ray. I think consistent with our past views, we remain interested in all assets of healthcare and senior housing asset classes, medical office and seniors housing I think remains primary areas of emphasis for us, where we think there are attractive risk adjusted returns and we like the demand and supply fundamentals.

We think that skilled nursing may provide some opportunities to get revision opportunities as a number of the private companies look to either recapitalize or deleverage, so that’s another area where in the year-term there could be some good opportunities.

And then long-term we continue to build relationships with quality healthcare systems and hospitals we hope will provide a opportunity to make a attractive real estate investments either by acquiring or developing medical office buildings or in providing other capital to their real estate needs.

David Toti - Citi

Great and then what about some of the more peripheral assets like life-science or laboratories or lifestyle retail oriented assets.

Raymond J. Lewis

I think those sectors are attractive for us they are areas that we do not have a footprint in right now. I think not unlike how we entered the office medical building state, we were to look at those types of assets, we would do it in conjunction with either acquiring or partnering the expertise, but I think not unlike how we enter the medical office space, if we were to look at those types of assets. We would either in conjunction with acquiring or partnering with expertise but I think those spaces hold appeal and could be another source of diversification for us if we could find attractive opportunities.

Michael Bilerman - Citi

Debra and Ray, it's Michael Bilerman speaking. Just curious how you think about accretion. You talked about making accretive investments and I'm just trying to think about how you think about that from a – relative to cost of capital versus …

Debra A. Cafaro

Right. We do think about it in a couple of different ways. I mean, one is for example we have assumed we invest our cash on hand and clearly that will be accretive. Just proportionally so because it earns virtually nothing as it sits on our balance sheet, so the whole acquisitions department is pretty much lining up to get their deal for that $100 million so that they can get all that good accretion. So obviously I mean that's real earnings growth but it is somewhat artificial when you take a longer term view and you step back and – you know putting all joking aside, when we look at acquisitions we're looking at our long term cost to capital which we believe is continuing to decrease. We do have an attractive balance sheet and liquidity position, and we have a lot of liquidity available to make acquisitions, and we think because of our investment grade rating that we should be able to continue to drive down our cost to capital. Our long term cost to capital. Which has been our goal because that's really how you make money over the long term and we believe we need to invest over that long term cost to capital to really make money and drive value for the franchise. So that's what we've done over time and that's how we think about it.

Michael Bilerman - Citi

And that hurdle right (inaudible) when you think your weighted cost to capital is sort of an eight, eight and a half?

Debra A. Cafaro

It's in that seven to nine-ish range over time and we have been able to invest in excess of that and have done so accretively and earned earnings and made money for the firm over I think a long period of time on that basis.

Raymond J. Lewis

And just to add to that, Michael I think one of the things you've seen us do in the past and will continue to see us do in the future is that we tend to match fund out investments over time where we raise capital in the same environment in which we're deploying it and that I think enables us to optimize our fundings against the acquisition opportunities.

David Toti - Citi

Hi, it's David again, thank you. Just one last question with regards to Sunrise and the senior housing assets. Do you think the improvements are due to an unlocking of pent up demand or is it more aggressive marketing and promotion or is it some sort of mix of the two?

Raymond J. Lewis

I think it's probably a mix of the two, I think they're definitely and we heard anecdotally not only from Sunrise but other operators in our portfolio that people had been delaying purchase decisions as they were in any other sector of the economy. You know, in terms of moving into seniors housing. Now in addition to that I think that within our Sunrise portfolio there's been continued and increased focus on targeted marketing and development of referral services which I think has also enabled them to get more actionable and qualified leads in the door so they're able to close on a higher percentage of the folks that they're bringing into the buildings and that's been helpful as well.

Debra A. Cafaro

Yeah, and I mean as we've said, these assets are really beautiful assets that are extremely well located in major metropolitan markets, so they should do well as the economy normalizes. And I think that's part of it as well.

David Toti - Citi

Okay, that's all very helpful, thank you.

Operator

Your next question comes from the line of Jerry Doctrow from Stifel Nicolaus.

Jerry Doctrow - Stifel Nicolaus

I just had a couple things. Just a couple details on the MOB acquisition, Ray, was it $77.7 million or was the price …

Raymond J. Lewis

Yes, the aggregate purchase price was $77.7 million.

Jerry Doctrow - Stifel Nicolaus

And I think you said in the press release that it was like north of 8% in terms of stabilization so are they returning something like six or something now and that will ramp up to eight and I'm just curious what the time frame is on that.

Raymond J. Lewis

No, of the four properties, three are stabilized right now, fully stabilized and occupied and generating north of that 8% yield. One of the properties was recently developed and has leasing in place but not occupancy yet that will generate cash flow in the near term in excess of that 8% yield as well.

Debra A. Cafaro

And one other modeling comment Jerry is that of the $77.7 million, one of the assets, the last one that Ray was just discussing, the value is $15 million plus, and we own a controlling 50% interest in that asset, so just in terms of your own model you probably want to know that.

Jerry Doctrow - Stifel Nicolaus

Okay, thanks that's very helpful. And then just on Sunrise, I mean in terms of your outlook, I think you were talking about occupancy being up, rate being up, margin being down, which you know normally when we think about these things they have very high incremental margins on rate and occupancy. So is there – are you just being cautious here or is there something unusual going on, on the expense side?

Raymond J. Lewis

No, I think when we look out over the year looking at the midpoint of our range what we're really looking at is the occupancy being relatively flat from where it was in the fourth quarter through the year and rising marginally through the end of the year. Rates, really sort of getting your annual rate increases at the beginning of the year and then sort of holding those through the year, but not being able to sort of bump quarter over quarter. And then you've got inflation and expense growth that offsets that and I think that's a scenario that you wold expect to play out in a relatively tepid recovery which is what I think our base case assumes.

Debra A. Cafaro

And then, Jerry, if you are able to raise rates in the 1%-2% range, but expenses, there's inflation, or expenses go up as they often do, I mean that's where the disconnect is probably coming in, the difference in the way you're looking at it and the way you're looking at it.

Jerry Doctrow - Stifel Nicolaus

Okay. And then any comments you can give us about seasonality? Because I mean historically, I think Sunrise, particularly first quarter, is a little softer to that product because of the way they set some of their expenses and stuff or workers comp and stuff rests, so any color on seasonality if you've thought about it?

Richard A. Schweinhart

Yeah. I mean typically the fourth and the first quarter are weaker than the second and the third quarter. We are pretty happy about the way the fourth quarter turned out. It's actually the first time since we've owned the portfolio that the fourth quarter increased over the third quarter in terms of occupancy and that performance of the fourth quarter exceeded our expectations so that's good. I think we're seeing those occupancy trends stable into what we've seen of the first quarter so far, so again I think we're pleased with that. I think you're right to point out that there are a number of expense items in the first quarter that sort of reset and so that contributes some of the softness, but we're hoping that we can kind of stay in that stable range through the first quarter and then try to build again in the second and third quarters.

Debra A. Cafaro

Yeah. I think, Jerry, you're wise to note both on corporate guidance as well as on Sunrise that you don't just take the numbers and divide by four.

Jerry Doctrow - Stifel Nicolaus

Okay. And just, I mean you've obviously got the big war chest — there was an earlier question about acquisitions as well, and any more color you can give us on sort of acquisitions, how soon or is there stuff sort of stacked up or just anything there would be helpful?

Debra A. Cafaro

We could not wait to tell you (laughter).

Jerry Doctrow - Stifel Nicolaus

I'm sorry?

Debra A. Cafaro

We could not wait to tell you, but we'll have to defer until we have a little bit more visibility on timing.

Jerry Doctrow - Stifel Nicolaus

We'll stay tuned, thanks.

Operator

Your next question comes from the line of Karen Ford with Keybanc.

Karen Ford - Keybanc

Hi, good morning. Just one more question on the investment acquisition front, have your targets and strategy there changed at all with the changing outlook on health care reform?

Richard A. Schweinhart

I wouldn't say it has. I think we've targeted mostly assets that are not affected by government reimbursements or highly dependent upon the outcomes of health care reform. I think opportunistically we're going to watch how that plays out over time. I still think there's a lot of variability in what could happen with health care reform, but the bulk of our acquisition and focus being on medical office and seniors' housing is largely outside of health care reform.

Karen Ford - Keybanc

Okay. It sounded like you may be a little more bullish on skilled nursing, is that right or is it just because of the sort of M&A and strategic stuff going on in that sector?

Richard A. Schweinhart

No. I think our appetite is relatively constant for that product type. I think what I was trying to impart was that the opportunity set may be growing just by virtue of what's going on in that space.

Karen Ford - Keybanc

Okay, right. On the rating upgrade, what type of an effect did that have on your unsecured spreads and where do you think you could issue today?

Debra A. Cafaro

Well, our bonds hardly trade so it's hard to get a good read on that, our existing bonds. But I would suggest that we could do sort of five years in the fives and 10 years in the sixes.

Karen Ford - Keybanc

Okay, that's helpful. And you mentioned you wanted to sort of match fund investments at the time that you were doing them sort of longer term, what size investment volumes would you be comfortable doing today before you potentially want to think about doing some equity say, for example?

Debra A. Cafaro

Well, good question. I mean, we ended the year to debt to enterprise value of about 28%. We have managed the balance sheet rigorously, I think for the benefit of our shareholders, and we've proven that you can make money for shareholders without over levering. And so I think that that's important to state up front. That said, I think we do have plus or minus about $1 billion or so capacity within our credit stats to acquire assets without the use of any incremental equity and if and when we would be able to do so, I think that would be a good earnings driver for the company. But we will continue to manage the balance sheet aggressively and relatively conservatively, consistent with our investment-grade rating and our own risk outlook.

Karen Ford - Keybanc

Great, that's helpful. Thanks.

Operator

Our next question comes from the line of Craig Schmidt with Bank of America/Merrill Lynch.

Craig Schmidt - Bank of America/Merrill Lynch

Thank you, good morning. On your press release you stated you were well positioned to execute your strategic growth and diversification plans. I just wonder if you could provide a little more color on what is the diversification plan?

Debra A. Cafaro

Okay. Well, over time Ventas has grown from about a $2 billion company to about a $10 billion enterprise and we have a sort of a four-prong diversification approach. One is by tenant, one is by asset type or payer source which we think is most significant, the other is by geography both state by state geography and even country diversification with our investment in Canada, and finally by operating model, that is triple net versus operation model. And we are trying to create a balanced portfolio that will create reliable growing cash flows that are not correlated with each other, and that's what we have devoted ourselves to as a management team over the last seven or eight years which has created a lot of stable cash flows and a lot of sustainable value for our shareholders. And so our growth and diversification plan is really a continuation of those efforts.

Craig Schmidt - Bank of America/Merrill Lynch

Is there any one of the four prongs that is more important for you to diversify than the other?

Debra A. Cafaro

Well, I mean they're all important because they really — again, what we're trying to do is to fragment the cash flows in differing ways so that the enterprise will continue to be reliable as a whole, and so we balance each of those over time.

Craig Schmidt - Bank of America/Merrill Lynch

Okay, thank you.

Operator

Your next question comes from the line of Rich Anderson with BMO Capital Markets.

Rich Anderson - BMO Capital Markets

Thanks and good morning, everybody. I don't know if I missed this or I missed what you said here, Ray, but did you say you're going to institute a more conservative acquisition approach than in the past? Is that what you said? I thought I heard you say that.

Debra A. Cafaro

I think he said the opposite. Go ahead, Ray.

Raymond J. Lewis

I think I said we would have a more offensive (ph) acquisitions posture, but I meant to say offensive (laughter).

Rich Anderson - BMO Capital Markets

Okay. I was taking notes fast and I missed that. I thought I heard conservative.

Debra A. Cafaro

No, just I think consistent with the past.

Rich Anderson - BMO Capital Markets

Okay, no problem. In terms of investing the cash on hand that you have in your guidance, that's kind of new for you guys. You've always been sort of stripped down FFO, no guidance, no assumption of any acquisitions in the future and so now you have $100 million of investments from your cash so it's understandable, but I'm just curious as to how much of that is an influence on your range of guidance, a new element?

Debra A. Cafaro

Well, we actually did it previously because we think it gives investors a reasonable view of reality and real expectations versus kind of unknown annual acquisition volume expectations. So we have done it in the past and the impact of it really depends on when the acquisitions take place. Obviously the later you do it in the year the less impact it has, the sooner you do it the more impact it has.

Rich Anderson - BMO Capital Markets

All right, but conceivably it could amount to a good chunk of the growth that you're expecting year over year?

Debra A. Cafaro

Presumably some of it, again, depending on what part of the year it occurs.

Rich Anderson - BMO Capital Markets

Okay. For 2010 you're not assuming any acquisitions above that as per usual, but I heard you mention long-term cost of capital and investing above that, but I'm wondering for 2010 would you expect any acquisition activity to be accretive this year or do you have a long-term focus when it comes to accretion from net investments?

Debra A. Cafaro

Well, I mean we would hope that in this environment that assets that we would acquire would be accretive immediately even above and beyond the cash on hand.

Rich Anderson - BMO Capital Markets

Okay. Regarding your sort of focus properties on medical office and senior housing, I'm wondering if you've got a greater interest or maybe you've got your eyes set on larger portfolios as opposed to kind of one off or two off-type transactions meaning that they you as a REIT have a greater competitor advantage that larger the transactions become relative to maybe your private counterparts, and particularly for medical office, that business for your sake is growing and it's kind of like watching paint dry in terms of it getting bigger and the overall size of the company (laughter). I'm wondering if you're looking at portfolios more so than one off transactions?

Debra A. Cafaro

First of all, we like making money even if they're small transactions.

Richard A. Schweinhart

So, Rich, I think the pipeline actually has a mixture of all kinds of opportunities; larger portfolios both in seniors' housing and medical office building and skilled nursing, as well as one-off transactions. I think we've been while maybe watching paint dry, the picture is actually turning out pretty good on the medical office side. I think our portfolio has performed very well, our occupancies are excellent. The cash flow is consistent and growing so we're happy to chip away at it if we can find good large opportunities we can bite it off in a bigger chunk and make money for our shareholders and certainly we'd like to do that, but we're not going to press to make that happen.

Rich Anderson - BMO Capital Markets

Do you feel though you have an advantage the larger the transaction becomes?

Richard A. Schweinhart

Well, certainly our balance sheet, our leverage liquidity, access to multiple capital markets, positions us well.

Debra A. Cafaro

Yeah, and our deal structuring capabilities and our (inaudible) with large very complicated transactions. I think that we have a competitive advantage, definitely.

Rich Anderson - BMO Capital Markets

Okay. And last question is on the $200 million of the credit facility expires this April. What are your plans there? I don't know if you mentioned anything.

Debra A. Cafaro

Well, we're happy with an $800 million revolver, but we certainly have said in the past that we would continue our discussions with lenders who want to support the company and provide valuable liquidity and we do continue those discussions and as opportunity presents itself I think we would increase our revolver probably up to a total 2012 maturity of the billion that we have now.

Rich Anderson - BMO Capital Markets

So it's conceivable that that $200 million could shift into the other —

Debra A. Cafaro

Exactly, it's structured in that way.

Operator

Your next question comes from the line of Bryan Sekino from Barclays Capital.

Bryan Sekino - Barclays Capital

Hi, good morning. Just a quick question here on potential acquisitions in senior housing. With fundamentals kind of on the upswing here, can you kind of comment on your appetite for doing something similar to this similarly structured to the Sunrise where you own kind of the cash flows and what you're seeing out there in terms of availability for those types of opportunities?

Richard A. Schweinhart

Sure. I mean I think our general focus in the company, and remember that 75% of our portfolio is still triple net lease income and so our general focus for the company will be to continue to do triple net lease structures on high quality assets with strong operators. I think we are unique in that we have used our TRS in the Sunrise transaction. We have the ability to structure and we have the infrastructure in place to asset manage and monitor those types of investments and if we were to find assets that had more upside or more lift in the near and longer term, that would be appropriate for that structure. We could plug and play those today. So I think you shouldn't expect us to shift the business in that direction, but we can use it as an opportunistic way to provide a little incremental growth in cash flow for our shareholders.

Bryan Sekino - Barclays Capital

Got it, thanks.

Operator

Our next question comes from the line of Rob Mains of Morgan Keegan.

Rob Mains - Morgan Keegan

Thanks, good morning. Just a couple odds and ends here, one followup to Jerry's question about Sunrise and Debbie, maybe this speaks to your comment about kind of looking at things dividing by four. Are your Sunrise assets mostly now on a January 1st rent increase schedule rather than kind of randomly through the year?

Debra A. Cafaro

On some, not all.

Rob Mains - Morgan Keegan

Okay. And then on the very first page of the supplemental it shows that you have 80 senior housing operating assets, 79 is Sunrise, what's the other one?

Debra A. Cafaro

We actually have a Sunwest asset that we have as an operating asset now that's being managed for a benefit.

Rob Mains - Morgan Keegan

Okay. And it's an external manager?

Debra A. Cafaro

Yes, it is.

Rob Mains - Morgan Keegan

All right, that's all I had. Thanks a lot.

Operator

Our last question comes from the line of Tayo Okusanya of Jefferies.

Tayo Okusanya - Jefferies

Hi, everyone. Congratulations on a great quarter and a very good 2010 outlook. I'm very happy with it.

Debra A. Cafaro

That's great.

Tayo Okusanya - Jefferies

A couple of quick questions, going back to this whole idea of the acquisition outlook and health care reform, I mean if there's this idea out there that if there's no health care reform you don't get all these uninsured people getting insured, doesn't that end up deeming demand for MOBs and how would you generally view that in that kind of world and especially with your focus on trying to build your MOB platform?

Richard A. Schweinhart

Well, I think when we look at health care reform in its prior iteration we never really tried to handicap what the final bill would look like in detail. We always said look, there's a couple of things that are the focus of that. One is to create access for more people coming into the health care system, the so called 15-45 million, pick your number, uninsured, and then also managing costs in a low-cost setting environment. We always felt that our portfolio is well positioned, the assets that we were targeting we well positioned to play into those incremental benefits, but I think whether or not health care reform comes, MOBs, for instance, are still very well positioned. They're the first place where the aging baby boom demographic touches the health care system and they're turning 65 in this year and next year.

So that dynamic hasn't changed. The funding of that hasn't changed so I think that the things that we liked about medical office buildings remain intact. What may have changed is whether or not there are going to be another pool of currently uninsured people that would have access to sort of hyper drive those growth drivers.

Debra A. Cafaro

And again, I mean while we think that clarity on health care reform is good, we don't view it as black and white. I mean there's great opportunities in health care real estate with and without health care reform that are underpinned by the demographics and the size of the state and so that's how we think about it, Tayo.

Tayo Okusanya - Jefferies

So if reform had passed, the additional insured people to you would just have been icing on the case, but irrespective of that you still kind of like where the demand drivers are?

Richard A. Schweinhart

Yeah. I mean it's still the fastest growing segment of the economy. It's still the fastest growing segment of the population. I mean, a lot of that stuff hasn't changed and still remains pretty compelling and as Debbie said, it's a large opportunity set that we own a relatively small portion of. So all of those macro factors remain intact.

Tayo Okusanya - Jefferies

Got it, okay. And then second question, in regards to — I mean, all of the buzz in the air about a lot of the privately held health care real estate whether it's with financial sponsors or whoever, filing S11s or a whole bunch of them thinking of going public during this (inaudible) pro type structures. What's your general thoughts on kind of all that buzz and how do you think it would potentially impact the overall landscape if a seat of these things actually do go public and you end up with a whole bunch of new health care REITs?

Debra A. Cafaro

Well, I mean for one thing I do think it shows the desirability of our sector and investor interest in our sector which has proven itself out over long periods of time to be a reliable growing business. So it will be interesting to see how many of these things play out and I don't want to say more than that other than I think it's a compliment to our sector that there's so much interest in health care real estate.

Tayo Okusanya - Jefferies

Do you think there's a way you guys can play all that to your advantage in any way?

Debra A. Cafaro

Well look, we are always trying and working towards building a bigger, better, stronger Ventas, and delivering value to our stakeholders.

Richard A. Schweinhart

But, Tayo, to add to that I mean I think what's driving all of that activity is the desire of these entities to recapitalize, deleverage, and take advantage of what's an improving capital markets environment generally. And that should bode well for all the health care REITs to plug in and participate in that whether it's in a large-scale solution or as part of a bigger solution.

Debra A. Cafaro

Right. I mean to me it's really funny, when I started 10 or 11 years ago nobody wanted to be a health care REIT and now it seems like everybody wants to be a health care REIT so I view that as real positive.

Tayo Okusanya - Jefferies

Okay. Appreciate it, Debbie. Thank you.

Debra A. Cafaro

So before we sign off everyone, I want to take a minute to just recognize our colleagues and our board and we've all been very unified and focused in our efforts to move the company forwards these last 10 years and I also want to just express our appreciation all the stockholders and lenders and bondholders, bank holders, analyst, rating agencies, and especially our tenant operators whose trust and support have really been essential to our growth and success and I want to assure everyone that all of you have our unwavering commitment to continue to work hard and smart and with integrity and transparency so that we can build long-term sustainable value and a company that we can all be proud of. So thank you for joining us. We really look forward to seeing everyone soon.

Operator

Thank you for your participation in today's conference . This concludes today's presentation. You may now disconnect. Good day.

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