Ventas' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.14.14 | About: Ventas Inc. (VTR)

Ventas, Inc. (NYSE:VTR)

Q4 2013 Earnings Conference Call

February 14, 2014 10:00 am ET

Executives

Debra A. Cafaro - Chairman and Chief Executive Officer

Raymond J. Lewis - President

Richard A. Schweinhart - Executive Vice President and Chief Financial Officer

Lori B. Wittman - Senior Vice President, Capital Markets and Investor Relations

Analysts

Juan Sanabria - Bank of America

Michael Carroll - RBC Capital Markets

Emmanuel Korchman - Citigroup

Nick Ullico - UBS

Jack Meehan - Barclays Capital

Jeff Theiler - Green Street Advisors

Richard C. Anderson - BMO Capital Markets

Tayo Okusanya - Jefferies

Daniel Bernstein - Stifel Nicolaus

Karin Ford - KeyBanc Capital Markets

Todd Stender - Wells Fargo

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 Ventas Earnings Conference Call. My name is Lucy and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Lori Wittman, Senior Vice President, Capital Markets and Investor Relations. Please proceed.

Lori B. Wittman

Thank you, Lucy. Good morning and happy Valentine's Day. Welcome to the Ventas conference call to review the Company's announcement today regarding its results for the year and quarter ended December 31, 2013.

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 periodic reports filed with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2012, 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 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 and CEO of the Company.

Debra A. Cafaro

Thanks, Lori, and good morning to all of our shareholders and other participants. We thank you for joining Ventas' year-end 2013 earnings call. Ventas had another outstanding year in 2013 and I'm excited to share the highlights with you today. We remained focused on delivering consistent superior results for our shareholders. Following my overview of 2013 and our initiation of 2014 earnings guidance, Ray Lewis will discuss our portfolio results and Rick Schweinhart will review our financial performance. We'll be happy to answer your questions after our prepared remarks.

Ventas' outstanding performance in 2013 showed our ability to execute our strategy consistently, manage risk proactively, invest accretively, refinance opportunistically and run our assets productively. Now we are $28 billion enterprise with a diversified business model, fantastic balance sheet, nearly 1,500 productive senior living and healthcare assets, and expected NOI of $1.8 billion.

Here are some of our notable achievements for the year. Total normalized FFO topped $1.2 billion. Normalized FFO per fully diluted share grew 11% excluding non-cash items and 9% on a reported basis. Yearly cash flow from operations increased more than 20% to $1.2 billion. We generated over $300 million in free cash flow after dividends and capital expenditures. In 2013, we increased our dividend by 10% while maintaining a 67% payout ratio, the strongest in our sector.

We delivered excellent same-store cash flow growth in 2013 by managing our assets productively. Company-wide, our same-store cash NOI growth was 5% in 2013, including 6% in our Atria and Sunrise managed communities. We invested about $1.9 billion during the year with the lion's share invested in stabilized high quality private-pay senior living communities and medical office buildings with new tenants and existing relationships. We also allocated about $100 million to development and redevelopment in 2013.

Our return from the acquisitions exceeded 7% and our redevelopments are underway to providing future growth. We continued our opportunistic and effective capital strategy in 2013, raising $5 billion in debt and equity. At year-end, our borrowing cost improved to 3.8% and our weighted average debt maturity lengthened to seven years.

From a governance and enterprise reliability standpoint, we continue to benefit from a strong and cohesive Board of Directors and an enduring commitment to integrity and transparency. Consistent with our principles, we are pleased to provide enhanced supplemental disclosure this quarter, as promised.

In sum, Ventas produced exceptional high quality and sustainable results in 2013. We believe that growing cash flows at increasing levels year after year while maintaining financial strength and flexibility will protect and increase equity and franchise value for our shareholders, We intend to execute on those principles once again in 2014. Today, we are initiating 2014 normalized FFO guidance of $4.31 to $4.37 per diluted share. This range represents 5.5% to 7% year-over-year growth in normalized FFO per share, excluding non-cash items and unannounced investments.

Finally, let's talk about the external environment. Our business is at the center of many gigantic secular trends in the U.S. and the world. One is the ageing demographic of course with both baby boomers and the over 85 population growing at a rapid rate. Another trend is the overall growth in healthcare spending. A third is the increased access to our healthcare delivery system initiated by the Affordable Care Act. And a final important trend is the increasing change, consolidation and integration of healthcare providers and segments.

As capital partners to our important customers who are on the frontline of delivering quality care to residents and patients in myriad real estate settings, we continue to see wonderful opportunities for Ventas to grow and deliver value to both our customers and our shareholders.

Raymond J. Lewis

Thank you, Debbie. Our balanced and diversified portfolio of 1,473 seniors housing, medical office and post-acute properties turned in another strong performance in 2013 delivering same-store full year-over-year cash NOI growth of 5%. Excluding the $20 million cash payment received from Kindred in the third quarter, our full year cash NOI growth was 3.4%. Same-store cash NOI growth for the fourth quarter of 2013 versus the fourth quarter of 2012 was 4.4% and notably all segments were up sequentially.

I'll break down this strong performance by property type, starting with our seniors housing operating portfolio. 2013 was another year of strong performance in our seniors housing operating communities. At year-end, we had a total of 237 properties in our seniors housing operating portfolio, and during the year, we acquired 16 new high-quality assets, all of which are managed by Atria. For the 195 properties that we own for both the full year of 2012 and 2013, occupancy increased by 130 basis points, REVPOR grew by 3.5% and cash NOI growth was 6% for the full year 2013 versus 2012.

During the second half of the year, we ramped up the redevelopment activity in our seniors housing operating and triple-net portfolios. At year-end 2013, we had 18 redevelopment and development projects totaling a little over $200 million approved or under-construction, and we have another $200 million in the pipeline of projects we are currently evaluating. In addition, we are pleased to provide 2014 NOI guidance on our seniors housing operating portfolio of between $488 million and $500 million. On a same-store basis, we expect between 4% to 6% NOI growth. Finally, as you can see from our enhanced disclosure, NOI from seniors housing operating assets that have new construction within a three mile radius is between 2% and 3% of our total NOI.

Next, I'll turn to the performance of our triple-net leased portfolio which is diversified across 907 seniors housing, skilled nursing and hospital assets. The 822 long-term triple-net leased assets we own for all of 2013 and 2012 delivered same-store cash NOI growth of 4.7%, including the previously mentioned $20 million paid by Kindred, and 2.2% excluding it. Cash flow coverage in our same-store triple-net leased portfolio for the third quarter of 2013, the latest available information, was strong and stable at 1.6 times. Coverage in the seniors housing triple-net portfolio and skilled nursing triple-net portfolio also remained stable at 1.3 times and 1.7 times respectively.

As you can see from our enhanced disclosure, leases with a 1.1 times coverage or better represent the vast majority of our triple-net rent, about 99%. Conversely, less than 1% of our total annualized NOI comes from leases with under a 1.1 times coverage and the weighted average lease maturity of that small amount of annual rent is six years.

Occupancy in our triple-net leased seniors housing portfolio increased by 160 basis points year-over-year and 130 basis points sequentially. By comparison, net reported seniors housing occupancy increased 50 basis points and 30 basis points respectively for the same periods.

As previously announced, we reached a mutually beneficial agreement with Kindred on the 108 assets whose lease term expires September 30, 2014. Under that deal, Kindred renewed 48 of the 108 facilities at a $15 million increase in annual rent and we received $20 million in prepaid rent. As a result, we have already replaced 67% of the rent that is expiring and we are extremely pleased with our re-leasing process on the remaining 60 skilled nursing facilities.

We began the leasing process in the third quarter and significant progress has already been made. We have completed the bidding and due diligence phases, identified replacement operators, and are currently in lease negotiations for substantially all of these assets. We expect to complete substantially all of the transitions by year end. We still believe that the net impact of all of these events will fall within our original expectations of plus $3 million to minus $9 million of NOI in 2015.

Before turning the call over to Rick, I'd like to provide a few comments on our medical office business consisting of 309 consolidated properties accounting for 17% of our annualized NOI. Same-store cash NOI growth for the 184 properties that we owned for both the full year of 2012 and 2013 was an excellent 3.7%. Same-store annual growth would be even higher at 3.9% if we included the Cogdell Spencer portfolio and the joint venture assets that we bought out in 2012 in a same-store pool of 287 MOBs.

2013 was a year in which we used best practices across the portfolio to benchmark performance, focus on expense control, push rate and drive margins. Margins in the same-store stabilized portfolio was 67% in the fourth quarter of 2013 compared with 64% in the fourth quarter of 2012, a 300 basis point improvement. We are also continuing to drive scale and consistent performance in our management business by internalizing our third-party managed assets where appropriate. During 2013, we brought 1.2 million square feet of property management in house to our Lillibridge property management business. As the largest owner of MOBs in the country, we can take advantage of our scale and platform to continue to drive NOI growth.

So, once again, our balanced and diversified portfolio turned in a strong year across the board in 2013. And for 2014, we expect our total portfolio to show same-store cash growth between 3% and 4%, driven by our seniors housing operating portfolio at 4% to 6%, MOBs between 3% and 4%, and our triple-net portfolio ranging from 2% to 3%.

With that, I'll turn the call over to Rick Schweinhart who will discuss our financial results. Rick?

Richard A. Schweinhart

Thank you, Ray. I'd like to focus first on activities during the quarter. Cash flows from operations in the fourth quarter were $359 million, up 27% from the fourth quarter last year. In December, we entered into a new $3 billion unsecured credit facility comprised of a $2 billion revolver priced at 100 basis points over LIBOR and a $1 billion term loan priced at 105 basis points over LIBOR. The loans mature in 2018 and 2019. Proceeds were used to pay down existing unsecured floating-rate debt.

In the fourth quarter of 2013, normalized FFO was $1.06 per diluted share, an increase of 7% compared to the fourth quarter of 2012 per share results of $0.99. Normalized FFO increased 7% to $314 million compared to last year's fourth quarter of $294 million. For the year 2013, normalized FFO was $4.14 per diluted share, an increase of 9% compared to 2012 per share results of $3.80. Normalized FFO increased 9% to $1.2 billion compared to last year's $1.1 billion. Our fully diluted share count rose slightly in 2013.

For the year, cash flow from operations were $1.2 billion, up 20% from the previous year. Dividends totaled $802 million producing a net of $393 million available to invest. For the year, we had $1.9 billion in real estate investments including acquisitions, development and loans. During the year, we received loan payments and disposition proceeds of $358 million. The yields on these investments was 8.6%. Proceeds were redeployed into 2013 acquisitions. Our average cash interest rate improved 30 basis points to 3.8% at December 31, 2013 compared to December 31, 2012, and we have been able to lengthen our weighted-average weighted debt maturities to nearly seven years from six years last year.

At year-end, our credit stats remained outstanding with net debt-to-pro forma EBITDA at 5.5 times, our fixed charge coverage ratio in excess of 4 times, and secured debt to enterprise value of 10%. In December, S&P upgraded us to BBB+ from BBB, bringing all three agencies to a similar rating. Our revolver balance at year-end was $376 million. Currently, our debt to enterprise value is 33% and we have $1.8 billion in liquidity.

We are initiating our 2014 normalized FFO per diluted share guidance at $4.31 to $4.37. It represents per share growth of 5.5% to 7% excluding non-cash items. The guidance does not include the impact of additional capital transactions or unannounced acquisitions or dispositions. Operator, if you would, please open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Juan Sanabria from Bank of America. Please proceed.

Juan Sanabria - Bank of America

Just a question on the [indiscernible] guidance, would it be possible to break down your expectations for same-store growth for the portfolio with and without, I guess I know with developments, but what's the growth expected on an NOI basis without developments and sort of what are the driving pieces in terms of occupancy and rate growth?

Raymond J. Lewis

Juan, this is Ray. So with respect to occupancy, sort of the midpoint assumes that occupancy would increase on average throughout the year about 80 basis points over 2013. Rates would be around a 3% increase. The redevelopment, as we mentioned in the script, we have geared up our redevelopment. The good news for that is we're trying to pump for future growth, but as we increase the amount of redevelopment activity, obviously there will be some units that will come off-line. The net impact of that next year would be probably a reduction in the order of maybe $3 million or so of NOI.

Juan Sanabria - Bank of America

Okay, great. On the dividend, you obviously increased in the fourth quarter about 10% annualized number, should we be thinking of any incremental bumps in this calendar year or sort of what are you thinking in terms of addressing the dividend in terms of timing within a year on a go forward basis?

Debra A. Cafaro

Great question. Yes, we did increase our dividend in the fourth and continued that increase into the first quarter of this year, and as you know, we think the dividend is an important part of our total return proposition and have increased it on a 10% compounded basis over the last 10 years. Because our payout ratio is very, very strong at 67%, we do have room to continue to increase and our Board will be looking at that as we always do on a quarter by quarter basis.

Juan Sanabria - Bank of America

Great, and just I guess the last question, have you seen any sort of pickup in penetration levels in terms of seniors housing demand, maybe any tick down in the average age of people coming into the communities?

Raymond J. Lewis

Juan, this is Ray. No, we haven't seen necessarily a change in the penetration rate or the average age. Obviously as the economy improves, spending generally will pickup and we have seen as the housing market has improved, a continued improvement in the seniors housing market, but with respect to penetration rates or average age, we're not seeing any change there.

Debra A. Cafaro

I do think you're really on to something. So as a secular trend, I think we will see over time increased penetration rates in addition to increased demographics. So that will be a very positive demand trend for our business.

Juan Sanabria - Bank of America

Great, thanks. And you quickly – sorry for the last question – you just mentioned the supply data and I think you quantified it at 2%, but just trying to get some context of how that was – that number came about, how that was calculated for the…?

Debra A. Cafaro

Sure. One comment is, it is important to note that we are projecting and [Nick] (ph) is projecting positive absorption in seniors housing into 2014 and that's very important. I'll turn it over to Ray just to talk about the specifics.

Raymond J. Lewis

Juan, if you look at be enhanced disclosure that we've provided in the supplemental this quarter, you'll see that we've actually laid out the amount of NOI that has construction within a three mile radius, and that on our total NOI base is less than 2%.

Juan Sanabria - Bank of America

Okay, thank you.

Operator

Your next question comes from the line of Michael Carroll of RBC Capital Markets. Please proceed.

Michael Carroll - RBC Capital Markets

Thanks for the additional disclosure on the senior housing portfolio. Are there any markets that you guys are currently in that you're particularly encouraged about that have stronger fundamentals and are there any particular like MSAs in general that supply does worry you?

Debra A. Cafaro

Mike, thanks for joining and I appreciate the comment on the enhanced disclosure. I do want to take a minute to share with our investors and analysts that we've had a team of great people here at Ventas working very hard to provide you with that additional disclosure and information and I want to thank them and it's been a big effort here at Ventas on your behalf. So in terms of markets where we really like the supply/demand fundamentals, I'm going to turn it over to Ray.

Raymond J. Lewis

I mean I would point you to the very first market in the list which is New York, which accounts for 22% of our total NOI. Within a three-mile radius of our properties in that densely populated marketplace, there is really only one property under construction and with 213 units. So we feel very bullish about that market and our assets in that market as an example.

Michael Carroll - RBC Capital Markets

Are there any markets where I guess supply concerns you, maybe Dallas?

Raymond J. Lewis

Dallas and Houston are the two markets where there is the most supply going on. Again, I think if you look at our properties in those markets, there are buildings that are being constructed around our properties, but when you look at the income statistics and the household, the home value statistics within our rings, our markets are very strong from those perspectives.

Debra A. Cafaro

Right, and one of the parts to the disclosure too talked about unemployment and population growth, and if you look at Houston for example, those are off the charts in terms of positives.

Raymond J. Lewis

Exactly.

Michael Carroll - RBC Capital Markets

Then how much does memory care supply really impact assisted living in the course?

Raymond J. Lewis

It's a different product type. I think you're pointing that out correctly. It's the most neat driven product of the seniors housing continuum. It's also been the most underserved product in the seniors housing area traditionally. So it's a highly specialized business for people that need specific services relating to dementia and the assisted-living product itself is more for the frail but mentally cognitive elderly. So there is I think a progression from assisted living into Alzheimer's but I don't think there is a direct crossover because of the specialized nature of the Alzheimer's services.

Debra A. Cafaro

Yes, and then fortunately, given the fact that our population is living longer and longer, the growth in the Alzheimer's population is also quite high.

Michael Carroll - RBC Capital Markets

Okay. And then can you give us some color on the interest you're receiving from the 60 expiring skilled nursing facilities, is there more interest for sales than renewals? And then, Ray, I believe you said this transaction would be completed by year-end but doesn't that lease expire on September 30?

Raymond J. Lewis

Yes, it does, and we would expect to have the vast majority of the assets transitioned by the expiration of the lease looks minimal, potential hold-over depending upon regulatory processes. And then with respect to the interest in the buildings, we've had a lot of interest in the process. This time around I would say we've had a little bit more interest than we had last time from both existing tenants and new relationships. The process has moved very quickly, we have gotten our site inspections and diligence done, we've made significant progress for negotiating as I said with identified tenants for the properties. So this has been a good process where we've been able to leverage what we learned from the last process to move it along quickly. And then finally, I believe you asked about sales versus leasing, we may sell a couple of buildings but the vast majority of the portfolio is targeted for re-leasing.

Operator

Next question comes from the line of Emmanuel Korchman from Citi. Please proceed.

Emmanuel Korchman - Citigroup

It's Manny. Debbie, in your opening comments, you talked about these four gigantic secular trends and I can recognize the deal activity can be lumpy. I also recognize that you like to manage risk, stay disciplined and so that's a gating factor sometimes to Ventas potentially executing transaction activity. But I'm just curious for your thoughts on the overall deal environment. 4Q was light overall, was obviously light relative to the rest of the year. Can you sort of give us a little bit more color on potentially what you see occurring over the next couple of months?

Debra A. Cafaro

Sure, Michael. I mean I think that we really love our business and I think that over time we have demonstrated again and again our ability to get more than our fair share of the acquisition opportunities in a very large and growing sector and I continue to feel very confident about that as we look forward. I would say that you really hit on it when you said, acquisitions are lumpy and the timing is impossible to predict, and so that is why we don't predict our volume or timing. But we've got a great team and a great cost of capital, we're in a great sector where we have different segments where we can allocate capital intelligently at the right time and in different cycles and hopefully create value for our shareholders, and at the end of the day that's what's it's all about. And again, I feel very confident in our team's ability to go out there and take care of business.

Emmanuel Korchman - Citigroup

Is it seller expectations in terms of pricing or is it buyers expectations about where they want to buy at, that's causing a little bit of a freeze in the overall market?

Debra A. Cafaro

One thing I would say is that we have a good pipeline, we are continuing to work on things, I wouldn't characterize it exactly the way you did, and again I do think it's timing and there has been – when you look at the market, I would say our asset types are attractive for the characteristics that they provide, whether it's MOBs or senior housing or other parts of our business, and those cap rates have stayed relatively steady or even have compressed a little bit. We still have a great cost of capital as I said. And so, over time we're going to continue to I think make value creating acquisitions and we are working on things now, but again timing and volume are yet to be spoken about.

Emmanuel Korchman - Citigroup

Okay. On HCP's call, they talked about getting more comfort on Europe and that potentially being an area of focus for them in terms of transaction activity, whether it would be fee or the financing side. I'm just curious about, certainly you have global being in Canada, but would you have any interest and is that sort of transaction activity that you're working on?

Debra A. Cafaro

I would say that the exciting part of our business is that we have tremendous domestic opportunities that we think we will continue to take advantage of, but we also have the opportunity to go global. Many of the trends here obtain abroad as well and we have worked on international transactions over the past years and we have a high hurdle for those kinds of transactions, but we do work on them and we'll continue to do so, and if we find a transaction we think will provide good risk adjusted return and a channel for continued growth, then I think you will see us execute on that.

Emmanuel Korchman - Citigroup

Okay, great. Just last question, you have in your guidance this $34 million asset that's subject to a pre-existing purchase option arguably at a very high yield. Just remind us how many other assets or how much NOI or how much GAV potentially is tied to purchase options so that we're thinking about that piece of the enterprise correctly?

Debra A. Cafaro

We'll do, yes. That's an old NHP purchase option that we were aware of of-course when we acquired the company. We have a limited number of these purchase options. I do think what's important if you look at the press release is, we have that purchase option and then we had some loan repayments and other sales that were at about an 8.5% yield during 2013, and our ability to continue to grow and reinvest in the face of that I think is quite good and quite extraordinary. And so we don't have anything material at all other than the one that we called out in the press release.

Operator

Your next question comes from the line of Nick Ullico from UBS. Please go ahead.

Nick Ullico - UBS

Going back to the senior housing portfolio, could you just talk a little bit about, if I look at the stabilized same-store portfolio in the fourth quarter, occupancy was down about 50 basis points, could you just talk a little bit about what happened there?

Raymond J. Lewis

It's actually kind of a normal trend in the fourth quarter as you get to the holidays that people will not be moving their parents into seniors housing. I think the last couple of years as our portfolio has really outperformed the rest of the market, we bucked that trend, but this is a pretty normal trend that you would have, stable to declining occupancy slightly in the fourth quarter.

Nick Ullico - UBS

And then just turning back to the guidance…

Debra A. Cafaro

Nick, just for your question, the same store total sequentially was 91.6% to 91.7%.

Nick Ullico - UBS

Right, I was referring to the year-over-year being down in stabilized.

Debra A. Cafaro

Okay.

Nick Ullico - UBS

Actually I guess you raised occupancy quarter-over-quarter which – but I was wondering if there was something going on in the fourth quarter of 2012.

Debra A. Cafaro

I don't even think it's the same pool, so that's relevant as well.

Nick Ullico - UBS

Okay. Just going back to the guidance for this year, I think you said you expect rates to be up about 3% and you did 3.5% in 2013, and what I'm wondering is, as you're getting your occupancy up for your portfolio, what level of occupancy do you need to reach before you think you can push rates a little bit more? I mean on one hand I understand there's, if the industry has a certain amount of rate growth, that's been going on, but on the other hand I thought the story was that Europe properties, once they reach a certain level of occupancy, the Atria, Sunrise assets, that's when you could probably drive rate more. So I guess what I'm wondering is, how far off you guys think you are from that and why the rate growth in 2014 might be just a touch below what you did last year?

Raymond J. Lewis

Again, I think there's a lot of variables that go into creating our guidance. I would say our portfolio at approaching 92% occupancy is getting to the point where you can start to push rate and we have been doing that in markets where we have strength to do so. I would say that what I'm saying about guidance is really sort of a working assumption and is in fact a little bit higher than the working assumption we used for rates and guidance last year.

Nick Ullico - UBS

Okay, got you. And then just one last question is on the redevelopment that sort of as we think about the future redevelopment possibilities for the existing portfolio, what sort of dollar amount might be behind the – you have the $150 million underway in the operating portfolio today, I mean is there another $200 million, $300 million opportunity behind that with your existing portfolio or do you really need to do more redevelopment, do you really need to be buying more assets at this point?

Raymond J. Lewis

We've got a couple of hundred million dollars in the pipeline of redevelopment opportunities. There are still a number of attractive opportunities in the seniors housing operating portfolio that we haven't even begun to work on and then we've got our entire triple-net leased portfolio as well which we haven't mined to any material extent so far. And so that provides I think a very nice opportunity to go to our customers and markets where we think there are opportunities to invest in the assets and drive rate and occupancy, and that's going to be a big focus of ours this year.

Nick Ullico - UBS

Okay great, and I just want to make sure I heard correctly, when somebody asked about the redevelopment impact to same-store guidance this year, Ray, were you saying that it's actually it's going to be a reduction of NOI this year, or last year?. I was presuming it was more of a benefit.

Raymond J. Lewis

Remember Nick that we sort of – we've gone – we had a big amount of redevelopment a couple of years ago that we were undertaking. We moved through that. That provided a lot of growth in our portfolio. We shifted gears again this year. This year we did $100 million of redevelopment as Debbie described. We now have a couple of hundred million with another couple of hundred million in the pipeline. As you implement those redevelopment projects, you are taking units off-line, you are reducing NOI in those buildings, so that you can increase your growth rate in the future as you are able to refill those units at higher rates. So that's what that's all about.

Nick Ullico - UBS

Okay, got it. Alright, thanks everyone.

Operator

Your next question comes from the line of Jack Meehan from Barclays. Please proceed.

Jack Meehan - Barclays Capital

Good morning and happy Valentine's Day to you all too. So just to start out, is there anything else that you're seeing in terms of the SHOP occupancy growth in the fourth quarter? Obviously a 10 bps of improvement quarter-over-quarter but I would have expected a little bit more since I think we were using average occupancy and I would imagine that the third quarter ended at a higher level. So I guess that's the redevelopment that way on it or are you seeing anything else?

Raymond J. Lewis

I would say the redevelopment would have had a marginal impact on it in the fourth quarter. I don't really have any other observation and a seasonal trend around the holidays.

Jack Meehan - Barclays Capital

Okay. And then just to follow up on the Kindred re-leasing with the 60 [indiscernible] – thanks again for the additional details around the data points, that's great – I was curious of the talks around the long-term doc-fix are playing in the re-leasing discussions, and then how does the process play out after due diligence, is the next step rates and terms and then that gets us through October and then to the end of the year?

Debra A. Cafaro

First of all by the way congrats on your great call on Kindred, you've made investors a lot of money with their continued improvement. So in terms of process, what typically happens is there, as Ray said, diligence and site tours are done, you would be concurrently agreeing on financial terms and negotiating leases, and then once leases are signed, you go through the regulatory process.

Jack Meehan - Barclays Capital

Got you.

Raymond J. Lewis

I'm sorry, you asked about the impact of the doc-fix, we're not hearing anything from our potential tenants with respect to the doc-fix or other reimbursement changes. The properties continue to perform well and interest remains very high. I think with respect to the doc-fix, obviously there's a lot of uncertainty around the pay force and whether or not that would scuttle any kind of a deal in spite of the apparent savings that are embedded in the fix. So, we're not hearing anything from our tenants on that at this point.

Jack Meehan - Barclays Capital

Got you. And then maybe just a bigger picture question, as you're thinking about making new investments, if we get better visibility in the Medicare rates from the long-term fix, would that make you more excited about making new investments in skilled nursing?

Debra A. Cafaro

We are very consistent about our view in skilled nursing and what we've always thought is that it can be a very good risk-adjusted return investment if you do it out of good time in the cycle with a good operator and at the right pricing, and the right pricing would typically be where you may be coming out of the trough in Medicare reimbursement and looking, as you said, at better stability or even an overall multiyear increase in rates, that would obviously be ideal. They are low cost providers and important parts of the healthcare delivery system for seniors, and so we like that, but we do seem to – they do tend to have less visibility at all times around reimbursement and that has kept cap rates high.

So, whenever we feel like we have good visibility and sustainable cash flows, we certainly would be willing to invest a certain amount of capital into high-quality assets with good operators in markets where the operators have good ties to hospital discharge planners and commercial payers.

Jack Meehan - Barclays Capital

Got you, that makes sense. Thanks.

Operator

Your next question comes from the line of Jeff Theiler from Green Street Advisors. Please go ahead.

Jeff Theiler - Green Street Advisors

Can we talk a little bit more about the same-store stabilized senior housing NOI growth, and I'm just looking at 4Q 2013 over 4Q 2012 to take any seasonality issues out of it? It looks like the NOI growth of your stabilized same store pool was about just under 3% and that's, if you look back the last few quarters, that quarterly year-over-year growth rate has been kind of like 5%. Can you talk about this deceleration, what's going on there?

Raymond J. Lewis

Yes, I mean I think again going back to the fourth quarter of last year, we had a very strong fourth quarter of last year. I think occupancy was up 130 basis points sequentially and 360 basis points year-over-year. So I think there is a very strong comparison period there.

Jeff Theiler - Green Street Advisors

Okay. So I guess along those lines then, when you project out your guidance, I understand you're taking some properties off-line and that takes about $3 million away, so the properties that stay online, that are stabilized, what NOI – that you are not doing any readout for, what NOI growth would you expect from that pool within your guidance?

Raymond J. Lewis

3% to 5%.

Jeff Theiler - Green Street Advisors

3% to 5% on just the stabilized stuff that you're not doing any readout for?

Raymond J. Lewis

Yes.

Jeff Theiler - Green Street Advisors

Okay. So shifting gears slightly to the supply, the data that you've put in there – and by the way, sorry, let me comment that I really appreciate the enhanced disclose, it's very helpful and it's really well done – on the supply data, you use a three-mile radius, is that the right number to be using when we think of competition coming into the market? I mean why is it three miles versus five miles and how do you come up with that number?

Raymond J. Lewis

I mean I think we use a three-mile radius because all of our properties or substantially all of our properties in our seniors housing operating portfolio are in [indiscernible] infill urban and suburban locations where a three-mile ring is going to encapsulate a lot of population density. I think some markets may be a little more, some markets may be a little less, depending upon the density, but we believe this is a pretty good proxy given the composition of our portfolio.

Jeff Theiler - Green Street Advisors

Okay, so it's primarily just because your properties are in dense markets and three mile is going to encompass a lot of that population?

Raymond J. Lewis

That's right.

Jeff Theiler - Green Street Advisors

Okay. Alright, one last thing, on your new coverage tables, the triple-net leased coverage tables, if you were to put that on an EBITDARM basis using the standard assumptions that some of the other REITs use in terms of management fees, what percent of your NOI would you anticipate being at 1 or below on a coverage basis?

Debra A. Cafaro

I mean first of all you have to look at the different asset types. In general in senior housing for example, if you look at profitability, that would move by maybe 5 to 15 basis points. Skilled nursing as you know is a little bit more because of the margins in that business. I think the important thing to note as we look at EBITDARM, and that is the most powerful way that operators look at coverages because there tends to be profit in that so-called managemency incrementally, so it really – it moves it again depending on the margin of the asset type, maybe 10 basis points on senior housing and maybe 20 basis points, 30 basis points on skilled, and so substantially all of the portfolio is very reliable on that basis.

Jeff Theiler - Green Street Advisors

Okay, thank you very much.

Operator

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

Richard C. Anderson - BMO Capital Markets

Just a couple of quick ones and then kind of a bigger picture one. On the purchase option, the 11.2 NOI yield, for modelling purposes, is that what the cap rate we should use or should we use a larger or a smaller number, that's the lease yield, in other words the rent?

Debra A. Cafaro

That's a GAAP lease yield, that's what you should use for your model.

Richard C. Anderson - BMO Capital Markets

Okay, thank you. And then, Ray, you mentioned $3 million of NOI comes out because really it's a redevelopment in the same-store analysis, but doesn't that also come out in the prior year or is that just one end of the equation, so you actually do see it [indiscernible]?

Raymond J. Lewis

If we had a steady-state pipeline, Rich, that would be true, but because the pipeline is growing, the incremental impact of growing the pipeline is the $3 million.

Richard C. Anderson - BMO Capital Markets

So it's a net decline of $3 million from one period to the other period?

Raymond J. Lewis

Yes.

Richard C. Anderson - BMO Capital Markets

Okay. I was going to ask the three-mile question but I was going to ask it a little bit differently. Do you have any statistics if you used five or 10 miles, what the difference would be or have you done that analysis?

Debra A. Cafaro

We look at three miles as being the most appropriate radius for the reasons that Ray stated. Staten Island, probably a-tenth of a mile for example, where we have our Sunrise asset. So it seems like an appropriate trade area and so that's why we focus on it.

Richard C. Anderson - BMO Capital Markets

Right, but I mean did you do the analysis for five miles and come up and do you have that number or did you just not go that way?

Debra A. Cafaro

We did the analysis for three miles.

Richard C. Anderson - BMO Capital Markets

Only three miles, okay. I was looking at the disclosure, and I agree it's excellent and thank you for this, but I do have a question on the same-store analysis on Slide 3, and a lot of moving parts in terms of the number of properties that are in the same store operating pool, the fourth quarter, and then there is a lesser number for the full year, would you give any thought going into 2014? I'm just keeping it static so we don't have a lot of these redevelopment questions and all that noise that kind of entered into the equation?

Debra A. Cafaro

I think on Page 3, it is the total. I'll confirm that here with my colleagues, but…

Richard C. Anderson - BMO Capital Markets

The same-store portfolio up-top.

Debra A. Cafaro

Yes, those are the same – those include everything because that's really I think at the end of the day the most useful.

Richard C. Anderson - BMO Capital Markets

Okay. So I see 195 properties in the Atria Sunrise and 197…

Debra A. Cafaro

That were owned the whole year of – this is an annual because we're doing the year-end call, it's annual, those are all the properties that were owned in that portfolio for the full year of 2012 and the full year of 2013?

Richard C. Anderson - BMO Capital Markets

So why is it 197 in the top table then?

Debra A. Cafaro

We have two non-Atria, non-Sunrise assets that are in the materials, that why.

Richard C. Anderson - BMO Capital Markets

Okay, that's it. Okay, thank you for that. And then finally, the question on the guidance for the SHOP portfolio, 4% to 6%, what will be the factors to move it to the lower end or the higher end of that range? I know you're probably going to say, we are targeting 5%, but what would be a situation to go to 4%?

Debra A. Cafaro

We actually have that in here, we don't have to tell you.

Raymond J. Lewis

So Rich, as you know there are an unlimited number of like permutations you get on this…

Richard C. Anderson - BMO Capital Markets

Just give me the top two, give me the top two.

Raymond J. Lewis

Probably the best thing to do is just isolate some variables and use those purely as the driver. So if occupancy was the only driver, you could go plus or minus 100 basis points on either side to stay in there – to get to the top and the bottom of the range or…

Debra A. Cafaro

If all else being the same, ceteris paribus.

Raymond J. Lewis

Ceteris paribus, yes.

Debra A. Cafaro

All else being equal.

Raymond J. Lewis

I'm going to give you some corners of the back.

Richard C. Anderson - BMO Capital Markets

Okay, go ahead.

Raymond J. Lewis

If you isolate REVPOR, a 1% swing on either side would get you to the top or the bottom and then 50 basis points on expenses on either side.

Debra A. Cafaro

We got to keep rolling guys just so everybody has a chance to ask their question. Thank you.

Richard C. Anderson - BMO Capital Markets

I'm done. Thank you very much. Happy Valentine's.

Operator

The next question comes from the line of Tayo Okusanya from Jefferies. Please proceed.

Tayo Okusanya - Jefferies

Good morning everyone, also happy Valentine's Day. I just wanted to understand the senior housing operating platform, same-store NOI growth in 2013, when I look at all the quarterly numbers you're kind of in the low to mid 6s, but the year price is 5.6%. I know there were some tax credit issues from 2012 that creates some comparability issues but just wanted to kind of understand what the real number was on an apples-to-apples basis?

Debra A. Cafaro

Okay, so if you look at the same-store portfolio on a cash basis, full year to full year it's a 6% growth rate in NOI.

Tayo Okusanya - Jefferies

It's a 6% [indiscernible], and that is just for the tax credit issue from 2012?

Debra A. Cafaro

It's just straight-up as-reported. If you look on the top of Page 3, that's the 6% number as-reported. There are no adjustments in that number for the full year.

Tayo Okusanya - Jefferies

Got it. Okay, that's helpful. Then the second question was along Michael's line of question about acquisitions, we kind of saw [indiscernible] do this very interesting deal in Boston, kind of curious whether you looked at it, again it's high-quality asset, it's MOBs, it's life sciences which we expect an interest in, and just kind of curious about your appetite for those kind of transactions going forward.

Debra A. Cafaro

As one of the kind of leading investors in healthcare and senior housing properties, I think you really should assume that our team is kind of out there looking at pretty much everything, and as I talked about with Michael, I think we are very confident about our ability to execute this year on the investment front and we do have this great opportunity to look at different sub-segments and rotate capital to where we think we will create value through increasing cash flows at our acquisitions and/or increasing multiples.

Tayo Okusanya - Jefferies

Great, all right. Let me also just thank you all for the additional disclosure, I think it's fantastic.

Debra A. Cafaro

Our young guys are getting a big head here listening to all the [indiscernible], but they deserve it, thank you.

Operator

Next question comes from the line of Daniel Bernstein from Stifel. Please go ahead.

Daniel Bernstein - Stifel Nicolaus

Happy snowy Valentine's Day at least on the East Coast, and I reiterate it what everybody said, the disclosure is very helpful. The only question I have on the supplemental is, when you – and don't roll your eyes, I'm not asking about SHOP stabilized anymore – but I'm just asking about the definition of SHOP stabilized. Does that include redevs or is it – what's your definition of stabilized when you do a redevelopment for Atria? Are the redevs in stabilized?

Raymond J. Lewis

No, those would be separated out. Once the property exceeds 90% occupancy and stabilizes, then it would be moved out of redevelopment and into the stable portfolio.

Daniel Bernstein - Stifel Nicolaus

Okay. Does it matter what kind of redev you do, like if you close a big part of the wing or if it's a smaller portion, or just all redevs are out of stabilized?

Debra A. Cafaro

In general, it has to be material to get moved into redev and then once it's in redev, as Ray said, once it gets stabilized it gets into stable.

Daniel Bernstein - Stifel Nicolaus

Okay. And then also on the SHOP portfolio, looks like expenses jumped up in the quarter, I'm not sure if you addressed this earlier in the call or not, I may not have heard it, but I just wanted to understand…

Debra A. Cafaro

No, we didn't. I mean as Ray said, in the third quarter typically repair and maintenance and other type of expenses where the operators have budgets for the whole year that get under-spent early in the year, tend to get lumpy in the fourth quarter. We saw some of that, which again is pretty consistent with our experience and expectation.

Daniel Bernstein - Stifel Nicolaus

Okay, so would that $50 million or so of maintenance CapEx be a good number for 2014 and expected to stay about the same level or is it unusually high a little bit?

Debra A. Cafaro

What number you're referring to?

Daniel Bernstein - Stifel Nicolaus

The maintenance CapEx, the recurring CapEx in the SHOP portfolio.

Debra A. Cafaro

In here?

Daniel Bernstein - Stifel Nicolaus

Yes, I think it was like $65 million for the year. Where did I miss?

Raymond J. Lewis

Well, obviously we've added more units into the portfolio, so it's going to increase. It's about 2,000 units and that's in the ballpark.

Debra A. Cafaro

2050.

Daniel Bernstein - Stifel Nicolaus

Okay, just checking.

Debra A. Cafaro

I think it's a little lower than your number.

Daniel Bernstein - Stifel Nicolaus

All right, that's good. That's all I have. Thank you very much.

Debra A. Cafaro

We have time for just two more questions and who's next in line?

Operator

The next question comes from the line of Karin Ford from KeyBanc Capital Markets. Please go ahead.

Karin Ford - KeyBanc Capital Markets

Deb, can you please comment on the media reports about potential merger discussions with another large healthcare REIT, what would be the rationale for a potential combination like that?

Debra A. Cafaro

Okay, first of all we do not comment on rumors and that's our policy and we'll continue to follow that. I have had discussions with investors and happy to do so on a hypothetical basis. Every transaction has pros and cons, public to public mergers have pros and cons obviously. The true value of any transaction will depend upon what its financial terms are and then what the strategy, the team and the prospects for continued growth would be on – and synergies on a go forward basis. And at the end of the day, any public to public merger is a very, very low probability but there are pros and cons in terms of investment pieces, but at the end it all depends on the factors that I outlined.

Karin Ford - KeyBanc Capital Markets

Thanks for that. Do you see any benefits to having any – to have an even greater scale than you currently have today?

Debra A. Cafaro

I would say that the following, that some of the benefits of scale include ratings and cost of debt which are very highly correlated with the size and scale and diversification, and I would also say that if you think about healthcare REIT, I've always thought of us as kind of a third real estate, a third healthcare, a third finance, and typically to the extent that there is a finance component to the company, those companies do tend to benefit from scale. So that's how I would characterize it, Karin.

Operator

Your next question comes from the line of Todd Stender from Wells Fargo. Please proceed.

Debra A. Cafaro

All right, so I do that and clean up this morning.

Todd Stender - Wells Fargo

Thank you. Most of my questions have been answered but just a couple of big picture questions. I was hoping to hear your comments in general on the public non-trade REIT space. You mostly hear this group in the net leased sub-sector as a potential M&A target, but the numbers of entrants have definitely increased within healthcare. Are these large portfolios on your radar to acquire and really what are your general comments on the potential for increasing competition from these well-funded buyers?

Debra A. Cafaro

So you're talking about the non-traded REITs, I mean I think – as I said, our sector is large, it's growing, it's highly fragmented and there are lots of opportunities and we have always been – we have a track record of having executed our growth strategy in a very compelling way and we feel confident about our ability to continue to do that. Because of the attractiveness of our sector, I would say we've always had competition, that competition takes different forms in different times of the market, and our job is to see where the value creation opportunities are in any given market and that's where we are focused on for 2014.

Todd Stender - Wells Fargo

Okay, thanks. Then just one last quick one, just regarding the ATM, how do you determine the price to sell at? Do you guys look at it tied to NAV or spread to investment for new investments and how much of volume is assumed in your guidance for this year?

Debra A. Cafaro

We do not assume any additional capital raises in our guidance and we always view our shareholders' equity as a very precious resource and we hope to use that wisely and we use a variety of factors, including use of proceeds as a principal one, in determining how, when and what form of capital to raise, and we do believe that having excellent capital market raising capabilities is one of the most important things we can do as a successful acquisition and investment firm.

Todd Stender - Wells Fargo

Okay. Thank you very much.

Debra A. Cafaro

Thank you. So, we are going to close the call and I want to once again thank everyone for their interest in our Company and I can honestly say that with the strong relationships, our team, our cost of capital, our balance sheet, our track record and our focus, I am as excited about the future of Ventas as I was 15 years ago when I joined. We really look forward to seeing all of you in Florida and hope you have a great weekend. Thank you.

Operator

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!